Portfolios And Diversification

It's good to clarify how securities are different from each other, but it's even more important to understand how their different characteristics can work together to accomplish an objective. 

The Portfolio 
A portfolio is a combination of different investment assets mixed and matched for the purpose of achieving an investor's goal(s). Items that are considered a part of your portfolio can include any asset you own - from real items such as art and real estate, to equities, fixed-income instruments and their cash and equivalents. For the purpose of this section, we will focus on the most liquid asset types: equities, fixed-income securities andcash and equivalents. 

An easy way to think of a portfolio is to imagine a pie chart, whose portions each represent a type of vehicle to which you have allocated a certain portion of your whole investment. The asset mix you choose according to your aims and strategy will determine the risk and expected return of your portfolio. 

Basic Types of Portfolios 
In general, aggressive investment strategies - those that shoot for the highest possible return - are most appropriate for investors who, for the sake of this potential high return, have a high risk tolerance (can stomach wide fluctuations in value) and a longer time horizon. Aggressive portfolios generally have a higher investment in equities. 

The conservative investment strategies, which put safety at a high priority, are most appropriate for investors who are risk averse and have a shorter time horizon. Conservative portfolios will generally consist mainly of cash and cash equivalents, or high-quality fixed-income instruments. 

To demonstrate the types of allocations that are suitable for these strategies, we'll look at samples of both a conservative and a moderately aggressive portfolio. 

Note that the terms cash and the money market refer to any short-term, fixed-income investment. Money in a savings account and a certificate of deposit (CD), which pays a bit higher interest, are examples. 


The main goal of a conservative portfolio strategy is to maintain the real value of the portfolio, or to protect the value of the portfolio against inflation. The portfolio you see here would yield a high amount of current income from the bonds and would also yield long-term capital growth potential from the investment in high quality equities. 

A moderately aggressive portfolio is meant for individuals with a longer time horizon and an average risk tolerance. Investors who find these types of portfolios attractive are seeking to balance the amount of risk and return contained within the fund. 

The portfolio would consist of approximately 50-55% equities, 35-40% bonds, 5-10% cash and equivalents. 


You can further break down the above asset classes into subclasses, which also have different risks and potential returns. For example, an investor might divide the equity portion between large companies, small companies and international firms. The bond portion might be allocated between those that are short-term and long-term, government versus corporate debt, and so forth. More advanced investors might also have some of the alternative assets such as options and futures in the mix. As you can see, the number of possible asset allocations is practically unlimited. 

Why Portfolios? 
It all centres around diversification. Different securities perform differently at any point in time, so with a mix of asset types, your entire portfolio does not suffer the impact of a decline of any one security. When your stocks go down, you may still have the stability of the bonds in your portfolio. 

There have been all sorts of academic studies and formulas that demonstrate why diversification is important, but it's really just the simple practice of "not putting all your eggs in one basket." If you spread your investments across various types of assets and markets, you'll reduce the risk of catastrophic financial losses. 

How Stocks Trade

Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide on a price. Some exchanges are physical locations where transactions are carried out on a trading floor. You've probably seen pictures of a trading floor, in which traders are wildly throwing their arms up, waving, yelling, and signaling to each other. The other type of exchange is virtual, composed of a network of computers where trades are made electronically.

The purpose of a stock market is to facilitate the exchange of securities between buyers and sellers, reducing the risks of investing. Just imagine how difficult it would be to sell shares if you had to call around the neighborhood trying to find a buyer. Really, a stock market is nothing more than a super-sophisticated farmers' market linking buyers and sellers.

Before we go on, we should distinguish between the primary market and the secondary market. The primary market is where securities are created (by means of an IPO) while, in the secondary market, investors trade previously-issued securities without the involvement of the issuing-companies. The secondary market is what people are referring to when they talk about the stock market. It is important to understand that the trading of a company's stock does not directly involve that company.

