Investment Articles

An exchange traded fund is similar to a mutual fund in a lot of different ways. An ETF is a collection of different stocks and bonds, all grouped together so that you are investing in all of them simultaneously. This means that you’re spreading out your investment and thus you have a much better chance of increasing your initial investment and getting a return. Think of it like a roulette wheel where you bet on a spread of numbers instead of on a single number, but you could theoretically win with all the numbers on a single spin. Of course for every good investment you have to look at all of the variables, and one of the important variables with ETF trading is how much of a liquidity risk it is.

While an exchange traded fund has the capacity to make you a lot of money, you have to ask how quickly you can turn your investment back into cash when you need it. This financial alchemy is called liquidity, and it can be very important if you need cash and you need it quickly. After all making money is a great thing, but an investment that has a narrow window where you can get the money you’ve made, or an investment that says you have to wait a certain number of years before you can withdraw money, is something of a liquidity risk. On the other hand if you can show up any day of the week while the market is still open and request a transfer of your investment into cash, then your ETF has a very high liquidity, allowing you access to your money whenever you need to have it.

If you decide that an exchange traded fund is the investment for you then you need to look at just how strong the grip it has on your initial investment and any earnings that you make from it is. After all, even if you don’t have any pressing financial needs when you first make the investment, situations can change and you might need to liquefy your assets so that you can make necessary payments on health costs, home investments or other sorts of sudden costs that can leap up at you from nowhere in life. And if you don’t have the option of taking money from your ETF investment then for all intents and purposes, that money isn’t there.

Limiting liquidity risk is a big priority for buy side traders in Asia; browse our websites for more useful information.

The United Nations does it. Governments do it. Companies do it. Fund managers do it. Millions of ordinary working people – from business owners to factory workers – do it. Housewives do it. Even farmers and children do it.

‘It’ here is investing: the science and art of creating, protecting and enhancing your wealth in the financial markets. This article introduces some of the most important concerns in the world of investment.

Let’s start with your objectives. While clearly the goal is to make more money, there are 3 specific reasons institutions, professionals and retail investors (people like you and me) invest:

For Security, ie for protection against inflation or market crashes
For Income, ie to receive regular income from their investments
For Growth, ie for long-term growth in the value of their investments

Investments are generally structured to focus on one or other of these objectives, and investment professionals (such as fund managers) spend a lot of time balancing these competing objectives. With a little bit of education and time, you can do almost the same thing yourself.

One of the first questions to ask yourself is how much risk you’re comfortable with. To put it more plainly: how much money are you prepared to lose? Your risk tolerance level depends on your personality, experiences, number of dependents, age, level of financial knowledge and several other factors. Investment advisors measure your risk tolerance level so they can classify you by risk profile (eg, ‘Conservative’, ‘Moderate’, ‘Aggressive’) and recommend the appropriate investment portfolio (explained below).

However, understanding your personal risk tolerance level is necessary for you too, especially with something as important as your own money. Your investments should be a source of comfort, not pain. Nobody can guarantee you’ll make a profit; even the most sensible investment decisions can turn against you; there are always ‘good years’ and ‘bad years’. You may lose part or all of your investment so always invest only what you are prepared to lose.

At some point you’ll want to withdraw some or all of your investment funds. When is that point likely to be: in 1 year, 5 years, 10 years or 25 years? Clearly, you’ll want an investment that allows you to withdraw at least part of your funds at this point. Your investment timeframe – short-term, medium-term or long-term – will often determine what kinds of investments you can go for and what kinds of returns to expect.

All investments involve a degree of risk. One of the ‘golden rules’ of investing is that reward is related to risk: the higher the reward you want, the higher the risk you have to take. Different investments can come with very different levels of risk (and associated reward); it’s important that you appreciate the risks associated with any investment you’re planning to make. There’s no such thing as a risk-free investment, and your bank deposits are no exception. Firstly, while Singapore bank deposits are rightly considered very safe, banks in other countries have failed before and continue to fail. More importantly, in 2010 the highest interest rate on Singapore dollar deposits up to $10,000 was 0.375%, while the average inflation rate from Jan-Nov 2010 was 2.66%. You were losing money just by leaving your savings in the bank.

