Investment Articles

Stocks and Shares. Property. Fixed Deposits. Unit Trusts. Gold. Foreign Currency.

Few Singaporeans have not invested in one or more of these assets, and fewer still have not heard of them. Whether it’s for making our money work for us, receiving passive income (income we’d receive if we stopped working) or simply trying to achieve higher returns, investing – narrowly understood as enhancing our wealth – is a popular and fairly-well-understood activity in Singapore.

But: conditions change. Markets fluctuate. Nothing – property valuations, the stock market, gold prices – goes up for ever. We think it’s time to poke deeper into investment matters on our journey to understand how the different financial products and instruments available today can help us in our goal of consistently achieving higher returns while managing our risk.

Let’s define a few terms before making a detailed comparison.

The first distinction we’ll encounter often is between Investing and Trading. The fundamental difference between the two is that investing has a long-term perspective, typically at least a few years, while trading has a short-term perspective, typically less than a year (and sometimes a few months, weeks, days or even hours). Investors, therefore, are interested in the long-term appreciation of their assets while traders are interested in short-term price fluctuations.

Secondly, financial professionals generally classify investments into 4 classes (’Asset Classes’):

Cash and its equivalents – eg, Bank Deposits and Spot Forex
Stocks(Shares, Equities) and other assets based on stocks such as CFDs, and some Unit Trusts, ETFs and Options
Property and other tangible assets such as Commodities (eg, gold, oil, silver), art (eg, paintings, pottery, sculpture) and fine wine.
Bonds and other Fixed-Income assets (explained below).

Thirdly, all financial products and instruments belong to only two families:

Exchange-Traded
Over-The-Counter (OTC)

Exchange-traded (public) financial products and instruments are listed by a national exchange, meet strict legal and listing criteria, and are usually considered highly-liquid investments. Examples include ETFs, most stocks and shares, most government bonds, most commodities and some unit trusts. They are traded on stock, commodity, futures or options exchanges such as the Singapore Exchange (SGX), the Malaysia Exchange (MYX, formerly known as the Kuala Lumpur Stock Exchange or KLSE), the New York Stock Exchange (NYSE Euronext) and the Chicago Board Options Exchange (CBOE).

OTC (private) financial products and instruments are issued by investment companies and banks. They are essentially private (bilateral) agreements between 2 parties, ie must be bought and sold with the same party, are far less regulated than exchange-traded products, and may not always be liquid investments. Examples include CFDs, Forex (Spot Forex), most unit trusts, preferred stock, state and municipal bonds and some commodities.

An important reason for distinguishing between exchange-traded and OTC products is product pricing. Prices quoted on exchanges are transparent – meaning available for everyone to see – so exchange-traded products are considered more fairly priced (though they do involve paying broker commissions). OTC products are priced by investment companies, banks or brokers at their discretion, so prices tend to be higher for retail purchases and more favourable for the big boys with their higher-volume purchases.

Finally, the term ‘financial products’ is often used interchangeably with ‘financial instruments’, ‘assets’, ‘investments’ and ‘investment products’; at this stage we’ll use ‘financial products’ as a catch-all and won’t split hairs except to point out that we don’t consider our residential property as an investment.

Disclaimer: There can be wide differences within a financial product (notably ETFs). Distinctions between products are also blurring: for example, some unit trusts are now exchange-traded. For these reasons, the comparison above is indicative only.

Notes:

1 Capital Requirement refers to the amount we typically need to invest or trade in the financial product. For example, stock is purchased in lots of 1,000 shares, so an investment in a $4 stock will cost us about $4,000. On the other hand, investing / trading in Singapore Government bonds, CFDs, forex and options can be done with $2,000.

2 Diversification Potential refers to the potential of a financial product to provide risk diversification, ie to ‘put our eggs in different baskets’, assuming minimum account sizes. For example, many unit trusts and ETFs invest in a basket of stocks from different sectors of the economy, thus providing some degree of diversification. With many of the other financial products mentioned here, however, diversification can be achieved only with much higher account sizes.

3 Leverage refers to the use of credit (borrowed money) from a broker or bank. The leverage available varies widely from product to product. Leverage is a double-edge sword: it can magnify both our gains and our losses.

4 Income Potential refers to the potential of a financial product to generate income while we hold the investment; this income can come in the form of interest (for bank deposits and bonds), dividends (for stocks, some Unit Trusts and ETFs), rental (for property) or simply the sales proceeds (options).

5 Public or Private refers to whether the financial product is public (traded on an Exchange) or private (traded Over-The-Counter). For example, Spot Forex trading is popular in Singapore, but traders don’t always realise that it is a private financial product: there are no exchanges for forex, and prices are set by market makers.

6 Liquidity here refers to the number of working days required for a financial product to be converted into cash, without a substantial price discount. For example, the shares we find on stock exchanges are traded in the millions and are highly liquid; proceeds from their sale are realised within 5 working days. Property, clearly, is very illiquid – it typically takes several months to see the proceeds.

7 Charges refers to the amount of fees or charges – commissions, management fees, sales charges, entry fees, stamp duties, etc – that are levied on entering into, maintaining or exiting that investment. Taxes are excluded. For example, management fees are typically 1-3% for unit trusts and 0.3-0.6% for ETFs; total transaction costs (agent commission, stamp duty, legal fees, etc) for investing in private residential property in Singapore come to about 5% (assuming you sell the property only after 5 years).

