Investment Articles

Should you hold Alternative Investments in your portfolio?

So you’ve decided to reduce your exposure to equities in order to avoid the price volatility that seems to be driven by the latest piece of political rhetoric about national debt or economic growth. You’re no longer seeing the value of your investments rise and fall by considerable margins on a daily basis, and you’re sitting on a nice pile of ’safe’ cash. But you probably also need to find a home for your capital where it will grow at least in line with inflation, hopefully generate some income, whilst sharing little correlation with the performance of equities, bonds and other traded financial instruments.

So now is the time you start to consider alternative investments. but where do you start? Do you buy fine wine, rare stamps, farmland, timber or any other of the plethora of emerging alternative investment asset classes currently being touted as the ‘perfect’ investment?

I suggest that the first place one should look should be to their requirements, really establish the end goals you wish to achieve, and the limits you have in terms of liquidity, asset allocation for your alternative investments (as a % your total portfolio) and risk. From there you can, with enough research, discover which asset class might be the right alternative investment for you.

Let’s look at a case study, and see if we can match the Investor to an alternative investment asset class that offer the performance e and characteristics he or she is searching for.

John has a total pension portfolio of £250,000, held in a flexible Self Invested pension Plan wrapper (SIPP). John chose to move his assets into a SIPP some time ago in order to take more control over decisions affecting his investments, rather than be reliant on a Financial Advisor who can only advise on a couple of asset classes – equities and bonds.

John pulled 50% of his portfolio into cash 12 months ago, with the remainder held in defensive stocks and bonds. He has decided to allocate 10% of his overall pension to non-financial, real-asset alternative investments. He does not need income, and he is prepared to hold an asset for up to 10 years, aiming to capture capital growth. John has self-certified as a Sophisticated Investor, but does not wants to invest in funds, he wants tangible assets.

Taking into account John’s position and requirements, it might be suggested that the following alternatives may be a good starting point for Johns research process:

Fine Wine
Land – Particularly productive agricultural land
Timber Properties
Collectibles

All of these assets display certain characteristics that John might find particularly appealing. Fine wine – when selected and managed by an expert – has been shown to deliver returns of up to 20 per cent per annum. The forward looking story looks good too, as increasing demand from Asia, particularly a growing wealthy class in China is demanding more fine wines that the world can currently produce, and they are prepared to pay increasingly large sums of money as wines get older and rarer as more of a particular year is consumed. This increase in demand for a finite asset is what drives capital growth, and a good wine investment manager might help John to pick and choose a suitable portfolio, or cellar’ of wine and also advise, perhaps on a discretionary basis, when to buy and sell to maximise profit and minimise risk. Also, the performance equities has absolutely no bearing on the investment performance of fine wines, allowing John to collect long-term capital appreciation.

Much the same thing can be said for collectible such as rare stamps, where again demand is driven by increasing rarity and increasing demand from wealthy overseas and domestic collectors and investors.

Agricultural land also benefits from increasing demand, as populations in developing economies grow and incomes rise, they demand more protein (meat), which requires many more resources to produce than their traditional grain-based diets. It takes about 3kg of grain to produce 1 kg of beef, so this adds considerable pressure to current agricultural productivity. At the same time we lose millions of hectares of arable land every year to urbanisation, degradation and climate change, so it is likely that farmland will continue to become more valuable over time, again giving John the long-term capital appreciation, as well as separation from financial markets that he requires. This would also generate income from farm rents, or perhaps even through a joint venture farming agreement that would allow John to share in the profits from harvesting.

Forestry investment may also offer John a potentials alternative. Essentially, purchasing a timber-producing property, through leasehold or freehold, and simply sitting back and watching the trees grow bigger and more valuable each year, a biological process that cannot be interrupted by an economic crisis. The actual price of timber also moves every year, having risen by an annual average of 6% for the past 100 years. This means John capture true growth in its truest sense. A huge number of institutional investors are investing in forestry, including pension funds, university endowments (Harvard and Yale to name but two) and hedge funds, all of which are investing in forestry for long-term capital growth. Again, the same principles of supply and demand hold true for forestry. We require more timber as the enormous populations of China and India enter into their most aggressive and resource-intensive phase of growth, requiring more timber for paper, biomass and construction, whilst at the same time natural forests are now protected, creating huge demand for sustainable sourced plantation timber.

