Investment Articles

It may seem like an impossible task to invest on a low income, but the benefits far outweigh the sacrifices. Unlike savings, which serve short-term financial goals like buying a new car or establishing an emergency fund, investments are intended to meet your long-term financial goals, including providing for a child’s college education or your retirement.

Regardless of income, the money that you do have needs to be managed. The best investment products for you will be determined by your long-term financial goals. Discuss these with a financial advisor who may be able to assist you with finding investments that best serve your goals – even if they seem small or insignificant compared to the figures you read about or see on television.

Types of Investments

Retirement plans: 401(k) and IRAs Many people choose to invest through their employer, taking advantages of the matching funds and tax benefits that accompany many 401(k) plans and IRAs (Individual Retirement Arrangements). Contributing at least the amount your employer will match is one way to get a significant return on your investment. Because the employee typically decides the contribution, you can begin with a small amount each paycheck, gradually raising your contribution as your salary increases. If your employer does not provide a retirement plan, you can still set up an IRA as an individual, and reap the tax benefits.

Stocks, Bonds, and Mutual Funds When you purchase a stock, you are buying a share of ownership in a company. A bond is a loan of money to a company, or government, that promises to pay back the principal plus interest. Mutual funds pool money from many investors to buy a variety of stocks, bonds, or other securities. Investing through a mutual fund, rather than purchasing stocks and bonds on your own, provides several benefits, such as being able to choose from a variety of professionally managed funds tailored for different levels of risk and rates of return. Some mutual funds have an initial investment of as little as $50, making them an ideal place to begin investing on a tight budget.

Beginning Investing

Consider your long-term financial goals, and determine what type of investment combination, or portfolio, will best serve those goals. Then, begin investing. No matter what the initial investment is, the important thing is to start. A financial advisor may be able to help you find areas in your budget to cut back in order to increase your ability to invest, and direct your investments so they may best serve your long-term financial goals.

Questions? Email me at wesley@thewandwgroup.com and visit our website at http://www.thewandwgroup.com New Money Talk is a weekly article focusing on retirement, personal finance, and estate planning.

Comments and questions are welcome, but because of the volume of email, personal responses are not always possible.

When talking about some of the most reliable investment types out there, one would be remiss if he didn’t mention bonds. With more people looking to protect their investment portfolios from risk, bonds have always been very popular in the investment world. Unlike stocks, bonds provide investors with a guaranteed return and term. When that term is up, the investor will have their principal returned, along with some interest to make it worth their while.

When most people buy bonds, they are buying government bonds. These are used by the government to finance current expenditures. It basically amounts to the government taking out many small loans with different consumers, who then become individual creditors. These loans can be short term, mid term, or long term. The longer the term, the higher the return on interest. Some bonds reach their maturity date – the date when they have to be repaid – in as little as a year. Other mid-term loans are between one and ten years. Long term bonds are longer than ten years.

The most popular term for bonds is five years, with many people also investing in one year bonds and ten year bonds. The nice thing about these investments is that investors know exactly how much they are going to make on them and there is little risk that the money will go away. When dealing with stocks, there is always the chance that a stock could go bust. Bonds provide a bit of security and surety, which can take some of the worry away from people who are not used to putting their money into investment products.

Ultimately, bonds can be purchased from the government or they can be purchased from individual companies. The return rates fluctuate depending upon the market conditions, so it’s important to keep that in mind when purchasing.

Charles E. Johnson is an entrepreneur and the current owner of. For more information on the bond market and investing in bonds, visit the Articleportfolio.com bonds page here: http://www.articleportfolio.com/buying-bonds.html.

When it comes to putting together a portfolio that is both balanced and profitable, investors have to consider a host of different investment products. This is especially important in the current economy, as the markets have become more volatile and it’s getting even harder to make sure that your portfolio is protected from risk. One of the most important parts of any good investment plan is the use of bonds. Smart investors purchase these bonds to shield themselves from risk and add growth potential on the short term.

Bonds are different from many of the other investment options because they are guaranteed. Even the best stock and mutual funds have a chance of failing and in the current economy, this is not a chance you should be taking. Many people have put their hard earned dollars into stocks that seemed like a sure bet, only to see the stock tank a few months later. Sharp, shrewd investors will put at least a chunk of their investment dollars into bonds, because these items don’t have risk and they can provide some peace of mind.

Right now, certainty is something that comes at a premium. There are many unsure investment products out on the market, so it helps if you can invest in products that give you a guaranteed return amount at a guaranteed time. Bonds are nice because they allow you to plan for the future. You know exactly when you will be able to cash in these bonds and re-invest your returns in something new. With stocks, mutual funds, and other investment ventures, you don’t know what you are going to have and you don’t know when the best time to withdraw the money might be. Bonds give you certainty and this is something that you have to value given the volatility of the current economy.

