Investment Articles

You work hard for your money, and you want your money to work hard for you. We all need savings and investments to retire comfortably or to fall back on should unexpected circumstances arise. To that end, common investment vehicles include the stock market, mutual funds and retirement/superannuation accounts. But whichever investment vehicle you opt to employ, it pays to ensure that you are familiar with the mistakes commonly made by new investors.

1) Not having an adequate plan. The saying goes that failing to plan is planning to fail, and in the case of your investments, you not only need a solid strategy as to how to invest your funds, but you need to have realistically mapped out the regular contributions you will be able to put into your investments. If your investments are not tailored to suit your age and situation and managed according to current market conditions, then you basically have a glorified savings account.

2) Placing all of your eggs in one basket. This is not only a risky strategy, but one which is certain to limit your money’s growth potential over time. The reason you need to have a good combination of stocks, bonds and other investment options is that different investment vehicles will perform differently, depending on the economic conditions at the time. A diverse investment portfolio has a greater potential to endure an unpredictable economic climate.

3) Too much emphasis on high-risk investments. The age-old concept of the “get rich quick” scheme is a common pitfall that many people are aware of, yet continues to burn investors. A new investor must keep in mind at all times that their investments are a long-term strategy, and as such, a potentially high short-term gain is simply not worth pursuing when it is weighed up against the risk of losing your hard-earned money.

4) Overly conservative investing. Although this is of far lesser concern and it may even seem counter-intuitive at first, it is worth keeping in mind that a lack of market knowledge could lead an individual to be too conservative in their investments. This can ultimately result in a lack of sufficient returns to meet the investment goal.

5) Investing with debt. Of fundamental importance when you are laying out your overall investment plan is to make an honest assessment of what you can afford to set aside for investment contributions. Put simply, your money must be free to invest. If you have already racked up credit card debts for example, and you are being charged upwards of 19% interest on this debt, then your first priority should be to pay off that debt. As your investments are unlikely to pay you a return anywhere near the interest on your debt, the elimination of debt ought to be the higher priority.

6) Paying astronomical commission fees. Just as you would with any other product or service, you should take the time to shop around and compare prices before you invest, once you have decided upon a course of action. It pays to take into account an investment professional’s background and level of industry experience.

7) Failing to seek the advice of a professional. Mastering finance and investment requires many years of industry experience and expert knowledge. In the same way that you would trust your health & wellbeing to a medical professional, so to you should consult an investment professional when you are planning for your future and financial well-being. As much as it can be useful to conduct your own research to gain a broad understanding of investment strategies, a qualified financial professional will take your own particular circumstances into account when making recommendations.

Provided that your investment strategy reflects a long-term focus, has enough inbuilt diversity to withstand market volatility and is managed with the aid of experienced and professional advice, you should reap the benefits of a robust investment portfolio that will yield excellent returns on your hard-earned income.

This article was written by James T. Hannagan for Australian-Dollars.com, a site that follows and investigates the Australian Dollar against the world currency market, with a view to investment in this heavily resource-backed currency amidst global economic uncertainty.

Investors typically use performance benchmarks like the Sharpe Ratio or the Sortino Ratio to rank mutual funds, ETFs, and index trackers. However, these common performance benchmarks have several drawbacks and can often be very misleading. The Omega Ratio, however, addresses these shortcomings and delivers a far more sophisticated method of ranking investments.

The Sharpe Ratio originated in the 1960s and is also known as the reward-to-risk ratio. It’s the effective return of a fund divided by its standard deviation, and its primary advantage is that it is widely given in fund data sheets. The standard deviation is employed by the Sharpe Ratio as a proxy for risk. However, this is misleading for several very important reasons.

Firstly, standard deviation assumes that investment returns are normally distributed. In other words, the returns have the classic bell-shape. For many investment vehicles, this is not necessarily the case. Hedge funds and other investments often display skew and kurtosis in their returns. Skew and kurtosis are mathematical terms that indicate wider (or narrower) or taller (or shorter) distributions than that typical of a normal distribution.

