Investment Articles

Treasury Inflation Protected Securities (known as TIPS), are inflation indexed bonds issued by the US Government. But what do they really offer you as an investor and how exactly do they work???

First of all, there’s a lot of investor angst regarding future inflationary expectations. After all – it’s a normal concern with the government deficit exploding to unfathomable proportions on a minute by minute basis (not to mention interest rates overall are at historically low levels, and when rates revert to the statistical mean inflation is a likely counterpart to that occurrence).

TIPS can be purchased direct from the US government through the treasury, a bank, broker or dealer – or most preferably through a low cost index fund such as DFA Inflation Protected Securities (DIPSX). Individual TIPS are purchased according to an auction process, where you can either accept whatever yield is determined at the auction or set a minimum yield you’re willing to accept. In the auction method, if your requested yield target isn’t met – your purchase request will not be executed.

TIPS come in 5, 10, and 30 year maturities and are bought in increments of $100. The return of principal AND ongoing interest payments depend on the TIPS principal value adjustment for the consumer price index (the CPI which is the most commonly used measure of inflation). The coupon payment however, is a constant and stays the same for the life of the security. This is where TIPS get a little tricky – while the coupon payment remains the same, the TIP itself fluctuates meaning the actual yield you receive will vary.

With the underlying TIPS unit value fluctuating based on the CPI, each coupon payment interest rate fluctuates (fixed dollar payment divided by a fluctuating par value equals a floating interest rate). So while the principal value fluctuates, the interest rate is fixed. This is how the holder is protected from inflationary pressures. If inflation increases, the underlying TIPS par value increases along with it.

As with the majority of US Government debt obligations, TIPS pay their coupon semi-annually. The index for measuring the inflation rate is the non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All Urban Consumers (CPI-U), published monthly by the Bureau of Labor Statistics (BLS).

In what situations would TIPS be a viable option for your investment portfolio? Take for example an expectation of inflationary pressures over the next five years. If you were to invest in a portfolio of TIPS, as inflation occurs the principal value of the TIPS rises to compensate you for the inflationary pressure. Your coupon payment remains the same, but your TIPS principal investment is worth more.

Now let’s look at the opposite of inflation – deflationary pressures. Should deflation occur, your principal value would drop. TIPS do have a backstop for deflation however. The TIPS maturity value payment is the greater of $100 per TIPS unit, or the adjusted current value at that time.

Treasury auctions vary by security type and date, and it’s challenging to find relevant samples for different types of issue. However here’s some real life examples of TIPS and regular 5 year treasury notes for comparison.

In a recent TIPS auction on April 26th, 2010, 5 year TIPS were priced at 99.767648 (or $99.77 per $100 par value TIPS security) with a rate of.50%. On the same day, the 5 year treasury note yield was sitting right at 2.6%. In this case, the regular 5 year treasury note is yielding roughly 5 times as much as the 5 year TIPS. Seems like a lot to give up for some inflation protection doesn’t it? The wide disparity in yield is primarily due to investor expectations of inflationary pressure (investors are willing to accept a lower interest rate for the inflation protection).

There is an upside however. Let’s look at a similar 5 year TIPS security issued last year on 4/15/2009. It was issued at $100.11 for each $100 TIPS and a rate of 1.25%. At the same time the normal 5 year treasury note yield was at 1.71% – not nearly the spread of the first noted TIPS example. That same treasury note issue today (June 5th, 2010) is indexed at 1.02858 or each TIPS is worth $102.86.

A 5 year treasury note issued on April 30, 2009 (as close as possible to the last TIPS example) priced at 99.691687 ($996.91 per $1,000 maturity par value) and yielded 1.875%. Today through TD Ameritrade where I custody client assets, that same 5 year note is priced at 101.188 ($1,011.88 per $1,000 maturity par value).

The roughly one year old 5 year treasury note has earned a return of the coupon payment (two payments at $9.375 each plus some accrued interest which we’re discounting for this example), plus an increase in principal of $14.97 which equates to a 3.37% return. For comparison, the closest issued TIPS issue from April 15, 2009 has garnered a return of two coupon payments (I’m using 10 TIPS to bring this example to parity with the $1,000 par value treasury note) of $6.25, and experienced an increase in value of $27.48 for a comparative return of 3.99%. In this example the TIPS outperforms the treasury note by a reasonable margin.

Granted, these examples aren’t perfect, but they’re close for illustrative purposes on TIPS calculations and values compared to treasury note calculations and values.

There are downsides to TIPS however – one being taxes. Should the principal value rise with inflation in a given year you’re taxed on the growth (which is NOT distributed, it’s only on paper) as if it were income. This creates somewhat of a phantom income tax – you don’t actually receive the money, but you’re taxed as if you did! The upside of this is you establish a new basis in the security and won’t be taxed on it again, and in fact if deflation occurs may have a loss to put on your tax return. Of course, don’t take my word for it – please consult your tax advisor.