In summary, there are a range of alternative investments for John to consider, and really the best thing for him to do would be to conduct his own research in to each subject, and speak to a range of Advisors with specific experience of each individual asset class and choose to work with a professional that can substitute a good track record of investment selection/management for the options he chooses. So, speak to a few fine wine brokers and measure their pitch against the knowledge gained from researching the asset class. Speak to a forestry investment advisor and agriculture investment advisor, and choose to work with someone that knows their sector, and has delivered success for Clients previously. Heck, why not ask to speak to any potential investment partner’s previous clients; I’m sure that any Advisor worth his salt would be proud to have a Client sing their praises.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors.

The most popular type of investments that people make are in collective investment schemes. This makes a lot of sense as it reduces risk for the investor.

Collective investments are funds where the monies of a large number of investors are pooled together under professional investment management. The investment manager then acts collectively on their behalf.

The most popular collectives are unit trusts, investment trusts and Open Ended Investment Companies (OEICs). Then there are offshore funds, with-profit funds, commercial property funds, corporate bond funds, exchange traded funds (ETF’s) et alia.

Of course, some people prefer to invest direct. This obviously takes a lot more time for them to do all the research – ideally beyond just reading the financial press. The problem is that, as several independent research studies show, people who invest direct tend to do worse than institutional investors for various reasons, mostly due to their own actions. These include lack of diversification, compulsive trading, buying high, selling low, going by hunches and simply by responding to media and market noise.

The latter often means that such investors end up investing on the basis of past performance. They read about good past performance for a 12 month period and then invest, when there is no certainty that this will lead to better returns the following year.

Financial markets are cyclical and the key to successful investment (as opposed to day trading) is not timing but patience. A buy and hold strategy may not be as sexy and exciting but it seems to work most of the time. On the other hand, becoming addicted to trading does not help in most cases.

A lot of the above behavioural traits that end up causing investor problems stem from over-confidence. In reality, what is required for most individual investors is to get their egos and emotions out of the investment process. One answer is to distance themselves from the daily noise by talking to an independent financial adviser, to help stop them doing things against their own long-term interests. It is quite likely that the financial adviser will recommend collective investments.

The major benefit of collective investments is that they can reduce the risk of investing, by spreading the risk of their investment. The fund manager is able to purchase a far greater number of investments than the individual investor possibly could. Because of this, the possible impact on the collective investment fund caused by one particular investment performing badly is low, as it forms only one small part of a much larger investment portfolio.

Collective funds also provide a higher degree of diversification. For example, if you were looking to invest in UK smaller companies, it would be impractical (in terms of costs and research time) to invest in more than a couple of companies. A fund manager, however, can buy shares in many companies and spread the investment further. The fund managers will also have the in-depth knowledge plus a team of researchers behind them to monitor the sector for new opportunities as well as potential problems.

A further benefit is that fund managers have access to markets and instruments where individual investors don’t have the knowledge, capital or perhaps even the legal right to invest. This includes hedge funds, emerging markets, private equity situations and complex derivatives.

With thousands of collective funds to choose from, the question is how to pick the best funds for you? It is not an easy process, even for professionals. But getting quality financial advice from an independent financial adviser should certainly help you with your overall investment planning process.

Chris Flood, MA (Oxon), MBA, is a marketing and management consultant based in Bristol UK. He writes articles on investments and financial planning as well as other subjects. To discover more about income investing, please go to http://www.kelland-hale.com/collective-investments.asp

Further information about Kellands Hale and its services can be found at http://www.kelland-hale.com/

The Thrift Savings Plan currently offers ten investment funds. Five are U.S. and international stock and bond index funds: they replicate the performance of broad market indexes. The other five TSP funds, the Lifecycle Funds, are professionally managed portfolios which consist of a specific target allocation of the 5 individual TSP index funds.

The TSP Funds contain a diversified portfolio of thousands of individual stocks and bonds. Investing passively in index funds such as these is generally considered to be a good retirement savings strategy. The alternative is for you or an investment manager to actively pick individual stocks and bonds to buy and sell. Apart from being impractical for individual investors, this latter strategy usually also leads to inferior investment results: research has shown that most professional active fund managers under-perform a passively managed portfolio of index funds such as the TSP funds.

