The Safe Investment Guide

Some guidelines to help you avoid common market pitalls

A while ago an old friend turned to me and asked for advice. “My family’s expenses increased a bit lately,” he admitted. “Because my wife and I now have a little more free time, we try to make some money on the stock exchange to facilitate the family budget. Do you have any advice where should we start?”
I was quite surprised from his request. Apparently I forgot that there are still quite a few people who think the capital markets as a place where one can make money every day and get extra monthly income.
I know of course that there are such people. They are called day traders. Although they exist, and even felt well in the market, but they are a minority. The vast majority of investors should know that investing in the stock market, especially the most dangerous groups of assets such as stocks and stock options, is for a much longer term.
Therefore we have decided to dedicate a special list of rules of thumb to all those people doing their first steps in the capital market in general, and the stock market in particular.
Please recall Warren Buffett saying “To make the capital market have to remember only two rules: first: Never lose money. II: Never forget the first rule.” So here are the some (hopefully simple) guidelines:

• Do not begin investing in shares
Capital markets are not composed only of shares. Stock shares are very exciting and more dangerous – so they should be more profitable over time. But for a first “taste” of the market do not have to run right to buy shares, and certainly not individual stocks. It is much better to start with less risky assets like government bonds, or via mutual funds and ETFs. If you want to learn about some safe investment tools then look into some safe investment tools.
• Do not think you’re smarter than the market
One of the greatest dangers to an investor is an exaggerated sense of security. It’s a sense misleading the most sophisticated and experienced investors. Confident people tend to fall in love with their decisions, and find it difficult to admit mistakes and thus make suitable changes.
It is very possible that you’re lucky selecting this high gain stock and not the next Buffet. It certainly does not mean you are immune to mistakes. Sometimes these mistakes will be clarified only when you reach a bad market. You can be happy that you have made a profit, but do invest your time in the places where you haven’t shined so brightly.
• Do not invest all the money at once
An investor who only begins to invest in stocks should start small – a few thousand dollars.
Investment in stocks requires a long learning tuition. Tuition is paid over time, especially during periods when the market is not so welcoming (as it is now …). An investor that enters the market for the first time should bear in mind that the maximum loss can be up tothe amount of his initial investment. It is possible to recover from a painful loss, but there are only few people who will not blame anyone in this loss….
• Do not expect to finance current consumption with stock market gains
There are many things to know before you buy stocks, but the most important thing to remember is that the investment in shares requires time. Sometimes the profits come quickly and sometimes slowly. There is no way of knowing this in advance, so the main idea is the funds are invested in the stock market are not designed for use in the near future. Those who need money now or a year – should not invest at all in stocks.
Only your surplus income should be invested in stocks, and the goal of this money is which we want to use only as many years to come. Plan for using this money in 10, 15 or even 20 years.
• Do not Think About Your Earnings
As mentioned above, Buffett did say not to lose money, but he as well as his mentor, Benjamin Graham, also said on another occasion that whoever is not able to see shares fall by 50%, should not invest in stocks. Sharp fall in prices from time to time is a fact of life in the stock market. It happened, it happens and it will happen as it is the nature of this market. Therefore, instead of thinking “how we can make a kill in the stock market”, it is best to think first “how we can afford to lose in the stock market.” If you cannot afford to lose more than 15% of your available funds, do not invest in stocks more than 30% of your money.
• Do not listen too much to friends, acquaintances, and family
Unless you have a relative or friend which is an expert with the receipts in the capital market (and even then …), there is not much point in listening to idle conversations on the market. It’s nice as a topic of conversation, but the benefits you can get a result are doubtful. Instead of listening to friends and family, look for a more objective source of information – books, relevant web sites and financial papers. Even then, you should take every bit of information with a grain of salt, as information tends to spread from the inner circle to the outer one, and till the time a good news about a specific firm reaches the financial paper, all those involved might have already sold it in quite a high price..
• Do not show off after a couple of months
Gain or loss in the stock market should be measured in years, not months. The fact that the stock gained 10% a month, and even 50% a month, should not particularly surprising. It’s not a rare event. Every month there are dozens of stocks that make up or down moves of 50%. This is the dynamic nature of the market changes all the time. We guess you want be too happy to show and tell when your stocks will fall at the same rate they have went up.
• Do not forget that time is your friend and enthusiasm is your enemy
To earn in the stock markets requires patience and an iron will. Patience and determination are traits that many investors do not carry with them. Most people want to see quick results. This is why markets are so volatile – it happens that human nature is volatile.
Once investors are excited about the market and raise it to new heights, and another time they sink into depression and allow prices to fall sharply. Use the fear in the markets to buy and not sell.

