Investment Articles

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

Making financial investments is one of the many things that you can do to take steps in ensuring a solid financial future. By creating a diverse portfolio, you can stand to reap the rewards of money well spent. The return on your investments can possibly change your financial situations. Yet, investments for beginners can be a little scary.

When you are just getting into the game of investing, there are a lot of things that you need to know. Most people do consult professionals but there are things you should research on your own. Investing money is not something that should be entered into wearing a blindfold. The more knowledge you are armed with, the better.

Investments for beginners can be tricky. You may be weary of the risks involved yet you must be comfortable with the fact that with some investments, loss is a risk. There are some low risk and risk free investments that can be made. You should learn in the beginning what your options are.

Stock and Bonds

Two of the most common investments for beginners are stocks and bonds. Stocks are equity investments and are relatively riskier than bonds. Bonds are debt investments. They are less risky but also yield a lower return. This rule isn’t always applicable since there are some bonds that are high risk and yield a large return.

Mutual Funds

When it comes to investments for beginners, one of the best ideas may be to create an investment portfolio. If you can’t afford to create your own, you can buy into an already existing one buy investing in mutual funds. There are many advantages to mutual funds. They offer diversification, they are extremely flexible and funds are managed by a professional. By purchasing small parts of stocks, bonds and various securities; you can work your way up to building your own portfolio.

CD’s

Certificates of Deposit, commonly known as “Cd’s” are also a top choice for beginners. With these, you invest a certain amount of money and you are guaranteed a return in a specific amount of time. The interest rates for Cd’s are higher because you cannot access the money until the CD has full matured. The maturity time can be anywhere from a few months to a few years. There is a high minimum investment required to purchase.

Stocks and bonds, mutual funds and Cd’s are not the only investment options for beginners. There are other securities that may interest you depending on how much money you can put into your initial investment. You should research all of your options and seek counsel before you make any choices. The final decision is yours and should be made wisely.

Think about if you are looking to see a return in the near future or if you are willing to wait some time to reap larger rewards. Investments for beginners are relatively the same as investments for everyone else. There is money that has to be spent and risk that will most definitely be taken.

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There are many different philosophies about how to find good investments. Most people in the past have only invested in Mutual Funds or individual stocks. But now, there is a much better alternative than Mutual Funds called Exchange Traded Funds (ETFs) or ETF funds. ETFs will work much better for most retirement investing and investors. The ETFs provide simplicity, trading ease, low entry fees, no penalties or required holding times, better tax advantages, deeper and more targeted selection offerings, and smaller money entry requirements (i.e, ETF funds don’t have minimum buy-entries like $2,500 or much higher). I recommend beginners or self-investors take a serious look at using ETFs for investing because they are simply very good investments.

If you are anxious to start growing your nest egg again or for the first time, then get started the right way by purchasing a list of diversified ETF funds. Make sure to be steady with your monthly contributions to as many positions as you can in order to minimize market downturns and economic recessions over time through cost averaging. Hopefully, the markets and world economies are on the mend and will start their slow climb back up from here. This European debt crisis will pass and scaling in with buys during times of fear and uncertainty will always be rewarding for the patient investor.

It is very important to have balance and diversification in your investment portfolio. Dividing your positions between domestic and world stock market equities with dividends; a variety of bonds; alternative investments; targeted growth equities and sectors; precious metals, commodities, and natural resources; high-yield income; and some real estate should be a good starting point.

A big advantage of using ETF funds for most investors is that very small amounts of money can be used to get started. The important thing is to get back into the market and to be consistent no matter how much money you use or how long it takes for you to build out the entire portfolio.

Start by putting some money into a variety of fairly safe and diversified dividend paying equity ETFs (Exchange Traded Funds). The ones I think are the top ETFs to buy for growth and income are:

1) DVY – IShares Dow Jones Select Dividend Index – invests in select safe and diversified dividend paying companies with a dividend yield around 3.5%. Top 5 Holdings: Lorillard, Inc (LO).; Entergy Corporation (ETR); V.F. Corporation (MCY); CenturyLink, Inc. (CTL).; Chevron Corporation (CVX)

2) SDY – SPDR S&P Dividend – invests in S&P 500 dividend paying companies with a dividend yield around 3.4%. Top 5 Holdings: Pitney Bowes Inc. (PBI); CenturyLink, Inc. (CTL); HCP Inc. (HCP); Consolidated Edison, Inc. (ED); Eli Lilly and Company Common (LLY)