Here’s a summary of the five primary TSP Funds:

The G Fund is invested in U.S. Treasury securities which are guaranteed by the U.S. government. The nice thing about this fund is that it’s practically risk free (your investment is guaranteed not to lose any money), and yet the interest rate is substantially higher than what you would earn in other safe investments like bank savings accounts, certificates of deposit, or money market funds. If you are very risk-averse, this is definitely the place to park your savings.
The F Fund is a bond index fund, invested in high-grade U.S. government and corporate bonds. Its performance is very similar to the private sector iShares Barclays Aggregate Bond ETF.
The C Fund is a U.S. stock index fund that mirrors the returns of the S&P 500 Index, which consists of large U.S. corporations. Its returns are essentially the same as the SPDR S&P 500 ETF.
The S Fund is invested in the stocks of small to medium-sized U.S. companies. It’s designed to complement the C Fund, so if you invest in both, you basically own shares in almost all U.S. stocks. There aren’t a lot of index funds that track these companies, but if you own both the TSP S Fund and C Fund, then your investment returns will correlate closely to a broad U.S. stock market index fund like the Vanguard Total Stock Market ETF.
The I Fund is allocated to international stocks. It allows you to diversify your portfolio by investing in the stocks of companies in more than 20 developed countries in Europe, Australia, and Asia. There are several private sector equivalents to the I Fund, including the iShares MSCI EAFE Index Fund.

The other five funds, the TSP Lifecycle Funds, consist of professionally managed investment portfolios designed to meet investment objectives for a specific target date (the date on which you plan to begin withdrawing your money). The L Fund assets are invested in the individual TSP funds (the G, F, C, I, and S Fund) according to a target portfolio allocation which is adjusted every 3 months. The target allocation starts out risky, with a large percentage of stock funds such as the C, S, and I Fund. As the target date approaches, each L Fund becomes gradually more conservative, by shifting a larger portion of your assets into bonds such as the F Fund and G Fund. This investment strategy assumes that, while you’re still a long time away from retirement, you’re willing to take on greater risks in order to increase your potential investment returns. Also, while you’re still at the start of your career, you have a longer period to recover from potential investment losses, considering that you’ll continue to make monthly contributions to your account for many years.

Depending on your personal circumstances and target retirement date, you choose one of the five L Funds: L Income, L 2020, L 2030, L 2040 or L 2050 Fund. The L Income Fund is the most conservative asset mix and assumes that you’ve already started withdrawing your savings. The L 2050 Fund is the most aggressive allocation, currently 90% stocks and 10% bonds.

Benefits and Disadvantages of Investing in the TSP Funds

Many investment advisors recommend that for long-term retirement savings, you buy and hold a low-cost, broadly diversified portfolio of domestic and international stock and bond index funds. With the available TSP investment funds, you can do an OK job at this. By investing in all five individual TSP funds, or in one of the Lifecycle Funds, you’ll have a decent portfolio, with an ownership share in thousands of U.S. and international stocks and U.S. bonds. And the TSP funds have extremely low annual expense ratios, several times lower than comparable private sector mutual funds and ETFs, keeping more of your money working for you.

So what’s wrong with the list of currently available TSP investment choices? Some investors want to own Emerging Markets stocks (in addition to the Developed Markets international stocks in the TSP I Fund). Or an allocation to real estate (REITs), or inflation-protected securities (such as TIPS). And some would even like access to more exotic investments like international bonds, high-yield bonds, and other hedges against inflation (commodities and precious metals like gold and silver). Professional advisors would differ on how suitable these investments are. Most would agree that TIPS are a good idea, and for more risk-tolerant investors, perhaps a small allocation to REITs and Emerging Markets stocks.