Ultimately, bonds provide the type of surety and security that people must have in their portfolio. The best investors balance this with some products that carry more risk and provide more reward.

Charles E. Johnson is an entrepreneur and the current owner of. For more information on the bond market and investing in bonds, visit the Articleportfolio.com bonds page here: http://www.articleportfolio.com/buying-bonds.html.

If you still feel ordinary and like beginners who have not had much experience in investing, here are some specific tips that you can apply.

IDENTIFY YOUR CHARACTER in investing, whether you are someone who is more concerned with security than the return of investment, or would you prefer to take the product a more risky investment, but promise a high return lebi. Every person has a different level of acceptance of this investment risk. This factor is influenced by age, experience in investing, time frame, the amount of funds, investment objectives, and others. Therefore a suitable investment products for others is not necessarily suitable for you, and vice versa, depending on factors earlier.

TAKE THE RISK INVESTMENT Spreading (diversification). Wherever you save money? In savings? Deposits? Gold? Do not put your eggs in one basket, if falling can break all. For placement-divide your funds into several different types of investment risk level. The purpose of this spread of investment risk is to place the synergy between the various advantages and disadvantages of each placement of investment funds.

Establish WRITTEN IN INVESTMENT OBJECTIVES, specific and measurable. write down all the financial goals you want to accomplish in a book or in a special file on the computer so easy to remember. In fact, if need be written on a piece of paper and glue them in place easily visible, so you better motivation. Also orderly administration. Save your investment data, not separately. Your investment objectives must also be clear to what measurable targets and time. No matter if the investments made there is no purpose. Set only a few target funds annually chill.

Dual Currency Deposit is an investment product commonly offered in the world of Private Banking. It has many other names – Extra Deposit, Premium Deposit, Maxi Yield Deposit etc. Dual Currency Deposit is a very popular product that generates much higher return than normal bank deposits. These returns can often be in excess of 10% p.a. This is a very attractive return in this current market environment when normal bank interest rate only offers around 1% p.a.

Dual Currency Deposit has a lot of similarities to a normal bank fixed deposit like a fixed maturity date, and a fixed interest rate. It even uses the term “deposit”. However, Dual Currency Deposit is not a deposit at all. It is strictly an investment product with very high risks associated with it.

Lets look at a simple example of Dual Currency Deposit before we dwell into the risks associated with it. Say, you have USD 300k placed in deposit. You are familiar with Australia and the Australian Dollar. You come across an advertisement in a reputable bank with the following key points:

• Earn a Higher Return than Bank Deposit
• Short Term investment. Term can be two weeks, one month, two or three months.
• On the day of investment you choose the alternate currency (in this case Australian Dollar) which you want to receive your investment at maturity
• Assume the currency Australian Dollar to US Dollar exchange rate is 0.9000
• You will receive you deposit back in either US Dollar or Australian Dollar at a predetermined level
• The predetermined level is 0.9200

The returns offered got your attention. The ad states with the above conditions, you will receive 12% p.a. for placing your deposit in this investment. However, you were in a rush and had to walk away.

Risks Associated with Dual Currency Deposit

On the surface the product sounds simple enough. Apart from receiving in US Dollar or Australian Dollar, everything else sounds like a normal fixed deposit. Dual Currency Deposit is a derivative instrument. You know the investment products (Derivatives) that Warren Buffet said he won’t invest in because he cannot understand them. Well, this is one of those products. Dual Currency Deposit has embedded Options in it. Option is a derivative instrument that is very complex and difficult to understand. Without going into too much detail about option, I like to highlight one of the risks of this product – Foreign Currency Risk.

Foreign currency moves much faster than most people realizes. During the 2008 financial crisis, it is not uncommon to have foreign currency moves more than 20% in a period of two weeks. This is the case with the Australian versus US Dollar exchange rate. Imagine our poor investor thinking they placed their hard earned money into a “deposit” and left it for two weeks and return to it only to realize that they suffered a major loss of 20% on their capital. Because the 12% they earned is on a per annum basis, they will only receive around 0.46% for the two weeks. That is cold comfort when compared to the losses they incurred on the exchange rate. Although this example I have given is extracted from an extremely volatile period, exchange rate is still subject to normal fluctuation in excess of 5% over a period of two weeks.

There are other risks associated with Dual Currency Deposit. Visit http://plainfinance.blogspot.com/ to see more articles relating to Dual Currency Deposit. Benjamin Finance is the author of this blog. He works in the banking and finance field. His aim is to raise financial literacy via his blog.

How soon would you want to know if your investment advisor wasn’t telling you about the three major investment types? If you’ve only heard of two – Variable and Fixed, then you may have a problem.

