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October 21, 2010

Investing Styles

The two basic investing styles are growth and value. While one style tends to perform better at any given time, the dominant style varies over time. The basic elements of each style include:

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July 25, 2010

Why Asset Allocation Strategies Are Necessary

Your asset allocation strategy represents your personal decisions about how much of your portfolio to allocate to various investment categories, such as stocks, bonds, cash, and other alternatives. When stock market returns were above average for an extended period, investors did not have much interest in asset allocation. Then, the best strategy seemed to be to only own stocks. But with the stock market volatility of the past several years, investors are again focusing on asset allocation. Some of the advantages of an asset allocation strategy include:

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May 25, 2010

When to Rebalance Your Portfolio

Simply put, rebalancing a portfolio means restoring it to your long-term asset allocation plan so that you get back on track with the risk/reward strategy that meets your goals and risk tolerance. This allows you to systematically follow an important investment strategy that many investors find difficult to accomplish -- buy low and sell high.

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March 24, 2010

Asset Allocation Revisited

No one enjoys the recent market fluctuations. But if these fluctuations have caused you extreme discomfort, then it's probably time to reassess your asset allocation. To do so, follow these four steps:

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July 13, 2009

Buying Stocks When Prices are Low

For some investors, a long or steep decline in the price of a stock is a signal to beware. For others, it's a temptation to pick up a bargain at a steep discount and make a handsome profit when the stock rebounds. In practice, it takes a lot of savvy to accomplish. Here are a few tips that will help you know when and when not to buy stocks.

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March 6, 2009

The Balance Between Risk and Return

One of the most basic investment principles is that returns reward you for the risks that you take. While investors are often uncomfortable with the concept of risk, it is this uncertainty that makes higher rates of return possible. Below are some basic investment principles related to risk and return:

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March 4, 2009

Does the Buy and Hold Strategy Still Make Sense?

We all know the basics -- design an asset allocation plan, ignore market fluctuations, and stick with the plan for the long term. In other words, become a buy-and-hold investor. But in an era where everything seems to change overnight, is it realistic to expect to find investments you'll be comfortable owning for years or even decades?

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February 3, 2009

The Basics of Asset Allocation

The theory behind diversification, or asset allocation, is to spread your investments across different asset classes to help protect your portfolio from downturns in any one asset. Diversification is a defensive strategy -- it is meant to protect your portfolio during market downturns and to reduce your portfolio's volatility.

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January 10, 2009

Investment Portfolio Mistakes

Investing is a gradual process -- purchasing some investments and selling others as the years go by. After a period of years, this can result in a mixture of investments that don't fit your overall investment strategy. Thus, periodically review your portfolio, watching out for these common mistakes:

Continue reading "Investment Portfolio Mistakes" »

December 8, 2008

Currency Fluctuations and Foreign Investments

An international investment's return is based on two factors -- the investment's return in its local currency plus currency fluctuations. For example, suppose you purchase a British stock whose price increases 10% in one year in terms of British pounds. If, during that same year, the British pound increased in value by 5% compared to the U.S. dollar, your total return would be 15% -- 10% from the investment's return and 5% from currency fluctuations. However, if the British pound decreased by 5%, your total return would be 5%.

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September 24, 2008

What is the Smartest Money Doing?

Warren Buffett is one of the richest men in America. His investment expertise has put billions in his own pockets and made many millionaires out of those who invested in his primary investment vehicle, Berkshire Hathaway (NYSE: BRK-A). Buffett's track record of successful gains while avoiding big losses is among the best in the world. So what is Warren Buffett buying now? He's buying investment banks. That's right, in the middle of what may be the worst banking crisis in the last 75 years, the man who is arguably the greatest living stock-picker is putting his money in investment banking. According to Bloomberg, he is purchasing $5 billion in perpetually preferred stock in Goldman-Sachs (NYSE: GS). This preferred stock has a guaranteed 10% annual dividend. That means Warren Buffett will make a half billion dollars every year that he holds this investment if the value of the shares don't change at all. Of course, Goldman-Sachs maintains the option to buy the shares back from Buffett at any time - so long as they add a 10% kicker on top of the current value.

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August 14, 2008

Benefits of Low-Correlated Assets

At first glance, asset correlation may seem like a complex topic. However, it is important to understand the concept and how it affects your portfolio. By combining assets with low correlation, you can potentially improve portfolio returns while reducing risk.