One great benefit of investing in an L Fund is simplicity: it’s a “set it and forget it” investment plan. You choose an L Fund, determine your monthly contributions, and the fund administrators take care of everything else: regular portfolio rebalancing, and gradually adjusting the asset allocation as you approach retirement. But there are also a few downsides. First, the L Funds with the longer time horizons are fairly risky allocations (for example, currently 90% stocks and 10% bonds for the L 2050 fund), and you should make sure that you can stomach the inevitable volatility as a result of owning a portfolio dominated by stocks. If you’ve owned stocks for the past decade then you already know this: it can be quite a bumpy ride. Also, some investors want more control over their exact portfolio components, when to rebalance, and how soon to start shifting the allocation to a more conservative asset mix as they approach their planned retirement date. Some investors also prefer a tactical asset allocation, shifting their mix based on asset class trends, economic circumstances or other criteria. Owning a portfolio of the individual TSP funds will work better for these investors.

Learn more about the TSP Funds and get daily price and performance updates at http://www.tspfolio.com/tspfunds

Individually Managed Accounts (IMAs) and Separately Managed Accounts (SMAs) both offer investors a highly transparent managed share portfolio while avoiding the tax distortions that come with pooled investment vehicles such as managed funds.

However, there are some important differences between individually and separately managed accounts and while they may sound very similar, these differences can have a significant impact on investment performance, suitability, and tax effectiveness.

In General, Separately Managed Accounts are a good alternative to managed funds for many investors, while investors with $1 million or more, are likely to find the features of an IMA more compelling.

Key differences between the two types of managed accounts rests in their approach to building an investment portfolio.

SMAs are constructed with a ‘model portfolio’ where each investor receives precisely the same portfolio, based on a template created by the fund manager. IMAs however, are constructed individually for each investor, although each account will share some common holdings. These two approaches have some important differences:

* Investors in a SMA may buy stocks that have already enjoyed most of their returns, but remain in the model portfolio to avoid realising capital gains tax. IMA investors however will receive a portfolio that is assembled incrementally, as attractive opportunities arise.

* For the same reason, new investors in Separately Managed Accounts will receive a larger position in stocks that have already performed well, while IMA investors are likely to receive larger holdings in stocks the investment manager believes will perform well in future.

* IMAs also provide the ability to tailor the portfolio to the investor’s circumstances. For instance, an IMA manager may place more weight on generating franked dividends for a SMSF, while long term capital appreciation could be more valuable for an investor with a high tax rate. These differences in investment management help produce good after tax results for each investor. Since every investor in a SMA receives the same portfolio, the Separately Managed Account manager cannot factor individual considerations into their management.

* Both structures will allow the transfer an existing portfolio, with the IMA providing some additional flexibility and tax advantages. When importing an existing portfolio into a SMA, only those shares contained in the model portfolio will be retained and only to the proportion held in the model portfolio. Therefore, investors may still realise capital gains when entering an SMA. Conversely, a diligent IMA manager will adapt the existing portfolio over time and with consideration to tax events.

* For investors wishing to exclude individual stocks or sectors, an Individually Managed Account manager will hold alternative positions, while the SMA will generally hold cash in lieu of the excluded positions. This can have a significant impact on the portfolio’s overall returns.

In executing trades, SMA investors will generally receive ‘at market’ prices on their transactions, while an IMA manager may attempt to get best execution and/or exercise discretion over the timing of buys and sells.

Service levels are also different, with Separately Managed Account investors receiving a service akin to a managed fund. while Individually Managed Account investors have ongoing access to the fund manager responsible for their portfolio and will likely receive personalised reporting.

PPM

We all use timber on a daily basis, in our houses, our furniture, our floors and our roofing, and institutional investors, hedge funds and pension funds have been investing in timber as a long-term growth asset and inflation hedge for decades. However, as more investors discover the little-known fact that timber investments have generally outperformed stocks, bonds, and commodities over the long run, there are now many opportunities for the smaller investor to participate in this alternative asset class.

The demand for timber is growing in line with an ever-expanding population, as the human race multiplies in number we require more timber for construction, yet at the same time, fundamental limits to the supply of natural forests limit the amount of timber we can grow and harvest for our own use.

Deforestation has destroyed 1/5th of the world’s forests since 1950, and new global legislation is in place to protect the forests that remain as they play a vital role in carbon sequestration and the ecosystem.

This imbalance between supply and demand creates an outstanding opportunity for investors to acquire assets in short supply and profit from undeniable fundamental trends of population growth and resource scarcity.