3) VIG – Vanguard Dividend Appreciation – invests in dividend paying companies based on the Mergent Dividend Achievers Select Index with a dividend yield around 2.2%. Top 5 Holdings: Wells Fargo (WFC); Chevron Corp (CVX); McDonald’s Corp (MCD); Pepsico (PEP); Conoco Phillips (COP)

4) DWX – SPDR International Dividend – invests in worldwide list of dividend paying companies with a dividend yield around 6.0%. Top 5 Holdings: Tele2 Ab; Telesp Tel Sao Paulo; ASX Ltd; RWE Ag; OrientO/Seas Intl

5) PID – Powershares Intl Dividend Achievers – invests primarily in international ADRS with a dividend yield around 3.5%. Top 5 Holdings: Partner Comm Co (PTNR); Philippine Long Distance (PHI); Telefonica SA (TEF); Teekay LNG Partners LP (TGP); National Grid PLC (NGG)

ETF funds trade just like stocks so they can be easily bought and sold with any discount broker online and the fees are very small. Start with a small initial investment into each of them and then add money every month or on market weakness while also using the accumulated dividends to buy more over time. It has been shown throughout stock market history that dividends account for over 40% of the total market’s return, that index type funds outperform most money managers, and that reinvesting your dividend proceeds are a sound way to grow your returns.

Investing in times of uncertainty and fear present good buying opportunities if you scale in on market pullbacks. Be patient and invest consistently over time and you will be rewarded with big returns. You will discover that ETFs are very good investments for growing your retirement.

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Here I am today, to tell you about what I believe to be the single most lucrative, unique, exciting and little known investment on the planet. Let me introduce you to tax liens investing.

Quite a unique idea, and most likely very different to anything you’ve ever done before. By investing in tax liens, you can expect returns on your money like 16%, 24%, even up to 36%. That’s partly why it’s described as very lucrative. But the best thing about it, is that it has virtually no risk! The reason this is described as no risk, is because it is backed up and mandated by the U.S. state government.

Now to me, safety is really high on my priority list, and given what’s going on with the economy lately, I’d be really surprised if safety wasn’t towards the top of everyone’s priority list right now.

Now the great thing about investing in tax liens, is regardless of what happens in the economy, as soon as you make that investment, you are locked in – into the 16% 18% 25%, and nothing can affect your principal investment, allowing you to sleep soundly at night

First of all, let me tell you what a tax lien certificate is… it’s a first position lien on a property, due to delinquent property taxes. In over 2000 jurisdictions across the United States, once a property owner becomes one year delinquent on property taxes, the county government holds a sale. Now just to be clear – you are not buying somebody’s house. You are only dealing with the county. And in actual fact, the county’s going to do most of the work for you.

Now in return for you putting up the money for delinquent taxes at the county, the county will give you in return, a tax lien certificate, and that then goes on file down at the county courthouse. It is a legal document, and it’s going to attract an interest rate. The interest rate you get is different across the various states and counties, but it ranges between about 8% and 50% (that isn’t a typo – it says 50%). So that’s what a tax lien certificate is.

Here is an example…
Imagine a hypothetical scenario involving 3 individual parties. Firstly there is the county – that’s fairly straight forward. Then there is a property owner – let’s call him Jim. Jim is an owner of a property with a “fmv” of $200,000. Fmv is short for fair market value – so in this hypothetical scenario, the deemed fair market value of Jim’s property is $200 000. Jim has a $100,000 mortgage, and he also has $1,000 worth of delinquent taxes on his property, and we will assume an interest rate of 24%.

Jim has become 1 year delinquent on his property taxes, so the county is going to hold a sale. At that sale, people like you and I, can go down there and put up the money for those delinquent taxes. So let’s assume I go along and pay the $1000 to the county, and remember I’m only dealing with the county – never directly with the property owner, and they will give me a certificate, which goes on file down at the county courthouse.

When Jim eventually goes down to the county courthouse to pay off his delinquent taxes, he is going to be charged a penalty for being late (in this case, 24%). That is the law, and no matter who you are – if you are late to pay your taxes – you get assessed a penalty. It is the law. In fact, the United States is the only country on the planet that has rules like this allowing people to invest in tax liens.