8 Bank Deposits here refers only to Singapore dollar deposits, the norm for most of us.

9 An Investment-Linked Product (ILP) is an insurance plan that combines protection and investment. The advantage of ILPs is that they offer life insurance.

10 A Unit Trust is a pool of money professionally managed according to a specific, long-term management objective (eg, a unit trust may invest in well-known companies all over the world to try to provide a balance between high returns and risk diversification). The idea here is to gain from the experience and active decision-making of an investment professional.

11 An ETF or Exchange-Traded Fund comes in many different forms: for example, there are equity ETFs that hold, or track the performance of, a basket of stocks (eg Singapore, emerging economies); commodity ETFs that hold, or track the price of, a single commodity or basket of commodities (eg Silver, metals); and currency ETFs that track a major currency (eg Euro). ETFs trade like shares (on stock exchanges such as the SGX), and typically come with very low management fees.

The main difference between ETFs and Unit Trusts is that ETFs are publicly-traded financial products while Unit Trusts are privately-traded financial products, meaning that we can buy and sell ETFs ourselves anytime during market hours.

12 Bonds are a type of product called Fixed-Income that involves lending out money to a government or company; in return we get regular fixed interest payments and eventual repayment of the entire amount lent. The main attraction of government bonds is their safety. However, because there is so little risk, the returns are also much smaller than with other financial products.

13 Forex (Spot Forex or FX) trading refers to the world-wide, decentralised, OTC markets for the trading of currencies. Forex trading has exploded in recent years: average global daily turnover in forex markets in 2010 crossed the $5 trillion mark (that’s $5,000,000,000,000). The main reasons for this are the IT/Internet revolution, allowing trading from home; the 5-day, 24-hour operation of the markets; the huge leverages (credit) typically available; and the relative simplicity of forex trading.

14 Contracts For Difference (CFDs) are essentially contracts (agreements) between a buyer and a seller stating that the seller will pay the buyer the difference between the purchase price and the price at the end of the contract, of an underlying asset (if the difference is negative, the buyer will pay the seller). CFDs currently exist for stocks and market indexes in Singapore. They mirror the movement of their underlying and require less capital than trading stocks directly (because of the leverage provided).

Because the value of a CFD is derived from something else (the underlying stock or index), CFDs are classified as financial derivatives.

15 ‘Options’, like futures, are contracts that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a fixed price on or before a specified future date. The underlying asset is usually stock but can also be an ETF, a market index, a currency (forex) or a commodity futures contract. Options trading has 2 unique features: we know our maximum risk, ie the maximum amount of money we can lose, from the start of the trade; and options are the only instrument that allows us to make money in all market conditions (rising prices, falling prices and sideways-moving prices).

Options, like CFDs, are financial derivatives.

16 Commodities used to refer to physical goods such as coffee, corn, soya beans and wheat. Today the term has expanded enormously to include metals (eg, copper, gold, silver); energy (eg, crude oil, natural gas); currencies (eg, the British Pound, the Euro, the Japanese Yen, the US Dollar); and financial constructs such as stock-market indexes and interest rates (eg, the S&P 500 Index, 30-Year US-Government Bonds).

Commodity Futures are contracts to buy or sell a certain quantity of a commodity of standardised quality at a fixed price at a specified future date. Futures markets started as a way for producers and consumers to hedge their risk (from unexpected future price falls or rises), but today the markets are dominated by traders who try to make money from price movements.

Commodity futures are another type of financial derivative since they are based on a physical or financial underlying commodity.

Conclusion

This article has tried to provide a glimpse of the great variety of markets and financial products and instruments available, whether for investing or trading.

Many of these markets have become arenas of feverish speculative activity. Several of these products and instruments have been the vehicles of huge fortunes made – and lost. Some have been charged as the culprits behind modern market crashes.

None of these is any reason to shoot the messenger. Our perennial philosophy of risk management and diversification is best practised by understanding how these financial products and instruments work, then using them to grow our wealth in good times, create our wealth in uncertain times and protect our wealth in bad times.

Thomas Saw is the founder of the Traders Round Table ( http://www.tradersroundtable.com.sg ), a community of committed traders and investors. TRT’s mission is to help people be more successful in Creating, Protecting and Enhancing their wealth in the financial markets. We help fellow traders and investors by providing holistic, broad-based financial trading and investment education, mentorship and psychology. Vinay Kumar Rai is a freelance writer and a member of the TRT.

The investment market can be complex to navigate, especially for the novice, and knowing the characteristics and details of any product that you are considering investing in is an important step in building a successful investment portfolio. Structured bonds, which come in a wide variety of guises, can be particularly complicated.

What is a structured Bond?

Sometimes know as structured products, or structured deposits, they can be offered with the potential to generate a regular income or capital growth.

Such bonds are usually put together by the provider to suit the needs of a particular type of investor. This means that finding the right structured bond product for your needs will depend on your individual circumstances.

Different types of product will provide different levels of risk and return. Your investment will usually be linked to a particular index, such as the FTSE 100, depending on the structured bond product that you choose. This means that any return that you receive will depend in large part upon the performance of the index that your bond investment is linked to. The investment objectives of a structured bond product should be clearly stated and made available to the investor at the outset.