• Never stop learning
By investing in the capital markets you can learn about the economics of their countries, the nature of the industries, the nature of people. The market connects various scientific disciplines: economics sociology, anthropology, psychology, mathematics, statistics, physics, medicine, biology and even philosophy.
Learning does not end in areas mentioned – the investor that was exposed to the capital market also learns a lot about himself, his character, his qualities and weaknesses. Only through constant learning one can improve his investment and increase the average yield over time.
• Do not be afraid (too much)
Healthy fear can improve the quality of your investment over time, but who just afraid all the time, could never invest in stocks. It’s okay. Not everyone is cut out for it. There are enough financial assets with high security level that can accommodate people with a low fear threshold. These will have to accept the fact that even the average yield which will be received will be lower over time.

Is there a safe FOREX investment?

Foreign currency trading, or Forex (Foreign Exchange), has become in recent years one of the most popular investment sectors for small investors.

The removal of economic barriers and the creation of the global market in addition to the global communications revolution with the advent of Internet have become very accessible to foreign currency and huge profit potential. Many companies that offer various commercial services to the public relate to Forex. The amount of money transactions every day in Forex trading is summed up in trillions of dollars.

Why should I invest in Forex?

Forex is based on the relationship between various currencies in the world, especially the coins of the leading countries, the U.S. dollar, British pound, Japanese Yen, and more. Forex dealers are trying to predict the frequent changes in the relation between currency pairs and use it for harvesting quick profits. Great temptation to this kind of trade due to several reasons

High accessibility - Foreign currency trading takes place 24 hours a day, 7 days a week, you can trade, usually through the services and retail companies platforms. Companies charge lower fees and provide technical knowledge on how to trade, plus there is optimal access many databases through the Internet.
Optional high profits - high liquidity foreign currency market allows the creation of huge profits from a very short time periods. Proper safe forex investment is currency relative value in relation to another currency, will allow harvesting profitable. Although various companies offer option for high leverages that can result in very high profits but may lead to sharp losses conversely. Of course there’s always remember, as with high profit potential there is also increased risk.
Trading is simple and easy – to make the trade over time needs to know the area specialize in, but the relative simplicity of doing the availability of various companies in fussing creates fertile ground for investments.

Some tips for beginner Forex investors

Magic temptation fast and option trading at a huge profit causes many investors start with no experience and knowledge provide him the field to try their luck. Despite the potential for profit is highly important not to invest large sums from the beginning, as the loss potential is quite substantial.

You can open an account first with a small safe forex investment to start trading in small amounts as a comprehensive market survey, and in order to probe the market. A more professional and safer option is to conduct an in-depth research and reading professional materials in the field, prior to the actual safe forex investment front.

Many companies now offer courses in Forex trading, trading techniques taught courses right understanding of the initial market entry and receive tools to market. Like the stock exchange you cannot rely on instincts and hunches, analysis of the volatile foreign exchange market related to many factors, some of which are hidden from view.

Economic and political variables may affect the volatility of the currency and we should be aware of them as possible.

How to start and invest in Forex?

If you are not a professional trader is likely we want to open an account in the company. Find Companies engaged in foreign trade, is easy, but be sure to choose a company with a reputation, and without excessive fees. Safe Forex Investment involves very small amounts (even a several tens of Euros), and you should start as you open an account and start investing, and thus you can leverage this amount to thousands of percents more.

Is it safe to be in the markets these days?

Everything is going red … US markets, Europe and emerging markets are sinking altogether …. Have you panicked as well during the recent turmoil?

We on the other hand feel that this is a natural and healthy correction as a part of a long term growth in the markets. Europe is usually slow to respond and the decision making process is somewhat more cumbersome due to the complex political structure (why should the rich German folks pay for the poor Greece?), but we do feel that the leaders will take the right path and manage the crisis the same way it was managed in the US.