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June 4, 2008

Bond Strategies Over Your Lifetime

A common misconception regarding bonds is that they are only appropriate for older or more conservative investors. However, bonds should be considered by all investors as part of a well-diversified portfolio, even though their role may change over your lifetime.

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May 9, 2008

Asset Allocation Strategy

Perhaps the most important move you can make for your investments is to properly diversify your portfolio. By investing in a mix of stocks, bonds, and cash, you'll reduce the risk of a significant loss.

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January 4, 2008

What Is Dollar Cost Averaging

If you find it difficult to decide when to invest, consider a dollar cost averaging strategy. Dollar cost averaging involves investing a set amount of money in the same investment on a periodic basis. For instance, instead of investing $48,000 in one stock immediately, you might decide to invest $4,000 in that stock at the beginning of each of the next 12 months. Thus, you don't need to think about when to invest. You just follow your strategy and continue to invest on a periodic basis.

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July 16, 2007

Investor Mistakes

When making decisions about your investment portfolio, try to avoid these common investor mistakes:

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June 8, 2007

Monte Carlo Analysis

A Monte Carlo simulation is a complex mathematical process that estimates the probability of reaching specific goals in the future. This method is often used to determine the probability that your investments will last for a certain number of years during retirement.

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March 9, 2007

Have You Rebalanced Your Portfolio

When you developed your asset allocation strategy you did it for a reason. You wanted to control your portfolio’s risk by deciding how to allocate among different asset classes. However, your portfolio will not stay within that allocation by itself. Since different investments earn different rates of return, over time your allocation will get out of line. Thus, you need to review your portfolio periodically and make adjustments to rebalance it.

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February 5, 2007

Implications of Investment Theory

Many investment principles used to develop investment portfolios derive from one investment theory: the capital asset pricing model. What exactly is the capital asset pricing model, and how does it apply to your particular investments?

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January 22, 2007

Asset Allocation Tips

Unfortunately, there is no one asset allocation plan that is suitable for all investors. You need to evaluate your risk tolerance, time horizon for investing, and return needs to determine how you should allocate your portfolio among the various investment categories. To help you with those decisions, consider the following ten points:

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December 13, 2006

What Are American Depository Receipts

American Depository Receipts (ADRs) are the form in which foreign stocks trade on U.S. stock exchanges. An ADR is a negotiable certificate issued by a U.S. bank (the depositary), representing shares of a foreign stock. The original foreign stock certificates are owned by the bank and held in the issuer’s country. Each ADR can represent a multiple or fraction of the original foreign stock. This ratio is set by the depositary so the ADR’s price falls within a range considered typical for U.S. stocks. ADR's offer several benefits for individuals wanting to purchase stocks on foreign stock exchanges.

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November 17, 2006

Stick With Your Investing Strategy

We all know the basics — design an asset allocation plan, ignore market fluctuations, and stick with the plan for the long term. In other words, become a buy-and-hold investor. But in an era where everything seems to change overnight, is it realistic to expect to find investments you will be comfortable owning for years or even decades?

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October 29, 2006

The Loser's Game

Warren Buffett, perhaps the greatest investor alive today, has an amusing way to describe his rules for investing:
Rule #1 — never lose money
Rule #2 — don’t forget rule #1

Although this may seem like an overly simple and conservative way to succeed, I hope to show you that these simple rules hold the key to successful investing for the vast majority of people: understand when you are playing a loser’s game and then play accordingly.

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October 11, 2006

Stock Allocation

Your asset allocation mix represents your personal decisions about how much of your portfolio to allocate to various investment categories, such as stocks, bonds, and cash. How much you allocate to each category depends on your financial objectives and personal circumstances. However, it is a percentage that is likely to change over time. As your needs for safety of principal and a steady income stream become more important, the percentage of stocks you own is likely to decrease. Some factors to consider when deciding how much to allocate to stocks include:

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September 12, 2006

Reviewing a Company's Annual Report

Whether you’re researching a stock to purchase or monitoring a stock you own, the company’s annual report should be central to your analysis. Annual reports contain a wealth of financial information, which can provide significant insight into a company’s operations and future prospects.

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September 7, 2006

Should You Favor Growth or Value Investing

The two basic investing styles are growth and value. While one style tends to perform better at any given time, the dominant style varies over time. The basic elements of each style include:

Continue reading "Should You Favor Growth or Value Investing" »

August 10, 2006

Steps for Global Investing

If you want to invest in international investments, you may want to consider a systematic approach. Some of the steps include: the percentage of your portfolio to allocate to international investments; whether you want to invest based on countries or companies; familiarity with the available investment options; risks involved in international investing; and reviewing and monitoring your investments.