In addition to the tax issue, there’s also political risk associated with the US Government (the rules can change – after all the rules change all the time!) in addition to the fact that the government calculates the CPI (who’s to say they’ve got their calculations right, and are they manipulated for other political or economic reasons?).

While TIPS are great for some investors, they’re not right for everyone, and certainly not right for an entire (or even a majority of) portfolio. However, should inflation pick up from these historically low levels over the next five years, the TIPS should comparatively do just fine compared to the regular 5 year treasury notes.

With all of the TIPS calculations noted above, still one of the best ways to hedge inflation is with a diversified portfolio of passive investment assets such as Dimensional Fund Advisors (DFA Funds), and other exchange traded funds (ETF’s). At Red Rock Wealth Management, our portfolios provide a substantial amount of NON-dollar denominated assets (a great way to hedge against a weak dollar). Client portfolios consist of over 13,000 equity (stock) securities across 41 countries. In addition, many US based companies hold non-dollar assets as well, and the Red Rock Wealth Management portfolio philosophy also holds other tangible assets the government can’t “print” – such as gold, oil, and timber.

The point is, through proper investment management your risk associated with inflation can be mitigated substantially through Treasury Inflation Protected Securities AND broad diversification.

Consider adding TIPS to your portfolio for a component of inflation protection, just make sure you fully understand all of the positive AND negative aspects of TIPS!

Greg Phelps is an Financial Advisor & Retirement Planner, and a Fee-Only CERTIFIED FINANCIAL PLANNER (TM) in Las Vegas and Henderson, Nevada. With over 15 years of financial industry experience, Greg is an accomplished financial advisor, author, and speaker. Through his financial consultant positions with two of the largest investment banking firms on Wall Street – Morgan Stanley and Goldman Sachs, as well as serving as the Regional Manager of Wealth Management and National Manager of Fiduciary Advisory Services at the 5th largest accounting firm in the country – RSM McGladrey, he’s consistently and ambitiously improved his skill and knowledge in the financial planning field. In addition to creating a Free Mortgage Rate Quotes utility for use by financial advisors with their clients, he strives to deliver exceptional financial planning advice and guidance in all areas relevant to his clients, with a specialty focus in retirement financial planning.

As a Socially Responsible Investment manager the most common question we hear from potential clients is “and adviser told me that socially responsible investing isn’t profitable” versus non-screened portfolio management. In general the adviser providing the dogmatic opinion does not offer any foundation for their opinion but this is their chance to influence the potential client especially if they cannot offer an Socially Responsible Investing (SRI) option for the investor. Unless you have a few arrows of your own in your quiver you may be quite likely shrug your shoulders and resign yourself to an non-screened portfolio versus a clean portfolio.

Probably due to the fact that I’m over 50 now with a repellent view of hyperbole and unsubstantiated opinions I have been uncomfortable with opposite view as well: socially responsible investing improves rate of return. It has been my view based upon empirical experience of managing Socially Responsible portfolios for 20 years that social responsibility is not a significant determinant of investment performance. Socially Responsible Investing is a highly subjective practice where investors can have divergent opinions on industries and companies. There is not unified screening standard amongst the ethical investing industry, each firm or fund makes their own decisions on screening criteria. While some funds screen for only 3 or 4 issues there are other funds that screen over a dozen.

Practitioners of ethical investing may draw attention that investors always assume a given level of risk with any equity investment but that the risk premium associated with SRI is less. Case in point the risks associated with Tobacco, Asbestos or BP and the Gulf oil disaster. However in my 20 years involved with socially responsible investing, screening stringency is often a matter of interpretation as BP was considered Best of the Lot for many years for funds that desired petrochemical exposure.

Let’s take a look at some of the academic studies that have touched upon the issue of the factors of Socially Responsible Investment performance:

* Moskowitz Award winner, John Guerard, Jr., director of quantitative research at Vantage Global Advisers, examined the returns of Vantage’s 1,300 stock non-screened stock universe and a 950 screened universe (The screens eliminated companies that failed to pass alcohol, gambling, tobacco, environmental, military, and nuclear power). He found “that there is no significant difference between the average monthly returns of the screened and non-screened universes during the 1987-1994 period. The “un-screened 1,300 stock universe produced a 1.068 percent average monthly return during the January 1987-December 1994 period, such that a $1.00 investment grew to $2.77. A corresponding investment in the socially-screened universe would have grown to $2.74, representing a 1.057 percent average monthly return. There is no statistically significant difference in the respective returns series, and more important, there is no economically meaningful difference in the return differential.”

Guerard’s conclusions are reinforced by other works:

* “Socially Responsible Investment: Is it profitable” Dhrymes, Columbia University July 1997 June 1998.Dyrymes concluded that: “that by and large the Concerns and Strengths of the KLD index of social responsibility are not consistently significant in determining annual rates of return.”