Structured bonds are usually taken out for a fixed period of time, this period can vary according to the product that you choose, from a matter of months, usually up to six years. Like other fixed term investment products you may be charged exit penalties if you wish to withdraw you money before the fixed period is over. This means that you should carefully consider the length of commitment that you are able to make, or you could end up losing out.

A plan provider will usually have your investment underwritten by a counter-party such as an investment bank. before embarking on a structured bond investment you should be aware of any compensation that you would be eligible for should the firm that you are invested with, or the counter-party go bust.

Sometimes structured bonds will be sold as “kick out” products. This means that if the index to which your investment is linked reaches a certain level, the products may be “kicked out” early, usually on the following anniversary. However, if this does happen you will usually have already received a certain level of growth on your investment.

Some structured bond products will offer a degree of capital protection, but yield may fluctuate. Investing through a structured product can often be a safer option than investing directly in stocks and shares, but it is important to remember that any risks involved should be carefully considered and you could end up getting back less than you originally invested.

There are many different types of structured bonds available, and negotiating the terms and individual characteristics associated with each product can be difficult without the help of independent investment advice, particularly for the novice investor. Nevertheless, structured products can bring greater diversity to your portfolio, and with the right advice you may be able to find a product that is suited to both your attitude to risk and your desire to generate a desirable level of return for your capital.

John T Hughes writes for Savings Bonds, a site dedicated to helping you to find leading savings or investment bonds options that may be suited to your needs.

Investors are increasingly forced to choose from a proliferation of investment options. They also have to deal with contradictory advice on how to achieve their financial goals and how to invest the savings they have accumulated during their lifetime. If you consider that there are more than 7 000 mutual funds available in the United States alone, and thousands of insurance products worldwide, making the choice that will satisfy them ever after is daunting, to say the least.

No wonder people so often ask the rather general question: Which investment is best? The first part of the answer is easy: No single investment is ‘the best’ under all circumstances for all investors. Personal circumstances, goals and different people’s needs differ, as do the characteristics of different investments. Secondly, one asset class’s strength in certain circumstances could be another’s weakness. It is therefore important to compare investments according to relevant criteria. The art is to find the appropriate investment for each objective and need.

The following are the most important criteria:

the goal of the investment
the risk the investor can handle
liquidity required
taxability of the investment
the period until the financial goal is reached
last but not least, the cost of the investment.

THE GOAL

Goals determine the characteristics sought in an investment. You will be in a position to choose the most appropriate investment only when you have decided on your short-, medium- and long-term goals. The following generic goals are normally involved:

Emergency fund

Emergency fund money should be readily available when needed, and the value of the fund should be equal to about six months’ income. Money market funds are excellent for this purpose. While these funds do not perform much higher than inflation, their benefit is that capital is saved and is easily accessible.

If you already have a ready emergency fund covering more than six months’ income, you could consider a more aggressive mutual fund

Capital protection

If your primary aim is capital protection, you will have to be satisfied with a lower growth rate on the investment. Those above 50 are normally advised to be conservative in their investment approach. While this may for the most part be sound advice, you should also keep an eye on the risk of inflation, so that the purchasing power of your money does not depreciate. It is not the nominal value of the capital that should be protected, but the inflation-adjusted one. At an annual inflation rate of 6%, $1 million today will buy the same as $156 255 in 30 years’ time. A 50 year-old with %1 million would therefore have to lower his living standard substantially if he only retains the &1 million until he was 80.

Income

Conservative investments like those listed above should form the normal basis for providing an income. Because of inflation risk, investments should be structured so that they can at least keep up with inflation. This means that at least a percentage of the investment source providing the income should be made up of other asset classes like property and equity mutual funds. The percentage would differ according to individual and economic circumstances.

Investors fortunate enough to have their basic budget provided for by a conservative fund could consider increasing their income with commercial property funds and tax-free income from dividends paid out by listed shares.

Capital growth

If an investor’s primary goal is to achieve capital growth, the real rate of return should be higher than inflation. This implies greater risk to capital in the short term. Investors aiming at capital growth should not be apprehensive, as they will reap the rewards in the long term.

The history of equity prices over the past 100 years proves equity investments to be the best performer, followed by property. This does not mean you should buy either of these investments blindfolded. Wait until the quality shares in which you are interested are trading at inexpensive price levels.

RISK

The investment with a history of the highest growth is not necessarily the one to choose. The Standard Bank’s Gold Fund increased by 178% during the period 13 August 2001 – 24 May 2002 (284 days). Judging only on the growth of the fund during this period, it performed exceptionally well. But would it be the right investment for a retiree? During the 805 days following this, the same fund experienced a negative growth rate of 44%! The problem with an investment that decreases by this percentage is that it will not reach its previous peak by increasing again by 44%. This is because the growth this time will take place from a lower base, so in fact the investment would have to increase by approximately 80%.

LIQUIDITY

Hard assets like Persian carpets, works of art and antique furniture may be good investments in the long term, but unfortunately they are not very liquid. The same is true of certain shares in smaller companies. Money market funds, on the other hand, are very liquid, but the returns may not always be as good as those from other investments. The need to liquidise the investment quickly is therefore also a criterion to consider when evaluating investments.

