The Bond Market: A Look Back

Many retail investors shun the bond market because it can be difficult to understand and it doesn't offer the same level of potential upside as the stock market. While the bond market is different from the stock market, it can't be ignored. Its size (comparable to the stock market) and depth will ensure this never happens. With the help of the book "Triumph Of The Optimists: 101 Years Of Global Investment Returns" (2002), by Elroy Dimson, Paul Marsh and Mike Staunton, we will look at how the global bond market performed over the 20th century and what changes we foresee for it during the 21st.

An Unkind Century for Bond Investors

Equity investors triumphed over bond investors during the 20th century because the risk premium built into bonds during the 1900s was much too low to compensate investors for the forthcoming turmoil that would hit the bond market over the next century. This period saw two secular bear and bull markets in U.S. fixed income, with inflation peaking at the end of the First and Second World Wars as a result of increased government spending during those periods.

The first bull market started after World War I and lasted until after World War II. According to Dimson, Marsh and Staunton, the U.S. government kept bond yields artificially low through the inflationary period of World War II and up to 1951. It wasn't until these restrictions were lifted that the bond market began to reflect the new inflationary environment. For example, from a low of 1.9% in 1951, long-term U.S. bond yields then climbed to a high of nearly 15% by 1981. This was the turning point for the century's second bull market.

The graph below shows real government bond returns for the 20th century. Ironically, while all of the countries listed in the table below showed positive real returns on their equity markets during this period, the same could not be said about their bond markets.

The countries that did show negative real returns were those most affected by the world wars. For example, Germany saw two periods in which fixed income was all but wiped out. During the worst of the two periods, 1922-23, inflation reached an unfathomable 209,000,000,000%! According to "Triumph Of The Optimists," 300 paper mills and 150 printing works with 2,000 presses worked day and night to accommodate the demand for bank notes during this period! In fact, the 20th century had more than one incidence of hyperinflation, but none was as severe as what Germany saw in the early 1920s. 

The graph below contrasts real government bond returns for the first and second half of the 20th century. Notice how the countries that saw their bond markets do very poorly in the first half of the 20th century saw a reversal in their fate in the second half:

While this illustration gives you a good feel for the government bond market, the U.S. corporate bond market, according to Dimson, Marsh and Staunton, fared better as well, and added an average 100 basis points above comparable government bonds over the 20th century. They calculated that roughly half of this difference was related to the default premium (the premium rewarded for taking on default risk). The other half is related to defaults, downgrades and early calls. 

The Bond Market Would Never Be the Same

In the 1970s, the globalization of the world markets began again in earnest. Not since the Gilded Age had the world seen such globalization, and this would really start to have an impact on the bond markets in the 1980s. Until then, retail investors, mutual funds and foreign investors were not a big part of the bond market. According to Daniel Fuss' 2001 article "Fixed Income Management: Past, Present And Future," the bond market would see more development and innovation in the last two decades of the 20th century than it had in the previous two centuries. For example, new asset classes such as inflation-protected securities, asset-backed securities (ABS), mortgage-backed securities, high-yield securities and catastrophe bonds were created. Early investors in these new securities were compensated for taking on the challenge of understanding and pricing them. 

Innovation in the 21st Century

Entering the 21st century, the bond market was coming off its greatest bull market. Long-term bond yields had compressed from a high of nearly 15% in 1981 to 7% by the end of the century, leading to higher bond prices. Innovation in the bond market also increased during the last three decades of the 20th century, and this will likely continue. Furthermore, securitization may be unstoppable, and anything and everything with future material cash flows is open to being turned into an ABS. Health care receivables, mutual fund fees and student loans, for example, are just a few of the areas being developed for the ABS marketplace.

Another likely development is that derivatives will become a bigger part of institutional fixed income, with the use of such instruments as interest-rate futures, interest-rate swaps and credit default swaps. Based on issuance and liquidity, the U.S. and the Eurobond markets will maintain their dominance of the global bond market. As bond market liquidity improves, bond exchange-traded funds (ETFs) will keep on gaining market share. ETFs have the ability to demystify fixed-income investing for the retail client through their tradability and transparency (for example, Barclays iShares website contains daily data on its bond ETFs). Finally, continued strong demand for fixed income by the likes of pension funds will only help accelerate these trends over the next few decades. 

