Category

News

How to Use Your Goals to Create a Successful New Year Investment Strategy

By | News | No Comments

We often think of investment goals in terms of a single investment strategy, but in truth they really require several strategies, each tailored based on the specific goal. Not all financial goals can be met with a single investment strategy. And with the New Year upon us, the one size fits all often becomes one size fits none when it comes to reaching financial goals. Here’s how to use your goals to create a successful investment strategy.

Read More

What is an Investment Fund

By | News | No Comments

An investment fund is a supply of capital belonging to numerous investors used to collectively purchase securities while each investor retains ownership and control of his own shares. An investment fund provides a broader selection of investment opportunities, greater management expertise and lower investment fees than investors might be able to obtain on their own. Types of investment funds include mutual funds, exchange-traded funds, money market funds and hedge funds.

Read More

Safe Havens Explained

By | News | No Comments

A safe haven is an investment that is expected to retain or increase in value during times of market turbulence. Safe havens are sought by investors to limit their exposure to losses in the event of market downturns. However, what appears to be a safe investment in one down market could be a disastrous investment in another down market, and so the evaluation of safe haven investments varies, and investors must perform ample due diligence.

In the days of dotcom mania, investors could throw money into an IPO and be almost guaranteed killer returns. Many companies like VA Linux and theglobe.com experienced huge first-day gains, but ended up disappointing investors in the long-run.

Read More

Risk to Reward – Why it’s so Important

By | News | No Comments

Many investors use a risk/reward ratio to compare the expected returns of an investment with the amount of risk they must undertake to earn these returns. Traders often use this approach to plan which trades to take, and the ratio is calculated by dividing the amount a trader stands to lose if the price of an asset moves in an unexpected direction (the risk) by the amount of profit the trader expects to have made when the position is closed (the reward).

In the days of dotcom mania, investors could throw money into an IPO and be almost guaranteed killer returns. Many companies like VA Linux and theglobe.com experienced huge first-day gains, but ended up disappointing investors in the long-run.

Read More

Importance of Diversification

By | News | No Comments

Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries, and other categories. It aims to maximize returns by investing in different areas that would each react differently to the same event.

Read More

Dividend Paying Stock

By | News | No Comments

A dividend is the distribution of reward from a portion of the company’s earnings and is paid to a class of its shareholders. Dividends are decided and managed by the company’s board of directors, though they must be approved by the shareholders through their voting rights.

In the days of dotcom mania, investors could throw money into an IPO and be almost guaranteed killer returns. Many companies like VA Linux and theglobe.com experienced huge first-day gains, but ended up disappointing investors in the long-run.

Read More

Retirement Planning

By | News | No Comments

Retirement is when a person chooses to leave the workforce. The concept of full retirement – being able to permanently leave the workforce later in life – is relatively new, and for the most part only culturally widespread in first-world countries.

In the days of dotcom mania, investors could throw money into an IPO and be almost guaranteed killer returns. Many companies like VA Linux and theglobe.com experienced huge first-day gains, but ended up disappointing investors in the long-run.

Read More

Investing in IPOs

By | News | No Comments

An initial public offering (IPO) is the first time that the stock of a private company is offered to the public.

In the days of dotcom mania, investors could throw money into an IPO and be almost guaranteed killer returns. Many companies like VA Linux and theglobe.com experienced huge first-day gains, but ended up disappointing investors in the long-run.

Read More

Managing a Portfolio of Stocks

By | News | No Comments

Too many young people rarely—if ever—invest for their retirement years. Some distant date, 40 or so years in the future, is hard for many young people to imagine. But without investments to supplement retirement income (if any), when these people become retirees, they’ll have a difficult time paying for life’s necessities.

Stocks Basics

Smart, disciplined, regular investments in a portfolio of diverse holdings can yield good, long-term returns for retirement and provide additional income throughout an investor’s working life.

One of the reasons most often given for not investing is a lack of knowledge and understanding of the stock market. This objection can be overcome through self-education and step-by-step through the years because investors learn by investing. Classes in investing are also offered by a variety of sources, including city and colleges, civic groups, and not-for-profit organizations, and there are numerous books aimed at the beginning investor.