TAXABILITY

The taxability of an investment has a considerable impact on its value to the investor. When comparing the returns on different investments, the return after tax has been deducted should be used. The investor should always ask what will be left in his pocket after tax deduction.

PERIOD

Conservative investments with no potential for high returns are suitable for shorter periods, while investment-objectives with longer time horizons aspire to achieving higher returns. Money market funds are suitable for periods of one or two years. Income and conservative asset allocation funds for three or four years and flexible asset allocation funds, commercial property funds and value equity funds may be chosen for longer periods, dependent on the economic and interest cycle and the propensity of the investor to accept risk.

COSTS

The costs involved in an investment are normally things like administrative cost and commission. The percentage of the costs to the investment amount directly affects the value of the investment. Many of the currently available investment products are structured in such a way that investors can negotiate commission.

CONCLUSION

No investment strategy blueprint is going to be perfect for everyone’s circumstances. Investment opportunities should therefore be examined critically before any decision is made. It should also be kept in mind that there are different companies managing specific funds under the investment categories referred to above. Some are more effectively managed than others. Investors should therefore research investments as well as the managers thoroughly before investing. Otherwise, they could appoint professional asset managers to do so on their behalf. Time spent determining the type of investment you really need is time invested in your future financial well-being.

Dr. Manus Moolman has done extensive research on the issues of investing and wealth creation. He is dedicated to assist anyone, from laymen to professional traders, to invest successfully and become rich.

Want to contact him? Then please visit his website at: http://www.myebroker.info/.

Choosing from a wide array of investment products can be somewhat confusing especially if you are not aware of what options are available to you. There are different investment options for both the conservative and aggressive investor and everyone in between. There is a connection between a product’s risk and return. Higher earning investments carry with it higher risks and knowing your investor profile will give you an idea if you’re suited for high-risk investments like stocks and money market investments or more conservative products such as certain bonds and fixed deposits. Stock brokers and money managers can help you sort through the different investment products and help you make a decision. Before discussing the various options, financial advisers often ask clients to answer a questionnaire which would help them determine if you’re a conservative, moderate or aggressive investor. Once you’ve gotten to know your investor profile, it’s easier to decide where to place your money.

Risk Profile Analysis

Risk profile analysis questionnaires collect information about your financial needs, status, and goals as well as your personality as an investor. The questions usually ask you how long you are willing to invest your money, how much money you are planning to invest and if you would need the money anytime soon. The results tell you whether you can take the ups and downs of the stock market or if you should just stick with a fixed-income investment. The four main factors for choosing investment products are duration, liquidity, risks and returns. Aggressive investors would often invest for the long term, with minimum liquidity and higher risks and returns, while conservative investors prefer short term investments which can be easily liquidated and have the least amount of risk, sacrificing the amount of returns. Moderate investors on the other hand are a combination of both. They are willing to stick it out for the long haul, but they need the security of being able to liquidate easily and are comfortable with investments with moderate risks and returns. Once you’ve determined what kind of investor you are, you would be able to compare the different options and make sound financial decisions with regards to your investment portfolios.

Investing your money seems like a very complicated process, but this is all because you need to think things through before making any decision that may affect your financial situation. Choosing the right investment products to place your money in is very important to make sure that you are comfortable with your investment choice.

When we are talking about investment, this word has been heard often enough. A lot of people or friends do not really understand what investment is and desperate to start investing without knowing the contents of their investments. Be careful. You may experience losses instead of profits.

Investment is a concept commonly done in the financial world in order to develop the value of money. Development is represented in the form of return or interest.

A good investment product is a product that suits to your needs and your character. It is not all of investment products are suitable and necessary need at once. You have to understand of how the product will deliver the maximum benefit and risks that may arise.

Deposit Account.

This product is commonly used by those who has a risk-tend of more conservative or safe (with fixed interest and protect the initial), as compared with other investment products. The period is very diverse, typically 3, 6, or 12 months. If you try to withdraw before its due date, you will be penalized.

Although this type of investment is less able to compensate for the inflation rate, the deposit is still required and can be utilized in the process of financial planning. This product is suitable for storing the funds that will be required within one year.

Gold – Precious Metals

There are gold bullion and jewelry. The difference is, when you are buying gold jewelry; you are buying a gram of gold plus the difficulty of manufacture. When you are willing to sell it back, the ‘difficulty value’ is not counted. Thus, for investment purpose, certified gold bullion is much better.

Property

Property investment has been recognized for long. Currently, the attraction of property is not only land, but also houses, townhouses, apartments, villas, and other residential properties. The most crucial thing when investing in property is location.

Stock

When deciding to begin to invest in stocks, you must commit to have it in the long term, 5 years-10 years. If you only intend to purchase in the short term and make a profit on the price difference, then you are not investors, but your are a trader or broker.

Stock investment is more suitable for those in young age. Why? It is because the stock is an investment product for the long term. Stocks often need more time to develop.

This investment has the principle of high risk, high return. Perform an analysis of companies with the potential to grow continuously in the future.

Mutual Funds

There are four conventional mutual fund products: money market funds, fixed income funds, mixed funds, and stock or equity funds.

Mutual funds help the investors, especially beginners, who have limited funds, time, and knowledge to investing directly into stock. The important thing is the suitability of types of mutual funds with a risk profile and your financial planning goals.