Jim is only allowed to pay the whole amount that he owes, including the interest component. In other words, he can’t pay half now and half later – it’s all or nothing. So Jim goes along and pays the $1000 plus the 24% interest, which then means, by law, the county has to send me a cheque for the $1000 plus the 24% interest. I know that depending on where you live, some governments can drag their feet, and slow things down with red tape etc, but this is the law in the U,S. They have to send me my cheque immediately – and in my experience, it’s always been within a few days depending on the county. So at this point, I’m happy since I’ve just made 24% on my money, and I’m now looking for my next tax lien investment opportunity.

However should Jim not go and pay his delinquent taxes, the county will give Jim a grace period – the legal term for it is redemption period. This grace period or redemption period can be anywhere from 6 months to 3 years, again depending on the state and county, but for the purpose of this example, we will assume 1 year. That means that Jim has 1 year to come in and pay off his delinquent taxes

Many people get a little concerned at this point, thinking that it’s taking advantage of property owners etc, however in reality, I have actually done Jim a favour, by buying him some time. The county is charging Jim the interest rate – not me, and I am the one that’s bought him the time he needs to pay his taxes. If people like you and I didn’t go down to the county and put up the money for Jim’s taxes, the county would be forced to take Jim’s house. As for the county, I am helping the county by paying the taxes, because county’s rely on the money for things like schools, roads, the fire department, police, bridges etc, especially at the moment in the current economic situation.

The big advantages in tax lien investing, are that you know where your money is going, you are helping the property owner, you are helping the county, plus you are getting a great interest rate.

In the scenario where Jim doesn’t come in during the one year period and pay his property taxes, I would pick up my phone, call the county, and say “I’m the lien holder on record, and I’d like to execute my right to foreclose”. Everything so far is documented, and this is the law. The law states that the tax lien takes priority over the claim of any person whose property is encumbered by the tax lien and over the claim of any holder of a lien on the property whether or not the lien existed before the attachment of the tax lien.

To put it simply, if I foreclose on this property, I will wipe out and extinguish all liens on that property, and that includes a mortgage (that isn’t a typo – it does in fact includes a mortgage – and I’m not kidding).

Banks spend a lot of money making sure they have a first position lien. To have a first position lien means they have to have been the first to record. Many people wonder at this point, how can a tax lien jump ahead of something that’s already filed? One way to think about it, is that they have been collecting property taxes for a very long time, certainly longer than the mortgage on the property. The property taxes have been due on the property for longer than the mortgage.

If property taxes don’t get paid, the county takes first position so they can always ensure they get their money. So if I go in and pay the money to the county, and they give me the tax lien certificate, I have the same power as the county. It is not diminished in any way just because it’s in my name.

So in the example, if Jim fails to pay the $1000 plus the 24% interest during the 1 year period, I’m going to end up with a $200,000 house, free and clear of all existing encumbrances, for $1,000. However in reality, it is more likely that Jim is going to find a way to get the money together and pay his property taxes. But when he does, he also has to pay the 24% interest on top of it at the same time.

So the bottom line is, either get my initial investment of $1,000 back, together with the 24% interest, or worst case, I get the property free and clear, and that is really all there is to tax lien investing.

If your initial reaction to this is “you can’t just get rid of mortgage like that” – and it is a very normal reaction, my response is “yes you can”. I’ve done it, seen it, and read about lots of people who have done it. There is lots of documentation about it if your mind needs to see proof. The reason is simply because it’s the law. How amazing is that for you and I as investors?

Really the only down side, is that some people freak out a little at the thought of owning the property, and they just want the interest. Others don’t want the interest, they want the property. But there are ways of making sure you don’t get the property, and there are also ways of making sure you get the property every time.

As a final note, if you don’t live in the US, there are a couple of housekeeping things you’ll need to tidy up first to allow you to invest in tax liens. I live in Australia, I’ve never been to America, and I get by quite nicely. I do it all online.

Because tax lien investing is such a little known investment strategy, there is limited information on the subject. Should you wish to learn more about it, you can find some good information at http://cashflowbusinessideas.com/tax-liens, or you can find more information here. Happy investing.