Conclusion

For the most part, investing in fixed income during the past century was not an overly lucrative proposition. As a result, today's fixed-income investor should demand a higher risk premium. If this occurs, it will have important implications for asset allocation decisions. Increased demand for fixed income will only help to further innovation, which has turned this asset class from stodgy to fashionable.

4 Things to Look for in an Investment

New investors are often interested in purchasing a company's stock but are not sure where to begin. These four characteristics should serve as helpful guidelines in your search for a good investment.

1. What is the price of the entire company?

When doing research, it is important that you look at more than just the current share price - you need to look at the price of the entire company. The "cost" of acquiring the entire corporation is called market capitalization (or market cap for short) and is frequently referred to by financial professionals. In short, the market cap is the price of all outstanding shares of common stock multiplied by the quoted price per share at any given moment in time. A business with one million shares outstanding and a stock price of $50 per share would have a market cap of $50 million.

This market capitalization test can help keep you from overpaying for a stock. Consider the case of eBay and General Motors during the heyday of the Internet era. At one point during the boom, eBay had the same market cap as the entire General Motors Corporation. To put that into perspective, in fiscal 2000, General Motors made $3.96 billion dollars in profit, while eBay made only $48.3 million (not including stock option expense!). Yet were you to buy either one, you would have had to pay the same amount. It is almost unbelievable that any sane investor would pay the same price for both companies but the general public was seduced by visions of quick profits and easy cash.

Another useful tool to help gauge the relative cost of a stock is the price to earnings ratio (or p/e ratio for short). It provides a valuable standard of comparison for alternative investment opportunities.

2. Is the company buying back shares?

One of the most important keys to investing is that overall corporate growth is not as important as per-share growth. A company could have the same profit, sales, and revenue for five consecutive years, but create large returns for investors by reducing the total number of outstanding shares.

To put it into simpler terms, think of your investment like a large pizza. Each slice represents one share of stock. Would you rather have part of a pizza that was cut into ten slices or one that was cut into eight slices? The pizza that was only cut into eight parts will have bigger slices with more cheese and toppings.

The same principle is true in business. A shareholder should desire a management that has an active policy of reducing the number of outstanding shares if alternative uses of capital are not as attractive, thus making each investor's stake in the company bigger. When the corporate "pie" is cut into fewer pieces, each share represents a greater percentage ownership in the profits and assets of the business. Tragically, many managements focus on domain building rather than increasing the wealth of shareholders.

3. What are your reasons for investing in the company?

Before you purchase stock in a company, you need to ask yourself why you are interested in investing in that particular opportunity. It is dangerous to fall inlove with a corporation and buy it solely because you feel fondly for its products or people - after all, the best company in the world is a lousy investment if you pay too much for it.

Make sure the fundamentals of the company (current price, profits, good management, etc.) are the only reason you are investing. Anything else is based on your emotions; this leads to speculation rather than intelligent investing. You have to remove your feelings from the equation and select your investments based on the cold, hard data. This requires patience and the willingness to walk away from a potential stock position if it does not appear to be fairly or undervalued.

4. Are you willing to own the stock for the next ten years?

If you aren't willing to buy shares in a company and forget about them for the next ten years, you really have no business owning those shares at all. The simple but painful truth of this is evident on Wall Street every day. Professional money managers attempt to beat the Dow Jones Industrial Average, which is a collection of 30 largely unmanaged stocks. Year after year, they fail to do this. It seems impossible that a portfolio managed by the best minds in finance can't beat an unmanaged portfolio of long-term stocks held indefinitely.

The guaranteed way to success has historically been to select a great company, pay as little as possible for the initial stake, begin a dollar cost averaging program, reinvest the dividendsand leave the position alone for several decades.

Investment Research 101 -- Turning Ideas into Profit

If you have ever wanted to know how to invest in stock, the best place to start is doing your own research. For new investors, this can be daunting. Fortunately, there are a few good places to start. I'll walk you through them.

Public vs. Private

Before one can invest in a business, he must discover if it is public or private. A publicly traded company is one which has shares of stock traded on the open market. Private companies, on the other hand, do not have shares available for public purchase. Private companies may be owned by an individual, a family, a partnership, employees, or a small group of investors.