Have a successful investing in 2012! Have fun with your money!

* Analyze your Personal Financial Planning before choosing an investment type.

There are a lot of different investment products available for people with different investment needs. Fund managers and firms offering financial services offer a diverse array of investment options that would suit each individual’s investment needs. These products range from the more conservative, fixed-earnings investments to the more aggressive ventures such as stocks and everything else in between. Choosing from the different investment options can be overwhelming for first time investors, but luckily, there are ways to determine which of the many investment products can be a suitable choice.

Be Aware of Your Financial Status

When choosing investment products, there are a lot of things that you have to consider. One of them is how much money you have to invest and how long you intend to invest for. Some investment options allow you make regular contributions, while others require you to put in the lump sum. As for the duration of your investments, a lot of investment portfolios tie your money up for a specific period of time. Some of them allow you to terminate your investment early, but a penalty or termination fee is charged. If you feel that you would need to access your money in the near future, you should choose one that allows you to withdraw your funds anytime you want without having to pay a fee.

Know Your Risk Profile

An investor’s risk profile is also important. A person’s risk profile measures how much of a risk an individual is willing to take with his money. Fund managers often ask their clients to answer a questionnaire to determine their risk profile before recommending anything. This way, they would know whether the investor is willing to go along with the ups and downs of the stock market or whether a low-risk, fixed income investment is a better choice. It’s not advisable to jump into an investment without first assessing your risk profile because this could leave you with the unnecessary stress of worrying about the risks of your investment. Knowing your limitations before placing your money in an investment portfolio would help you sleep better at night while your money is working for you.

Investment portfolios aren’t one-size-fits-all. Some investments may be good for certain people, but yield disastrous results for others. It is important that we are well-informed about our options to be able to make sound financial decisions. If you’re still unsure about where and how much to invest, it is best to consult a financial adviser for advice and information about the different investment products available.

The current economic climate, defined by low interest rates, volatile equity markets and poor short-term visibility, is leading Investors of all shapes and sizes to investigate alternative investment assets in an effort to boost portfolio performance whilst also reducing exposure to traditional assets like equities.

Forestry is one sector where investment returns are driven more by the biological growth of trees into valuable timber than traditional growth fundamentals. Forestry also provides a shelter for capital, and superior compound growth, even during falling markets.

Institutional Investors have led the charge into forestry investments with Pension Funds and Hedge Funds acquiring timberland properties as part of their diversification strategy. This has led to the emergence of a plethora of forestry investment products aimed at the retail Investor.

With options to acquire small forestry plots within large, managed plantations in Brazil, Costa Rica, Panama, Sri Lanka, Fiji, Thailand, Nicaragua, Australia and New Zealand, potential Investors could be forgiven for feeling confused, and the lack of quality information about the sector for Financial Advisors leads many to divert their Clients attention to other, more traditional investment assets like residential or commercial property, or even equities.

In this article we look into the main concerns regarding these retail forestry investments, and look to how risk can be properly assessed and mitigated.

The main issue regarding the vast majority of direct forestry investment products on the market is the basic structuring of the product. To avoid being classified as a collective investment scheme, many of the projects mean individual Investors purchase or lease a defined individual plot within a larger plantation, and having a notional choice of Forest Manager to look after the property and harvest / sell timber at the relevant point in the life cycle of the Forest.

Avoiding collective investment regulations means that Promoters can market and sell to any Investors freely, without the restrictions associated with collective investments which allow only certified sophisticated or high net worth individuals participate.

In reality, only two such schemes have been found to be operated in the way laid out in the marketing material, whereas the majority, it seems, do in fact manage the entire plantation as a whole, pool all plantation income and distribute to individual Investors based on their proportional ownership. Investors do not in fact receive income from their own, individual plot.

Whilst actually more secure (no physical risk to your individual plot), this structure managed in this way is quite simply a collective investment scheme. No commercial forest can be operated in any other way, fact. Most forestry investments therefore, should be collectives.

It is this collective management, combined with the fact that most of these investment opportunities are heavily front-loaded with profit for the Promoter and Project Developer that make for a huge counterparty risk. One such scheme in Brazil is selling a hectare of young teak trees (worth no more than $5,000 in the real estate market) to Investors for £100,000 on the basis that the timber sold will generate a profit.

Of course, investing in forestry is not a one-off capital investment; trees must be expertly managed over long periods of time and this requires capital. So the bulk of the invested capital is likely to be required to fund the on-going management of the trees and infrastructure. However only one company out of 9 assessed has been able to show that the majority of invested capital is ring-fenced for property management, in fact much of the revenue from Investors ends up in the salesmen’s pocket, earning up to 20 per cent of invested capital commissions. A different project identified in Brazil offered a 40% commission to interested Brokers!

Let’s look at the numbers and run a very basic feasibility study. One hectare of established teak will encompass circa 1,250 trees, with around 400 trees making it to year 25, at which point they will yield something like 1 cubic metre of commercially viable timber per tree. Teak timber trades at about $400 per cubic metre for processed wood and about $250 for logs, so one hectare will produce about $100,000 worth of logs to be sold at the farm gate, minus the cost of harvesting.

How then is an Investor paying the equivalent $155,000 for this hectare today supposed to make a profit if total revenue (excluding any residual revenue from intermittent thinning) is less than $100,000? Are investors reliant on timber prices increasing?