* Socially Responsible Investment Screening Strong Empirical Evidence For Actively Managed Value Portfolios. June 2001, revised December 2001 Stone, Guerard, Gultekin, Adams.”No Significant Cost” means no statistically significant difference in risk adjusted return”. In addition, they surmise that “the conclusion of no significant cost/benefit is not just a long term average. It has remarkable short term consistency!”

In my opinion this report presents a balanced view in that they concluded that the during the time of the study 1984-1997 the stock market rewarded the growth oriented style and that the performance of SRI investments could become “brittle” if markets were to become risk averse and adopt a more Value oriented style……….a remarkably accurate presumption!

Could the performance of SRI funds which have exceeded or lagged their respective benchmarks be in part due to size (average capitalization from micro cap to large cap) and style (Value or Growth)?

Fama and French of Dartmouth University examined the annual rate of return and beta (volatility) of an non-screened universe of Growth vs. Value from 1928 to 2009 by dividing stocks into ten deciles (groups) based on book-to-market value, rebalanced annually and found that Value had the lower risk while Growth had the higher risk. In addition, they found that the highest book -to-market stocks exceeded the return of the lowest book-to-market by 21% to 8% on average. Stock valuation was as significant factor in the Fama and French study where the cheaper the equity valuation the better the return.

Market Cap size was important in the Fama and French study as well (1992). Market cap size showed a significant edge to small and micro cap equities on a monthly basis. *Monthly returns for the smallest 10% of equities were 1.47% versus 0.89% for the largest decile.

It is our contention that there are attributes that could account for performance to equities other than social profiles and that concurrently a portfolio of socially screened equities with the highest book-to-value ratios could exceed comparative benchmarks largely due to valuation metrics and capitalization size. In a case of pure cherry picking the monthly rate of return smallest market cap and lowest book value to market price was 1.63% versus.93% monthly for largest market cap and highest book value to market price.

I tested this theory using data supplied by the Social Investment Forum and Russell Index regarding the 10 year average rate of return for socially responsible mutual funds versus their respective benchmarks trends do emerge.

Data as of June 30, 2010

Benchmarks

* Russell Mid Cap Value Index was the top 10 year performer +7.55%.
* Russell Mid Cap Growth Index returned -1.99%.
* Russell 2000 Value returned +7.48%
* Russell 2000 Growth Index returned -.92%

Equity Large Cap performance (information provided by SIF)

* 4 mutual funds show positive 10-year average annual rates of return:
Calvert Social Investment Equity +0.14% (Growth)
Neuberger Berman Socially Responsive +3.18% (Value)
Walden Social Equity +1.46% (Value)

Parnassus Equity Income +4.65% (Value)

Equity Small Cap performance

* 2 mutual funds from one mutual fund company showed a positive 10-year rate of return.
Ariel Appreciation +6.16% (Value)

Ariel Fund +5.62% (Value)

Disclaimer: While the sample size of SRI fund performance is very small. I gleaned data from only the profitable SRI funds for the last 10 years. The SIF forum does not show fund performance information for funds that have closed, merged or liquidated. It would be a safe presumption IMO that funds that no longer exist were weak performers since money will flock to where it’s treated best. Plus, hedge fund performance data was not available on the SIF site.

The results do fall in line with substantial academic works (Fama and French, Lakonishok) and it is possible that SRI performance should be viewed thru the lens of Value/Growth and Market Cap size.

A logical question that must be asked upon reading this might be: “If small market cap and low valuations are the sweet spot for investing, then why are there so few funds or managers focusing on this strategy?” Not to be obvious… ok, well lets be obvious: The small cap / low price to BV tends to be the focus of many private portfolio managers since our small size allows us the dexterity to invest in companies that are simply too small for billion dollar mutual funds. Successful funds tend to outgrow the size/valuation strategy espoused by Graham as assets become larger and the investment selection becomes narrower. But this topic should best be explored at a later date.

No holdings mentioned.

Brad Pappas
President of Rocky Mountain Humane Investing
Allenspark, Colorado
303-747-0500
http://www.greeninvestment.com
copyright Rocky Mountain Humane Investing, Corp 2010

Here’s an interesting question… where are “Emerging Markets” emerging from and into what?

But before we answer that, what are they? “Emerging Markets” refers to countries in the world which have a less developed infrastructure. They tend to be those that are achieving economic growth, but are not as mature as the developed world.

Emerging Market Groupings

To illustrate this it is worth pointing out how Emerging Markets are often grouped together for investment purposes. While it is always possible to invest in an individual country if you know what you are doing, it is more common to group them.