The New York Stock Exchange 
The most prestigious exchange in the world is the New York Stock Exchange (NYSE). The "Big Board" was founded over 200 years ago in 1792 with the signing of the Buttonwood Agreement by 24 New York City stockbrokers and merchants. Currently the NYSE, with stocks like General Electric, McDonald's, Citigroup, Coca-Cola, Gillette and Wal-mart, is the market of choice for the largest companies in America.


The NYSE is the first type of exchange (as we referred to above), where much of the trading is done face-to-face on a trading floor. This is also referred to as a listed exchange. Orders come in through brokerage firms that are members of the exchange and flow down to floor brokers who go to a specific spot on the floor where the stock trades. At this location, known as the trading post, there is a specific person known as the specialist whose job is to match buyers and sellers. Prices are determined using an auction method: the current price is the highest amount any buyer is willing to pay and the lowest price at which someone is willing to sell. Once a trade has been made, the details are sent back to the brokerage firm, who then notifies the investor who placed the order. Although there is human contact in this process, don't think that the NYSE is still in the stone age: computers play a huge role in the process.


The Nasdaq 
The second type of exchange is the virtual sort called an over-the-counter (OTC) market, of which the Nasdaq is the most popular. These markets have no central location or floor brokers whatsoever. Trading is done through a computer and telecommunications network of dealers. It used to be that the largest companies were listed only on the NYSE while all other second tier stocks traded on the other exchanges. The tech boom of the late '90s changed all this; now the Nasdaq is home to several big technology companies such as Microsoft, Cisco, Intel, Dell and Oracle. This has resulted in the Nasdaq becoming a serious competitor to the NYSE.

On the Nasdaq brokerages act as market makers for various stocks. A market maker provides continuous bid and ask prices within a prescribed percentage spread for shares for which they are designated to make a market. They may match up buyers and sellers directly but usually they will maintain an inventory of shares to meet demands of investors.

Other Exchanges 
The third largest exchange in the U.S. is the American Stock Exchange (AMEX). The AMEX used to be an alternative to the NYSE, but that role has since been filled by the Nasdaq. In fact, the National Association of Securities Dealers (NASD), which is the parent of Nasdaq, bought the AMEX in 1998. Almost all trading now on the AMEX is in small-cap stocks and derivatives.

There are many stock exchanges located in just about every country around the world. American markets are undoubtedly the largest, but they still represent only a fraction of total investment around the globe. The two other main financial hubs are London, home of the London Stock Exchange, and Hong Kong, home of the Hong Kong Stock Exchange. The last place worth mentioning is the over-the-counter bulletin board (OTCBB). The Nasdaq is an over-the-counter market, but the term commonly refers to small public companies that don't meet the listing requirements of any of the regulated markets, including the Nasdaq. The OTCBB is home to penny stocks because there is little to no regulation. This makes investing in an OTCBB stock very risky.

Types Of Investments

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. 

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. 

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. 

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. 

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.

Trading Stocks Is Beneficial For Investors

As active traders we interact with Wall Street on a regular basis, so we've become accustomed to the ever-changing personalities of the stock market. As challenging as online stock trading may be sometimes, we're fortunate to know the "real" Street - that gritty pavement zone where the rubber meets the road.

This view is in contrast to the average investor who usually has a rather naive impression of how things work. Investors typically only have contact with the stock market once or twice a year. Though they may not know it, relying on casual or occasional oversight of one's stock holdings is not the best route to take.

As a rule the only person who really cares about your finances is you. There may be some rare exceptions, but in the stock market it usually isn't a good idea for investors to delegate fiscal responsibility to someone else.

Proactive stock market trading causes a person to develop skills and learn quickly. Successful stock traders know that a good education is essential. Though many investors are in denial about their limited abilities, many others have developed skills to take advantage of a constantly changing stock market. This trend toward intelligent trading appeals to investors who want to be more capable.