But you’ve got to start investing now; the earlier you begin, the more time your investments will have to grow in value. Here’s a good way to start building a portfolio, and how to manage it for the best results.

Start Early

Start saving as soon as you go to work by participating in a retirement plan, if it’s offered by your employer. If a plan is not available, establish an Individual Retirement Account and earmark a percentage of your compensation for a monthly contribution to the account. An easy, convenient way to save in an IRA or company provided retirement plan is to create an automatic monthly cash contribution.

Keep in mind that savings accumulate and interest compounds without taxes only as long as the money is not withdrawn, and so it’s wise to establish one of these retirement investment vehicles early in your working life.

Early Higher Risk Allocation

Another reason to start saving early is that usually the younger you are, the less likely you are to have burdensome financial obligations—a spouse, children, and a mortgage, to name a few. Without these burdens, you can allocate a small portion of your investment portfolio to higher risk investments, which can return higher yields.

When you start investing while you’re young—before your financial commitments start piling up—you’ll probably also have more cash available for investments and a longer time horizon before retirement. With more money to invest for many years to come, you’ll have a bigger retirement nest egg.

An Exemplary Egg

To illustrate the advantage of value investing as soon as possible, assume that you invest $200 every month starting at age 25. If you earn a 7% annual return on that money, when you’re 65, your retirement nest egg will be approximately $525,000.

However, if you start saving that $200 monthly at age 35 and get the same 7% return, you’ll only have about $244,000 at age 65.

Diversify

The idea is to select stocks across a broad spectrum of market categories. This is best achieved through an index fund. Aim to invest in conservative stocks with regular dividends, stocks with long-term growth potential, and a small percentage of stocks with better returns or higher risk potential.

If you’re investing in individual stocks, don’t put more than 4% of your total portfolio into one stock. That way, if a stock or two suffers a downturn, your portfolio won’t be too adversely effected.

Certain AAA-rated bonds are also good investments for the long term, either corporate or government. Long-term U.S. Treasury bonds, for example, are safe and pay a higher rate of return than short- and mid-term bonds.

Keep Costs to a Minimum

Invest with a discount brokerage firm. Another reason to consider index funds when beginning to invest is that they have low fees. Because you’ll be investing for the long-term, don’t buy and sell regularly in response to market ups and downs. This saves you commission expenses and management fees and may prevent cash losses when the price of your stock declines.

Discipline and Regular Investing

Make sure that you put money into your investments on a regular, disciplined basis. This may not be possible if you lose your job, but once you find new employment, continue to put money into your portfolio.

Asset Allocation and Re-Balancing

Assign a certain percentage of your portfolio to growth stocks, dividend paying stocks, index funds, and stocks with higher risk but better returns.

When your asset allocation changes (i.e., market fluctuations change the percentage of your portfolio allocated to each category), re-balance your portfolio by adjusting your monetary stake in each category to reflect your original percentage.

Tax Considerations

A portfolio of holdings in a tax-deferred account—a 401(k), for example—builds wealth faster than a portfolio with tax liability. But remember, you pay taxes on the amount of money withdrawn from a tax deferred retirement account.

A Roth IRA also accumulates tax free savings, but the account owner doesn’t have to pay taxes on the amount withdrawn. To qualify for a Roth IRA, your modified adjusted gross income must meet IRS limits and other regulations. Earnings are federally tax free if you’ve owned your Roth IRA for at least five years and you’re older than 59.5, or if you’re younger than 59.5, have owned your Roth IRA for at least five years, and the withdrawal is due to your death or disability—or for a first time home purchase.

The Bottom Line

Disciplined, regular, diversified investments in a tax deferred employer provided, IRA or a potentially tax-free Roth IRA, and smart portfolio management can build a significant nest egg for retirement. A portfolio with tax liability, dividends, and the sale of profitable stock can provide cash to supplement employment or business income.

Managing your assets by re-allocation and keeping costs (such as commissions and management fees) low, can produce maximum returns. If you start investing as early as possible, your stocks will have more time to build value.

Finally, keep learning about investments throughout your life, both before and after retirement. The more you know, the more your potential portfolio returns—with proper management, of course.

Have more questions? Contact us at info@reliancetradingco.com