For example:

The “BRIC” countries include Brazil, Russia, India and China
“Asia Pacific excluding Japan” means South East Asian countries like Indonesia, Singapore, China, South Korea, and so on
“Emerging Europe” includes Russia and emerging Baltic countries like Ukraine, Latvia, Romania

Growth and Risk

Recent investment performance in Emerging Markets has been better in many cases than in the developed world. However, these markets are politically and economically more volatile than their developed counterparts, and so investments are subject to higher levels of risk.

The opportunity for growth comes from aspects like the greater investment in infrastructure (roads, water supply, etc.), availability of land and natural resources, and a growing “consumer society” wanting to improve their standards of living.

The risks come from things like bureaucracy which – along with corruption in some cases – hinders smooth development. Human rights records can act as a drag on development, while political instability and international friction can also dissuade investors. Economic experience in managing aspects like inflation is also less developed, although it could be said that banking systems are more stable than in the “developed” world since they have not developed the convoluted products and procedures which caused the credit crisis in 2008!

All in all, Emerging Markets are increasingly significant for investors, and there are plenty of opportunities to invest when appropriate, both in equities of various types, and in bonds (fixed interest issues by governments and companies).

So Should I Invest?

The answer will depend on your objectives, your attitude to risk, and on the balance of your portfolio.

If you are looking for income, then Emerging Markets is unlikely to be the best place to find it. While a high proportion of companies remain in the early stages of their development they need their capital for growth and have not established the stability necessary to pay a regular dividend.

But for growth investors it’s another story. There is much more potential for growth than in the developed world, as I mentioned. But there’s no doubt it may be a rougher ride getting it. Levels of volatility are undoubtedly higher – but by selecting a well-managed fund or an appropriate index to track, the risk associated with individual companies or countries can be spread.

As with any investment, time is what counts, but particularly so with Emerging Markets. If you:

Are willing to invest for the long term
Are willing and able to wait for periods of under-performance to pass
Are looking for growth but don’t mind seeing some short term losses
Already have other investments providing diversification

…then Emerging Markets could be for you.

About the Author

Prime Time Financial is a trading style of Keystone Financial Ltd which is authorised and regulated by the Financial Services Authority.

Many illustrations of investment performance calculate the growth of a hypothetical investment from a given starting point.  Typically there is a benchmark, such as the S&P 500 index, charted alongside for comparison purposes.  The models show that had you invested a specific dollar amount, for example $10,000, you would have the initial $10,000 plus whatever growth through dividend re-investments and asset price appreciation at the end of the evaluation period.  This measures an investment’s total return for the period and is based on a buy-and-hold strategy that is quite different from how most people invest.

Controlling Your Emotions?

Morningstar, an independent investment research company, compiled returns for how the average mutual fund investor did during the 2000’s. The research added a layer of analysis to the total return calculation by also tracking the cash flows in and out of the mutual fund.  They wanted to see what the performance looked like if you took into account additional buys and sells in the fund during the same time frame.  Then they compared the findings to the buy-and-hold strategy that mutual funds use to report investment performance.  What the findings show is that most investors suffer from bad timing as they get in when prices are high and get out when prices are low.  This is a reflection of how market forces can drive investor emotions and result in behaviors that cause poor relative investment performance.

Slow And Steady

Another interesting discovery is how fund companies provide different investing experiences for the average investor.  The institutions that stick to fundamentally sound investment principles were proven to have better investor returns relative to total returns than those companies that use a short-term, current-trends marketing strategy to attract investors.

Financial Symmetry’s composite results for the decade were an average annual rate of return of 4.93% compared to the average annual investor return of 1.68% across all funds.

http://www.finsymnews.com

Will Holt, CFP, CPA, is a partner in the Raleigh, NC financial planning firm Financial Symmetry, Inc. – http://www.finsymnews.com.

Everything we do in life is a risk to a degree and stock markets should be given the greatest respect, it all comes down to just how much we are prepared to risk. Since I’m no expert in the highs and lows of stock trading I would like to have a trial or dry run if for nothing else but to peak my interest.

Investment management software will track your profits, losses, the cost of trades and any additional costs associated with your investment business. You should understand the basics of accounting, the history of the stock market and basic accounting principals as part of your stock market training. Investing is a matter of research, selection, and timing. To stay on top of the ever-changing market, you need to spend hours and hours every day researching and analyzing.

Interestingly, the strategies with the help of which you can easily learn at online schools are quite amazing and positive. Besides, it is a well-known fact that Internet stock market training can provide you with depth knowledge about the stock market and everything that is happening in this area these days.

To do your best at stock market trading you need training, strategy, and good understanding of the market. My advice is to find some one that can mentor you if you don’t have someone then find places on the internet blogs that will give you a knowledge base and you can ask questions in the forums if you need more information. Then paper trade till you become comfortable with trading and at first don’t shoot for the kill, start small and work form there.

Being risk adverse is the best way to hedge against losses, but in this day and age the best tools that you can have at your finger tips is a good knowledge base and the best strategy you can find.