To illustrate the difference, consider Hershey and Mars, two of the largest candy companies in the world. The late Milton Hershey’s chocolate business is publicly traded on the New York Stock Exchange. An individual investor could take his paycheck and acquire shares in the company, profiting from every Hershey bar or Reese’s peanut butter cup sold. The multi-billion dollar Mars company, however, is still owned by the Mars family. An investor could not buy shares unless the members of the family allowed him to acquire some of their closely held, personal stock.

How does one determine if a company is public or private? The simplest, most effective way to answer this question is to call the company and ask. At the same time, many corporate web sites offer information on their ownership status; rest assured, if you see an “investor relations” section, the company is public. The lack of such a section does not necessarily mean anything. Take, for example, Fruit of the Loom. The undergarment manufacturer is not publicly traded because it is owned by Berkshire Hathaway, Inc. Berkshire, on the other hand, is traded on the New York Stock Exchange. Hence, an investor may be able to indirectly invest in a business entity through a publicly traded parent company.

Ticker Symbol

Once the investor has discovered a company is publicly traded, he must look up the company’s ticker symbol. A ticker symbol is a collection of letters that represent a particular stock on an exchange or the over-the-counter market. Microsoft, for example, is MSFT. Cisco Systems is CSCO. Berkshire Hathaway has two ticker symbols, one for its class A shares (BRKA) and one of the class B shares (BRKB). Coca-Cola is KO. The Washington Post is WPO.

To discover a company’s ticker symbol, the investor can call his broker or go to a site such asYahoo Finance. Once at the main page, he can choose the “symbol lookup” option. The resulting page will allow him to enter the company (or parent company in the case of a subsidiary such as Fruit of the Loom) name.

With the ticker symbol in hand, the investor can return to the main Yahoo Finance page and enter it. After pressing the “get quote” button, he will be taken to a summary page that includes a current quote for one share of the company’s stock, the total market capitalization of the business, recent dividend payment and yield information, the price-to-earnings ratio for the trailing twelve months and other items of interest.

Obtaining Annual Reports, SEC Filings and other Financial Documents

Assuming the figures presented seem promising to the investor, he will most likely wish to acquire a copy of the company’s annual report, proxy statement and 10k. For this, he will find the Internet an excellent source of free, timely information. One of the best resources is Free Edgar, a database of annual reports and SEC filings. Additionally, the investor could contact the shareholder relations department of the company in which he is interested via telephone or web site and request information. The bottom line: Nearly everything you need to know can be found in the annual report, proxy statement, and 10K.

Dividend Reinvestment Programs (DRIPs) and Direct Stock Purchase Plans

If, after careful analysis of the financial statements and business economics, the investor wishes to build up a long-term holding in the company, he may want to consider an automaticdividend reinvestment program and / or a direct stock purchase plan. Both of these are ideal solutions if he desires to begin a dollar cost averaging program into the company; the former will automatically invest his dividends into additional shares of stock while the latter will provide for regularly scheduled deductions from his checking or savings account to purchase shares of the company’s stock without the aid of a broker. Equiserve is a free database containing information on the both types of programs at thousands of publicly traded companies across the United States.

The Importance Of Trading Psychology And Discipline

There are many characteristics and skills required by traders in order for them to be successful in the financial markets. The ability to understand the inner workings of a company, its fundamentals and the ability to determine the direction of the trend are a few of the key traits needed, but not one of these is as important as the ability to contain emotions and maintain discipline.

Trading Psychology

The psychological aspect of trading is extremely important, and the reason for that is fairly simple: A trader is often darting in and out of stocks on short notice, and is forced to make quick decisions. To accomplish this, they need a certain presence of mind. They also, by extension, need discipline, so that they stick with previously established trading plans and know when to book profits and losses. Emotions simply can't get in the way. 

Understanding Fear

When a trader's screen is pulsating red (a sign that stocks are down) and bad news comes about a certain stock or the general market, it's not uncommon for the trader to get scared. When this happens, they may overreact and feel compelled to liquidate their holdings and go to cash or to refrain from taking any risks. Now, if they do that they may avoid certain losses - but they also will miss out on the gains.

Traders need to understand what fear is - simply a natural reaction to what they perceive as a threat (in this case perhaps to their profit or money-making potential). Quantifying the fear might help. Or that they may be able to better deal with fear by pondering what they are afraid of, and why they are afraid of it. 

