Investment Articles

Here we list some of the best investment ideas and tackle the challenge of finding the best safe investments for 2012. What might appear to be one of the best investment ideas to the uninformed could turn out to be one of the worst.

Looking at the big picture for investment ideas in 2012, moderation in asset allocation and a balanced investment portfolio will be the most basic key to success. There are 4 asset classes, and average investors need to spread their money across at least the first three to keep their overall portfolio risk moderate. The 4 categories in asset allocation are: safe investments, bonds, stocks and alternative investments like gold and real estate (optional). Asset allocation can be simplified, because there are mutual funds available to average investors that represent each of the 4 asset classes. Now let’s get more specific about the best investment ideas for 2012 starting with safe investments.

Safe investments earn interest and do not fluctuate in price. You will need to look outside of mutual funds in 2012 to find the best safe investments because record low interest rates have taken yields on money market securities (and hence money market funds) down to just about zero. One of the best investment ideas if you have an account with a discount broker or major mutual fund company is to shop for one-year CDs paying higher rates if you can’t get competitive rates from your local bank. Do not tie your money up for longer periods just to earn a little more interest. One of these days interest rates will go back up and you will be locked in at a lower rate and face penalty charges if you cash in early.

Finding the best safe investments will be truly challenging in 2012, but here are some more investment ideas. If you are in a retirement plan like a 401k that has a fixed or stable account option do not overlook it. You can often get a much higher interest rate there (maybe 4% to 5%) than anywhere else outside of your retirement plan. If you own an older retirement annuity or universal life insurance policy, it might have a fixed account you can add money to that is guaranteed to never pay less than 3% or 4%. Remember, truly safe investments like U.S. Treasury bills and bank money market and savings accounts are paying WAY LESS than 1%!

Over the past 30 years bonds and bond funds have become a favorite with investors because they have been consistent performers and returned on average about 10% per year… basically about equal to what stocks have returned, but with considerably less risk. Many investors have fallen in love with their bonds funds and consider them to be among the world’s best safe investments. Bond funds are NOT safe investments. They have performed well since 1981 (when interest rates and inflation were at record highs) for one primary reason. Both inflation and interest rates have been falling for 30 years, which has sent bond prices higher. Loading up on bond funds now is NOT one of the best investment ideas for 2012. In fact, it is one of the worst investment ideas.

When interest rates and/or inflation turn around and head upward bond funds, especially those that hold long-term bond issues, will be losers. That’s how bonds work. One of the very best investment ideas for 2012 is to sell your long-term bond funds if you own any, and switch to funds holding bonds with average maturities of about five years. These are called intermediate-term bond funds; and average investors should have some money invested here as part of their asset allocation strategy to add balance to their investment portfolio. These are not truly safe investments, but they are much safer than long-term funds.

My best investment ideas in the stock department focus on stock funds. Do not go heavily into the more aggressive funds that invest primarily in growth and/or small company stocks. These pay little if anything in dividend income and tend to be more risky and volatile than the average stock fund. Go with funds that invest in high quality large-company stocks with excellent dividend paying histories. Look for funds that are paying 2% or more in dividends. One of the best investment ideas for 2012 and beyond: invest in no-load funds with low yearly expenses. No-load means no sales charges, and low expenses mean higher net returns to the investor.

Alternative investments include the likes of real estate, gold and other precious metals, natural resources, commodities, foreign investments and so on. One of the best investment ideas for managing a truly balanced investment portfolio is to include this fourth asset class as well. The simplest way for the average investor to add these alternatives to their portfolio is with mutual funds that specialize in these areas or sectors. My best investment ideas here: don’t go heavily into any one area, and don’t chase after a sector (like gold) just because it’s hot. Real estate and natural resources funds would be my picks as two of the best investment ideas in the alternative investments asset class.

Moderation and diversification across the asset classes will be the key to asset allocation in 2012. I have also listed some specific best investment ideas for keeping the average investor in the game and out of serious trouble should the investment scene turn ugly. Above all else memorize this: long-term bond funds are not among the best safe investments for 2012. They are not safe investments, period.

Author James Leitz teaches investment basics, stocks, bonds, mutual funds and how to invest in his investing guide for beginners called INVEST INFORMED. Put Jim’s 40 years of investing experience to work for you and get up to speed at http://www.investinformed.com. Learn how to invest.