Jay has been writing online for a while now. He has a wide range of interests and topics that he likes to write about. You can check out his website at protradingstock.com

Introduction
The bottom line of every business is controlled by finance. The strength of finance includes control of the future of all the employees of a certain company. There are diverse aspects of investment controlled by finance. A company’s cash flow management is based on its investment policies. A proper financial investment helps a company in maintaining a perfect balance in the cash flow such that there is no sudden deficit that could lead to hazardous results. Financial investment in a planed manner has a role to control the investment, insurance and risk management issues of a company. These together contribute towards economic success.

Risk, Rate and Diversification
Before one goes through the deep features that are included in financial investment, it is required to understand the concept of risk. There are basically two different meanings that are given to risk. It could either be considered as loss of a certain portion of the capital investment or not enough profit as compared to the assets at stake. It is impossible to eliminate risk entirely. It can be reduced by diversifying the business. The intelligence lies in managing the risks such that if taken in the short term, it produces a long-run benefit. One should manage risks such that it lies well-within the context of the aimed goals. (The Daily Angle, 2009)

The next important part of investment is the rate of return. It is often believed that the more a person takes risks; the higher would be the rate of return. Whenever there is greater amount of security that comes from lower amount of risks, it becomes more suitable for the risk avert investors. This is termed as risk/rate trade off.

The third most important part of investment in finance is in terms of diversification. It is a reality that if a company deals in just one sort of business, there is a higher probability of failure. If the same company has many forms of business, then one form can certainly counteract the other. This is the benefit of diversity. Diversification in business can be adopted in the following ways:

• Across asset classes
• Across markets and regions
• Across investment management styles

Factors of Successful Investment

• One would have to decide the appropriate time as to when to sell a fixed-interest investment. If a person sells the same before the time of maturity, there are chances for the rate of interest to fall within the period of holding the investment. If this happens, the seller could enjoy a profit on the original investment.
• At the same times, if the interest rate rises during the time of investment, then there are chances that the seller would receive a lower amount as compared to the amount he could have received at maturity. This would therefore result into a loss.
• Another important factor that the investor must keep in mind is that the way a form of maturity or bond performs in the market would be different for different bond or maturity based on the economic conditions of the market. There could be arise but at the same time a fall too. (Vong, 2006)

Sources of Finance

Internal Sources

Personal Savings: In this form of financial sourcing, a businessman invests money in his own business. A substantial amount is used for running one’s own business.

Retained profits: In this form of sourcing, a businessman doesn’t use his money but saves it. These profits are termed as kept by the accountants and not spent.

Working Capital: The daily expenses that are accounted in the firm are termed as the working capital. This includes stationery, rent, wages etc. The working capital can also be defined as the difference between the assets and the current liabilities of a company.

Sale of Assets: This form of financial sourcing is required when the business is in desperate need of cash. At this point of time, the only alternative left for the company is to sale some of its fixed assets as they do not provide any revenue and use it in the development of the business. (Radcliffe, 2005)

External Sources

Ownership Capital:

Ownership refers to those businessmen who are shareholders. This occurs in a limited liability company as the partners and the owners of businesses are not holders of shares. There are two types of shares:

Ordinary Shares: These are those shares that are issued to the owners of a company. These shares can be entitled to dividends once a fixed amount of profit has been made or after a certain date. The ordinary shareholders can put funds into the companies through their respective retained profits. This might not bring in large amount of funds but it is preferable as a low-cost source of finance. The ordinary shareholders can also put their funds by paying for a new issue of shares. This is efficient when a company is in the growing stage.

Preference Shares: These are those shares which have a fixed percentage of dividends even before the ordinary shareholders receive any amount of dividends. It can be advantageous as these dividends are not required to be paid in those years when the profit has decreased substantially. There are no voting rights associated with these shares so there is total control of the shareholders. It does not put any restriction in the borrowing power of the company. (Brigham, 2004)

Non-Ownership Capital:

Debentures: These are the raised capital of a company in the long-term for which interest is paid under a written acknowledgement. They can be advantageous when the interest rates are volatile in nature. The coupon rate of debentures can be changed according to the fluctuation in the market rates.

Bank-Lending: These are the most important forms of financial sourcing. These are generally for a shorter period of time but at times they can also be taken on a medium-term basis. In case of short-term lending, the companies are required to keep an overdraft which is given by the bank and the interest is charged accordingly on the given amount. This is generally done for a period of three years or less. The medium-term lending is done on a three to ten year basis. This sort of lending is done for the larger companies according to a set margin depending on the riskiness and credit-standing of the borrower.