Also, by pondering this issue ahead of time and knowing how they may instinctively react to or perceive certain things, a trader can hope to isolate and identify those feelings during a trading session, and then try to focus on moving past the emotion. Of course this may not be easy, and may take practice, but it's necessary to the health of an investor's portfolio. 

Greed Is Your Worst Enemy

There's an old saying on Wall Street that "pigs get slaughtered." This greed in investors causes them to hang on to winning positions too long, trying to get every last tick. This trait can be devastating to returns because the trader is always running the risk of getting whipsawed or blown out of a position.

Greed is not easy to overcome. That's because within many of us there seems to be an instinct to always try to do better, to try to get just a little more. A trader should recognize this instinct if it is present, and develop trade plans based upon rational business decisions, not on what amounts to an emotional whim or potentially harmful instinct. 

The Importance of Trading Rules

To get their heads in the right place before they feel the emotional or psychological crunch, investors can look at creating trading rules ahead of time. Traders can establish limits where they lay out guidelines based on their risk-reward relationship for when they will exit a trade - regardless of emotions. For example, if a stock is trading at $10/share, the trader might choose to get out at $10.25, or at $9.75 to put a stop loss or stop limit in and bail. 

Of course, establishing price targets might not be the only rule. For example, the trader might say if certain news, such as specific positive or negative earnings or macroeconomic news, comes out, then he or she will buy (or sell) a security. Also, if it becomes apparent that a large buyer or seller enters the market, the trader might want to get out. 

Traders might also consider setting limits on the amount they win or lose in a day. In other words, if they reap an $X profit, they're done for the day, or if they lose $Y they fold up their tent and go home. This works for investors because sometimes it is better to just "go on take the money and run," like the old Steve Miller song suggests even when those two birds in the tree look better than the one in your hand. 

Creating a Trading Plan

Traders should try to learn about their area of interest as much as possible. For example, if the trader deals heavily and is interested in telecommunications stocks, it makes sense for him or her to become knowledgeable about that business. Similarly, if he or she trades heavily in energy stocks, it's fairly logical to want to become well versed in that arena.

To do this, start by formulating a plan to educate yourself. If possible, go to trading seminars and attend sell-side conferences. Also, it makes sense to plan out and devote as much time as possible to the research process. That means studying charts, speaking with management (if applicable), reading trade journals or doing other background work (such as macroeconomic analysis or industry analysis) so that when the trading session starts the trader is up to speed. A wealth of knowledge could help the trader overcome fear issues in itself, so it's a handy tool.

In addition, it's important that the trader consider experimenting with new things from time to time. For example, consider using options to mitigate risk, or set stop losses at a different place. One of the best ways a trader can learn is by experimenting - within reason. This experience may also help reduce emotional influences.

Finally, traders should periodically review and assess their performance. This means not only should they review their returns and their individual positions, but also how they prepared for a trading session, how up-to-date they are on the markets and how they're progressing in terms of ongoing education, among other things. This periodic assessment can help the trader correct mistakes, which may help enhance their overall returns. It may also help them to maintain the right mindset and help them to be psychologically prepared to do business. 

Bottom Line

It's often important for a trader to be able to read a chart and have the right technology so that their trades get executed, but there is often a psychological component to trading that shouldn't be overlooked. Setting trading rules, building a trading plan, doing research and getting experience are all simple steps that can help a trader overcome these little mind matters.

We've already mentioned that there are many ways to invest your money. Of course, to decide which investment vehicles are suitable for you, you need to know their characteristics and why they may be suitable for a particular investing objective. 

Bonds 

Grouped under the general category called fixed-income securities, the term bond is commonly used to refer to any securities that are founded on debt. When you purchase a bond, you are lending out your money to a company or government. In return, they agree to give you interest on your money and eventually pay you back the amount you lent out. 

The main attraction of bonds is their relative safety. If you are buying bonds from a stable government, your investment is virtually guaranteed, or risk-free. The safety and stability, however, come at a cost. Because there is little risk, there is little potential return. As a result, the rate of return on bonds is generally lower than other securities. (The Bond Basics tutorial will give you more insight into these securities.) 

Stocks 

When you purchase stocks, or equities, as your advisor might put it, you become a part owner of the business. This entitles you to vote at the shareholders' meeting and allows you to receive any profits that the company allocates to its owners. These profits are referred to as dividends. 