How do you make safe investment income? You will know one great way after you read this article. Any good source of investment income must have -

* Low risk to your capital.

* Large and predictable payments of earnings.

America’s county and municipal governments are eager to offer you that – and I don’t mean bonds.

* Return of your investment guaranteed by the government.

* Unusually high yields guaranteed by the government.

The investment is tax lien certificates. Here’s how they work -

Tax Lien Certificates – What They Are

County and municipal governments depend on property tax revenue. Property owners sometimes fail to pay their taxes. If they don’t pay after many warnings, the government sells tax lien certificates -

* You pay the tax owed. The government gets its money right away.

* The property owner gets an extra 12-24 months to pay up.

* You get high yield investment income guaranteed by the government.

Tax Lien Certificates – How They Work

Each state sets its own interest rate and terms. 12% – 18% per year is common.

* Check the interest and terms for your area. Do a web search on “tax lien certificates [name of your county and state].”

* Certificates sell at auction. They go to whoever will take the lowest – still high – interest.

If the property owner pays early, you get a guaranteed minimum profit.

* 5% is common. Check your local rate.

* Your do better with early payment. 5% in a month beats 18% in a year.

* Property owners avoid penalties by paying early. They often do.

You get paid by the government. Not the property owner.

* No worries about collection.

If the property owner pays his tax in a year, you get your investment plus interest. If the property owner pays his tax in two years, you get your investment plus double interest.

* Simple interest with no compounding.

Owners that don’t pay property tax often don’t pay their mortgage either.

* Banks will foreclose on the mortgage and auction off the property.

* You get paid that juicy minimum interest – guaranteed by the government.

* You get paid before any other creditor.

* It works the same way if the property owner sells the property himself.

If the taxes go unpaid for the full 12-24 months, the county auctions off the property.

* Again, you get paid.

If no one buys the property at auction – rare – you become the owner.

* In this case, the property is your return. Not cash.

* Wait! You don’t want the property. But you can avoid this by doing some homework. (Sorry – there is a bit of work involved.)

Keep risk low and investment income high.

Only buy tax liens on property you have seen.

* Make sure the property exists.

* Make sure you can get there by road – no land in forests or swamps.

* Make sure the property is worth much more than what you pay for the tax lien certificate.

* Property near water or developed land is good.

* Go with undeveloped property – land. Buildings can get tricky.

Go with property owned by individuals – not development companies, banks, or trusts.

* Corporations and trusts can make legal trouble.

You get paid when the property owner pays.

* You won’t know when in advance.

* Worst case would be an auction after 12-24 months.

You can’t sell tax lien certificates easily. In a few counties, if you’re not paid in a year, you have to pay property tax for the second year. Check the rules for your county. To get started -

* Check your county’s website or visit your county courthouse.

* Check your local paper. The county must advertise tax lien certificate sales in advance.

* Ads are in “Legal Notices.”

* Visit the property. See that it’s OK and worth good money.

* Attend the tax lien certificate sale.

* Don’t get caught up in competitive bidding. Know what you’ll take for interest before you arrive.

Tax lien certificates are true safe money. They’re among the safest, highest paying sources of investment income today.

Now that you know about investment income, take action with Safe Money Products. Subscribe now to get 4 Free Reports and bi-monthly Action Alerts. Don’t delay! Find out about Safe Money Products at http://safemoneyproducts.com/subscribe/

Dr. Bob Rubin, Editor

Do you know the best investment? You’ll know after you read this article. It’s easy. The best investment is the one whose profits you keep. If your profits vanish because you -

Hold until your profit turns into a loss.
Hold until a small loss turns into a big loss, and then a huge loss.
Hold so long your annual return turns small even when you do profit.

Then you’re not making the best investment. So what can you do? You need to know about Exit Strategy and Position Sizing.

Exit Strategy

Never make an investment without knowing when and how you’ll get out. That’s called an Exit Strategy.

You should have an Exit Strategy before you invest in anything.
You should be able to write it down. Nothing fuzzy allowed.
Know what will trigger your sell order.
Good Exit Strategies let you keep your profits and cut your losses. That’s your best investment.
Wall Street Wisdom – “Cut your losses, but let your winners ride.”
A few big wins and many small losses can equal a win overall.