Today, there are many, many types of investments (’asset classes’) available. Some – such as bank deposits, stocks (shares) and unit trusts – you’re already familiar with, but there are several others you should be aware of. Some of the most common ones:

Bank Deposits
Shares
Investment-Linked Product1
Unit Trusts2
ETFs3
Gold4

1 An Investment-Linked Product (ILP) is an insurance plan that combines protection and investment. ILPs main advantage is that they offer life insurance.

2 A Unit Trust is a pool of money professionally managed according to a specific, long-term management objective (eg, a unit trust may invest in well-known companies all over the world to try to provide a balance of high returns and diversification). The main advantage of unit trusts is that you don’t have to pay brokers’ commissions.

3 An ETF or Exchange-Traded Fund comes in many different forms: for example, there are equity ETFs that hold, or track the performance of, a basket of stocks (eg Singapore, emerging economies); commodity ETFs that hold, or track the price of, a single commodity or basket of commodities (eg Silver, metals); and currency ETFs that track a major currency or basket of currencies (eg Euro). ETFs offer two main advantages: they trade like shares (on stock exchanges such as the SGX) and typically come with very low management fees.

The main difference between ETFs and Unit Trusts is that ETFs are publicly-traded assets while Unit Trusts are privately-traded assets, meaning that you can buy and sell them yourself anytime during market hours.

4 ‘Gold’ here refers to gold bullion, certificates of ownership or gold savings accounts. However, note that you can invest in gold in many other ways, including gold ETFs, gold Unit Trusts; and shares in gold mining companies.

With the advent of the Internet and online brokers, there are so many investment alternatives available today that even a beginner investor with $5,000 to invest can find several investment options suited to her objectives, risk profile and timeframe.

Diversification basically means trying to reduce risk by making a variety of investments, ie investing your money in multiple companies, industries and countries (and as your financial knowledge and wealth grows, in different ‘asset classes’ – cash, stocks, ETFs, commodities such as gold and silver, etc). This collection of investments is termed your Investment Portfolio.

Some level of diversification is important because in times of crisis, similar investments tend to behave similarly. Two of the best examples in recent history are the Singapore stock market crashes of late-2008/early-2009, during the US ‘Subprime’ crisis, and 1997, during the ‘Asian Financial Crisis’, when the price of large numbers of stocks plunged. ‘Diversifying’ by investing in different stocks wouldn’t have helped you very much on these occasions.

The concept and power of compounding are best explained by example. Assume we have 3 investments: the first returns 0.25% a year; the second returns 5% a year; and the third returns 10% a year. For each investment, we compare 2 scenarios:

Without compounding, ie the annual interest is taken out of the account.
With compounding, ie the annual interest is left (re-invested) in the account.

Let’s look at the returns over 25 years for all 3 investments, assuming we start off with $10,000 in Year 0:

With 0.25% return a year, your investment will grow to $10,625 after 25 years without compounding; your investment becomes $10,644 after 25 years with compounding.
With 5% return a year, your investment will grow to $22,500 after 25 years without compounding; your investment becomes $33,864 after 25 years with compounding.
With 10% return a year, your investment will grow to $35,000 after 25 years without compounding; your investment becomes $108,347 after 25 years with compounding.

This shows the dramatic effects of both higher returns and compounding: 10% annual returns coupled with 25 years of compounding will return you more than 10 times your initial investment. And 10% returns are by no means unrealistic: educated investors who actively manage their portfolio themselves and practise diversification can achieve even higher returns, even with some losing years.

People of all ages and backgrounds need practical and customised guidance in developing their financial knowledge and skills in order to reach their financial goals. In this article we’ve tried to describe in simple terms some of the most important concepts and principles you need to understand on this journey.

Thomas Saw is the founder of the Traders Round Table ( http://www.tradersroundtable.com.sg ), a community of committed traders and investors. TRT’s mission is to help people be more successful in Creating, Protecting and Enhancing their wealth in the financial markets. We help fellow traders and investors by providing holistic, broad-based financial trading and investment education, mentorship and psychology. Vinay Kumar Rai is a freelance writer and a member of the TRT.

Alternative Investing has become a trend in recent years. The traditional market cannot compete with the returns available, which is why investors turn to alternative projects to make their money work harder for them.

A quick look at the investments available on the traditional market shows that the only way in which investors are making returns is to enter into high risk projects over a long period of time. The returns being seen are also reasonably meagre. With the rising cost of living and inflation, people cannot afford to lose money on investments. Now more than ever people need their money working harder for them, generating income and creating high returns. The stock market is underperforming and the traditional market faces issues of volatility and cannot deliver rates that are so needed.