While bonds provide a steady stream of income, stocks are volatile. That is, they fluctuate in value on a daily basis. When you buy a stock, you aren't guaranteed anything. Many stocks don't even pay dividends, in which case, the only way that you can make money is if the stock increases in value - which might not happen. 

Compared to bonds, stocks provide relatively high potential returns. Of course, there is a price for this potential: you must assume the risk of losing some or all of your investment. (For additional reading, see Stock Basics tutorial and Guide to Stock Picking Strategies.) 

Mutual Funds 

A mutual fund is a collection of stocks and bonds. When you buy a mutual fund, you are pooling your money with a number of other investors, which enables you (as part of a group) to pay a professional manager to select specific securities for you. Mutual funds are all set up with a specific strategy in mind, and their distinct focus can be nearly anything: large stocks, small stocks, bonds from governments, bonds from companies, stocks and bonds, stocks in certain industries, stocks in certain countries, etc. 

The primary advantage of a mutual fund is that you can invest your money without the time or the experience that are often needed to choose a sound investment. Theoretically, you should get a better return by giving your money to a professional than you would if you were to choose investments yourself. In reality, there are some aspects about mutual funds that you should be aware of before choosing them, but we won't discuss them here. (You can, check out the details in the Mutual Fund Basics tutorial.) 

Alternative Investments: Options, Futures, FOREX, Gold, Real Estate, Etc. 

So, you now know about the two basic securities: equity and debt, better known as stocks and bonds. While many (if not most) investments fall into one of these two categories, there are numerous alternative vehicles, which represent the most complicated types of securities and investing strategies. (Go through our Forex Walkthrough which goes from beginner to advanced.)

The good news is that you probably don't need to worry about alternative investments at the start of your investing career. They are generally high-risk/high-reward securities that are much more speculative than plain old stocks and bonds. Yes, there is the opportunity for big profits, but they require some specialized knowledge. So if you don't know what you are doing, you could get yourself into a lot of trouble. Experts and professionals generally agree that new investors should focus on building a financial foundation before speculating. (For more on how levels of risk correspond to certain investments, check out: Determining Risk And The Risk Pyramid.) 

How to Invest

1. 1
   Pay off high interest debt. If you have a loan or credit card debt with a high interest rate (over 10%) there's no point in investing your hard-earned cash. Whatever interest you earn through investing (usually less than 10%) won't make much of a difference because you'll be spending a greater amount paying interest on your debt.[1] For example, let's say Sam has saved $4,000 for investing, but he also has $4,000 in credit card debt at a 14% interest rate. He could invest the $4,000 and if he gets a 12% ROI (return on investment--and this is being very optimistic) in a year he'll have made $480 in interest. But the credit card company will have charged him $560 in interest. He's $80 in the hole, and he still has that $4,000 principal to pay off. Why bother? Pay off the high interest debt first so that you can actually keep any money you make by investing. Otherwise, the only investors making money are the ones who loaned it to you at a high interest rate.
   
   
   
   
2. 2
   Build your emergency fund. If you don't have one already, it's a good idea to focus your efforts on setting aside 3-6 months of living expenses just in case. This is not money that should be invested; it should be kept readily accessible and safe from swings in the market. You can split your extra money every month, sending part of it to your emergency fund and part of it to your investing fund. Whatever you do, don't tie up all of your extra money in investments unless you have a financial safety net in place; anything can go wrong (a job loss, an injury, an illness) and failing to prepare for that possibility is irresponsible.
   
   
   
   
3. 3
   Write down your investment goals. While you're paying down high interest debt and building your emergency fund, you should think about why you're investing. How much money do you want to have, and in what period of time? Different investors have different goals, such as:
   
   
   
   
   • Holding onto money so that it's just above inflation
   • Having a specific amount of money for a down payment in 10 years
   • Building a nest egg for retirement in 20 years
   • Building a college fund for a child or grandchild in 5 years
4. 4
   Choose your investments. The bigger the chunk of money you have available for investing, the more choices you have. Most people diversify by investing in more than one place, but the way they split their investments depends on their goals and the amount of risk they're willing to accept.
   