Unfortunately, many investment advisors routinely fail to present all three types: Variable, Fixed, and Indexed as valid investment choices to their clients. This is normally because they are unable to offer all three options or they have a personal dislike for one or more of these investment types.

So what is the difference in these investment types and what do the terms mean? The simplest answer is that these terms define how interest is earned on your investment. More specifically, it tells you how your money is invested and if your money is protected from market fluctuations. Let’s take a look at these various investment options.

Variable

A Variable investment is one where your money is typically invested in stocks or mutual funds. The performance of these stocks or funds varies and is not guaranteed – hence the term “variable investment.” Variable investments have many key benefits. They allow you to earn interest by investing in a single company (individual stock), multiple companies, or a specific segment of the market (mutual funds). You can even invest in an entire Index like the Dow Jones or S&P 500. Also, variable investments allow for the greatest return and historically have outpaced all other investment options.

Sounds pretty good, right? It is, as long as you have the tolerance to lose money as well. The volatility of variable investments is a major concern for many investors. The “upside” or growth potential is nearly unlimited, unfortunately so is the “downside” or risk of losing money.

One other adverse factor that Variable investments face is the cost. Most have either fees or loads associated with the underlying investments. These fees or loads can reduce the performance by as much as 3.5%, although 1-2% is more common. These fees or loads are applied even in down years so it is definitely something to consider.

Fixed

A Fixed investment offers a pre-determined or fixed interest rate for a specified period. This is most commonly seen with bonds, CD’s, annuities and universal life insurance products.

Fixed investments have three major advantages over the other options. First, they provide a guaranteed or known interest rate that is disclosed prior to making your investment. Second, fixed investments are generally designed to protect your initial or principal investment.

A Fixed investment also has two major pitfalls. First, because they provide a known or guaranteed interest rate, they generally provide a lower rate than what may be available when you’re willing to risk your principal. Second, they normally have restrictions or penalties associated with any withdrawals made during the fixed interest rates term period. This is especially true with CD’s and annuities.

Overall, Fixed investments can be a great option for those not willing to risk some or all of their money, older clients using the investment interest to provide or supplement their income, and clients looking to provide a hedge against other, more aggressive investments.

Indexed

Unlike Fixed and Variable investments, Indexed investments are somewhat unique to the insurance and annuity marketplaces. An Indexed investment shares traits of both Fixed and Variable investments, but with one major difference – how interest is earned.

With an Indexed investment the underlying funds are not directly invested in the stock market or an Index, nor are they directly invested in a bond, CD, or other fixed investment. They are however, secured by bonds or other conservative investments which provide a minimum guaranteed interest rate similar to a fixed investment.

Generally, this minimum or fixed rate is lower than what is available in a purely fixed product. This is because Indexed products offer a higher maximum interest rate over Fixed investment products. The Indexed products determine the maximum interest earned using a formula based on three factors, all part of an option purchased by the insurance or investment company. They are the participation rate, the cap rate, and the reset period.

The maximum interest earned provides “upside” potential while at the same time eliminating “downside” risk. In essence, it is like having the growth potential of a Variable investment with the “downside” protection of a Fixed investment. There is however a trade-off.

An option, sometimes referred to as a call or put option, provides investment returns (interest earned) based on the growth of a specific market Index like the S&P 500 or Dow Jones. The option allows for lower initial costs, a pre-determined strategy for establishing current and future interest crediting, and ensures that money can’t be lost due to market fluctuations. The option also caps (limits) upside potential or growth.

Many opponents of Indexed investments point to this limiting of growth, especially in years were the Index or stock market exceeds the Index (option) cap or participation rates, as the Achilles heel of these products. There is also some controversy over the way the Index rate is determined in future years.

While Indexed products do have a minimum cap and participation rate that is known for the entire term period, the current or maximum cap and participation rates normally reset on an annual basis. This makes it difficult to determine what will happen in subsequent years. Some advisors avoid these products claiming that the difference between the current and minimum rates creates client confusion.

No matter which type of investment you choose, it is important to get the facts and options available for each. Each of the investment choices outlines provides different advantages that need to be weighed against their disadvantages, however they all have different uses and can all be viable choices when planning your financial future. As always, it is important to consult your “Financial Professional” to find out which of these investment choices is right for you.

Ryan Pinney is a Financial Professional, educator, and writer for the financial education website http://www.TheProAdvisor.com and a Brokerage Director with Pinney Insurance Center, Inc – http://www.PinneyInsurance.com .

Ryan has written many articles on insurance, investing, estate planning, and taxation and his firm, Pinney Insurance, is one of the nation’s largest and most respected providers of insurance and investment products with 6 offices and over 4,000 licensed insurance agents and investment advisors across the country.