Over ten years the S&P 500 is up just over 10 %, or about 1 % a year. On a five year basis it’s down about 18 %. Similarly the Australian Super this year has made a loss of 2%, and investors are told that they should be thankful that this was the only loss made.

The instability of the traditional market has smart investors turning away. Turning to other projects to diversify their portfolio and have their money working harder for them. A direction in which many smart investors are turning is towards the alternative investment market.

Due to the fact that alternative investments have low market correlation, they are safely distanced from the traditional investments and have therefore been far outperforming anything available on the investment market.

The most commonly approached Alternative Investment is that of property. However the Australian property market has taken a downturn lately. House prices are dropping and we are not seeing the stability that we have become accustomed to over previous years. Meanwhile other Alternative Investments are creating returns that are unsurpassed.

The Carbon Market for example is set to become the fastest growing market in the world. As a tradable commodity Carbon Credits are going to be the most sought after tangible asset. The introduction of the Carbon Tax in Australia on the 1st July 2012 has created an opportunity for Carbon Credits to be created and then traded on the open market; creating massive profits for those who own them. Capital Carbon Credits is an alternative project which creates these Carbon Credits. With the ‘Top 500′ emitters being forced to purchase Carbon Credits, this is a commodity market which is in high demand yet very low supply.

Another great example of an alternative commodity which is in high demand but in low supply is actually the commodity of food. 3.6 billion people in the world rely on rice as a staple of their diet, creating a yearly demand of 437 million tonnes of rice. Currently the world can only create 381 million tonnes a year, leaving a vast shortfall. Agri Capital is a project which is creating the biggest commercial harvest in West Africa, a harvest which will create 9000 tonnes of rice per year. Winning ‘Best Alternative Product of the Year 2011′ and with projected returns of 15 % per harvest with the last harvest creating 16.2%; this is an alternative investment which is outperforming anything on the traditional market.

A further reason that people are turning to Alternative Investments is due to the ethical side of the investments available. In recent years a lot of the big profits being made have been through mining and oil companies. Companies which pollute our atmosphere; destroying our environment.

The Capital Carbon Credits is creating clean air for Australia. Growing trees in the Gippsland of Victoria the project is taking pollutions out of the atmosphere and offsetting the damage that the ‘Top 500′ emitters are creating.

The Agri Capital Investment has an enormous social impact on the area in which it operates. Whilst generating rice, it also creates jobs, healthcare, education and local markets for the community in which it is based. Also Agri Capital set aside 60 metric tonnes of rice per year to be given back to the community at no charge. Feeding the poor and improving the lives of those in the community surrounding the project.

These investment opportunities are not only greatly surpassing any of the returns that people are managing to get on the traditional market but they are also low risk. With guaranteed exit plans and insurance in place for varying projects; Alternative Investments deliver high returns in an ethical project whilst safeguarding your initial investment.

For a free report on an ethical, safe and highly lucrative rice market which is available for a limited time visit http://www.capitalalternatives.co/australia/

The American economy seems to be picking up pace, with strong employment data bolstering confidence in a sustained recovery. And the housing market seems to be just about at the point of capitulation. So how as an investor do we make the most out of cheap houses, loosening credit and a growing workforce?

Let’s take a look at one strategy currently employed, that has the potential to generate a substantial return on investment, whilst creating a positive social impact. It’s called the Exit Strategy, and was developed by a joint UK/US team that have rolled out the program 18 months ago, and have since delivered 350 renovated homes to disadvantaged families who have been able to take actual ownership of their own home, with a mortgage on preferential terms.

The investment cycle is simple; US banks are keen to rid their balance sheets of foreclosed properties. Not only are the banks unable to prepare, renovate and market these properties, they also glut the bank’s balance sheet with toxic assets, making it harder for the bank to borrow, and therefore lend.

This unique situation allows an investor to acquire a property at a vastly reduced price to market value. Where properties are available through Realtors for around $80,000, similar properties in close proximity can be acquired AND renovated for $25,000. Most investors would then just rent the property to a low income family, creating a positive cash flow and long-term growth investment. But this strategy is different.