Investment Performance
The vast majority of return on investment generated by timber is derived from the biological growth in size of the timber source, from seedling to sapling to fully fledged tree. On average, a single tree’s volume of wood will increase by between 2% and 8% every year depending on species, age and climate. On a very basic level, this gives the tree owner more timber to sell as time passes, and hence generates a greater return in the long-term.

Aside from this basic observation there is more to consider, as trees yield a greater sale price when they grow into bigger product classes. As an example, a small tree would only be suitable for paper products or biomass for fuel, where a larger tree can be harvested for sawn-timber which will fetch dramatically higher prices per tonne and can be used for products such as plywood or telephone poles.

A study by Professor John Caulfield of the University of Georgia found that biological growth counts for more than 60% of total financial returns, whilst increases in the price of timber, and capital appreciation of the land account for the remainder of returns generated from a timber plantation.

This goes to show that it is an effective strategy to lease land on which to grow timber, as well as purchase outright as only 6% of profits are derived from capital appreciation in the value of the land. This also shows that fluctuations in the price per cubic metre or tonne of timber have limited influence on the overall performance of timber investments. The majority of return is generated from the growth in the size of the tree itself.

The standard benchmark for timber is The NCREIF Timberland Index, which increased 18.4% in 2007, versus a 5.5% rise for the S&P 500. In the long-term, the Timberland Index has outperformed all major asset classes including, large-cap stocks, International equities and corporate bonds.

Whilst small-cap equities have outperformed timber in the long-term, after factoring in risk (as reflected in the Sharpe Ratio), timber has exhibited the highest risk-adjusted returns of any major asset class. When compared to the S&P 500, timber has displayed a low risk characteristic. Since its 1987 inception, the NCREIF Timberland Index has fallen in only one year: – 5.25% in 2001, at the same time, the S&P 500 has fallen four times, including -22.10% in 2002.

One of the main reasons investors, especially large institutional investors, turn to timber, is the fact that the asset displays low to zero correlation with other assets, especially those linked to financial markets. It has been demonstrated over a long period of time that adding timber to a portfolio of investments has the effect of improving overall risk-adjusted returns. This low correlation reflects
the fact that the primary driver of returns-biological growth-is unaffected by economic cycles.

Institutional Investor in Timber

In 2007, Jeremy Grantham, Chairman of Grantham Mayo and Van Otterloo, a Boston-based firm that oversees $60bn in assets, predicted the impending financial crisis, one of very few Investment Managers to do so.

At a conference in June 2007 Mr. Grantham announced that equities were overpriced to such an extent that the market was as risky as he has ever seen it. “The next few calendar years,” he warned, “look like a black hole as overpriced markets, dangerous leverage and a gigantic hedge-fund business collide with the house-building phase of the US presidential cycle, plus the contraction phase of a long interest cycle.” His prediction? He said he could see the Standard & Poor’s index falling 38% over the next two years.

He went on to say that Investors should allocate capital to timber investments as a stable and predictable asset with a low risk profile where returns are generated outside of any market. It is the only asset class in existence that has gone up in three out of the four major market collapses of the 20th century. It
should be noted that Jeremy Grantham holds 20% of his personal investment portfolio in timber assets.

Institutional investors have recognised the benefits of timber investments for some time, Pension funds such as Calpers, led the way in the 1980s, however it was the big university endowment funds such as Harvard and Yale that saw the true potential and invested heavily in a move to diversify their portfolios globally. In 2009 the Harvard Endowment Fund invested $500m in forestry and carbon credits in New Zealand.

PKA, the DKK 114bn (€15.4 bn) Danish collective pension scheme for employees in the public social and health sectors, raised its forestry investments to about €335m by the end of 2007, raising its commitment to timber from 1.5 to 2% of total assets.

ABP, the €211bn Dutch pension fund made its first timber investment in 2007 with a $60m (€41m) allocation to the Global Solidarity Forest Fund (GSFF), which will develop three sustainable forestry projects in the Republic of Mozambique, in south-eastern Africa, and Angola.

Both the £1.5bn (€2.1bn) UK Environment Agency pension fund, the £31bn Universities superannuation Scheme and the £3.6bn London Pension Fund Authority are reviewing whether to inject money into forestry investments.