In spite of being viewed as river-boat gamblers, professional stock traders are generally regimented and highly skilled. This combination of discipline and expertise comes from the constant repetition involved in actively trading stocks. There's no substitute for the knowledge gained from realtime market interaction. Trading is a fast teacher, compressing decades of "normal" investing experience into just a few years. 

Long-term investors sometimes look at the short-term aspects of resources like the RightLine Report and immediately assume that the recommended strategies don't apply to them. In fact, even with the obvious differences in time frame, all of the basic principles of intelligent short-term trading apply to long term investing as well.

Such as . . .

- Detailed Planning - Ask the average investor to show you his or her investment plan and you'll probably get sidestepped. In fact, most investors don't have a real plan.

- Technical Analysis - Regardless of any other reason to buy a stock, the charts should always be used for timing entries. Support and resistance has a huge impact on stock price movement.

- Risk management - Investors rarely use proper position sizing techniques before buying. This means they are over-exposed to risk immediately after a purchase, and often take damaging losses before they even realize what has happened. Choosing the optimum number of shares to buy in relation to personal account size provides a layer of protection every investor needs.

- Trade management - This is where the rubber meets the road. Just looking at a monthly statement once a quarter rarely works in the real world of investing. Every investor should review their portfolio at regular intervals, and use trailing stops as part of their exit strategy. It's important to know when to get in, but when it comes to making money in the stock market, knowing where to get out is worth even more.

Bottom Line: In reality short-term trading is an efficient way to learn how to invest. Contrary to public opinion, trading is also more productive and much safer than investing - especially the way most folks invest.

Intelligent traders use proven market principles that work in any time frame. My associates and friends who just "invest" in the stock market are usually surprised to discover that the GCM and website is very relevant to their situation - even if they don't "trade". As GCM been awards as WORLD FINANACE FOREIGN EXCHANGE AWARDS 2013 Best Retail Trading Platform.

      

Invest well!

Foreign Exchange Trading Is The Simultaneous Buying Of One Currency And Selling Of Another.

The foreign exchange market (Forex or FX) is the largest financial market in the world with a daily turnover of over $4.0 trillion. Examples of currency trading pairs are Euro/US Dollar (EUR/USD) and US Dollar/Japanese Yen (USD/JPY). Most currency transactions involve the “Majors” – US Dollar, Euro, Japanese Yen, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.

Unlike other financial markets, the foreign exchange market has no physical location and no central exchange. The Forex market operates 24 hours a day through an electronic network of banks, corporations and individual traders. Forex trading begins every day in Sydney, then moves to Tokyo, followed by London and then New York. The major market makers, or dealers, consist of the commercial and investment banks, the exchange traded futures, and registered futures commission merchants.  To get a free live Demo click here.

Foreign Exchange (Forex) Prices

Foreign exchange markets and prices are mainly influenced by international trade flows and investment flows. The FX markets are also influenced, but to a lesser extent, by the same factors that influence the equity and bond markets: economic and political conditions especially interest rates, inflation, and political instability. Those factors usually have only a short-term impact, which makes Forex attractive as it offers some of the diversification necessary to protect against adverse movements in the equity and bond markets.

Foreign Exchange prices, or quotes, include a “Bid” and “Ask” similar to other financial products:

Bid: Price at which Dealer is willing to Buy and Traders can Sell Currency.

Ask: Price at which Dealer will Sell and Traders can Buy Currency.

The difference between the Bid and Ask is called the “Spread“, which is the Trader’s cost of the transaction.

Currencies are usually quoted to four decimal places, such as the Euro/US Dollar trading at 1.2400/1.2403, with the last decimal place referred to as a point or “pip“. A pip for most currencies is 0.0001 of an exchange rate; the one exception is the USD/JPY quote in which each pip is equal to 0.01.

China posted encouraging results this week. Exports rose 5.6 percent beating expectations in October. Analysts had forecasted a 3.2 percent growth. Imports grew less than expected by rising 7.6 percent. Both numbers resulted in a net surplus of $31 billion in October. September's surplus was half of that at $15.2 billion. The market took the Chinese trade data as a suggestion that global demand continues to improve.

