How To Invest Site

By : Gilbert M. De Los Reyes

1. Investing is a business not an adventure.  Some people would dabble in investing, lose money, and decide it is not for them.  The key word is dabble.  Does one think to dabble in a profession to earn a living? Would you invest in the market because you heard it is exciting? Investing is serious business, carefully planned and thought out.  It should not be regarded in the same light as going to a casino. One might argue that there seems to be a similarity between day trading and playing roulette. But that is not what serious investing is all about.
2. Have an objective for investing. Investment objective stems from an assessment of one’s future needs. This could be saving money to buy a house, for children’s college tuition, for retirement  and others. Having an objective means you will need a plan to accomplish it.  Furthermore, having a plan means you need  some criteria  to measure the degree of success. This is where the discipline of investing begins.
3. How much money are you setting aside to accomplish  your objective? Most people have the notion that investing is only for the rich.  Not so.  It is for anyone who has the discipline to set aside a certain amount of money for the future. Is the money you are investing one lump sum, or will there be periodic additions? Remember that this money should be a dedicated amount, and not part of your day to day living budget. Drawing out investment money to pay for living expenses can ruining investment plans.
4. What is your time frame to accomplish your objective? Relative to the amount invested, is this a realistic time frame?
5. Be realistic about your expected rate of return. Remember, the higher the rate of return the higher the risk.
6. What kind of a risk-taker are you? Would you be lying awake all night worrying about your investment? Keep in mind that everything is relative. The more money you invest, the less time you would need to meet your objective, and the less risk you will have to take.
7. Understand the risk characteristics of the different types of investments.  Do some due diligence on your own. Check out Treasuries,  CD’s, Blue Chip Stocks, Penny Stocks,  Municipal Bonds, Mutual Funds, ETF’s, and other investments you might be interested in. Kick the tires, so to speak.  Look under the hood. Read, ask questions. On the right sidebar of this site there are some information to get you started.
8. Have a clear plan  of retreat.  The market is subject to seasonality and cycles.  Unfortunately,  seasonality and cycles are less predictable than the weather.  When the headlights of a cascading market hit you in the eye,  do not freeze into a catatonic state.  Have the presence of mind to run.  At what point  do you bolt? Most advisers recommend  a 20% loss. If the market turns around after you sold, just live with it and fight another day.
9. Understand  the types of services provided and the fee structure of the company and agent you are dealing with. A brokerage firm and their agents generally earn their living from commissions.  They earn commission when you buy a  security, and they earn commission when you sell a security. On the other hand,  a fee-only registered investment adviser company and their representatives earn their money based on a set percentage of  the market value of the assets in your portfolio. If your portfolio earns more, they earn more.  If your portfolio earns less, they earn less.
10. Research the track record of the company and agent you are dealing with. There are a couple of  things we learned from the Cold War: glasnost, meaning openness, and trust but verify. The biggest and most successful investment company and agent may not be the most honest. NASD through finra.org provides the means to look into their records and check any wrong doings and complaints. You are basically dealing with one person, your broker or investment advisor.  Thus, his/her honesty and candor are important.  However, the firm management can also exert undue influence on the agent’s judgment.  Due diligence may save you heartaches and nightmares later on.

Share on Facebook

By:  Gilbert M. De Los Reyes

1.    Money that is not invested fritters away in value.  Money is not static. Its value is constantly subjected to deterioration. This is measured by the Consumer Price Index.  The much talked about CPI is simply a measure of what your money can buy. For example, what your money could buy for $1 in 1989 costs $1.75 in 2009.  So if you retired twenty years ago on a fixed income, you will need almost twice the money to survive now. You need to keep investing to stay ahead of inflation.

2.    There is no such thing as a riskless investment. The United States Treasuries are considered virtually risk-free when held to maturity. Note the word virtually. The reason is that it is not 100% risk-free.  While there is no danger that the United States government will default on its obligation, the treasuries are still subject to inflation risk. Inflation can exceed the interest rate.

3.    The market is subject to seasonality and  cycles. Like the universal law of changes and adjustments, the market has seasonality and cycles.  While  the patterns may be erratic and difficult to predict the bull and bear markets do occur, and so does dry spells during the year. The investors need to watch out for signs and make necessary adjustments to their investments.

4.    Investing in the market has already proven itself as the best way to beat inflation.  The market grew from an index of 48.94 in 1900 to an index of 10197.47 in 2009, while inflation grew only around 2500.  

5.    The market does not move in a straight line. There will always be fluctuations and noises on a daily basis. Avoid unnecessary anxiety by not pinning your hopes on an hour by hour and day by day movements, and let the market smoothen itself and follow its course.

6.    Profits and expectation of profits make the market. Corrolary to  this Greed and Fear drive the market.

7.    The higher the potential return the higher the risk.  There is no such thing as big returns with lower risk.

8.    The world is your market, not just the United States. There are investment opportunities in other countries that can help improve returns and stabilize your portfolio.

9     Timing is important. The old Wall Street saying of buy low sell high applies here. Avoid the herd that rushes out to buy a stock.  The best, most promising stock is no longer good for you if you are late in buying.

10.  Diversified is better than single position. The Modern Portfolio Theory demonstrates that diversification reduces risk of a portfolio. (See Investment Methods and Theories for detailed discussion.)

Share on Facebook