   
   
   
   • Savings accounts - low minimum balance, liquid but with limitations on how often the account is accessed, low interest rate (usually much lower than inflation), predictable
   • Money market accounts (MMAs) - higher minimum balance than savings, liquid but with limitations on how often the account is accessed, earns about twice the interest rates of savings accounts,[2] high-yield MMAs offer higher interest rates but higher risks
   • Certificates of deposit (CDs) - similar to savings account but with higher interest rates and restrictions on early withdrawal, offered by banks, brokerage firms and independent salespeople, low-risk but reduced liquidity, may require high minimum balance for desired interest rates
   • Bonds - a loan taken out by a government or company to be paid back with interest; considered "fixed income" securities because the same income will be generated regardless of market conditions,[3] you'll need to know the par value (amount loaned), coupon rate (interest rate), and maturity rate (when the principal and interest must be paid back)
     
     
   • Stocks - usually purchased through brokers; you buy pieces (shares) of a corporation which entitles you to decision-making power (usually by voting to elect a board of directors). You may also receive a fraction of the profits (dividends). Dividend reinvestment plans (DRPs) and direct stock purchase plans (DSPs) - bypass brokers (and their commissions) by buying directly from companies or their agents, offered by more than 1,000 major corporations,[4] can invest as little as $20-30 per month and can buy fractional shares of stocks, but can also be high-risk (you cannot decide the price at which to buy when you invest via such plans).
   • Real estate property - ties up money (not easy to liquidate investment), capital intensive (usually leveraged through mortgage loans)
   • Mutual funds - not insured by any government agency, built-in diversification, some funds have low initial purchase amounts, and you'll have to pay annual management fees
   • Real Estate Investment Trusts (REITs) - similar to mutual funds, but instead of investing in stocks, they invest in real estate
   • Gold and silver - these are great ways to store your money and keep up with inflation. They are not subject to tax, and they are easy to store and very liquid (can buy and sell easily).
5. 5
   Save money to invest. If you don't already have money set aside for investing, you'll need to build up your investment fund. By now, you should know how much money you'll need to reach your goals, given the risks you've chosen to undertake.
   
   
   
   
6. 6
   Buy low. Whatever you choose to invest in, try to buy it when it's "on sale" -- that is, buy when no one else is buying. For example, in real estate, you'll want to purchase property when it's a buyer's market, which is when there's a high proportion of properties for sale versus potential buyers. When people are desperate to sell, you have greater room fornegotiation, especially if you can see how the investment will pay off when others don't (or perhaps they do, but can't afford to act on it at the time).
   
   
   
   
   • An alternative to buying low (since you never know for sure when it is low enough) is to to buy at a reasonable price and sell higher. When a stock is "cheap", such as 80% or more below its 52 week high, there is a reason. Stocks don't drop in price like houses. Stocks typically drop in price because there is a problem with the company, whereas houses drop in price not because there is a problem with the house, but because there is a lack of overall demand for houses. When the entire market drops, however, it is possible to find certain stocks that fell simply because of an overall "sell-off." To find these good deals, one must do extensive valuations. Try to buy at a discount price when the valuation of the company shows its stock price should cost more.
7. 7
   Hold on tight. With more volatile investment vehicles, you may be tempted to bail. It's easy to get spooked when you see the value of your investments plummet. If you did your research, however, you probably knew what you were getting into, and you decided early on how you were going to approach the swings in the market place. When the stocks you hold plummet in price, update your research to find out what is happening to the fundamentals. If you have confidence in the stock, hold, or, better yet, buy more at the better price. But if you no longer have the confidence in the stock and the fundamentals have changed permanently, sell. Keep in mind, however, that when you're selling your investments out of fear, so is everyone else, and your exit is someone else's opportunity to buy low.
   
   
   
   
8. 8
   Sell high. If and when the market bounces back, sell your investments, especially the cyclical stocks. Roll the profits over into another investment with better valuations (buying low, of course) and try to do so under a tax shelter that allows you to re-invest the full amount of your profits (rather than having it taxed first). In the U.S., examples would be1031 exchanges (in real estate) and Roth IRAs.
   
   
   

Gold Trading Company: Types of Gold Investment Opportunities

Investment expert Jonathan Yates of the Small Cap Network wrote in his article entitled, ‘Profit from Mining Stocks as Gold Rises’ that as gold prices continue to rise ($1837.20/oz) gold mining and exploration stocks become compelling investment opportunities. In the Wall Street Journal, BHP Billiton’s chief Executive Marius Kloppers explained that because of production shortfalls at mines gold prices and profits for investors will remain high. Nick Santiago of IntheMoneyStocks.com agrees, stating, “Gold and gold mining stocks are taking off to the upside.”