With this alternative investment strategy you simply sell the renovated home to a disadvantaged family. But how? Well, if you’re lucky enough to have secured downstream mortgage finance on fixed terms from a number of local banks prepared to lend to the new homeowner, then you’re on to a winner.

Effectively, if you buy, renovate the home for $25,000, then sell it for $50,000 (well below market value) to a family, with a mortgage provided on fixed terms from a local bank, and you can do all this within 30 days, then you can effectively achieve the following over a 90 day investment cycle:

Initial Investment: $25,000 (single property)
Sale Price: $50,000
Timeline (total): 30 days

Secondary Investment: $50,000 (two properties)
Sales Price: $100,000
Timeline (total): 60 days

Tertiary Investment: $100,000 (four properties)
Sales Price: $200,000
Timeline (total): 90 days

Total Profit: $175,000
Total Margin: 700%

To achieve this in reality, you need mortgage finance, you need access to foreclosed properties, you need a committed, employed renovations team capable of prepping a house within two weeks, and you need access to a market of families that want to get out of expensive rental schemes and back into home ownership, with equity.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions, with experience across residential, agricultural, forestry and renewable energy.

Buying and selling ETFs isn’t as difficult as many people suspect. What regularly gets everyday people in trouble is going around the strategy in reverse. Most individuals rush out in to the investments and not have a strong financial savings foundation.

Investments must start off with that basis of savings for you to fall back on, any time an emergency shows up. Without the foundation, making any investment strategies is just too dicey. Think of the following as providing safety netting which will catch people in cases where their own financial situation changes or worsens. Having such a protective netting allows anybody to ignore those investments and live off of the emergency savings they have built up. This allows the invested money to do what it is supposed to do, continue to grow untouched.

Once you have built up a substantial safety net, it’s time to start putting money to work in the markets. The first thing to do is find out what exactly to invest in. There are several options to choose from like stocks, bonds, mutual funds, or possibly exchange traded funds. Each asset offers it’s good and bad points but yet a number of these investment opportunities will fit any strategies. Lets assume the person makes a decision to actually make an investment by using a blend of exchange traded funds or ETFs. It’s best to have access to a reference point around that discusses how you can acquire ETFs. Something to refer to whenever challenges surface. As they start to get more and more at ease with all the exchange traded funds info, making money through ETFs will only get easier as they move forward.

Now that they have identified that they want to invest in ETFs, it’s time to find a very good discount broker to help in making your investments. Like any company, a range of discount brokers make a specialty of out of different investing options. Having a trading account through a broker which does not specialize in exchange traded funds is actually an awful idea. A couple of remaining things to watch out for is the quality of consumer support, lower price commissions and straightforward investing software.

Great customer care is really important when it comes to a low cost brokerage service. Remember this is your hard earned cash and dealing with any kind of difficulties needs to be as quick and / or uncomplicated as possible. Sure there will probably be a couple of bumps on the way, however they need to be easily fixed through with a simple call. Keep support services under consideration long before adding your cash in any sort of trading account.

Next worth addressing is affordable commission fee costs. I’d want to save on each buy and sell order and have average trading resources instead of spending more on a simpler, easier to use software platform. This most likely is not a factor for all of us. Especially if this describes someones first time with an on-line brokerage service. First time users may wish to go the straightforward trading resources route over the most inexpensive pricing. All of this will depend upon their own experience level.

Low fees still have their relevance, though. Every instant anyone creates a transaction, it will cost money. The more transactions they make, the more cash has to be generated in order to break even. For someone that is generally more of a trader then an investor, simply finding the lowest cost brokerage service is just about the best solution. Alternatively, for anyone basically performing a handful of home-based trades every year, that individual may possibly be fine having a more expensive commission rate from a discount brokerage that provides, for instance, better analyst tools. Find a broker that matches your specific comfort level.

Lastly, investment resources. The center of each and every discount brokerage will have to be trading tools. You may not fully grasp ways to use the application the very first day, the instruction explaining ways to use the specific tools need to be readily available and simple, to help you understand. If not, than customer support should be good enough to walk you through the procedure bit by bit. If you happen to be new at all to ETF trading, take some time researching what pretty much everything actually does at first, prior to you making that first investment.

Before making your first investment in ETFs, build up a sizable emergency savings account just before jumping directly into investing your money. Once it’s accomplished it’s time to progress and create the accounts with the brokerage service. Just don’t forget customer satisfaction, affordable cost as well as good quality stock trading tools and equipment.