Position Sizing

Never risk more than 3% of your portfolio in any one position. And that’s on the high side.

Why so small? Look at what it takes to recover from a loss -
Lose 50% of your portfolio, and you’ve got to make 100% on what’s left to recover your loss. Is 100% profit easy?
Lose 25% of your portfolio, and you’ve got to make 33.3% on what’s left to recover your loss. Is 33.3% profit easy?
Lose even 10% of your portfolio, and you’ve got to make 11.1% on what’s left to recover your loss.
Small losses leave you with enough capital to keep investing.

Control risk by controlling position size. The less you invest in any one thing, the less you risk. That’s your best investment.

Your Exit Strategy affects your Position Size.

If your Exit Strategy were to sell after a 25% loss, you could put up to $12,000 of a $100,000 portfolio into one investment, because -
$12,000 X 25% = $3,000 = 3% of $100,000
If your Exit Strategy were to sell after a 10% loss, you could put up to $30,000 of a $100,000 portfolio into one investment, because -
$30,000 X 10% = $3,000 = 3% of $100,000
You risk only what your Exit Strategy will let you lose, not your total investment.
Mechanical Investment
Emotion is the investor’s enemy. People hold too long because of greed and fear.
Greed for even bigger gains. Fear of realizing a loss.

The best investment is mechanical.

Follow your Exit Strategy like a machine. Automatically. No matter what your feelings scream.
Place exit orders with your broker in advance.
Acting when the time is right makes your best investment.

Exit Strategies Explored

So what do Exit Strategies look like? Stop Orders are the best known.
Tell your broker to sell if the price falls to some specific point.
Some people use 8% below the purchase price. Others use 10%, 15%, or 25%.
Stop orders don’t always do their job.
The price can fall way below your stop point before your order gets filled.
Market makers sometimes sell to force a stock price down.
They want to trigger other people’s stop orders, so they can buy their stock cheap.

Stop Orders can also be used to sell when the price rises to some specific point.

Decide in advance on a good return -
Two or three times the amount you put at risk.
If you use technical analysis (if not, don’t worry about it),
sell near strong resistance, or
when the stock looks over-bought, or
when the trend changes, etc.

Stop – Limit Orders limit the price you’ll accept after a stop order is triggered.

You might not get out at all, if the price falls below your limit.

Trailing Stop Orders automatically raise the stop price if a stock price rises.

If you bought a stock for $50, and used a 10% trailing stop -
You’d sell if the price fell to $45.
But if the price rose to $60, your stop price would rise to $54. ($60 – 10%)
The stop price never falls after it rises.
Trailing Stop Orders are good ways to hold on to profits, but
Trailing Stop Orders may push you out of stocks sooner than you want.

Put Options work like insurance policies.

Buying a put lets you sell your stock for a safe price of your choice.
The cost of a put reduces your profit, but -
You’re safe, no matter what happens to the stock. That’s your best investment.

Now that you know about your best investment, find it with Safe Money Products. Subscribe now to get 4 Free Reports and bi-monthly Action Alerts. Don’t delay! Find out about Safe Money Products at http://safemoneyproducts.com/subscribe/

Dr. Bob Rubin, Editor

The average person for whom investments are not a way of life or a major source of income often seeks low risk investments. Instead of playing the stock market game of day trading or investing in risky ventures, these investors just want a solid place for their money to grow a profit for their future use. Uses such as college education savings or retirement planning are common plans for investments. Low risk investments are popular for those who simply wish to further their money by gaining a good interest rate return over time. There are many investment options to choose from:

For those investors who wish to invest in the stock market, blue chip stocks are a often a good place to be. Blue chip stocks are stock invested in well known, nationally established companies with solid reputations. These are almost no risk because of their stability. There is almost always a good solid return on long term, in blue chip stocks.

Another investing option is the old standby CD. Certificates of deposit are investments placed into an account for a specific time period at an agreed upon interest rate. These CDs must stay in the account for the duration in order to reap the best benefit. Taking them out early is cause for steep penalties and can nearly defeat the original purpose.