In the meantime, we are enhancing our portfolio with some investments that were out of reach till recently (like some interesting high yield bonds and some beaten down ETFs on the finance and real estate sectors).

Please recall that when everyone is panicking it is the best time to buy. This was proven again and again, and just recently in the last year.

If you don’t feel you have the strength and resources to buy more, close the computer screens, and come back in a couple of weeks. Everything will be clearer then.

Good luck!

Proper asset allocation for safe investment in pension funds

My guest writer is Sharon Smith who is a financial writer associated with Oak View Law Group

A strategic asset allocation is most vital for investing safely in a pension fund. A benchmark regarding the asset allocation can be set according to a strategic planning put forward by a financial planner along with important inputs from the personal philosophies of the investor. The major goal in a pension fund is to achieve a safe investment policy, as these funds should last the investor all over his retirement period, which today can be more than 20 years.

What is asset allocation?

Most simply put, asset allocation means putting portions of your money into various investments such as bonds and stocks. In case any of your investments lose value, a proper allocation of your money to various and diversified investments can reduce the impact of loss.

Why and how diversification works?

Have you ever given a thought as to how much amount should you invest in bonds, stocks and how much are you saving in cash? How to decide on which investments to put into your retirement plan? The decisions that you take now, will determine the future of your finances after your retirement.

The value of investment will definitely fluctuate at different times. When one investment is gaining value, the other may drop significantly. If you put all your money in a single investment, it is prone to be at risk. Your returns would be solely based on the ups and downs of the market value of that particular investment. This is also true for several investment paths with a high correlation amongst themselves (e.g. 2 pharmaceutical companies stocks, gold and silver)

The best strategy is to diversify your investment as that will reduce its overall volatility (i.e. reduce the correlation between the different investments). On the other hand, you should not over-diversify, as you will find yourself struggling with too many lines to manage.

The financial market, not only in US, but all over the world is very prone to severe fluctuations. You should aim for a balanced investment mix, which would not only support you in retirement, but also shield you from the ups and downs of such market fluctuations, and thus support your safe investment strategy.

How to find the right kind of investment plan?

Sit with your financial planner and set up a customised safe investment- savings plan. Assess your overall financial situation like, how much is your financial need, what is your risk tolerance etc.

In other terms, use some wisdom and stick to an asset allocation that will focus on delivery of steady returns, no matter what the financial environment is.

Investors however should very carefully consider the objectives, risks, charges and expenses of the American Funds. These details as well as other information are available in the individual fund’s prospectus. These should be read very minutely and carefully before investing.

How to monitor your investment plan?

Monitoring is an important part of all financial plans, as the investor can examine the result of the strategy he has defined and measure the results against the defined benchmark.

We recommend that you will examine your pension asset allocation once a year, and make sure that the proportions in the fund are well balanced and aligned with your preferences. Do spend some time on the management fees you are paying and the fund manager (unless you are managing the funds by yourself, of course…)

15 ways to lose money in the stock market (part 2)

In the previous article 15 ways to lose money in the stock market – part 1 we have covered several common mistakes investors tend to make and as a result lose significant amounts of money. In this article we shall continue to cover more common mistakes.

9. Get attached to your stocks – Almost all investors have the tendency to mix their emotions in investment decisions; usually it means to “love” or “hate” a certain share. When the investor owns a stock that he “loved” and it falters, his feeling might prevent him from selling it (“this is my stock”,” it won’t fail me”), even if all the supporting information does justify the sell decision. This can seriously damage the investor’s performance.

10. Set unrealistic goals for your investment – Typically, in times of a bubble in the market, investors develop unrealistic expectations about the expected return of their portfolio. The latest tech bubble in Y2K investor thought they could not lose. Do recall that technology stocks could have doubled in a matter of months and everything seemed green… The hangover that investors over the globe woke up to was quite severe…. Therefore, a realistic set of expectations should be set against the long term values of the leading indices (e.g. S&P500 etc). Graham stated that an investor should expect an annual return of 6% – 8% in the stock market.