Michael Fredricks is a financial planner and freelance writer for personal finance sites on how to invest in ETFs and other topics. His most recent contribution was for http://novelinvestor.com.

You are searching for money to invest with and you begin by looking at your personal finances. How much money do you have left over after you pay your bills? Do you have funds left that you are able to risk in an investment? Below are some ways to find money that you can use to invest.

• Check out your own budget. Every pay period people have money they throw away and not even miss it. We spend hundreds of dollars on things that we do not need or we splurge on things that we could in actual use the money to invest as well. Examples of things we use money on that we could save are newspapers. Every newspaper posted online is free, so why purchase them at fifty cents or one dollar per day. This would give from 3.50 to 7.00 per week left to invest with. Some newspapers are more expensive

• Smokers waste a minimum of $30 dollars per week on cartons of cigarettes. People that smoke should never purchase these by the pack because they cost on average of $1.00 per pack more. Discounts of approximately $10.00 per month are true carton is purchased.

• Coffee is something many people splurge on daily. A specialty cup of coffee or cappuccino will cost four or five dollars per cup. If you purchase brew coffee and add specialized creamers that cost about 3 dollars for a whole bottle, you can make hundreds of special flavored coffee for total of about 10 dollars a week or two. This will save loads of money for you to invest.

• Saving your change from dollars. It is a proven fact that people usually will not pull out change to pay for something so we all end up with loads of change in our pocket. If you were to save this change for a month, you will have money to invest.

• Selling items on auction sites will help generate revenue for you to invest with. Sell the items you no longer use on auction site or Craigslist.

• Second jobs can be picked up easily and earn you extra cash. Babysitting will earn a minimum of ten dollars for you in one evening. Starting a website online is a good way to earn extra money. By doing this you can earn extra cash while you sleep. The initial investment of setting up the site will benefit you after the site is loaded and working for you. This will help you to earn money to invest.

• Go back to school. Some people that have minimal income and would qualify for grants can go back to school online or take a few classes at the local community college. If qualified for FAFSA, you will have money left over from the grant to invest in wealth building techniques like stock trading or websites.

• Clip coupons. Grocery shopping money saved from coupon clipping especially if you use a grocery store that accepts coupons pays you double the price. You can also make money at the grocery store if you buy in bulk as opposed to all the small sample packages that cost more.

• Sale extra items in your house. Yard sales, house cleaning and side jobs will help with earning money for wealth building.

• Having a smaller deduction taken from your paycheck. If you always get money back from IRS, then take more deductions and get more of your money on your check each week.

Any of these ideas will help you to have extra funds to invest in stocks, or anything else you wish to invest in for wealth building.

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As an investor your objectives are to lessen risks and increase returns. A popular risk management tool called derivatives is said to increase the capability to differentiate risk. It is also said to be a procedure that has surely improved the way of living as well as national productivity growth. Derivative trading is definitely a good trading option that doesn’t include bonds and traditional stocks.

The most common types of derivatives are forward contracts, future contracts, swaps and options. The derivative is a contract between two or more parties. Its value is defined by the changes in the underlying assets. There are also derivatives established on whether data such as the quantity of rain or number of sunny days in a certain region.

One thing that makes derivative trading a good trading option is it requires lesser risk compared with other trades. Though there is also a chance you can acquire loss, the risk is lesser of an investment. It doesn’t require you to have a high initial investment to participate and it is a good option for those who are unable or do not want to invest higher as required when purchasing stocks. By allowing balance in your total portfolio, derivatives lessen risk by distributing risk throughout different investments rather than in a few.

This type of trading is a good option if you want a good short-term investment. Compared to long-term investments such as some stocks and bonds that can take years, they can only take days, weeks or months. Due to the shorter duration, they are the best to way to go through the market and combine short and long-term investments.

Learning as much about them is very important before entering the trade. There are numerous sites that provide tutorial on derivatives trading as well as software tools that can help perform effective trade. Variety and flexibility are two reasons why a lot of investors prefer to go into this trade especially that there are some online sources that provide this trading option all the time.

Like all investment transactions, you need to do thorough research and analysis to increase success in this type of trade. Investors have an option on getting results on their investment faster by practicing a type of trade that has benefits that other trades do not have.