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August 8, 2006

Why Consider International Investing

During the 1990s, the U.S. stock market significantly outperformed international stock markets. Never a particularly large percentage of U.S. investment portfolios, international investments drew even less attention during that time. Due to the significant volatility in the U.S. stock market over the past several years, is now the time to take another look at international investments? Before deciding, consider the answers to these questions on the subject:

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July 26, 2006

1031 Exchanges, A Tax-Deferred Real Estate Strategy

When the time comes to sell your real estate, some owners of highly appreciated real estate could be staring at a substantial capital-gains tax bill. A section of the Tax Code may help you convert your appreciated property into an income stream—while deferring up to 100% of the capital-gains tax that would otherwise be due on the sale.

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May 15, 2006

Take the Emotion Out of Selling

Selling an investment can be an emotional decision, especially if the investment has experienced a loss. Many investors can’t stand the thought of selling at a loss, preferring to wait until the investment rebounds to the breakeven point. However, the investment may not rebound to that level or may take a very long time to do so. In the meantime, you could have been invested in other alternatives with better prospects.

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May 14, 2006

Keeping Your Expectations in Line

When designing an investment program, your expected rate of return is a critical element in determining how much to invest to meet a future goal. Since no one can predict future returns, the expected rate of return is typically estimated based on an analysis of past returns for various investments.

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May 11, 2006

The Benefits of Dollar Cost Averaging

Dollar cost averaging involves investing a set amount of money in the same investment on a periodic basis. Since a fixed amount of money is being invested, more shares are purchased when prices are lower and fewer shares are purchased when prices are higher. Of course, whether dollar cost averaging produces a higher return than investing a lump sum immediately depends on whether the investment’s price rises, declines, or fluctuates over the investment period.

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April 17, 2006

Why Is Asset Allocation Important?

The theory behind asset allocation is to spread your investments across different asset classes to help protect your portfolio from downturns in any one asset. Since different investments are affected differently by economic events and market factors, owning different types of investments helps reduce the chances that your portfolio will be adversely affected by a particular risk type. Does asset allocation really accomplish this goal?

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October 11, 2005

The Basics of 1031 Real Estate Property Exchanges

If you have business or investment property you’d like to sell, take a look at the 1031 exchange rules before doing so. These rules allow you to sell one property and purchase another of “like kind”, deferring any gains. “Like kind” means the property must be used for business or investment purposes, which could include apartment buildings, office buildings, industrial buildings, commercial buildings, rental housing units, raw land, farms, and ranches. You do not have to sell and buy the exact same type of property. Thus, you could sell undeveloped land and purchase a commercial building, deferring the gain. Or you could sell the building used in your business and purchase an apartment complex, again deferring the gain.

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September 12, 2005

Investing in Foreign Stocks at Home

Looking for a way to invest in specific foreign companies without learning all the intricacies of other countries’ stock markets? You may want to consider American Depositary Receipts (ADRs).

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June 14, 2005

Taxes and Investing Strategies

One of your portfolio’s largest expenses is probably taxes. Ordinary income taxes on short-term capital gains and interest income can go as high as 35%, while long-term capital gains and dividend income are taxed at rates not exceeding 15% (5% if you are in the 10% or 15% tax bracket). One way to help keep your portfolio growing is to invest in a tax-efficient manner. Some suggestions include:

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Make Rebalancing Your Portfolio A Habit

We all know we should rebalance our portfolios periodically to ensure they stay in line with our targeted asset allocation. Why, then, is it so difficult for us to do this? The primary reason is that rebalancing goes against our basic instincts. With rebalancing, you are generally selling those investments performing well to purchase those that are underperforming, which just doesn’t seem to make sense. It might help to remember that by rebalancing, you are following a fundamental investment principle — you are buying low (those investments that are underperforming) and selling high (those investments that are performing well).