Online savings accounts are another investment idea. This type of savings account earns a higher rate of interest than typical savings accounts. The money invested in online savings accounts stays liquid, meaning that it is accessible to the investor at anytime. Ensuring that the account is insured by the FDIC will prove it is a reputable account. Sometimes minimum deposits or account balances may apply.

Investments are a great way to further your money, to put the money to work earning more money. This is why many investments are for the purpose of children’s college education expenses or for retirement income when the time comes. Starting these investment accounts when children are very young and while you are working full time, years before they are needed, is a good way to steadily build up their worth until they are needed.For more information on investing in investment opportunities usually or normally not found in the marketplace, click here!

Sean Johnson is an Investment Advisor for http://www.inquest.biz an Investment Referral Service for investors requesting information on specific investments.

One writer to document this was Charles Mackay, author of ‘Extraordinary Popular Delusions and the Madness of Crowds’, published over 150 years ago in 1841 and often referred to as the greatest book on investing ever written.

In it he chronicles the waves of irrational behaviour that seem to affect mankind at regular intervals, what happens is that some individual or company of standing decides to do something, say buy or sell shares, if they have a good audience some will follow suit, this leads to then more people jumping onto the idea and so on until following suit is no longer the best option, yet we continue to feel the need to anyway! It is this Keeping up with the Joneses mentality that is the killer.

Always Remember – As an individual investor you are ideally placed to stand outside the crowd. No one can sack you from your job as your own investment manager for failing to follow a fad.

Experienced investors always watch for signs of market tops. The rushing in of the public is invariably an indication that such a top has been reached, shortly to be followed by a crash.

Joe Kennedy, Millionaire father of JFK, is reputed to have got out of the market before the great crash in 1929 when a shoeshine boy offered him tips, his rationale being that if a lowly shoeshine biy had become an expert it was time for the real experts to get out!

Recognising market cycles will help you to stand aside from the naive investor who believes that rising markets go on forever. Equally, you will realise that bad times always end. In fact, they provide the best opportunity to prepare for successful investing in the fearful market that’s sure to follow.

I guess my underlying point in all this is to advise you to stay away from listening to the negative talk we have been bludgeoned with over the past number of years. Sure, it is true a lot of people have been caught out with investments that have not done well, but this is because they bought at the height of the markets, not because they were shrewd and stuck their head above parapet. They followed the crowd and got burnt, its that simple.

On the contrary, now is absolutely the correct time to be getting involved in some sort of investment product, before the crowd. Things are settling, people are beginning to think towards their future again not back at the gloom, our window is open but shutting fast. Be the pied piper, not a rat.

Get Alternative Investment Ideas Here

http://www.LosPandosOpportunities.com

Inflation is here. Here are 5 investment ideas to at least allow you to keep pace with an increasing cost of living.

1. Index Linked Government Bonds. For example US Treasury Inflation Protected Securities (TIPS) or Index Linked Gilts in the UK.

These are essentially an I.O.U. from the Government. In return for ‘lending’ the Government money, it agrees to pay you annual interest, until such time as your money is returned to you at a fixed future date.

They offer a hedge against inflation because the interest payments and redemption value rise as inflation rises.

2. High Dividend Stocks. Historically stocks have been another useful hedge as they have the capacity to grow faster than inflation.

As a rule, public companies either reinvest their earnings or pass them along to shareholders as dividends.

For individuals looking for a hedge against inflation, the second variety is hard to beat. That’s because dividend-rich stocks provide income, but unlike fixed-income investments they have the potential for capital growth as well.

3. Property. Property is a fixed asset and any kind of fixed asset becomes more valuable with time thanks to asset inflation.

4. Gold. OK, it doesn’t have any yield. However, gold is typically viewed as a classic hedge against inflation. As the World Gold Council, states: “Gold is not a perfect hedge against inflation but it is the only hedge that has been tried and tested over centuries that have seen currencies rise and fall.”

5. Commodities. Find the things that are rising in price the most – oil and foodstuffs/agricultural products spring to mind. Look to add some exposure to them to your portfolio.

Be careful though, commodities can be volatile and have risen a lot already. If they don’t suit your risk profile, look at investing in a fund that tracks a basket of them but that at least provides some form of guarantee of your principal.

Ross Naylor is an experienced financial advisor who specializes in providing expatriates with impartial, transparent and common sense investment plans.