Derivatives trading can give you success in getting through the trading market as well as provide you with numerous options such as international opportunities. Luck has little to do with success in this trade instead what you need to do is acquire the right amount of knowledge, tools and skills.

John Conejos is an experienced market analyst that has done numerous successful trade and investments through the years. Aside from knowledge and skills, he wants you to learn using the tools that can increase efficiency of your analysis.

Derivative Trading Systems’ Horizon Direct is a superb tool that has assisted traders, market analysts and quant with their decision making. Its available asset classes include Derivatives, F/X, Equities, Fixed Income, Money Market and commodities. Register at http://www.derivs.com/horizon-start.html and avail the free trial version so you’ll experience its satisfactory functionality.

Of all the financial concepts applied to investing, there is none more important than the time value of money. Quite simply, this means that the longer a dollar is invested, the more it is worth. That is why it is so important to start investing as early as possible. In fact, the difference between starting at 25 and starting at 40 can mean hundreds of percent in additional returns. Let’s look at the main concept that drives this concept, called the compounding effect of money.

The compounding effect of money refers to the rate at which invested money grows. Whereas, a linear rate would increase each year by the same amount, a compounding rate grows by a larger amount each year because of the return on both the initial investment as well as the return on previous years’ investments. Let’s look at some examples.

First, to illustrate how compounding works, let’s look at what happens to $1,000 that is invested at a 10% rate. In year one, the investment grows from $1,000 to $1,100, or by $100. However, in year two, the investment has already grown to $1,100 and it grows by another 10%, or $110 ($1,100 x 10%). In effect, you have earned $110, or 10% more in year two than in year one. In year ten, the initial investment has grown to $2,593 and is growing by $235 per year. As you can see, each year your initial investment will grow faster and faster in terms of dollars. By investing early, your investment has more years to grow and after twenty five years, you will earn as much each year as your initial investment was worth.

Now let’s look at how this affects two different investors. Let’s say Investor A starts investing at 25 years old and invests $200 per month, earning a 10% return. Now, let’s compare this to Investor B who started investing $200 per month at 40 years old. When both investors are 60 years old, Investor A will have amassed $760,000. However, Investor B will have only saved $150,000. Even if Investor B had made double investments of $400 per month, the savings at 60 would only be $300,000, or still less than half of what Investor A saved by starting 15 years earlier.

As the example above clearly illustrates, the key to investing and saving substantial money lies in the amount of time that your investments have to grow. Starting your investing early is also important because it adds to your financial discipline and makes investing part of your routine. Investors that procrastinate are much less likely to reach their financial goals.

InvestingPath.com offers investing advice on stocks, bonds, funds and real estate, and covers how to to calculate common investment ratios and stock valuation techniques.

If you are thinking of investing you are probably hoping, or even expecting to get high returns. The whole point to investing is to make a good deal of money and you want to get as much out of any investment as possible. Some people mistakenly think that to make a huge amount of money from investments you have to wait years, if not decades. However there are high return investments that can show huge returns in months or few years. As a general rule the more money you are willing to bring to the table, the more money you will get in return. Here are some high return investments:

Real Estate

This is definitely a high return investment and there are many options to choose from with real estate. You can choose to purchase a property at a low cost, do the house up and then sell it for a decent profit. This is an excellent way to make money, however it takes up a massive amount of personal time to do to a high standard. Alternatively you could opt to invest in rental properties, and reap the income they bring indefinitely. This is an excellent method if you have the money to buy numerous properties.

Corporate Bonds

Corporations issue corporate bonds in an attempt to gather money to expand a business. The maturity date associated with them is in excess of a year. Obviously there is a fair amount of risk associated with corporate bonds, as if the company fails, then so does your investment but this also means high return investments.

Municipal Bonds

These are bonds that are issued by a cities government. It is a high return investment because the interest gained does not get taxed. They are also free to trade.

Dividend-yielding Security

A Dividend-yielding security is a perfect high return investment. You invest funds in companies that have a lot of capital. This means down turns in the market will usually not have a huge effect on them. If you do decide to invest in long-term dividends you could make a massive profit on high yielding stocks.

There are other investment options that offer a good return. To decide which is most appropriate to your situation you will need to talk to a financial specialist. They will be able to explain the risks to you in more detail. Remember that long-term high return investments are great from the perspective of taxes.