Companies are not all alike. For example, what Starbucks sells is very different from what Exxon sells – and we’re not referring to the fact that we don’t drink gasoline! People need gasoline to drive to work and get around – even if the price reaches $4.00 per gallon – but people don’t need to spend $4.00 for a cup of coffee if they can’t afford it. Heck, some people don’t need to drink coffee at all, while others cannot function without at least that first morning cup of coffee, and there are those who need a pick me up cup of coffee all through the day. When it comes to investing your hard earned money, you should keep this in mind. Generally, buying stocks in companies that sell things we need reduces risk. The following types of companies are worth exploring for consideration:

1. Defensive Companies

Defensive companies sell things we need. Food companies, such as Kellogg’s and Campbell’s are examples. We also need fuel, prescription drugs, and consumer “staples” like toothpaste, soap and laundry detergent. We even need the services of funeral homes to bury our dead!

The name “defensive” comes from the fact that if the economy is showing signs of faltering, you can defend your wealth by buying the shares of these companies. While companies that sell premium coffee and other luxuries will likely see declines in sales and profits that will lead to falling stock prices, defensive companies will continue to chug along. We’ll keep eating and a certain portion of the population will continue to pass away. Have you known a person who skipped showers and tooth brushing because the economy wasn’t doing well? Didn’t think so!

2. Income Companies

Imagine that a company provides natural gas for heating and cooking to homes on a populated island through a network of pipes laid under the island’s streets. The company is in an interesting situation. On the down side, it doesn’t have opportunities to grow. On the up side, it doesn’t have much competition. For a would-be competitor to tear up all the streets on the island to lay gas pipes next to the company’s existing ones would be nuts!

So, what’s the company to do with the profits it consistently earns? The decision most of these companies make is to pay out a significant percentage of their profits to their shareholders who, after all, are the owners of the company!

These payouts to shareholders are known as dividends. Holders of these companies’ stocks go to their mailboxes four times (the number of times dividends are paid) each year and retrieve checks that represent significant income!

3. Growth Companies

Ever been in a situation where something – maybe the last piece of amazing chocolate triple-layer cake at a crowded party- was there for the taking? You knew that if you didn’t grab it, and soon, someone else would.

Some companies find themselves operating in markets that have so much potential for new products, they know if they don’t get these new products out soon, a competitor will. A great example of a market with tremendous potential is the cell phone market.

Growth companies have made it their priority to grow their sales and profits rapidly. When those profits are made, they’re “plowed back” into new product development. As a result, growth companies pay little or no dividends, making them a less attractive investment for retired people who need their investments to pay them regular income. However, if they can gain leadership in growing markets, their stock prices can rise significantly. This attracts younger investors to who want to build wealth.

Finally, how can we tell if a company is growing rapidly? Generally, if its profits and sales are growing 15% per year or more, we can definitely consider it a growth company.

4. Blue Chip Companies

Back in the day, the most valuable poker chip was blue. Investors began giving the name “blue chip” to large, well-known, stable companies that had what it takes to remain leaders in their industries year-in and year-out for decades!

Blue chips may not stand out in any one regard. They may not be growing as fast as growth companies or paying dividends as high as income companies. Their stock prices may not be rising as fast as the latest darling of investors. All they do is continue to grow steadily and dominate their markets!

5. Cyclical Companies

The economy alternates between periods, or cycles, of growth and contraction (aka recession). When the economy moves from contraction to expansion, businesses and governments that had been holding off on construction projects give the go-ahead and buildings, bridges and roads are built. Basic materials such as cement and steel will be in great demand. Companies that provide them do well at these times and not so well when the economy slows down. As a result, they are known as cyclical companies.

Perceptive investors can “rotate” out of these companies when the economy is slowing down and transition their investment dollars into defensive companies.

Taking this a step further, imagine if there were companies we could invest in that would do better than normal when the economy is headed into a recession. Such companies exist. For example, as consumers begin watching their spending closely, they visit “dollar stores” more frequently. People who are really down on their luck may have to pawn some of their belongings, so pawn shops may experience increased business in downturns.

Another type of business that benefits from bad times is the collection agency, a company that specializes in getting people who are behind on their bills to pay up! Perhaps we should name companies that do better as we’re heading into a recession “anti-cyclicals!

6. Value Companies

Dexter and his friends are walking down the street. A group ahead sees something lying in the street. It’s a genuine Frisbee brand flying disc. Dexter watches as they take a quick look and walk past.

When Dexter comes to it, he sees it has some dirt on it but otherwise looks to be in good shape. Yet, he walks past as well. Why did Dexter walk by the Frisbee?

