Archive for the 'Investing' Category

Exchange traded funds (ETFs) are all the rage right now and chances are you’ve already put your money in one or two of them. Maybe a Spider or a commodity focused fund that you trade from your E-Trade account? Well if you aren’t already in ETFs you might want to think about adding one of these investment vehicles to your personal finance plan in the near future.

Defining ETFs

Exchange traded funds or ETFs are actually a type of index tracking fund. They are basically listed funds and they are traded in the same manner that you would trade single equities. Exchange traded funds regularly track the stock index value as well as the market climate. These are good investment if you would like to invest in liquid funds that can be easily bought or sold. What usually attracts investors to ETFs is the fact that this investment opens the door to more options. You can, in effect, create a diversified portfolio of personal finance investments.

Since these trade funds constantly monitor market changes, your risk is significantly reduced. Traders in ETFs are usually investing in funds that are performing well in the market.

An Edge over Mutual Funds

So, what are the advantages of investing in exchange traded funds? Is this better than mutual funds? Traders generally consider ETFs as slightly better than mutual funds. Mutual funds can be saturated. It may start with a good performance but it could reach a period where it will not perform as well as you would want it to. On the other hand, ETFs are constantly and regularly tracking the market. The investment, therefore, is dynamic. It will continue to perform well and it will continue to reduce your personal finance risks.

If you are into trading and investing, you would know what diversification in investment is. Investors are encouraged to diversify their investment portfolio. This is a good personal finance decision that will in many ways protect you against losses on investments. It is fairly easy for some investors to place their money on hot assets while others require a more cautious approach.

So what is diversification?

When people speak of diversification, they generally refer to the act or process of placing investments on various types of assets in different proportions. When you are making an investment, you generally consider various factors like your tolerance for risks, personal finance goals and time map.

Diversification, by itself, is not an assurance or a guarantee against risks and potential losses. However, this approach helps in significantly alleviating or minimizing the risks from speculative investments. You can offset the loss from one investment with the gain in another.

Now, why should you diversify?

Diversification is not only advisable, it must be mandatory if you are an investor. If you would like to ensure your money’s safety, you need to diversify.

There are various reasons why you should diversify. First off, diversification is a way to ensure a long-term investment return. It is a good way to maintain your long term investments. You minimize the risks on volatile investments and undervalued assets. You can say that the when you diversify you minimized your risk exposure level. You also temper the volatility of hot asset investments as well as the unpredictability of the market. With diversification, you can offset your losses, participate in the upside of some investments and mitigate the downside on other investments.

You however need to be careful with the investments you are diversifying into. Seek the advice of a trained profession when making any kind of diversification decisions.

When you speak of investment, you would eventually end up talking about bonds. But what are bonds? Simply put, bonds are actually loans. When you buy a bond, you actually lend your money to the company or the government issuing the bond. In return, the company will pay you the principal and its interest when the bond matures.

In the United States, it is the residents or citizens that buy the bonds. The reasons for purchasing these bonds vary. Generally, they are making the investment to boost their personal finance status.

Kinds of Bonds

There are various types of bonds. You’d generally find various categories for it. The categories are generally based on various factors including personal finance status, tax status, issuer and credit quality. Bonds may come with a fixed or high-yield rate. It can be linked to inflation. There are bonds that you call zero coupon bond or subordinated bonds along with other types.

Buying the Bonds

If you would like to buy bonds, you can generally buy them from various sources. One major issuer of bonds is the government. Corporations also issue bonds regularly. Government recognized companies may also issue bonds. Government Bonds can also be purchased at the US Bureau of the Public Debt online site and they accept many different forms of payment method. Generally, bonds are issued to raise money for the government or the corporation. If a corporation needs money for expansion, they may issue bonds to cover for their expansion expenses.

You can buy bonds from the open market. You will find bonds that are traded by insurance companies, credit unions, banks, pension funds, and savings institutions. You can easily purchase these bonds from a full service broker or a dealer. Many of them allow you to purchase bonds online if you would prefer to do so.

If part of your personal finance plan is an interest in making investments, there are two factors that would primarily concern you – the cost of the product and its subsequent selling price. Your goal is to buy the product at a low price and be able to sell the product at a high price. Unfortunately, you cannot always predict how the market would go. It’s difficult to know when the market would be favorable to you. You may be putting your personal finance at risk if the market turns against you. Because of this, people would oftentimes resort to dollar cost averaging.

What is Dollar Cost Averaging?

When you dollar cost average, you basically regularly invest a fixed amount of money into the market. The investor would use a systematic investment approach without much regard to the market conditions. Dollar cost averaging is great when you are creating your personal finance plans and you do not want to leave your finances at the hands of the market’s whims. Dollar cost averaging is basically used when you are making investments on stocks or unit trusts.

If you would like to create an investment that would produce long term return on investment, dollar cost averaging is the most effective method of maximizing investments especially when you do not want to consider the market. Usually, when you compare the cost of your investment with the average market cost, you would incur lower cost with dollar cost averaging. This method is ideal when the market is quite volatile. You might reconsider, however, using this method when it comes to other funds or forms of investment.

Before you invest however make sure that you have as much information as you can get your hands on. It is always better to make informed decisions when investing. Also you should never invest what you cannot afford to lose.