If you manage to decide on the right high return investment you will have a secure future and a safe retirement. In the short term you can use the rewards gained from initial investments to make new ones. This could be the start of a new income for you.

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An Irish forestry fund was recently dubbed by its management company as one of the best investments in the country. The fund, which last year reached a 10-year maturity, declared 83 per cent gross return rates. The average initial investment in the fund back in 2000 was estimated at 9,400 euro. It is expected to bring in a tax-free payout of over GBP17,000, according to fund managers.

The founder of a UK-based bamboo bond promises even better results for investors. An initial investment of as little as GBP10,300 in the fast-growing grass used for its sturdier-than-steel stems, he claims, can bring in a return of 503 per cent over 15 years.

In a crisis-ridden financial environment, forestry funds are generating popular press for their portfolio-diversification properties, inflation-hedging abilities and relatively low-risk investment potential. As with any other investment ventures, however, increased popularity may lead to eco-hazardous business practices in service of greedy interests and the need for financial security. With these, unfortunately, forests cannot afford to compete. Therefore, investors who look to forests as the next long-term home for their investment capital need to also seek forestry funds with sustainable forest management practices. Only then will they be able to reap the full benefits associated with forestry funds. – don’t really get this last couple of sentences. How can forestry be eco-hazardous?

The Value

According to the World Bank’s International Finance Corporation (IFC) forestry funds typically rely on three main sources of revenue – growth and sale of timber products (i.e. logs, woodchips and pulp for paper), sale of non-timber products (i.e. edible products, colorants, products for perfumes and cosmetics) and land appreciation. Besides the monetary value that comes from these three sources, the IFC also recognizes that forestry funds may generate value that is not reflected on the corporation’s annual spreadsheet – the value of the landscape, biodiversity, social and cultural sustainability, carbon sequestration and even value in minimizing damage from natural disasters such as floods. As the UN-supported Millennium Ecosystem Assessments forestry report points out,the combined economic value of ”non- market” forest services may exceed the recorded market value of timber, but forestry fund managers often fail to give it proper credit when making investment decisions.

There is an increasing number of forestry funds, however, which employ sustainable forest management practices to protect the non-commercial value of forests. The Centre for International Forestry Research defines sustainable management as “maintaining or enhancing the contribution of forests to human well-being, both of present and future generations, without compromising their ecosystem integrity, i.e., their resilience, function and biological diversity.” Beyond investing in forests for timber, these sustainable forestry funds look to fund natural forests, which are valued for their carbon sequestration capacity and their role in community sustainability and development.

Mitigating the Risks

There are several key factors investors need to take into account to make sure they minimize the risks associated with their investments and maximize the returns:

Political environment — forestry funds investing in areas with tropical forestation might fall under the jurisdiction of unstable local governance or a region with conflicting local political interests. Moreover, some governments may impose restrictions on timber harvesting. Investors should be fully aware of the political environment of the country where their forestry funds are operating. This is where investing locally makes sense – being familiar and comfortable with the local legislation and knowing how the political process works can be of great advantage and give investors a sense of security.
Economic environment – as the Millennium Ecosystem Assessments report points out,there is a widespread corruption in the forestry sector, especially in developing countries with poor local governance. The stability of the local currency and the economic track record of the country are also essential for the return on investment of the forestry funds. Here, too, choosing funds that oversee local forests might be a better idea than going for tropical forests in remote locations, which investors might not be educated well enough about to make an adequate investment assessment.
Property rights – who owns the forestry land? Who leases it and what is the duration/conditions of the lease? Some forests are operated by the state. Others are owned by private businesses/individuals. Others still are under NGO proprietorship. These are also important aspects that need to be addressed before investors choose their forestry funds in order to avoid future challenges that might tamper with revenues.
Transparency of operations – this key factor has to do with monitoring performance and evaluating the efficacy of the forestry management. If the forestry fund is investing in an offset, for example, investors need to be informed on how the carbon sequestration is being measured, who verifies it and how the carbon credits are issued.

Property loss – are natural disasters characteristic for the geographic location of the forestry project? If so, what property damage has historically occurred? This information will help investors evaluate the degree of risk posed on the forestry funds by external ecological factors. This way, potential shareholders will be able to calculate the potential loss in revenue and the insurance costs associated with it.

More details about different forestry funds you may find on forestryfunds.com