This is the story of value stocks – companies that are being ignored by investors. Dexter probably walked by the Frisbee because he saw his buddies walk by it as well. No one wanted to be the person to pick it up.

Similarly, companies sometimes wind up being thrown in the street. For example, the United States’ auto industry has experienced a tremendous amount of trouble. General Motors went bankrupt. Ford, to its credit, didn’t need government assistance, but its share price dropped after sales plunged. As these big names cratered, what do you think happened to other companies that offer auto-related products? They fell as well. Did they all deserve it? No. Let’s say that one company has advanced technology that enables it to project a vehicle’s information onto the windshield. This means the driver no longer has to take his or her eyes off the road to see important information such as the vehicle’s speed and fuel level. Let’s also say that this company’s technology can be transferred to other industries.

Does this company deserve to have its stock beaten up? No. Its sales and profits are strong. But, the black cloud of auto industry trouble looms large and investors are too scared to buy its stock.

Eventually, an insightful group of investors takes a look at the company with new eyes. They realize that if they put aside perceptions and bias, what they see is a company with great technology and solid sales and profits, with a stock price that’s downright cheap! In short, the stock is on sale, and like any good sale, it represents a great value!

7. Penny Stocks

If there’s a Wild West in the investing world, it would have to be penny stocks. These stocks get their name because their prices per share are usually in the pennies (i.e.: less than a dollar) and are often less than one cent! A penny stock may have a price of $.0033, representing a third of a cent.

What makes a company a penny stock is the owners’ decision to “go public” by selling new shares to the broad investment community before the company has established a track record of substantial and rising sales and profits. Investors who buy its shares at this point are taking a big chance because they’re buying into an idea that may or may not pan out. For example, a company may claim that it is developing a part that when installed in a car doubles the gas mileage. It needs $1 million to finish the product and market it to the automakers. If it works, you could get rich. If it doesn’t, well, your entire investment will probably be lost. These companies need every penny (no pun intended) people invest in them, so they do not pay dividends!

There are other concerns with penny stocks. The stock price can swing wildly, doubling or losing half its value in a single day. It is often difficult to research them. If you bring up the symbol of a penny stock on a popular financial web site, many of the usual links will be dim because they are not available.

In addition, the shares of these tiny companies don’t change hands between buyers and sellers all day long as with larger companies. If you want to buy shares, you may have to pay a stubborn seller a high price to get his or her shares. If you want to sell, you may find little interest among buyers and have to drop the price you are willing to accept to motivate a buyer to step up and take them. The ability to sell quickly without having to drop the price significantly is called liquidity, and penny stocks lack it! Penny stocks are extremely risky and should be avoided!

Conclusion

While the ability to distinguish between the different types of companies is important, there are other important guidelines to keep in mind when investing.

For one, you should think about your own risk personality or “profile”. You may be young and yet naturally cautious, relying on the “slow and steady wins the race” philosophy in life. If you are risk-averse, then you may never own growth stocks because they can rocket higher and fall just as rapidly.

Still, most young investors try to grow their wealth rapidly by putting more of their money into growth stocks. The thinking is that if these volatile stocks fall, young investors have plenty of years for them to recover. The older an investor gets, the more attractive blue chips and income stocks begin to look. Older investors have fewer years to make up a drop in the value of their investments and these types of companies are less likely to fall significantly! This discussion shows why it is important to examine the stage of life you are in.

Studies show it’s nearly impossible to be successful “timing the market” (i.e.: jumping in an out of stocks to lock in profits and wait to buy later at a lower price). Still, it’s worth examining the state of the US and global economies before you begin investing. If economies and industries are growing you stand a better chance of having your initial investments earn money than if economies are falling into recession. Investing is a life-long process, yet there’s no reason to begin on a down trend.

Think as well about how active you are likely to be managing your investments. If you don’t have the aptitude or energy, be honest with yourself about it. You can invest in mutual funds, allowing professional fund managers to choose investments for you. Or, you may purchase index funds which allow you to invest in the market as a whole. If you want to become an expert at investing and are ready to make the commitment to do so, your increasing expertise may lead you to add cyclical and value stocks to your investing radar.

Another important investing basic is to diversify your investments among not only different stocks but different types of investments (called asset “classes”). For example, real estate, bond, and commodity investments will move up and down based on different factors than your stocks will! Mutual funds can help you achieve this diversification.