Well, if timber price were to increase at a rate of 6% per annum, then plantation income would jump up to $300,000 at harvest ($756 per log) in 25 years’ time, but factor in inflation at then current rate of 5% per annum and the income in real terms (inflation adjusted), falls back to $120,000. A 20 per cent return over 25 years equates to a simple annualised rate of less than 1%.

It is extremely likely that, once Investment eventually dries up as Investor appetite is satiated (as in the case of many similar failed Managed Investment Schemes in Australia), then the Project Developer has no economic incentive to continue, and there is no capital left to fund the continual management of the property.

At this point the Project Developer disappears and Investor are left with a few trees worth much less than they paid for them, with no way of accessing them or managing them, or even disposing of them. It is in fact most likely that the assets would be sold by receivers to recoup some capital and in that instance, Investors would get back only the real estate value of the property (remember the $5,000 per hectare).

In short, there is a huge economic incentive for Promoters to establish and sell such schemes as they make huge profits up front, but very little incentive to continue to operate them after the lion’s share of capital is invested (and syphoned off).

There is a huge risk that Investors could be left high and dry with notional ownership of assets worth nothing and no way to access them.

Although one or two good schemes do exist, the majority we have assessed have demonstrated nothing but the willingness of some ‘entrepreneurs’ to jump on the bandwagon and cash in on unsuspecting Investors.

For further information about direct forestry investments involving the acquisition of timber properties, including direct investments in UK forestry properties, please contact DGC Asset Management.

DGC Asset Management offer research, due diligence and opportunities to invest in real-assets in the agriculture, forestry and renewable energy sectors.

Download your FREE Forestry Investment Report from DGC Asset Management.

The abundance of investment products and investment information available today can be intimidating and confusing to many investors, both novice and professional. Over my twenty-plus years as an attorney and investment adviser, I have tried to help others focus on some of the critical information in order to avoid unnecessary investment losses, to help level the playing field against some of the ne’er-do-well that continue to defraud the public and plague the financial services industry.

Speaking with a colleague the other day, he commented on the fact that a lot of the important information we get through trade publications such as InvestmentNews rarely seem to get mentioned in the mainstream media and press. And when we mention such information to clients, they often comment on how useful such information would have been.

After my conversation with my colleague, I started thinking about some of the “inside” information I have shared with my clients that produced the most reaction and appreciation. In hindsight, I think three numbers have stood out the most to me and my clients. The three numbers every investor should know are as follows:

1. “75″ – The number “75″ is actually important for two reasons. First, a study by Schwab Institutional found that approximately 75% of investor portfolios were poorly structured and unsuitable for their investors given the investors’ financial needs and goals. I believe that this is primarily a result of the fact that (1) stockbrokers are not required to act in a client’s best interests, and (2) investors are often mislead by portfolios that appear to be diversified because they hold a number of different types of investments, but such portfolios are often not truly, effectively diversified.

The second reason that the number “75″ is important is because research and history have shown that approximately two-third, or 75%, of stocks follow the general trend of the market. This simply supports the popular Wall Street adage, “don’t confuse brains with a bull market.”

2. “94″ – While there are many firms and individuals in the financial services industry calling themselves wealth managers, a study by CEG Worldwide, a well-respected financial services consulting firm, concluded that only 94% of those calling themselves wealth managers or claiming to provide wealth management services failed to meet the criteria used to qualify as wealth managers. The criteria that CEG used in their study to determine true wealth management was based primarily on advisers who practiced wealth management as a process as compared to those who simply used “wealth management” as a marketing ploy to push product. This is the same criteria that investors and fiduciaries should use in choosing a financial advisor to work with.

Secondly, one expert has suggested that this number (OK, actually 93.6, which rounded off is 94), and the study that produced it may have caused more damage to investors than any other number/study. The number comes from the famous 1986 Brinson, Hood and Beebower (BHB) study that stated that 93.6% of the variation of a portfolio’s returns could be explained by the portfolio’s asset allocation.

The study did not say that asset allocation explained 93.6% of the portfolio’s actual returns, but rather the variation of the portfolio’s returns. Nevertheless, dishonest brokers and advisers misrepresented, and still do misrepresent, the BHB study’s findings to convince investors to choose an asset allocation and rigidly adhere to it, despite the proven cyclical nature of the markets. This is the mantra of the” buy and hold” approach to investing, an approach that some have suggested is better described as the “buy, hold and regret” approach to investing. Just ask investors how well that worked during the 2000-2002 and 2008 bear markets.

Unfortunately, given the current budget issues that exist at the time I write this post, static asset allocators may soon get yet another costly education. Dr. William Sharpe, a Nobel laureate for his work in the area of investment management, now stresses the need to be proactive and adjust portfolio allocations when changes in the economy and/or the market dictate such moves.

3. Zero – This number represents the number of variable annuities (VA) and equity indexed annuities (EIA) an investor should own. As a former compliance officer and a current securities attorney I have heard all the convoluted and conniving justifications for these atrocities. I have written posts and articles warning investors about these products. While there may be a few limited instances where they may make sense, such as wealth preservation for high net worth investors, the way they are marketed to the masses is extremely questionable.