The figures support the statements by Chinese Premier Li Keqiang that the Asian economy is on track to reach the 7.5 percent growth target in 2013. A far cry from the 10 percent pace China set in the past three decades, but a sign of the impact the global economic crisis has had on growth.

China is one of the largest consumers of commodities, so good news regarding continued growth benefit producers. China is set to become the number one consumer of gold this year, after India's efforts to curb the metal import. Coal, steel and copper are markets where China leads both as a producer and a consumer.

The focus for the Communist party Plenum will be how to increase internal consumption to cope with the external drop in demand. Urbanization, financial reforms, ,social security, land ownership and pollution are some of the major topics that will be discussed.

Investing In Stock Rights And Warrants

Companies that need to raise additional capital can do so by issuing additional shares of stock. However, these additional shares will dilute the value of existing shares, which can be a concern for shareholders. Many companies, therefore, choose to issue rights or warrants as an alternative means of generating capital. These instruments give shareholders the preemptive right to purchase additional shares of stock directly from the company, typically at a discounted price.

Basic Characteristics

Stock rights are instruments issued by companies to provide current shareholders with the opportunity to preserve their fraction of corporate ownership. A single right is issued for each share of stock, and each right can typically purchase a fraction of a share, so that multiple rights are required to purchase a single share. The underlying stock will trade with the right attached immediately after the right is issued, which is referred to as “rights on”. Then the right will detach from the stock and trade separately, and the stock then trades “rights off” until the rights expire. Rights are short-term instruments that expire quickly, usually within 30-60 days of issuance. The exercise price of rights is always set below the current market price, and no commission is charged for their redemption.


Warrants are long-term instruments that also allow shareholders to purchase additional shares of stock at a discounted price, but they are typically issued with an exercise price above the current market price. A waiting period of perhaps six months to a year is thus assigned to warrants, which gives the stock price time to rise enough to exceed the exercise price and provide an intrinsic value. Warrants are usually offered in conjunction with fixed income securities and act as a “sweetener”, or financial enticement to purchase a bond or preferred stock. A single warrant can usually purchase a single share of stock, although they are structured to purchase more or less than this in some instances. Warrants have also been used on rare occasions to purchase other types of securities such as preferred offerings or bonds. Warrants differ from rights in that they must be purchased from a broker for a commission and usually qualify as marginable securities.


Both rights and warrants conceptually resemble publicly traded call options in some respects. The value of all three instruments inherently depends on the underlying stock price. They also resemble market options in that they have no voting rights and do not pay dividends or offer any form of claim on the company.

Different from Market Options

Rights and warrants differ from market options in that they are initially issued only to existing shareholders, although a secondary market typically springs up that allows other buyers to acquire these securities. Shareholders who receive rights and warrants have four options available to them. They can:

• Hold their rights or warrants for the time being
• 
  
• Purchase additional rights or warrants in the secondary market
• 
  
• Sell their rights or warrants to another investor

Simply allow their rights or warrants to expire
The final option listed here is never a wise one for investors. If the current market price of the stock exceeds the exercise price, then investors who do not wish to exercise them should always sell them in the secondary market to receive their intrinsic value. However, many uneducated stockholders who do not understand the value of their rights do this on a regular basis.

Pricing Formulas 

As with market options, the stock's market price could fall below the exercise price, at which point the rights or warrants would become worthless. Rights and warrants also become worthless upon expiration regardless of where the underlying stock is trading. The values for stock rights and warrants are determined in much the same way as for market options. They have both intrinsic value, which is equal to the difference between the market and exercise prices of the stock, and time value, which is based on the stock’s potential to rise in price before the expiration date.


Both types of securities will become worthless upon expiration regardless of the current price of the underlying stock. They will also lose their intrinsic value if the market price of the stock drops below their exercise or subscription price. For this reason, companies must set the exercise prices on these issues carefully to minimize the chance that the entire offering fails. However, rights and warrants can also provide substantial gains for shareholders in the same manner as call options if the price of the underlying stock rises.