European Investment Bank (EIB), the €26.3bn Ilmarinen Mutual Pension Insurance Company and seven medium-sized Finnish pension funds have all invested in timber via the Dasos Timberland Fund.

Massachusetts Pension Reserves Investment Management Board (Mass PRIM) decided to make a $500 million timber investment just three years after selling a $700 million section of its timber portfolio.

More recently there has been a spate of new timber investment by major asset managers, not least the $1 billion takeover of Canadian timber business TimberWest by two large asset management firms acting on behalf of institutional pension funds.

At the time of writing this report in December 2010, there looms the prospect of a second round of quantitative easing (QE2) by both the US Federal reserve and possibly the Bank of England too.

QE2 should help to shore up the US housing market. Construction accounts for roughly 70% of the total value of timber resources and as the US property market recovers, inflation will rise as houses increase in price once more.

One such asset is timber which has a proven history as an excellent hedge against rising prices.

The US housing market (construction accounts for roughly 70% of the total value of timber resources and QE2 should help to sure up the US housing market. As the US property market recovers, inflation will rise. As house increase in price once more.

Timber as an asset class presents unique characteristics. The performance of forestry assets is driven primarily by the natural growth rate of trees independently from the macro economy. As a tree matures its size and usefulness increases and subsequently so does the price. In a difficult economic climate timber companies have no need to discount their crops because if simply left to grow the value of the asset only increases.

This makes timber much less volatile in the long run and more resilient in difficult times compared to most other commodities as the investment is backed by the underlying real asset value of timber. Timber is recognized as an inflation hedge as trees grow in size, and therefore value each year. If inflation were 3% and your trees grow in size (value) by 5%, you have grown your wealth in real terms ahead of inflation.

As the rate of inflation increases, so to do timber prices, as well as the volume of timber you have to sell. This creates a double-buffer for investors and makes timber investment an ideal balancing tool to diversify portfolios.

There are a number of different opportunities for retails investors to participate in timber investment in various forms. In this section we will focus on direct investment within commercial timber plantations, although the reader should be aware that there are other, market-linked opportunities such as forestry funds and listed timber companies.

The basic premise of all of the investment offerings from various companies that we have researched remains relatively static,in that investors are usually invited to purchase either a lease on a plot of land within a commercial timber plantation, therefore owning cropping rights to any timber produced within their plot or woodlot. An alternative to this is where investors are offered direct ownership of a fixed number of trees.

The cost for plots varies from project to project between £5,000 (GBP) to £22,500 (GBP) depending on the size, location and species of timber being grown.

Sometimes, annual fees are required from the investor to service the costs of on-site management, and of course the occasional thinning that is always required within a commercial plantation.

With other projects, sufficient management fees for the period of time up to the first harvest are paid up-front by the vendor and held in escrow, fees for future harvests are deducted from the revenue of each preceding harvest, therefore creating an investment where no further cash input is required from the investor.

With some projects the land is leased by the forestry company and investors enjoy a sub-lease, with others the land is owned outright by the forestry business and investors have a direct lease and the land held in trust in favour of investors until their lease expires, this mitigates the risk of the forestry business ceasing to trade in the future and the investor left with a sub-lease with a business that no longer exists.

Download your free guide to timber investments and forestry investments at http://www.dgcassetmanagement.com

Ever considered diversifying your assets to other economies? If so, you better check out the Chinese economy.

Over the past few years, China has established an emerging market at par with the western economies. After all it boasts of being the worlds most heavily populated country. International businesses and companies have seen the growing influence of the Chinese economy. Thus, many investors are seeing the possibility of penetrating this market. Before any foreign business can conduct transactions in the country, they need to have proper work permit which includes business-class China visa. A China visa allows businessmen to visit the country and see where their investments go to.

In 2008, China visa applications skyrocketed with the hosting of the Olympic Games. Many business tycoons holding a China visa gained profit out of the lucrative investments they made. As the Chinese economy continues to gain tremendous influence in the global market, most CEOs are now considering China visa as an essential trade document. The growth of the economy will continue to propel people and businesses. With the unlimited opportunities in this vibrant market, there is no reason to hold off on investing in China.