One Wall Street Journal article reported that variable annuity salesmen were told to treat potential annuity clients as “blind twelve-year-old,” and to “put a pitchfork in their chests,” and provide questionable responses to potential client’s questions. VA salesmen and VA advertisements often tout that by purchasing a VA the investor will never run out of money.

What is often not made clear that in order to guarantee that lifetime stream of money, you give up all rights to the money invested in the VA. Once you annuitize your VA, the balance goes to the insurance company once you die, not to your heirs. In most cases the insurance company offers various choices for payout, such as joint survivor and a guaranteed period, but these options generally result in lower periodic payouts and, in some cases, additional fees.

One of the most onerous aspects of VAs is the excessive fees that most VAs charge, especially with regard to the so-called death benefit. VAs typically guarantee that in the event the VA owner dies with out having annuitized the VA, the owner’s heirs will receive either the accumulated value of the VA at the time of the owner’s death or the amount of the owner’s actual investment in the VA, whichever is greater. So the VA issuer is only insuring the amount that the VA owner actually puts in the VA.

Meanwhile, the insurance company assesses the VA’s annual death benefit fee not on the basis of their actual legal obligation, which is the amount of the VA owner’s actual investment, but rather on the accumulated value of the VA. One study estimated that the actual expense of the annual was approximately 0.10-0.12, but that the insurance companies often charged approximately 1.50%, or approximately fifteen times the estimated value, resulting in a nice windfall for the insurance company. The additional fee also cost a VA investor by reducing this investment return.

EIAs are also problematic. EIAs are generally sold with the pitch that investors can earn the same return that the stock market does, with the guarantee that even if the market is down, the EIA investor is guaranteed a minimum return. What many investors are told is that the potential return is usually capped at a relatively low number, say 10%, and then is reduced even more by a “participation rate,” usually an additional 2-3% reduction. In short, the EIA investor is looking at annual rate of between 2-7%. If the market is up 20% or more for the year, just who is getting the benefit of the excess over the investor’s return?

There may be other significant numbers that I have omitted. However, investors and fiduciaries that remember these numbers and the reasons for their significance will be in a better position to protect both their financial security and/or their clients’ financial security.

James W. Watkins, III is an attorney, a CFP professional and an Accredited Wealth Management Adviser. His areas of expertise include wealth management, wealth preservation, wealth protection and fiduciary law. He is CEO of InvestSense, LLC, a registered investment adviser firm located in Atlanta, Georgia. For additional articles and information, visit http://www.investsense.com. Mr. Watkins can be contacted at tawj3@yahoo.com, and followed on Twitter @InvestSense.

In Part One of this article, we highlighted strategies that proactive investors can use to better protect their financial security. The strategies mentioned in Part One were more oriented toward the investment account as a whole.

However, most securities claims involve allegations of unsuitability and/or breach of fiduciary duty regarding investment products and/or investment advisory services. Given the number of investment options available to investors today, it is easy for an unscrupulous stockbroker or investment adviser to take advantage of an investor, especially an inexperienced investor.

The following strategies can be used by the proactive investors to avoid some of the more common complaints in securities claims.

1. Choose appropriate classes of mutual fund shares to reduce expenses. Fees and other expenses reduce an investor’s return. Therefore, no-load mutual funds and/or exchange traded funds should generally be an investor’s first choice due to their reduced fee structure.

If an investor chooses not to use either no-load funds or exchange traded funds, A shares and B shares are the only type of mutual fund shares most investors should consider. Many investors immediately lean toward B shares since they do not require the investor to pay front-end sales charges, or commissions. B shares, however, may not be the best choice for the long-term investor due to the higher annual fees associated with B shares.

Generally speaking, A shares are often a better deal for a long-term investor due to the fact that annual fees for A shares are typically less than the annual fees charged by B shares. If an investor has a large amount of money to invest, A shares often offer breakpoints to reduce any applicable sales charges.

Breakpoints are not generally offered on B shares. B shares are often a better deal for short-term investors, since B shares do not impose a front-end sales charge. While B shares generally carry higher annual fees and often impose deferred sales charges if an investor redeems the shares within a specified period of time, the holding period during which deferred sales charge are applicable is usually relatively short.

The investor’s ability to redeem B shares without penalty within a short period of time also allows the investor to minimize the effect of the higher annual fees of the B shares. Some mutual fund companies offer to convert B shares into A shares after a certain period of time has elapsed. Each investor must evaluate their own situation to determine the choice that is best for them.

Investors with managed accounts should always check to see whether their advisor is using A shares or B shares in the management of their account. In most cases, it is generally agreed that advisors should only use A shares in managed accounts due to the lower annual fees charged by A shares and the fact that most mutual funds offer to waive sales charges for A shares held in managed accounts.

Another factor favoring the choice of A shares over B shares in managed accounts is the deferred sales charges on B shares. Since managed accounts often involve frequent reallocations of the account’s assets, holding B shares in a managed account may ensure that the value of the investor’s account is reduced by the payment of deferred sales charges.

2. Use breakpoints, when possible, to reduce the commissions on mutual fund purchases. Most mutual fund companies offer investors a discount on front-end sales charges once an investor has invested a certain amount of money in their mutual funds. Most mutual funds begin to offer such discounts once an investor has invested a cumulative total of $50,000 in their funds, with additional discounts for certain levels of additional investments. Recommendations spreading investments among a multitude of asset classes may be cause for questioning, especially when large amounts of money are being invested and/or the recommended amounts are just below breakpoint levels.