11. Not considering the risk associated with investments – Any investment there is also a component of yield and an element of risk. When investing in shares the investor is exposed to risks arising from the companies in which he invests. More conservative channels (e.g. bonds) also have investment risks, including the interest rate and inflation risks. The conclusion is that it is impossible to avoid risk in the stock market, but you can learn to set and manage it. To learn more about risks and what is a safe investment you can visit our site www.safe-investment.info

12. Don’t keep track after your portfolio – Investing for a long-term does not mean you should completely forget about their portfolio. Investors need to keep track of changes in the stock market and maintain it (not necessarily on a daily basis) in order to adhere to their strategy in and manage the of risk. It is also advisable to pay attention to the appearance of abnormal problems with the assets (e.g. a certain stock has fallen too sharply, a mutual fund does not perform as well as its peers). Rebalancing of the portfolio should be done once every couple of months to make sure that the portfolio diversification and risk levels are in accordance with the investor’s goals.

13. Think of the stock market as a casino – investing in stocks is not gambling and should not be treated in the same manner. The basics of investment are to participate to a certain degree in a risk to help finance public companies that you believe have the potential for a long-term growth. You need to analyze the overall condition of the Company (via its financial reports) and disregard daily fluctuations. Relying on a momentum of a stock as sole cretrion to invest will usually lead to losses (though technical analysis is a helpful tool to support buy/sell decisions).

14. Investing in not well understood domains – The average investor should avoid investing in areas which are distant from his understanding. Investment in such areas (e.g. nano-tech) will cause the inexperienced investor some unpleasant surprises, especially if the investor is not aware of the risk in this domain. Also, history has shown that investing in solid companies that seem boring (e.g. coca-cola) yields high returns more than investing the latest trend stocks (do recall Buffet’s strategy in investing only in domains that he understands and on the other hand what happened to all the hi-tech “dream companies” in the 2001 crisis.

15. Have no patience - Stock market investment is usually an investment for the long-term. Impatience stems from the short-term yields dissatisfaction and can lead to unnecessary errors. Thus, you should always think for the long term (more than 5 years) and be patient for the short term.
To conclude – refraining from doing the most basic mistakes as described above, you can significantly increase your results and yields from your investments.

You can learn more about the world of safe investments here.

Good luck!

15 ways to lose money in the stock market (Part 1)

Many investors are entering the stock market without the knowledge and mental capacities which are required to operate in the market. This way of thinking and acting often results in severe losses. We have gathered several items that will help experienced investors to verify they do not make critical mistakes and to newcomers who plan to enter the capital markets to avoid them in advance.

1. Think that a low share price represents a cheap stock – Investors sometimes think that a stock that is traded in 1$ is cheaper than one traded for 100$ and forget that a comparison of stock prices is meaningless. In fact, the stock represents a partial ownership in the company, so the share price is a function of its market value of shares issued capital; issued capital is an arbitrary number that does not represent the value of the company.

2. Invest according to recommendations and rumors only – Stock market investment is a complex issue. Some investors have a tendency to blindly go after various recommendations and rumors, often from unreliable sources. Unless the investor checks the background behind the recommendation and its viability they should not rely on these rumors as they might lead them to investment traps. Investors that do not have time to do their own research should outsource their portfolio management to a professional. We do feel that even if you decide to manage your assets by someone else, you still need to have the capability to monitor them and understand the decisions they are taking with your money (need we remind you Madoff)

3. Never admit that you have made a mistake – Investors tend not to admit their mistake. As a result, they often remain in a position which they should stay, to prove to themselves that the investment they have made is a wise one. Sometimes the most intelligent decision is to know when to admit a mistake and cut your losses.

4. Start investing before you formalized a strategy – Before investing in the capital market each investor must formulate his personal investment strategy. Correct investment strategy will include the following key elements: amount of investment (how much I’m willing to invest in the capital market), investment range (how much time you want to stay in the capital market), sensitivity to risk (to what extent am I willing to tolerate volatility – or more precisely – will I be able to sleep at night if I will lose 20% of my investment), the purpose of investment (why do I invest in the market – buy a house, save for education). Once your basic strategy is ready – the likelihood that you will make hasty decisions is lower as you have to think before and see if it is aligned with your initial strategy and goals.