As a parent, it is very important for you that you give the best to your children. Oftentimes, you’d be dreaming of sending your child to college. This is not an easy task. Going to college means a lot of expenses. This takes a toll on your personal finance. So ideally, you should consider saving for college as early as you can. A college education is without a doubt the best gift that you can give to your children.

College is not cheap. The cost can be quite staggering especially if you are living on paycheck to paycheck. If you do not have enough money saved for college, it is highly doubtful if you would have an easy time sending your child to college. It is not getting cheaper. In fact, the cost is increasing with every semester.

Why should you start saving?

If you are in the middle class range, it is already difficult to send a child to college. Oftentimes, the income of the family is not enough. Their personal finance is severely stressed out. Do not think that you can always resort to student loan, bank loans and scholarship grants. These sources are not a guarantee. Chances are your child will not qualify for a loan or a grant.

Instead of setting your cap on these things, it would be a wise idea to ensure your child’s education yourself by starting to save for college. Ill-planning has placed people in huge debts; oftentimes, forcing the students to drop out of school. If you would like to protect your child’s future and contribute to his chances of a better life, you should start saving for your child’s college education.

The sooner you start saving the less money you will need to find (if any at all) to send your child to college.

Most of you would have thought “the Fed cuts rates, stocks are going to jump higher and higher.” Similar to what they’ve been doing over the past week or two. The stock market has been on the rise.

But today, when the Feds announced a quarter point cut stocks plummeted. I mean dropped like a rock, loosing almost 300 point overall. This after a morning of strong movement upwards.

Stocks like Google, GOOG, went from being up $5 to dropping nearly $20. Almost everything else followed suit, on the NASDAQ and the NYSE stocks just dropped.

The reason being, is because there was a general though that Feds would drop rates a half point and they didn’t. We’ll see how things rebound tomorrow.

We here at Financing Wealth look to not only give you tips on building your wealth but we also try and find good resources to help you expand your financial knowledge beyond what we can offer. That’s why we thought our readers would be interesting in this investment blog.

InvestingBlog.org has daily updates about a wide range of financial matters. After going through their first few pages of posts we noticed that they give you informative articles along with sometimes multiple updates during the day to keep you abreast of what’s happening in the financial markets.

Some of the good articles that we like are the ones on ETF’s or Exchange Traded Funds. As we sometimes write about we really like these funds for people who are looking to not only buy several stocks in a sector with little money but also people who want to diversify. ETF’s are a great vehicle to do both.

Another good category with lots of info is their category on real estate investing. Everyone can always use a little more information towards building more wealth around all the equity they’ve built up in their house. Especially with economic times a changing.

Planning for retirement is a key element in securing your financial peace of mind. Depending on your current age, your long-term investment goals for the future will differ. Whatever your age, three targets to plan for are your financial security, adequate health care coverage, and the well-being of your heirs and your estate. General wisdom suggests various perspectives on investing for your retirement based on your age group.

In Your 20s

Getting started in investing is crucial at this time–compound interest is your friend. Even if you are struggling to pay off college debts and meet living expenses, the interest that accrues if you begin investing early in life makes this the soundest financial decision you can make.

In Your 30s

Juggling to buy a home, support a family, pay for college, and make ends meet probably leaves little thought for retirement right now. Wrong! Remember that you can save on taxes by investing in a salary reduction plan on the job. You may also be able to borrow that money from yourself to help pay for your home purchase. Investment assets may prove helpful in securing a good mortgage rate.

In Your 40s
Earning more at this point in your life probably means spending more. Expensive hobbies, bigger homes, college tuition are all high on the list of expenses now but don’t forget to maintain your retirement savings.

In Your 50s
If you’ve paid off the mortgage, continue putting this payment into your retirement vehicle. You may begin taking contributions at this time. Consider making gifts of investments to your heirs.

In Your 60s
Think about continuing your investments even after you begin taking your retirement contributions. This money will keep growing for you and your loved ones.

In Your 70s
Enjoy your retirement wealth. Review estate plans to be sure assets are distributed according to your wishes. Consider setting up a scholarship at a local college that reflects one of your passions or honors a family member.

If you have an account with Bank of America, you may be able to trade stocks for free. Bank of America recently announced that if you hold $25,000 in your combined accounts with them, you are eligible for 30 free equity trades each month. The combined balance can include checkings and savings accounts as well as CDs. If you already bank with them and maintain such a balance, this is an excellent opportunity to get your feet wet in the stock market at no cost. Provided you pick the right stocks, of course!

Exchange Traded Funds made quite an impression in 2006 and ETF’s look to make and even bigger splash in 2007.

The ETF is a great thing if you want to get into many a mutual fund but don’t want to deal with going through a management firm. Most management firms make you join with a lump sum and only allow you to buy with a certain amount. This can put a lot of restrictions on your investments.

With ETF’s you can buy and sell shares of “funds” just like a stock on any stock market. You can use your online discount broker to buy the shares and sell the shares. You can get into funds like SLV which trades silver or FXI which trades china related companies.

To find the most traded funds in one place and get into the funds look at iShares.com. It’s the company that’s putting ETF’s on the investment map and will be your single resource to find an ETF on everything.

If you’re looking for a good investment vehicle that’s as safe as some mutual funds but as easy to day trade as stocks then ETF’s are the thing for you.