Leasing: In this form of financial sourcing, there is an owner of an asset who allows another person to use it. Here, the user is responsible for the equipments granted. (Metrick, 2006)

Terms of Investment in Finance

Opportunity Cost

Opportunity cost gives the best possible alternative that could be considered in making the investment decisions of a company. The basic principle of economics is to consider the resources as scarce. Under the situation, opportunity costs refer to that cost which makes sure that there is optimum utilization of the resources. Let’s say a company invests a sum of 5,000,000 ADE in the training and research programs, then its effectiveness can be measured when the company analyses the consequences of spending the same amount in some other operational cost. So, before accessing the rue cost of any financial decision, calculation of opportunity cost is a fundamental.

Net Present Value (NPV)

The value of inventory changes for a company gradually over a certain period of time. The net present value is the actual present value derived from the cash flows over that period of time. It includes a specific discounted rate which is according to the rate at which the capital needed for a certain project could be returned. So, NPV is the total value that a particular investment in the firm adds value to that firm. If it is greater than zero, it is accepted or else rejected.
Internal Rate of Return (IRR)

IRR gives an indication of the quality of the investment. It tells the company whether they should make the investments or not. So, a good IRR indicates that a particular project gives a better yield as compared to the alternative investments. In general, IRR should be larger than the cost of the capital for adding value to a company. (Wilmerding, 2006)

Discounted Rate of Return

The discounted rate of return gives the expected rate of return of an investor from an investment.

Roles of Investment in Finance

Strategic Role: The strategies with respect to the investment in finance are based on its objectives. The strategic role of financial investment is to ensure that the policies implemented by the company eliminate all those elements that have no contribution to the financial success of the company. A company should plan its financial strategies in such a way that they are not only opportunistic in nature but also practically feasible. They are bound to avert risks to the maximum. A proper dissemination of the policies of a company is also a part of the strategic role of the financial investment. This keeps the employees on track of the financial restrictions of the company.

Operational Role: The operational role of the financial investment process is to restrict the company members from crossing the boundaries of financial distress. The operations should provide a platform for the future planning of the company. This is more prominent with maximum involvement of the manager. Another important role of the financial investment is the training of the members of a company to live up to the financial requirements of the company. This includes the budgeting process and the methodologies involved in maintaining the cash flow. All the assets and the debts should be managed as a part of the operational role of the financial investment. So, much of the balance sheet of a company owes its being to the operational role of financial investment.

Responsibilities of Investment in Finance

The financial investment of a company is bound to affect the stakeholders. A company lives on the expectations of many of its stakeholders. Even during tough financial times, the company should make sure that it is able to meet the stakeholders’ expectations. This has an adverse affect when the prices of the shares of an organization suddenly lower. A stakeholder would invest in a company when he is confident of the fact that the investment in the company would not let the prices go down. A company should therefore have a risk calculated amount that helps it in these periods. (Lerner, 2008)

I am a pre final year student at the Indian Institute of Information Technology and Management, Gwalior, India pursuing a five year integrated course (dual degree) leading to the award of B.Tech (Information Technology) and MBA. I am currently in the 9th Semester. ABV-IIITM Gwalior, a Deemed University, is an apex Institute, established by the ministry of HRD (Human Resource Development), Government of India.
The competitive environment at my Institute coupled with my inherent trait of trying to learn something new from each experience has made me come a long way in these four years. I have not only learnt to work under pressure and intense competition with some of the brightest students in the country but have also worked with an esteemed KPO called CBI Solutions in the meanwhile. This has given me the experience to get exposed to some of the most challenging marketing traits in the business. Moreover, I have been awarded first rank for IT and Entrepreneurship at the end of my 7th Semester.
I have been privileged to work at Polaris Retail Infotech Limited, Gurgaon from May to July’08. This taught me the practical application of relationship marketing as I saw the preparation of customer interfaces through their software Smart Store. This is visible at billing counters at retail stores of the fame of Shopper’s Stop. Also, I’ve been in the editorial board of my college magazine, La Vista for the past 3 years and eventually I hold the responsibility of the Chief Editor.

I am certain that you have heard passive investments being termed as couch potatoes and every other term of benevolence that can be rained upon it to tag it as the laziest of investment plans. What investors do not seem to understand is the fact that when a passive investment is managed carefully, you can actually reap rewards in good time. Passive investments may not be as glamorous as active investments with glamorous stock picking methods, but it has its own benefits that could surprise even the most seasoned of all investors.

Passive investment management is definitely that one tool which would actually save you from becoming an emotional and financial wreck even when the stock market crashes. What most investors do, is look for the next big and the best investment opportunity available out there that could help them make an extra buck. On the other hand buying as many investments and keeping them for a longer period of time cab help maintain a portfolio to stay on the right track.

When you deal with passive investments, it does not mean that you have to buy the investments and forget about them completely. Instead, you would have to spend some time to re-balance your portfolio to strike a balance and keep companies that are performing better than ever under control. Since you got the hang of passive investments techniques, this does not mean that you are the ace in the market out there. It would do your portfolio a lot of good, if you could get some professional help to determine your investment goal, how much you wish to earn through such investments, in what duration of time you would need to achieve that, and how much you would have to invest to reach your goal.