5. Disregard your sensitivity to risk – Many investors believe the volatility in the capital market will not affect them so they invest a high portion of their portfolio in relatively dangerous channels. In reality, many investors tend to panic when the market conditions changes and make irrational and excessive decisions, whereas if they would have been aware to their tendency to stress out, they would have invested in safe investment tools (such as bonds etc)

6. Do not diversify your portfolio – One of the key principles of capital market investment is diversification. A portfolio consists of a number of different investment tools and channels carrying significantly lower risk compared with a portfolio based on a single share, or with a number of shares with a high correlation between them (for example – all real estate in US). A portfolio should be comprised of at least 10 to 15 lines. On the other hand, you should not vary too much, so you can keep track of the changes effectively (just imaging yourself trying to manage a portfolio with 100 separate line items …).

7. Ignore the importance of fees – The default of most investors is to invest through the bank. It’s not necessarily the best solution. Comparison of fees charged by banks and investment firms are backed up various amounts investors can save considerable wasted on excessive fees. This applies for any kind of fee you are paying – the mutual fund manager, your pension fund manager etc. Always negotiate and try to reduce the fees – you will be surprised with the results.

8. Attribute great importance to the economic press – Investors tend to attribute great importance to the economic press about their investments so they devote much time to written analysis; The most significant information is not delivered in the economic press, nor does it appear on time (usually due to information leakage). Do bear in mind that the goal of the press is to sell more papers and not to support the investor’s decisions.

This is the end of part 1 – tune in for part 2 when we shall continue to cover other common mistakes.

How to start and invest in the stock market in a safe and prudent way? (part 2)

Last time we have reviewed the initial steps that the investor should take before taking his first action in the market. In part 2 of the post we would like to review the virtual portfolio investment method and recommend on the various tools suitable for a beginner in the market.

Build and manage your virtual portfolio:

After you have gained sufficient theoretical knowledge the next step is to open a virtual portfolio which means buying assets with virtual money. This process requires the recognition of trade rules and understanding the tools available to the investor coping with the various dilemmas – what to buy? How? When? (of course the selling process is as significant)

This step is high recommended for the beginner as he gains experience on the various share types, the various market terms and orders (limits, stop loss etc) and all this without risking a dime of his own money. But despite the above said, there are also problems with the virtual portfolio:

Trading psychology is somewhat disconnected (as no real money is involved), no sense of fear or greed, no sense of missed opportunity, nor the cognitive dissonance experienced when forced to sell a stock and it continues to rise… However we strongly believe that this process should take several months and during that time the investor should keep a detailed log of all the considerations, decisions made and performance of the portfolio.

These are used to define and asses the method of work, but mainly for drawing conclusions for the decisions taken. Only after the passage of all these steps, there is room to invest with real money. Also then our recommendation is to take it with carefully measured steps.

In which financial instruments should the beginner invest?

As the level of financial instrument is higher and the tool is more complex, it requires more knowledge, and bares a higher chance of profit, but it also risks. My recommendation is unequivocal, the first step to deal only with mutual funds,ETFs, bonds and shares. The other investment tools are not as simple as they seem, and might result in painful losses as they carry a high risk. This sums the beginners section – so I guess you have some work to do. Good luck!

How to start and invest in the stock market in a safe and prudent way? (part 1)

The main problem of the beginner investor is how to getting started. Everyone wants to make money quickly and don’t have time … So first – do have some patience and as with any other job or profession you must start from scratch.

In this article we shall examine what is the best way for the investor to start. The key word for a safe investment is – knowledge (as the common phrase – knowledge is power).

The stock market is not a casino nor it is a very forgiving place and it takes a heavy toll on ignorance and lack of knowledge. So before one starts to invest he needs to learn and study as without it he no chance to earn over time. One way to get this education is through some orderly training via courses. There are many courses, for the basic students as well as for the advanced which are offered by many education institutes. Anyone who thinks this is his way of learning should receive recommendations from friends, or graduate courses.

Another way to get the desired level of knowledge is by the Internet. The Internet is flooded with material in almost every area and certainly the stock market. Preferably whoever intends to take the course, can acquire a basic background to know what he wanted and if it suits him. There are two main channels to guide you in the investment world and help you take decisions:

1. Fundamental analysis

2. Technical analysis

Fundamental analysis is an analysis of the firm financial reports and deducing conclusions about it s value, its potential and the comparison to the existing share price. There are very few fundamental analysis forums, both because of the high level of knowledge required and because of the hard work involved in the process. The investor who wants to study and gain expertise in this area, should purchase professional books dealing with the subject and learn through them. This study based on two main areas:

1. Analysis of financial reports.

2. Valuation of companies.

Technical analysis is taking decisions on a specific stock, based on past performance of the stock. The stock price can be found over the web in multiple sites, where it is presented as graphs. More advanced analysis requires more advanced software (which usually is not free). the investor can gain a lot of knowledge from reading post in forums and learn about the different terms and graph shapes, to understand the existing momentum in trade and acquire experience and knowledge bases.