Tom Barrella is a leading teen investing educator who teaches his Investment Decision Making course to several sections of students each year and advises another 50 students as members of the Investment Club at Syosset High School on New York’s Long Island. Mr. Barrella also teaches a college-level course in corporate finance at Syosset and is founder of http://www.investeens.com.

Mr. Barrella holds a bachelors degree in Management Systems from Rensselaer Polytechnic Institute, a Master’s degree in Secondary Education from Hofstra University, and a Masters Degree in Educational Leadership. Additionally, Tom has passed the New York Life, Accident & Health Insurance exam and national Series 7 exam but does not practice in the insurance or financial planning fields. In a prior life, Mr. Barrella co-founded the technology company Radiant Systems (NASDAQ: RADS).

It’s amazing and scary… the number of people I have come across who very actively plunge close to their entire savings into stock market portfolios and have the hubris of managing it on their own with little or no professional advice. I know folks with zero training in investment management, finance or accounting, who manage well over $100,000 of their own wealth, including money they have in 401(k) and IRAs that they will depend on in retirement… It’s completely crazy, putting so much of their hard earned money at risk without taking the proper precautions!

Anyone who plans to manage or be actively involved in managing his own investments should know how to read financial statements and accounting footnotes (which, by the way, is often where the real nuggets of material information lie).

In addition, here are a few handy tips to help you succeed with investments you plan to make on your own.

Risk Capital

Only invest money you can afford to lose. This excludes your 401(k), IRA, and the bulk of your savings. If investing is a hobby, start with anywhere between $500 and $5,000 but no more (unless you have millions in the bank already). Indulge your passion, but only to the extent of winnings on this portfolio. And do not rush to bet the bank if you run across some beginner’s luck. Give your initial investment at least 3 years before managing more of your own money.

Written Plan

Think of your $500 or $5,000 as a business investment. Before you plow it into the market, develop a written investment plan – what are your goals, what are your benchmarks to measure success and failure, how long do you plan to keep at it before throwing in the towel, what would your expenses be (such as investing newsletter subscriptions, which really is not such a bad idea if you can find a good one), how much could you afford to lose without sinking the ship (remember, a business cannot lose all its working capital if it hopes to survive over the long run), and so on. Again, ask your friends and colleagues who manage their own money, and I’ll bet you a dollar that not one of them has a written investment plan.

Track Your Investments

Well, the IRS wants you to… unless you’re playing with fire and managing your own IRA and 401(k). Develop a simple spreadsheet with the trade date, number of shares, purchase and selling prices, commissions, profit (loss), original investment thesis, and reason for selling. It’s pretty easy once your start. Then review this weekly or monthly to see which of your ideas worked, which didn’t, and how far off you were on some (as you inevitably will be). A tracker helps develop your investing gut over time.

Focus On What Works

Too many people bounce from stock to stock, and especially abandon their losers. Your losers could turn into real winners because dips may well present excellent buying opportunities if your initial investment thesis was well developed. Additionally, your investment tracker will tell you what works best for you, so focus on what works… it’s a pretty simple idea.

Sleep Well

Don’t let daily news bites upset you or your portfolio. Track your investments daily or weekly, but not minute to minute. Diversify your portfolio and include stop losses so the % loss on your entire portfolio is small enough that you don’t lose your peace of mind. I am amazed at how many lose sleep and get stressed when they actively manage their own money. Losing sleep over investments is JUST NOT WORTH IT!

Accept Responsibility

Good investors do not get influenced by strong personalities. Good investors also manage to keep their portfolios afloat in even the worst of times. They listen to investing ideas from everyone but do their own research before pulling the trigger. And take full responsibility for their investing actions, particularly their losses.

See… all I’ve said above is really just common sense, but we all know the saying…

Act on these ideas and you could enjoy a lifetime of investing as a hobby with just a small initial investment, with the added upside of generating good returns. Good luck!

Visit http://onthemoneyradio.org for weekly commentary and money advice that covers the entire financial spectrum which also airs on my weekly radio show, “On The Money!”

Steven L. Pomeranz, CFP is a 29 year investment management veteran and host of “On The Money!” which airs on NPR station, WXEL in South Florida. He concentrates on serving high net-worth individuals and has been named one of the Top 100 Wealth Advisors 2007, by Worth magazine (October 2007 Issue), honoring America’s premier financial and wealth strategists.