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Wednesday, 19 December 2007

Investment Management

            It is time to learn how to effectively manage
your investments. Some brokers may tell you that they will monitor your investments
for you, which is bonus, BUT, it is extremely important to monitor them
yourself. You have to know how to keep track of your gains and losses or you
risk losing time and money. What you
will be monitoring is called your “portfolio” which should be checked at least
once a week. It is essential to be able
to make investment decisions based on analysis of a business, rather than
emotional reactions to market changes (read more about investment opportunities).
You should be able to understand how to properly reduce portfolio risk in conjunction with the assistance of a professional. Here are six helpful steps:

            Step one: Proper management is to diversify your investments.
This is one of the most common mistakespeople make. They see one investment doing very well and decided to “put all their eggs in one basket”. What they do not know is that by doing this, they
put themselves at an enormous risk of losing all of their money very fast. I
can better explain by providing companies that have lost a large amount in a
very short time: Enron, Cisco, Intel, Tyco… and unfortunately many more. It may
help to learn from their mistakes, if you’re not familiar with those companies,
do a little research.

            Step two: Panic and greed should
never dictate any investment decision. Investment decisions should be based
on essentials such as economic conditions (whether they are current or future),
how a specific market is performing in those conditions, and of course, the
company in which you are investing. When it comes to investing don’t gamble
your money, leave that for the casinos, and know your basics. Remember, when in doubt, return to those
mutual funds. Risk is reduced and your assets are managed professionally.

            Step three: Just how credible is
your broker? Does your broker have a conflict of interest with the business
in which you’re investing? Know your broker! Know what sources they rely on to
make decisions, don’t be afraid to ask, after all it’s your money, you have a
right to know. Always ask your broker
where their recommendations are coming from.

            Step four: Avoid paying taxes
that you don’t have to pay. Many investors don’t utilize tax-advantage
accounts. If you have an IRA, try to determine which one will offer you the
best benefit. Don’t let anyone tell you, you can not have a qualified
retirement plan through your employer and an IRA at the same time. If you
already knew that, don’t forget you are entitled to receive a nonrefundable tax
credit in addition to a tax deduction. Make a cash flow analysis to estimate
your future tax bracket to judge whether a tax-benefit is more beneficial now
or in the future. With that in mi you
have the option of transferring your retirement plan to a “self-directed” IRA
which does not have a tax obligation or penalty. It is beneficial to have a
self-directed IRA because it opens up more tax advantages and investment
options then other plans such as mutual funds, or stocks and bonds.

            Step five: Re-assess your
financial goals. Re-evaluate your objectives and risk tolerance. Keep your
diversified portfolio up to date with current market conditions and keep it
constructed to your preferences. If changes are not suggested or made, chances
are neither you nor your broker is that experienced, and you should immediately
look for a new broker. Keep in mind that banks are not always the best for
providing you with quality management. Personal, licensed financial advisors
are always better. Shell out some extra money to protect yourself, it is more
beneficial in the long run. When was the last time your bank called you?

            Step five: “Someday is not a day
of the week”. Don’t procrastinate, start investing today. Something is
better than nothing. Parents should encourage their children to invest as soon
as they start paying taxes. Investing at least $100 a month is a great start.
And for those who have already started to invest, don’t stop. Try to keep up
with the market. When you reach that goal you set yourself, you won’t be sorry
you started. Assuming only a $2000 contribution is made a year with the lowest
percent (6%), in 10 years your $2000 will be $29,943. If you have a good amount
of knowledge and shopped for the best percentage rate (20%), in 10 years your
$2000 will be $64,301. Imagine not
having to stress over your child’s college education.

            Step six: Hope for the best, plan
for the worst. The more knowledge you possess, the better off you will
be. Always ask questions.

            So, an asset is purchased or a
deposit is made in hopes of getting a future return from it. Are you ready to invest?
Remember, with any investment, there is always the risk that you won’t get your
money back or the earnings promised. The higher the potential return, the
greater the risk.

            Some investments perform better than
others in certain situations. Putting your money in a variety of investment options
can help reduce your risk. Make sure you spend enough time doing your research,
ask yourself if you spend more time researching the purchase of new car or even
a cell phone. If the answer is yes, then you’re not taking enough time to
understand what you are investing. View investing as a process, and not an
obligation or a hassle. One of the main reasons it takes so long for some to invest
is because after all the bills are paid and you spent the rest elsewhere, there
is nothing left. Try to protect yourself from buying too much, and put your
money to good use.          Remember, if
you’re a beginner and you don’t have a lot of money to invest, but still would
like to diversify your portfolio, keep mutual funds in mind. Mutual funds
contain many different stocks; you get all the benefits without having to pay
transaction fees.

            Let's face it. You will not be able
to work forever. What will you do for an income when the time comes to retire?
This is why planning your investments carefully, is important. Maybe you think
you will be able to rely on Medicare and Social Security to take care of you
during your retirement, but look out, Social Security is in trouble.

Hopefully by now you learned how to start to manage those investments properly.
So when the time comes you are well prepared, and won’t have to worry.