He writes a regular magazine column, ezine and blog – http://www.aesinternational.com/rossnaylor/blog/.

Being a new investor can be a challenge, especially during tough economic times. You may be tempted to throw all of your money into one “fail proof” system, but you need to note from the beginning that such a system does not exist. There are risks involved with anything you want to be a part of, but that does not mean that you cannot make money through investments. You just need the right plan to get you started.

Here are some common beginner investment ideas you may want to avoid for the time being.

One of the beginner investment ideas that have flourished over the years is the thought of flipping homes for profit. While there are people out there who make a living flipping houses, the work is not as easy as it seems. The homes almost always take much longer to renovate than you may have expected, and that just eats away at your profits over time. The housing market is not in a good state right now anyway, so you would be more likely to flip a home for rent than you would for sale right now. That could change your profits considerably.

Avoid becoming the major investor for a company until you have a better understanding of what you are doing. One of the best beginner investment ideas you can take with you is to work with a joint venture investment program for your first few ideas. This will give you a chance to be a part of an investment team without having to do everything on your own. When there are other people involves in putting money out for a company, you will get a chance to learn from their experiences and see how the process works. Consider this an internship in investing if nothing else.

Another of the beginner business ideas you may stay away from is investing in new businesses. While there is nothing wrong with putting money into a new business or small business, you should do that at a time when you are able to make wise decisions about your money. Work with a business that already has some plan established so that you can logically make money from it in the end. Save the riskier adventures for times when you know more about what you are doing. You can be a big shark over time if you learn the ropes this way.

Sean Johnson is an Investment Advisor for http://www.inquest.biz an Investment Referral Service for investors requesting information on specific investments.

It just hit me one day! There are all of these online investment sites urging you to invest, invest, invest, or apply for a loan, apply for a loan, apply for a loan! Really, these online investment sites seemed to just appear out of almost nowhere and they also seemed to be everywhere.

I initially found these sites to be just plain old annoying when they first exploded onto the scene. The advertisements began to blur together in my mind, due to the sheer volume of different company names and slogans, I can only suppose.

Well, one day it kind of dawned on me. YOU (the consumer) could use these sites to make some PASSIVE MONEY! In my opinion, that is the absolute best and most rare form of cash!

How is it done, let me tell you. In just 2 sentences.

Here it goes:

Approach one of these flashy online investment/loan sites and request a loan of a certain amount of money. Get the money and then re-invest the money back into the site.

Yep, it’s that easy.

However, there is an important point that you cannot miss! You need this key concept to make the investment work for you! You must re-invest the money into investments with the online site that have a greater return (interest rate) than the loan you took out!

Now, here is the FUN math part! The greater the difference between the interest rate of the investment and the interest rate on your loan, the more PASSIVE CASH YOU WILL MAKE!

An example, you get a loan from X online investment site for $10,000 at an interest rate of 10%, for a term of 2 years.

You take all of this money and re-invest it into X online investment site, making sure that the investment has an interest rate that is greater than 10% (remember the investment has to have a higher interest rate than your loan for this to work).

Back to the example, you re-invest the entire $10,000 into an investment with X online investment site at an interest rate of 15%, for a term of 2 years.

Here is how it works out:

Once the 2 year investment/loan term is finished, what exactly will you have?

Loan:

$10,000 times 10% = $1,000 times 2 years = $2,000

$2,000 plus $10,000 = $12,000

So, after the 2 years passed, you would have paid $12,000 in total for your loan.

Investment:

$10,000 times 15% = $1,500 times 2 years = $3,000

$3,000 plus $10,000 = $13,000

So, after the 2 years passed, you would have made a total of $13,000 on your investment.

For your profit? As usual, investment dollars minus loan dollars.

$13,000 minus $12,000 = $1,000

$1,000 profit.

AND THAT IS $1,000 PASSIVE DOLLARS! THE MONEY WORKED FOR YOU, YOU DIDN’T HAVE TO DO ANYTHING!

Now that is what I call, the perfect online investment idea! And it can be explained in just 2 sentences!

Lisa Kai Lee is a 30 year old wife living with her husband in the Los Angeles area. Lisa Kai Lee has a website http://www.lisakailee.com that is filled with useful information that you just might need to know someday! SMART TIPS FOR SMART PEOPLE Visit and subscribe!