3. Get more than one opinion. Medical patients are often advised to get a second opinion on major medical decisions. Decisions affecting one’s financial security are equally important. Unsuitable investment advice can drastically affect one’s life. Unfortunately, some people holding themselves out as financial planners and investment advisors may be more interested in selling insurance and investment products than in the quality of the financial advice they are providing.

4. Avoid the variable annuity trap. Without question, variable annuities are one of the most over-hyped, most oversold, and least understood investment products. A much publicized article in the Wall Street Journal reported that annuity salesmen at an annuity “boot camp” were instructed to treat potential annuity customers “like blind twelve-year olds,” and to tell customers that the annuities were “like credit cards.”

The NASD and the SEC are investigating various complaints regarding the sale of these investment products and have already imposed sanctions in some cases. The high fees and expenses associated with variable annuities, along with their lack of liquidity and their negative tax aspects, make them an unwise investment choice for most investors.

Annuities can also have devastating effect on an investor’s estate plan, resulting in most of the investor’s money going to the company issuing the annuity rather than the investor’s heirs and loved ones.

5. Don’t buy life insurance for investment purposes. A popular mantra among insurance agents is that variable life insurance is the “Swiss army knife of financial planning.” Anyone who hears such advice should look for another financial adviser. If an investor needs life insurance, then they should buy life insurance that guarantees the amount of protection needed, which is the intended purpose of insurance.

Life insurance is neither intended for or appropriate for investment purposes. The high fees and expenses associated with insurance are totally inconsistent with one of the basic tenets of investing, namely to minimize loss of principal so as to maximize the amount of money working for the investor. While it is illegal for an insurance agent to misrepresent the nature of an insurance product, recent cases involving the alleged misrepresentation of life insurance as retirement/ investment programs demonstrate the need for investors to get advice from more than one investment advisor to better protect their interests.

6. Beware of “black box” financial planning and portfolio recommendations. Many financial advisers will offer to provide customers and potential customers with financial plans or asset allocation plans. The price for such plans can range from free to thousands of dollars.

In most cases these are created with software programs based upon the input entered by the financial adviser. While investors are warned that “past performance is no guarantee of future returns,” and we scoff at fortune tellers predicting the future, that is exactly what is generally used in creating such plans, historical returns or “guesstimates” of future returns, resulting in the familiar “garbage in, garbage out” scenario.

Furthermore, such software programs can be easily manipulated to produce whatever results are desired. Most of the commercial software programs are based upon a financial theory known as Modern Portfolio Theory, which is known to have an inherent bias toward certain types of investments.

By manipulating the input data in favor of the preferred investments, certain results can be guaranteed. This inherent instability of such computer programs has led one expert to refer to such programs as “error-estimation optimizers.”

James W, Watkins, III is an attorney, a CFP professional and an Accredited Wealth Management Adviser. His areas of expertise include wealth preservation, wealth protection and fiduciary law. He is CEO of InvestSense, LLC, a registered investment adviser firm located in Atlanta, Georgia. For additional articles and information, visit http://www.investsense.com. Mr. Watkins can be contacted at tawj3@yahoo.com and followed on Twitter @InvestSense.

Many individuals and groups are continuously seeking alternate ways to diversify their investment portfolios and enhance their capital for the present and the future. Alternative investments are an exceptional way to help build your retirement and recover any previous loss. Many investors are already taking advantage of these types of investments. There is an asset class that many individuals are not aware of – investing in animated movie projects. A majority of financial advisors are not experienced with this realm of investment. As word spreads and it becomes more conventional, there will be more information available about investing in animated movie projects, but I’m here to share some useful information with you now about how to recover your previous investment loss and build your retirement for the future. Although this may not be for everyone, it is something to consider.

Animated movie projects are a familiar investment option to major studios, venture capitalists, and institutional investors. Many individual investors are not aware that this alternative investment option is available to them as well. While this is an option for individuals, they must be accredited investors, or high net worth individuals. There are two ways that individuals and groups (corporations) can invest in these projects; private placement memorandums and hedge funds.

3D and RealD animated movies are the trend of the present and near future in film, as far as profitability is concerned. While the target market for live action films is generally adults, The target market for children (age 6-14) is $50 billion, which is the largest children’s market and is the primary focus for Disney. Although animated films are geared toward children, they include romance and humor that adults can appreciate. Just like any other investment there are risks. The norm for most investment products is, “the greater the risk the higher the reward”. When investing in animated movie projects, these risks are mitigated by many factors.

Animated movie projects offer a way to diversify your portfolio with alternative investments and be a part of something unique. More importantly, they offer the potential for substantial returns. Animated movie projects make for an attractive investment considering their diversity and uniqueness. Investors can be updated and involved in a projects’ success from start to finish. This is a rarity for individuals who are not in the business. Many alternative investments don’t involve much activity besides gaining maturity or value. These projects are also produced locally by veteran talent of the industry.

Kate Bouillion specializes in finding funding for entertainment content and intellectual property needs across various genres with OntaireMedia in Austin, Texas. For more information or a Free Report, visit our website at http://www.anivest.com