American Consolidebt, Retirement Planning Tips

Author: Clive Chung
Posted by Consolidebt.Us
What is your strategy of stock trading? How do you pick stocks in which to invest?  Do you take tips from the brokers on TV or do you listen to your friends? When you  find an option you like, how do you decide when to buy it? More importantly, how  do you determine when to sell? Do you feel enough if it makes a fast 10 percent  gain? Do you buy more if it drops 50 percent? How many securities do you hold at  a time? What percentage of your portfolio do you keep in cash? When does that  change?

These decisions are what makes up your investing strategy.

A trading strategy is simply a plan for attaining a goal. A basketball coach would  not think of starting the next game without a strategy. A general makes a strategy  for winning a war. And who in this world would start a business without having  several strategies at hand? At a minimum, you would need a strategy for  developing your products, and a strategy for marketing them.

Stock trading is one of the most important action of many people’s lives, investing  definitely needs a plan. First, we must have a plan for selecting our investments.  Second, we must have an a strategy for managing our portfolio, a strategy that tells  us how much of our portfolio should be in cash and how much in securities, how  many stocks or funds it should hold, and how much diversification it should have  with regard to industries and sectors.

Why do we need all these strategies? It is because investing is not intuitive. In fact,  it is counterintuitive. For example, our intuition tells us to stay out of a bear market.  But if everyone is bearish, that’s the time to buy. Why? Because when the market  is at an extreme low, everyone who is going to bail has already done so.  Therefore, the market is most likely to rebound. But that’s counterintuitive. And so  is a raging bull market that’s at an extreme high.

When the kid who washes your car talks about day trading on the side, as we  personally witnessed at the height of the dot-com craze, it’s time to sell. When  everyone around you seems to be getting rich in the market, it is a natural impulse  to want to get in on the action. But with everyone already in the market, there is no  one left to drive it higher.

Author: John S Kiing
There are vast differences between large investment companies and the smaller  ones in terms of fund size, return performance and the management team. How  stock investors could benefit from investing through a large stock mutual fund? Just  to name 3 key advantages here for investors’ reference.

1. Lower Expenses for Diversification

The more obvious advantage of an investment fund rests on the mere fact that it  has much more capital than any but a few individuals own. It can diversify into a  reasonable number of stocks with reduced percentage of expenses over your total  investment sum.

An investor wanting to reduce the gamble in owning common stock must hold  stock in a good many companies. Momentarily ignoring the existence of  investment companies, suppose a man decides that for adequate diversification  he should own stock in fifty companies, and for the companies he selects the  average price per share is $30. Conceivably he could buy ten shares in each  company at a total cost of $15,000, plus at least $3,000 expenses.

In return for his money, the first things he gets back are fifty stock certificates,  which he must keep safe. When he sells a certificate at any time in the future Uncle  Sam requires that he know when he bought it and the cost. Also, in the course of a  year he will receive some 200 dividend checks, for a total of perhaps $60. The  whole thing sounds silly, doesn’t it?

This example suggests three negative points about an investor’s obtaining  diversification without using an investment company:

(A) He must pay out at least a few thousand dollars, and not many investors start  with that amount of money.

(B) The expenses incurred in making small, direct purchases of stock may be  higher than on the same total amount bought through an investment company,  especially if a buyer figures in the fees for later sale of the stock.

(C) Even if an investor has capital enough to buy many times 10 shares in each of  fifty or more companies, he still takes on a lot of work in selecting and keeping  track of so many companies, and in handling his certificates and dividends.

2. Professional Investment Manager

Another advantage of having considerable capital in one pool under an investment  fund is that a large fund can afford to pay the salaries of a competent portfolio  manager and research deputies. Aside from the sales charge, most of the  expense incurred in a typical investment company is the fee paid to the group  responsible for keeping the fund invested. Usually this fee is fixed at a rate  equivalent to 0.5 to 1 per cent of the fund’s assets each year. Suppose a fund’s  capital is a mere $500 million; 0.5 per cent of this is $2.5 million, which the fund  can pay for its investment managers, assistants, and operations expenses. A fund  far smaller than this may be able to hire a skilled manager, because he expects a  rapid growth of the fund’s assets, and consequently of his management fee. Or the  same management organization may be in charge of more than one fund, with  some of the assets of each fund invested in stock of the same companies, thus  reducing the work for each fund.

It appears that in 2005 the investment companies with the best performance  records are apt to have total assets of at least $300 Billion either in one fund or in  a group of funds under the same management.

3. Fund Maturity and Track Records

Large size also implies maturity. It is practically impossible for a fresh investment  company to accumulate $3 billion of assets, let alone 100 times that much, until  either the fund has been in existence for a good many years, or else its  management group has an established reputation strong enough to draw capital  rapidly into a new fund. In 2005 most of the funds, or groups of funds, with $300  million assets or more, are at least twenty-five years old. So a fund with a good  performance record is apt to have age as well as size.