Just like any other investments, passive investments are also exposed to market risks. Passive investments do not make your portfolio a fail safe investment and your past success do not necessarily mean that the future could definitely be the same. What you should consider before investing in such investments is that they are available to you at lower rates, present better tax benefits, and have a consistent style that can help you earn more over a longer period.

Before deciding upon the style of investment, it would be best to talk to an advisor to help you decide upon the best investment plan for you.

Darius has been writing online for a while now. He has a wide range of interests and topics that he likes to write about. You can check out some of his websites at http://www.colemanmosquitodeleto.com and http://www.booskitchenislands.com

A key element of any investment philosophy is to invest in ‘quality’ companies. We believe quality companies deliver higher returns at a lower level of risk than low quality companies. The issue with the term ‘quality’ is defining what exactly is a quality company and what it not. Quality is a subjective measure and what may look like quality to one person is not to another. It is also difficult to measure and value. Unfortunately we cannot simply insert a line into a company’s balance sheet called ‘quality’ and attach an appropriate dollar figure.

Here are some key indicators of quality companies:

1. Track record of steady growth in earnings per share (EPS)
A quality company should be growing its earnings over time. It is important to look at EPS rather than just profits because profits can be inflated by issuance of additional equity and acquisitions. EPS is the best measure of real earnings growth.

2. Track record of steady growth in dividends per share
Nothing is more transparent than dividends. The payment of a dividend proves that a company has cash on hand and the financial muscle to produce a cash flow to shareholders. Dividend growth is the key to long-term share price performance

3. Strong balance sheet
It is a simple, but little considered, fact that companies with no debt do not go bankrupt. Some companies that have defensive businesses and high cash flows can tolerate higher levels of debt, but always look for rock solid finances, of which having a manageable level of debt is a key attribute.

4. Strong market position and pricing power
For share investors, competition is the enemy. Prefer companies that have the mettle on their competition either because they have an unrivalled brand, distribution network or product, or look for companies that face low levels of competition, like many utilities. Excessive competition puts pressure on margins and undermines profitability. Look for companies that have high levels of pricing power. Having the ability to increase prices is indicative of a company with a strong market position. Utilities sometimes have this pricing power controlled by regulation.

5. Inherently defensive business
Companies with businesses that are defensive are generally higher quality companies. Defensive businesses are those that provide goods and services for which there is a reliable and growing demand. Companies that provide these sort of ‘core’ services include, banks, utilities, oil companies, healthcare companies, and producers of food and personal hygiene products.

6. Strong management
The experience, vision, leadership skills and integrity of management can have a huge impact on the performance of a company.

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.
Previously he has held Business Development, Investment Management, and Client Services roles at Tower, Southpac, Prudential and Tower Trust Services. This experience in a range of senior roles for major companies has given Cam a wealth of knowledge to draw upon and made him one of New Zealand’s trusted investment experts.
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/

Much of money management focuses on investing money to reach a financial goal. You can get low-cost investment management help and still be your own money manager. Here’s your basic guide to investing and money management on a budget.

As a financial planner I worked with people who needed help with money management, acting as their personal guide to investing. The first step in the financial planning process was to establish financial goals and to get a handle on the client’s financial position in terms of income, assets, liabilities and risk tolerance. Then we’d set an appointment where I would come back and make recommendations… usually in regard to investing money to reach their financial goals. In the simplest terms, I got paid if and when people decided to invest money with me. I didn’t work for free; at least not most of the time.

Most people have the same primary long-term financial goal: a secure retirement. Whether you are young or older, this requires good money management and translates to investing money. If you don’t want to trust and pay a financial planner you can take charge of your own money management by defining your own goals and taking an inventory of what you have to work with. Then, you’ll likely need some help with the investment management end of things. This you can do the hard way like most folks do… or the easy way like I’m about to explain in this basic guide to investing.

Most people invest money in a number of places: scattered around in banks, with insurance agents, stock brokers, and other securities salesmen. They get confused and lose control over their investment management; and often pay high commissions and fees in the process. There’s a better way to do this and save money at the same time. Open an account(s) with one or two no-load mutual fund companies. As a general guide to investing: there are mutual funds to fit just about any investing need. Here’s how investing money in no-load funds (no sales charges or commissions) works.

When you invest money in these funds you do the money management by picking which funds to invest in. The mutual fund company does the investment management according to each fund’s financial objectives. You act as your own money manager by matching your goals or objectives to the appropriate type of fund and account. For example, let’s say want to invest money for retirement with a tax break. You can open an IRA account and invest in both stock funds and bond funds. Or, you are retired and want to consolidate money from a few different retirement plans. In this case you can do a rollover to a no-load mutual fund company IRA.