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April 16, 2005

Time to Rebalance Your Portfolio

With an asset allocation strategy, you can’t just allocate assets in your portfolio once and then forget about your portfolio. Over time, your actual asset allocation will stray from your desired allocation because different investments in your portfolio will experience different rates of return. At least annually, review your portfolio to see if changes are needed to bring your allocation back in line. Some factors to consider include:

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March 13, 2005

Diversifying All Your Assets - Income, Home, & More

When asked how their assets are diversified, most people respond by indicating how much of their portfolio is divided between stocks, bonds, and cash. But looking at your overall financial diversification means more than simply looking at your investment portfolio — you need to examine all your assets. Some items to consider include:

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February 1, 2005

Using Diversification to Control Portfolio Volatility

The past few years have taught investors the meaning of volatility in investing. While investors weren’t that concerned about volatility before 2000, when it worked to their advantage, the negative volatility of the past few years has been much tougher to deal with.

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January 15, 2005

Reevaluating Your Investment Portfolio

Periodically, you should thoroughly review your portfolio to ensure it is still helping you work toward your investment goals. Follow these steps during that review:

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October 12, 2004

Focus on Investment Fundamentals

When faced with all the decisions that need to be made to ensure you select the proper investments to meet your long-term financial goals, it's easy to become overwhelmed. How do you choose the right combination of investments to help you reach a goal that may be decades away? The answer is to focus on the fundamentals. Make sure to get these basics right:

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September 12, 2004

Dealing with Current Rising Interest Rates & Interest Rate Risk

With interest rates still at historically
low levels and the economy picking up steam, the Fed has started
to raise interest rates. The question now is by how much and how
quickly the Fed will increase interest rates. The answer is especially
pertinent to bond investors who will find their bond values decreasing
as interest rates increase. But don't totally abandon bonds just
because their values may decrease in the near term. There are
still valid reasons to hold bonds in your portfolio.

Continue reading "Dealing with Current Rising Interest Rates & Interest Rate Risk" »

July 14, 2004

Consider Dollar Cost Averaging to Reduce Investment Volatility

We all know we should buy low and sell high, but determining when that occurs is difficult. Thus, consider using a strategy like dollar cost averaging to help with those decisions.

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Watch Out for These Investing Mistakes

Investing is a gradual process - purchasing investments and selling others as the years go by. After a period of years, this can result in a mixture of investments that don't fit your overall investment strategy.

Continue reading "Watch Out for These Investing Mistakes" »

May 1, 2004

When Selling Investments, Don't Make These Mistakes

An important part of any investment strategy is to develop a methodology for ultimately selling your investments. Unfortunately, many investors sell based on emotional factors, making one of several mistakes:

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August 1, 2003

The Investment Sell Decision

For many investors, the only decision more difficult than which investment to purchase is when to sell that investment. Although there are no hard and fast rules, consider these general guidelines:

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Dealing with the Possibility of Lower Investment Returns

When designing an investment program, your expected rate of return is a critical element in determining how much to periodically invest to meet a future goal. Since no one can predict future returns, the expected rate of return is typically estimated based on an analysis of past returns for various investments. So what return can you expect in the future for stock investments? The average annual return for the Standard & Poor's 500 (S&P 500) for the period from 1926 to 2002 was 10.2%*, but you don't want to simply use that return without determining whether it is a reasonable return for the future.

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June 1, 2003

Getting Your Investment Portfolio Back On Track

The recent market declines have been steeper and of longer duration than many expected, making it difficult to determine how to adjust your portfolio. Should you leave it alone, hoping the market will quickly rebound to much higher levels? Or should you sell everything and put your money in cash accounts? The appropriate answer probably lies somewhere between those two extremes. What you should do is thoroughly review your portfolio. Consider these tips when analyzing your portfolio:

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May 1, 2003

When Did You Last Rebalance Your Portfolio?

These days, many people don't even want to look at their portfolio, let alone think about rebalancing it. But you developed an asset allocation strategy for a reason -- you wanted to control the risk in your portfolio by deciding how to allocate among different asset classes. Your portfolio won't stay within that allocation by itself. Since different investments earn different rates of return, over time your allocation will get out of line. To keep your allocation in line, you need to review your portfolio periodically and make adjustments to rebalance it.

Continue reading "When Did You Last Rebalance Your Portfolio?" »

Should You Invest Globally?

For much of the 1990s, the U.S. stock market significantly outperformed international stock markets. Never a particularly large percentage of U.S. investment portfolios, international investments drew even less attention during this time. But the U.S. stock market has experienced its third consecutive year of negative returns, with many expecting U.S. stocks to encounter below-average returns in the future. Is now the time to take another look at international investments? Before deciding, consider the following:

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