Foreign investors need to understand that for them to be allowed to participate in and enter China; they need to have a China visa. Take note that there are specific types of Chinese visa which they have to avail to be permitted to conduct business in the country. For individual investors, there are three ways of penetrating the Chinese economy: mutual funds, individual stock exchange and foreign companies with base in China. Of these three ways, success is more guaranteed in mutual funds investment.

Mutual funds offer several advantages for foreign investors. First, your assets are diversified in the Chinese economy particularly on the Chinese stocks. You can gain access to different Chinese companies which may not be listed in your original countrys roster of international companies. Second, this is a convenient way of investing money in China. There are several brokerages which have simple account setup interface. Third, mutual funds are managed by financial experts in the Chinese economy. They are far more knowledgeable in terms of investing your money.

However, not all companies are equal. Some offer faster return of investment as compared with other companies. Make sure that you check necessary details like fee structures, expense ratios and recent performance history. Most successful investors prefer visiting the company using their Chinese visa. You should be particular with the history of the investment manager. A reliable fund manager must have over fifteen years of experience in the Chinese and international market. You can get to know them in person if you have a Chinese visa and you actually visit the country. Also pay close attention to the investment strategy of the fund manager. A more conservative investment strategy may be beneficial but it can also prolong the return of investment. Some managers follow a high-risk, high-growth strategy. Either way, you can get to choose which strategy fits your own personal investment pattern.

To ensure that your money will be invested properly, you can choose to stay in China using a China Visa, this way you will learn hands-on the business climate in the country.

After discussing Differences between Savings and Investments, we will further discuss Investments to see what important factors an Individual Investor must keep in mind before making actual Investment decisions. From First and Seconds Lesson on investment, we have darted down certain points which classify investments from savings, and have noted few factors there that an individual investor must keep in mind to make wise investments, or even, to make investments at all or not.

This Lesson will cover in detail, factors and checks that are or should be backbone of investment decisions.

1. Avoid Hasty and Un-Planned Decisions. In a volatile market and financio-economical situation like present, it has been observed that investors are making rapid investment decisions without involving much planning and analysis. Investors, out of fear and/or lust factor, seem to have ignored and put aside their long term financial goals and all that long planning they had done in a normal market situation. This kind of behaviour must be avoided as it may, and mostly does, add to the already piling up losses. You financial plans may be revived, trimmed and modified but should not be completely ignored as you have had put some hard work and thinking while making those financial plans and setting your financial goals.

2. Draw or Re-Draw a Personal Financial Road Map. As discussed previously in my post on Having a Plan before Writing a Business Plan, we discussed how important it is to know and analyze one’s personal financial position before making any kind of financial decisions. We stressed there that an investor(which in that case was for a proprietor) should first thoroughly analyze his current personal financial position, keeping in mind his future plans regarding his personal life, future major expenses, future earning options i.e. both expected amount and timings. One should have enough cushion for one’s near and far future personal plans, and then see how one can set aside to invest into a new investment)

If you are already very much vulnerable to a financial crisis, based on your current financial condition and future expectations, you should avoid the idea of risking your finances even more by even thinking of a new investment.

3. Knowledge, Expertise and Skills related to Investment. It is always advisable to invest in something you have yourself knowledge and expertise of, instead of completely relying on Investment Managers(if you are going to hire one). If you think you have keen interest in an investment and it is not very technical to handle, you can even yourself manage your investment and save costs. But again it is more advisable to at least have some guidance from one. Having knowledge and expertise of a particular investment class will enable you to make better decisions and look for more innovative and modern ways of investments. So even if you don’t have know how and you trust a particular investment management company, before investing do detailed research and try to get as much as knowledge as possible of the subject, which in this case is an investment.

4. Asses you Risk Tolerance Capacity. Every investment involves some sort of risk, as this is something that differentiates Savings from Investment. If you are investing in stocks, bonds, real estate–there is definitely risk involved. As compared to depositing in Secured Banks. The reward for taking on risk is the potential for a greater investment return. If you have a financial goal with a long time horizon, you are likely to make more money by carefully investing in asset categories with greater risk, like stocks or bonds, rather than restricting your investments to assets with less risk, like cash equivalents. On the other hand, investing solely in cash investments may be appropriate for short-term financial goals. The principal concern for individuals investing in cash equivalents is inflation risk, which is the risk that inflation will outpace and erode returns over time.