Over the years, investors have viewed diversification as the one “true free lunch.” Indeed, asset classes such as global stock markets, real estate, timber, commodities, managed futures, and other alternative assets – have served their proponents well. On the other hand, some analysts argue that the diversification benefits fall apart at the worst possible moments. This seems to be true, as witnessed by the recent financial crisis, which saw well-diversified portfolios decline by -25% or more. How can both sides of the argument be true? Is there anything an endowment or institutional investor can do?

Using the best practices from institutional investing and hedge fund strategies – and applying a mathematical and scientific approach to improve statistical and risk management concepts – can maximize the use of information and available diversification potential. It is useful to apply theoretical approaches in a sensible manner to ensure practical and robust results in our pragmatic world. The result is a more complete model that combines Monte Carlo analyses, Post-MPT, and more meaningful risk measures. Below, are a few thoughts on these statistical measures and methods.

Global Stocks, Rising Correlations, and Semi-Correlation

Starting in the 1980’s, international stocks were the hot investment category. They added diversification to a well-diversified portfolio. The Japanese stock market moved from about 10,000 to around 40,000 during the 1980’s and helped spur interest in foreign stocks. U.S., European, and Asian stock markets have always been correlated to one another, but correlations were normally in the 0.4 to 0.7 range before the mid-1990’s.

Mean-variance and other Modern Portfolio Theory models were “happy” to see these relatively low correlations. Portfolio optimizers showed you could increase your overall equity exposure slightly, allocate a material amount of your equity exposure to other regions around the globe – and still increase your portfolio’s overall risk/return characteristics. Over the years, international stocks (instead of just a home country’s stocks) have served diversified portfolios well.

However, as with most good ideas, the benefit of international stocks dwindled over the years. Mathematically, there will always be some benefit to global stocks, but the numbers show a generally increasing (rolling) correlation levels over the years. Correlations between foreign stocks and the S&P have risen from an average of about 0.5 or 0.6 in the late 80’s and early 90’s (when international stocks started to become popular) to current levels of around 0.8 or 0.9.

Key Takeaways:

Correlations amongst global stock markets have generally risen over the years; diversification benefits declined.
Interestingly, there are spikes in correlation, especially at times of financial crisis. Note 1987 Crash spike, as well as the very high correlations during the current recession.
The previous bullet point quantifies the observation of many investment analysts: that the diversification benefits of many asset classes are less than expected.

Semi-Correlation

In general, we have seen that markets sometimes decline together – and diversification benefits dissipate – at the worst times. When there is turmoil, markets become more correlated, as portfolio managers cut losses and try to maintain liquidity. I have developed proprietary indicators (* is one example, below) to determine if diversification might really help in times of need.

Correlations & Semi-Correlations for S&P 500 and Various Sectors (1987-present)

Correlation Nasdaq-S&P = 0.84
Correlation Europe-S&P = 0.80
Correlation Asia-S&P = 0.69
Semi-Correl(*) Nasdaq-S&P = 0.95
Semi-Correl(*) Europe-S&P = 0.93
Semi-Correl(*) Asia-S&P = 0.82

I sometimes mention “semi-deviation” as a better overall risk measure than standard deviation (because it measures downside risk). Semi-correlation is a similar approach that takes some of the noise out (noise due to upside moves / correlation) and tries to measure “times of trouble” more directly. From the chart above, we can see that correlations do indeed increase during financial market volatility. More specifically, the chart shows that when the S&P declined, the Nasdaq, European, and Asian markets were lower about 90% of the time. Indeed, if we study “material” declines, the diversification numbers worsen to closer to 100%.

Real Estate Correlation over Time (1982-present)

Real estate is another asset class that has provided good diversification over the years, with a long-term correlation with stocks of around 0.1. Based on data from 1982 until the present, we have seen correlations rise from near 0.0 to recent correlations closer to 0.3 or more, with the recent financial crisis being closely related to real estate.

Summary

The correlation of some asset classes has risen over the years. In addition, history has shown that the actual benefits of diversification are lower than expected, due to markets declining together during market crises. Using a good set of tools can help investors get a more realistic understanding of the probabilities. These tools have uncovered some interesting relationships amongst asset classes and strategies.