Procuring shares in gold mining companies is one investment option but if you want to increase your gold, approach a gold trading company and they will be able to help you include more gold in your investment portfolio.

Some Gold Options:

From time to time gold has been touted as a ‘solid’ investment. As the economy goes through the turbulence it is currently experiencing, even as gold is on a meteoric rise, one should gain a thorough understanding of the options before spending any savings.

Bullion: bullion bars and coins is done with the hopes of trading at the right moment when gold prices are high to gain from the situation. But it is much more complex than it looks. Firstly, the gold market is highly dynamic and as there is constant shift one must be able to predict its movement before buying or selling so as to not incur a loss. This takes a lot of study and research to understand and yet there are risks, such as in every investment opportunity. These risks can be mitigated by holding for the long-term and not treating physical gold as a trade.

Numismatics: these are coins that have been minted as currency or proof coins or even artifacts that have historical significance. This may also help you gain profit and these values are guided by rarity, historical significance, circulation, condition etc.

Certificates: Rather than storing physical gold and incurring the cost of storage and the risk of theft, some people invest in gold certificates. These are certificates of ownership that the bank gives for allocated and unallocated gold. The unallocated ones are a type of fractional reserve banking practice.

Mutual Funds: Mining companies that are involved in the mining and exploration of gold offer shares to investors and pay them dividend. The preference in such scenarios is senior stock gold as a senior is a company that is well established for a number of years. The share prices are dependent on gold prices, the company’s performance and fluctuations in the market per se.

Futures: This is a complex and high risk investment that experts indulge in. It allows them to speculate, but the gains and losses involved are high. The terms of the deal are set but the amount is not paid completely and the gold is not delivered, so the speculation can allow for larger investments and bigger risks.

ETFs: Just like ordinary stock, this gold investment option can be traded on a stock exchange. The portfolio is fixed and that makes exchange easy and at low cost. These are highly liquid, passively managed mutual funds that are designed to give similar results as physical gold. But are more expensive in the long run than physical gold so therefore are usually treated as a short-term trade vehicle.

The smallest fluctuations in the gold market can impact investment portfolios that contain gold, immensely. Evaluate the opportunity shrewdly before making any investment. There are risks and hazards as in any other investment option. Decide beforehand based on your understanding and expertise, the amount you are willing to invest, a reliable gold trading company to help you along the way and your establish your goals and objectives. Be wary of opportunities that seem too lucrative to be true, remember all that glitters is not gold.

Protect your Nest Egg Invest in Gold

Types of Gold Investment

Committing in Goldis undoubtedly secure and successful to a certain level. Although the profit is probably not as high as that of stock stocks, Goldis not subject to the go up and down variation as the stocks. In other words, Goldfinancial commitment is constant, not affected by any negative situation of politic or economic climate of a country. In general, there are a couple of the most common types of purchases which are gold and money. To be exact, the money are by means of 'certified unusual Goldcoins' and the gold is by means of 'modern bullion'. Considering their size, both types of Goldcan be actually kept in a secure put in box, and both products can become forcefully ideal resources.

The accredited unusual money are the best option for a extensive run financial commitment. Because they are positioned and accredited by an approved third party, the value is now getting greater. The less likely the money, the greater the price, and this is why money enthusiasts would do anything to have them. With the legal organizations established to ensure the cleanliness and validity of money, a large network of approved sellers has been managed. This way, enthusiasts must have secure collection of genuine and positioned money. Having the genuine and positioned money is really good for a extensive run financial commitment with all the documentation that goes along with them.

In comparison, when you are in a situation of wanting a Goldfinancial commitment for a quick, then you are recommended to have the contemporary gold type of financial commitment. The contemporary gold Goldfinancial commitment is said to be the best option for quick financial commitment because it is liquefiable around the community immediately and it has low purchase top quality. This is made possible because the Goldhas been hit and confirmed by certain major companies. The resources around the world and the low rates are the reasons why contemporary Goldgold is the beautiful quick financial commitment.