Rights Pricing

The formula used to determine the value of a stock right is:

Current market price – subscription price of new stock / number of rights needed to buy one new share

Example

Current market price of current outstanding shares = $60

Subscription price of new stock = $50

Number of rights needed to buy one new share of stock = 5

$60 - $50 / 5 = $2 (value of each right)

Warrants Pricing

The formula for determining a warrant's value is:

Current market price of stock – subscription price of warrant / number of stock shares that can be purchased with a single warrant

Example

Current market price of stock = $45

Subscription price of warrant = $30

Number of stock shares that warrant can buy = 1

$45 - $30 / 1 = $15

Tax Treatment

Rights and warrants are taxed in the same manner as any other security. The difference between the exercise and sale prices of these securities is taxed as a long- or short-term gain. Any gain or loss realized from trading rights or warrants in the secondary market is taxed in the same manner (except that all gains and losses will be short-term).

Conclusion

Rights and warrants can allow current shareholders to purchase additional shares at a discount and maintain their share of ownership in the company. However, neither of these instruments is used much today, as stock and market options have become much more popular. For more information on rights and warrants, consult your stockbroker or financial advisor, you may also visit http://www.gcminternationalinc.com/en/partner/brokers-affiliates.html .

How to Avoid a Bad Investment Property Deal

When considering investment property of any type, it may appear to be in top shape and without a flaw. However, looks can be deceiving, to ensure that you are indeed getting the deal of a lifetime there are some things you want to look out for, which leads us to this article "How to avoid a bad deal-five signs". We are certain you do not want to purchase any investment property of any type, only months or even a year down the road find out that the investment property was a bad one or it is simply hard to sell when the time is right, well, here is how you can avoid these things.

Say No to Flood Regulation Lines and Flood Plains

For those of you that do not know, a flood plain is defined as level land within an area that borders a lake, pond, or river. Typically, flood plains can be determined quite easily, if you notice any indications of delta plains, levees, back swamps, or oxbow lax, this will tell you it is a flood plain. A flood plain has high instances of flooding or high water levels.

You definitely want to stay away from these areas when considering a piece of investment property. The offer for that particular property may seem too good to pass up; however, you may find yourself having to face a great deal of headaches, frustration, and even damage later on.

Say No to Rising Damp

Again for those of you unaware of what rising damp is. This occurs when the ground water flows in a vertical manner through the wall structure of the investment property. The pores in the masonry allow the water to rise and effect the entire structure. Age, Bridging, and Earth levels can all lead to rising damp.

There are many different ways of identifying rising damp. For example, if you attempt the paint the walls in a piece of investment property suffering from this occurrence, the paint will simply not take. Additionally, you will find that wallpaper will experience the same result. In fact, existing wall paper, if it has lifted from the walls, will possess stains underneath.

Take a moment to feel and inspect the plaster walls. When feeling it, test it to find if it will flake easily or feels soft and spongy. Furthermore, inspect the way the plaster actually looks, if it looks like crystals or a powdery substance, the investment property likely has rising damp. Further indication of rising damp may include falling or fretting mortar, skirting boards, mold, or rotting floorboards.

Inspect for those Annoying Pests

Pest inspection should be one of the very first things on your list when looking into any type of investment property. It may cost you a little bit of extra money, but in reality, the inspection alone could result in actually saving you money at the same time, not to mention the hassle of dealing with pests.

Peace of mind with investments comes with having a pest inspection done by a professional service. With a professional pet inspection, the property will be completely inspected and you will receive a report with findings on pest issues, such as termites. Experience, knowledge, and reputation all must be considered when looking for a pest inspection service.

Summary:

When you are looking into investment property, the one thing you want to stay away from are bad investments. A good deal, comes with a great price and sound surroundings and structure. Anything less, may point to a really bad investment. Find out here, what you should be looking for to ensure you end up with a good investment.