This is the end of part 1 - in the next part we shall discuss virtual portfolio investment and the proper tools to take. See you then!

Make The Best and Safest Investment of Your Life

As the world of investments is going through a revolution, and the concept of what is considered as a safe investment has taken a different form during the last economic crisis, where many people have lost their life savings, we thought that we should provide the public with the right knowledge on how to manage his investments in a safe manner. Therefore, our new site http://www.safe-investment.info has been launched and includes lots of free information about the concept and methodology of the safe investment world.
This site includes the basic concepts behind the world of safe investment methods, the planning it takes, and the different financial tools that will help you, the safe investor, to get the proper guidelines and understanding that you need in order to manage your portfolio in a successful way.
You are more than welcomed to visit us, and register to the RSS feed found within the site to get the latest information on the safe investment arena.

Keeping Your Investment Safe After The Rise In The Stock Market

Gains in the stock market last year led to the rise of the value of financial asset portfolio of many. Customers manage their holdings on their own, now face a dilemma: how they can continue to enjoy the ups in the stock market, yet protect themselves from a case of a sharp drop in the markets.

Many experts argue that the stock market already reflect the full value of their recommend careful selection of individual stocks, along with portfolio diversification. For perfecting the growing need of the capital market, the options facing the individual customer, who wants to fence in his bag, becoming more diverse.

ETFs
One of the most popular tools in recent years are ETFs. These items are managing tens of billions of dollars, allowing linkage to local and the world stock market and currencies, metals and others.

Besides safe investment categories that provide a strong linkage to reverse the stock market returns, such as gold, there are ETFs that allow you to get exposure to reverse asset base. These index funds are shorting index funds. Between certificates that give exposure to the opposite index.

Some index funds even double inverse exposure. The cost of maintaining a higher short index fund cost of an ordinary certificate. Certificate Short height typically management fees of approximately 1% — 0.5% – depending on the index and interest rates.

After the gains of the last period and since the leading stock indices already scraping the record of all time, it seems that more and more customers seek to protect themselves and demand certificates Short does. However, while holdings in ETFs linked indices are often long-term strategies, maintenance, shorting index funds is a short-term, since market players believe, rightly, that long term the market tends to rise.

Short papers can be purchased like any ordinary paper value. Any computerized system for acquisition of securities allows the purchase of such certificates, you can also purchase them at the point of sale with the bank clerk. In addition, staff recommends that prior to your purchase in the face of the clerk, what leverage the certificate at the moment. As the price of ETFs is changing, so leveraging the certificate against the index changes, you should consider before buying what.

PUT options
Stock Exchange issues a monthly index options on Derivatives, rate, rate other financial assets. These options allow using a relatively small amount of money, make an increase or decrease of indices point.

Put options allow it to earn as a decrease in the market, are beginning to “enter the money” to provide cash flow, when the index falls below the exercise price of the option premium. Each option exposes the buyer to 100 index units, which allow him to earn 100 dollars in fact any point in the index.

But the options on the market suffer from several problems. First, the acquisition cost could range of up to 7% of the transaction value in extreme cases, so that each case should bargain for the fee acquisition with a bank clerk. In addition, the market option expires every month again, what should the safe investor who wants to further exposure, “roll” the position next month purchase option, which means purchasing a new option every month.

Disadvantage arising from this possibility is that the cost of this tactic over time, may be very heavy to reach 25% of value case every year, even more than that. This price makes the option on the stock market, as an insurance against a financial instrument declines should not, but because safe investors have now more options.

There is another alternative: there are options and Put-Call options traded on overseas indices which expire once every six months or a year. This significantly Discounter maintenance options, because there is no need to roll them every month and can hold them for a longer period.

Global world stock markets have correlation among themselves so that experience has shown that options on indices such as NASDAQ, the German DAX have a correlation with the local market. Therefore protection against declines in portfolio managed by foreign Index Put options, is a form of action that can make much sense.