5. Timing of Investment. Based on your Financial Position and your long term or short term financial goals, you should assess if this is a right time for you, financially, to make an investment decision. Jumping into an investment decision just for the sake of it can destroy your hard-earned earnings.

Moreover, you should also consider the timings of the economic cycle. You would need to check whether it is the start, mid or assumed end of a financio-economic cycle as you cannot make investment decisions in isolation from the current market conditions.

Muhammad Khurram Shahzad is a Chief Accountant and a Business Advisor in one of the rapidly expanding IT solution firms in MENA region. He writes on different investment and finance related topics in blogs, articles and other forums.

http://www.financialadviceme.blogspot.com

Hedge Fund is a fund which involves a selected range of investors who invest their funds directly or indirectly in shares. Bonds and commodities thereby getting better return on their investment in a way such that the capital is preserved and the return is positive. The investors pay a due amount as performance fee to their investment manager who invests the funds.

As per the recent news, the average return of it is approximately 5.2 percent in May, which is considered the best hedge fund giving its best performance in span of about nine years by attracting more money and better investors globally. Hedge fund reduces your risk factor and at the same time gives you better return. According to the Eureka hedge fund index which keeps a record of more than two thousand funds climbed to 9.2 percent this year. This industry recorded a profit of 1.5 billion dollars.

The top and best hedge manage 1.3 trillion dollars as per the recent report. After going through an undesirable financial crisis, these will recovered at a great pace. They are attracting more investors and giving better and higher gain on investment.

America’s hedge fund managed 1.297 trillion dollars as of first January 2011 i.e. 115 billion dollar or 10 percent high compared to the previous year. After the severe financial crisis, there are a lot of it underwent a huge loss. Some of them have even out of business. But that industry is recovering at a pleasant rate. The recent report showed that this industry is blooming with the biggest of it is becoming even bigger. The ten biggest and best of it saw a combined 309 billion dollars as of January which is 15 percent higher than last year.

Bridgewater associates were ranked the biggest hedge fund in the United States with 58.9 billion of dollar in assets under management. The Westport, Conn-based fund also had a gain of 15.3 billion dollars, as per the recent survey.

JP Morgan Asset Management, the second best of it, experienced an alarming gain of 7.1 billion dollars thereby pulling 45.5 billion dollars of money under management.

Paulson & Co ranked the next in the best hedge fund list with a profit of 36 billion dollars under management whereas the D.E Shaw Group deteriorated with a loss of 9.37 billion dollars or 40 percent of its assets in the year 2010.

This is the best hedge funds today. It promotes a lot of exemption and benefits to all investors. It offers right return to its investors.

One year investment bonds can be used to produce a long term capital growth or to generate an income. These bonds are a good way of saving money because they have a fixed rate annually, and the access can be restricted for that period. Before I think of buying the bond, the first thing I would consider is security and whether I can be paid off the bond before maturity date.

Money grows and good returns are produced at the end of the year. To get the investment bond I must pay a minimum deposit and a fixed rate for one year. There is guaranteed returns and the interest is paid annually or monthly. In case I get an emergency, the bank can lend me some of the money although I will have to pay a small charge fee. The money is secure since it is protected and managed by professional investment managers. When compared with stock, the bond does not get much press thus, a better alternative method of investing. If I buy the bonds from the government or municipal bonds, I will enjoy the tax benefits that are quite attractive. It easy to get these investment bonds in the banks or over the internet, and they are commission free.

The best thing is to buy and hold on the bond investment until it matures because I will get paid exactly what I expected. One year investment bonds are safe and highly predictable. I would prefer to buy the bond directly from the government because if I buy through a broker I must pay a commission fee.

Imagine doubling your money every week with no or little risk! To discover a verified list of Million Dollar Corporations offering you their products at 75% commission to you. Click the link below to learn HOW you will begin compounding your capital towards your first Million Dollars at the easy corporate money program. ( http://www.onlinewealthking.com )

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