It was probably hard to imagine a while ago that you can do a lot of purchase from home without actually looking at or having the investment in hand. It even was difficult, especially with the famous info 'cash and carry'. Today, although traditional marketplaces do still exist actually, on the internet marketplaces are even more plentiful and far larger, masking the entire world! Any investment can be promoted and bought on the internet, of course with the believe in as the basis of the business. This also relates to precious metal. Whereas Goldhas been mostly known as useful investment which is usually ordered in traditional market, it is now also available on the internet.

Top Online Stock Trading Sites

Online stock trading sites offer investors access to a variety of tools and research that just a few years ago were only available through full service brokerage accounts.

There are many online stock trading sites to choose from, but narrowing down the field may seem time consuming and overwhelming.

Here are thirteen of the top-rated online stock trading sites that continually show up on just about every list of the best.

Ultimately, your choice is a personal one based on a number of factors and how you rank them in importance.

Not every online stock trading site on this list will work for you because some are stronger in one area, while weaker in another.

All of these sites encourage you to browse through their pages, although some parts will be off limits unless you have an account.

Here are online stock trading sites you should consider:

Charles Schwab

Schwab is the granddaddy of discount brokerage and is carrying this tradition to its online offering - although it is looking more like a traditional brokerage all the time. It offers its own research and clients can work with an investment advisor or Schwab will manage their account for them.

E*Trade

E*Trade gets high marks for its range of offerings including banking and mutual funds. The company has absorbed several other brokerage firms and is now a significant player in the online stock trading market. Like its competitors, active traders get lower rates on their trades.

Fidelity

Fidelity shows up at the top or near the top of almost every ranking of online stock trading brokers. They are not the least expensive, but top most lists in customer satisfaction. Fidelity is known for its research and investors can talk to advisors face-to-face at one of the many Fidelity investment centers.

Firstrade

One of the advantages of a brokerage account is consolidating your investment activity in one account cutting down paperwork. Firstrade topped a survey by Kiplinger as the online stock trading broker offering the most no-load mutual funds without a transaction fee.

Muriel Siebert

Muriel Siebert may not have the marketing muscle of other online stock trading sites but it is a solid brokerage house worth your look. The company receives high marks for customer service and research. The fee structure is straightforward and easy to understand.

OptionsXpress

Despite its name, this online stock trading site offers accounts that trade just about any type of security you want including options, stocks, mutual funds, exchange traded funds, futures and more. This site is easy to use and gets to the point. Not the cheapest, but tops in functionality.

Scottrade

Scottrade’s claim to fame is superior customer satisfaction as noted in J.D Power and Associates survey of online brokers. Commissions are on the low side and transactions are processed quickly.

TD Ameritrade

TD Ameritrade is another brokerage that is the result of mergers (Ameritrade was one of the merged companies and it has been around for a number of years). The company has a large selection of mutual funds and is noted for its responsiveness to customer inquiries.

Thinkorswim

This is a newcomer to the online stock trading scene, but worth checking out if you’re interested in something different. The site is not like any of the others, but Barron’s gives it extremely high marks, so despite its quirkiness, there’s plenty of substance.

TradeKing

TradeKing is the online stock trading site to checkout for low cost trading. This is their thing and SmartMoney.com, Barron’s and Kiplinger all agree. If you are looking for the best prices on trades, this is the place to start.

Vanguard

Vanguard made a name for itself at the low-cost leader in mutual funds. Vanguard is a solid company that excels in providing value to their customers and in consolidating investments in a brokerage account.

WallStreet*E

WallStreet*E combines low commissions with a broad range of web-based services to appeal to investors who want an integrated approach to investing and banking. The company offers a variety of online banking products and other services that will appeal to those who want to see their whole financial picture.

Wells Fargo

The financial services powerhouse Wells Fargo has an online stock trading site that fits it image of comprehensive services. You are offered five different levels of accounts depending on whether you want a strictly independent trading account or a version of their managed accounts. Investors looking for a single place to find all their financial services will find Wells Fargo a good place to start.

Conclusion

Online stock trading sites offer investors a wide range of tools, research and services.

Finding the right one for your style of investing and that meets your needs is a matter of visiting the sites to get a feel for the interface.

Pay attention to the fee structure and how it works with your trading style. If you are an infrequent trader, look for maintenance or inactivity fees.

If you want advice, see how that affects your trading costs.

Many of these sites will let you open a demo account, which will give you an idea how the real thing works.