In addition, the financial markets and world around us are constantly evolving. The value of a good idea often declines over time. What will be the next great investment idea? It is important to constantly improve to stay competitive in our fast-moving world. Continual research and a collaborative effort, with an empowered investment team, can help an organization stay ahead of the crowd and achieve good risk-adjusted returns.

Carlton Chin, CFA, is an MIT-trained quant who enjoys applying numbers to everything from the financial markets to sports analytics. He has worked with institutional investors on portfolio optimization and as an alternative investment strategy proprietary trader.

Carlton been featured in the NY Times, Wall St. Journal, MARhedge & Financial Trader. He holds both undergraduate and graduate degrees from MIT. http://www.CARATcapital.com

The longer one is involved in the investment sector the more you realise that being a successful investor is 20% market nous and 80% avoiding stupid mistakes. As legendary investor Warren Buffett put it; “investing is simple, not easy”.

With that in mind, Hhere are some of the more common potholes that continue to trip up investors.

Having unrealistic expectations
Shares have been the best performing investment over the past 60-70 years and have returned around 10% a year. During periods when inflation is low and rising returns tend to be more like 8% a year.

Investors gunning for returns of 15% plus will have to take huge risks to get there by putting all their money on a few shares or properties, or by using debt to gear their portfolio. The higher return you aim for, the higher the chances that you fail. As they say, aiming for the moon can mean you end up in a black hole.

Falling for con artists
There are many unsavoury characters out there that play on people’s gullibility and greed by offering unrealistic returns. Do not get sucked in. If it sounds to good to be true, it will be. I have seen return projections of 20%, 50% and even 150% a year offered to investors. Such returns are complete nonsense. They simply defy the laws of gravity. Consider $100,000 invested today and earning 50% a year. If you manage to earn this return every year you will be a billionaire in 23 years. You will then overtake Bill Gates as the world’s richest person after 35 years. Do you really think this is going to happen? High returns are simply unsustainable over long periods of time and the people offering them are guessing, at best.

Putting too much emphasis on market predictions
Within the investment industry there is an army of very smart investment analysts,economists, strategists and fund managers all getting paid to eyeball markets and come up with the next best investment idea.

Although this research is usually very interesting, and often backed up with very nice colour coded charts, much of the time it is wrong. What trips up all of these experts is not their analysis, but the fact that they are dealing with future events. The future is 100% unpredictable and even the most robust research can be proved worthless by a completely unforeseen event.

Smart investors recognise that nobody can predict the future direction of investment markets and that it is dangerous to put too much stock in such predictions.

Following the crowd
Investors have a fatal habit of chasing what’s hot. Unfortunately, past performance has no bearing on future performance and in fact, last year’s winners can often end up as next year’s wooden spooners.

Lack of balance
The biggest investment tragedies happen when people have their portfolio excessively concentrated on one investment, or one investment sector. The golden rule of investment is to have a good spread of investments across the main sectors; cash, bonds, shares, property and overseas investments.

Fees
This four-letter word has spelled disaster for generation after generation of investors who put their faith in such traditional savings products like whole of life policies and super schemes.

The costs involved with these funds have decimated returns leaving almost nothing for the investor.

Fees are arguably the biggest threat to an investor’s long-term returns. For instance, a super fund that earns 8.0% on its portfolio will have management fees of at least 1.5% then deducted then tax of 2.0%. Take off another 1.5% for advisory fees and 2.5% for inflation the investor at the end of the food chain is left with a return of just 0.5%. Reduce fees by investing directly into markets wherever possible.

Cam Watson is the Chief Investment Officer for ABN AMRO Craigs, which is one of New Zealand’s largest independent investment firms. He has over 18 years experience in the financial services industry. For eleven years Cam has been employed with ABN AMRO Craigs, becoming Chief Investment Officer in 2007.

Cam holds a Bachelor of Arts Degree and a New Zealand Stock Exchange (NZX) Diploma. He has been a member of the NZX since 2001 and has a current Sharebroker Licence. As with all ABN Amro Craigs Investment Advisors, Cam is required to maintain continuous internal performance modules, covering topics such as industry and regulatory developments. He also has the support and resources of ABN AMRO Craigs global research network. http://www.abnamrocraigs.com/