Within your mutual fund accounts you can invest for safety, or for higher interest income, or for the higher potential profits that stock funds offer. Investing money doesn’t get much easier, and investment management doesn’t get much cheaper. Your total cost of investing can be less than 1% a year, with no commissions or sales charges.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com.

The government has created record in spending which include $108 trillion in unfunded liabilities for social security, Medicare and new universal healthcare benefits. This has put the nation at risk. With the interest rates close to zero, the Federal Reserve cannot take one conventional step – reducing short-term rates – to restore the weakened economy.

In this difficult economic slump or double-dip recession, politicians – with the reluctant assistance of the Fed – could opt to spend even more massively to try to jump-start the economy. The result could be stagflation: slow growth with higher inflation.

Inflation is the curse to the debt holders. But it is a blessing to the debtors – and Uncle Sam is the biggest of them – as they can pay the fixed obligations with increasingly worthless currency.

Are you scared of rising inflation? And want to make sure better returns over inflation from your investments at minimum risk? Then Treasury Inflation Protected Securities (TIPS) may be the best investment option for you.

Treasury Inflation Protected Securities (TIPS) are also known as Treasury Inflation Index Securities and Real Return Bonds (RRB). TIPS are ’safest of the safe’. There is minimum downside risk on investing. TIPS are long-term fixed income investments protected against fluctuations in the rate of inflation.

But why use TIPS as your hedge against inflation, rather than a traditional hedge, such as precious metals? You can use both as your hedge against inflation. But always remember, precious metals like gold and silver are less than perfect hedges.

Gold and silver have performed extremely well over the last 10 years. Gold has more than quadrupled. Silver has done even better. But 20 years before that were a total disasters.

But no matter whether inflation is low or high, TIPS will protect you from the risk on your investment. How?

Here are the advantages of buying Inflation-Protected Treasuries:

Regular Interest Payments: Just like a regular Treasury bond, TIPS pay interest regularly once in six months. But unlike traditional bonds, your principal grows every year by the amount of inflation, as measured by the consumer price index (CPI). That is when inflation rate is up; value of TIPS is also increased automatically. In other words, inflation protection is available on both capital and investment. The interest paid once in every six months also increase by the amount of inflation.

Tax Benefits: The interest you receive from TIPS investments are exempted from state and local income taxes (but not federal).

TIPS are also less volatile when compared to the traditional bonds. The yield on these TIPS funds is currently about 2.5% (plus whatever inflation is going forward).

Another important reason to consider adding TIPS to your portfolio is the great portfolio diversification benefits they bring. This reduces the overall risk and / or volatility of your portfolio over time. TIPS bond yields are low or negative correlation with the performance of many other traditional investments such as stocks and regular bonds.

Rising inflation chances are good for TIPS returns, but in the short term are negative for the returns of stocks and bonds and vice versa.

TIPS can be bought in three ways:

1. Directly: You can buy TIPS directly from the U.S. Treasury or through a bank, broker, or dealer. Click on the following link to learn more about buying TIPS directly http://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_buy.htm

2. Through the Vanguard Inflation-Protected Securities Fund (VIPSX).

3. Through its ETF equivalent – the iShares Barclays TIPS Bond Fund (NYSE: TIP)

Purchasing TIPS through mutual funds offer more flexibility.

There are several advantages of buying TIPS

1. TIPS are very good for long-term investments.

2. TIPS are excellent ways to diversity your portfolio which reduces total portfolio risk.

3. TIPS are government guaranteed.

4. TIPS are less volatile than traditional bonds.

5. TIPS are useful when inflation rates are expected to move up and when economy slows down.

6. Investment on TIPS requires less active investment management thus favor both beginners and experienced investors.

Some investors complain that TIPS hasn’t done anything exciting recently. This is not true. We’ve been in the control of disinflationary forces, not inflationary ones. That will not change next week or next month.

But as the deficit keeps increasing which makes people unhappy, pressure will increase on the government to “do something.” That “something” could be a decision to inflate our way out of this mess, rather than risk the kind of deflationary spiral that Japan has suffered over the past two decades.

Keep in mind that:

The Fed has already taken interest rates near to zero.
Congress has already tried a huge fiscal stimulus
The Federal Reserve has already created trillions out of thin air to mop up worthless securities.

There are chances of rise in inflation if the economy stumbles again which forces to the government to take further action, it could be even more reckless.

Some libertarians and laissez-faire capitalists will refuse to buy TIPS. But other inflation hedges sometimes don’t work. So there is no small risk taking another approach.

In total, TIPS is the only investment that guarantees a return that exceeds inflation in the years ahead. And it is in fact an essential element of your portfolio.

Hedging against inflation can be risky sometimes. Subscribe to the FREE Weekly Wealth Letter to learn strategies about Hedging against Inflation to reduce risk on your investment.

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