Secondly, most investors think of risk as the probability of making a loss – in other words the size of the left-hand side of the distribution. This is not what is represented by the standard deviation, which merely indicates how widely dispersed investment returns around the mean are. By discarding information from the empirical returns distribution, standard deviation does not adequately represent the risk of making extreme losses.

Thirdly, the standard deviation penalizes variation above the mean and variation below the mean equally. However, most investors only worry about variation below the mean, but positively encourage variation above the mean. This point is partly address in the Sortino Ratio, which is similar to the Sharpe Ratio but only penalizes downside deviation.

Finally, the historical average is used to represent the expected return. This again is misleading because the average gives equal weighting to returns in the far past and returns in the recent past. The later are a better indication of future performance than the former.

The Omega Ratio was developed to address the failures of the Sharpe Ratio. The Omega Ratio is defined as the area of the returns distribution above a threshold divided by the returns of a distribution below a threshold. In other words, it’s the probability-weighed upside divided by the probability-weighted downside (with a higher value being better than a lower value). This definition elegantly captures all the critical information in the returns distribution, and more importantly adequately describes the risk of making extreme losses.

However, an investment with a high Omega Ratio can be more volatile than an investment with a high Sharpe Ratio.

Both the Sharpe Ratio and Omega Ratio can be easily calculated using tools like spreadsheets or other math packages.

Samir H Khan writes for http://investexcel.net, a repository of tools and commentary for investors and quantitative analysts. For example, the website offers a spreadsheet which calculates the Omega Ratio.

Green investing focuses on investing in companies and technologies that are deemed to be good for the environment. This includes individual companies that have a solid track record of reducing the environmental impact of their operations, as well as companies that offer alternative energy technologies such as solar and wind power. Green investors will also avoid investing in companies that have a negative impact on the environment, such as companies with poor emissions standards. Socially responsible investing is broader in its focus in that it considers companies that create a social and environmental benefit, and avoids companies that have a negative effect on society. Companies with a strong record of charitable contributions that provide a fair and diverse workplace, and/or that have a minimal impact on the environment are just a few examples of social responsibility. A major part of socially responsible investing is the exclusion of certain industries that are deemed to have a negative impact on society, including those involved in alcohol, tobacco and defence.

Six Trends in socially responsible investing to watch for in 2010.

1 Continued push towards technology.

As technology has been a pillar of the fundamentals of social investing, 2011 will not prove any different. It will be the development of technology that allows the world to achieve better sustainability, ranging in areas from energy to food scarcity. Considered to be an underlying mega-trend of socially responsible investing, the advancement of technology, and subsequently human productivity, will continue to be a strong foundation in the performance of socially responsible investment portfolios.

2 Renewable energy.

Continuing to push forward for renewable energy, socially responsible investors and companies are looking for the new technologies that will turn renewable energy into a cost-effective reality. Shell for example, will expand its investments in renewable technologies such as wind, solar and hydro power by also investing in next generation sustainable bio-fuels that will not drive up food prices or lead to deforestation. When this technology is mature, it will create a new evolutionary process of cost-effective renewable energy. Green investments in this sector will continue to grow in a quest to find better, more sustainable energy sources.

3 Changing tide for all companies.

As the movements for human rights, sustainability, and corporate governance responsibility have moved into the mainstream consumer’s radar, all corporations will eventually be impacted by shifting perspectives – and held responsible for their corporate governance sustainability practices. In addition, prompted by the growing strength and influence of social investing dollars, which account for $1 out of every $5 of managed investment funds, corporations have no choice but to respond to the changing tide. An exemplary example is Walmart, the black sheep of retail corporations, who recently released its first sustainability report – and also began offering sustainable farm produce and organic food in the stores.

4 Global warming measures.

With mainstream financial powerhouses launching “climate change funds,” global warming measures will continue to fuel the growth of socially responsible investing and green investing. With additional calls from both the scientific community and policy makers, companies are taking heed. In addition, there are significant profits to be made. According to the “Carbon Beta” research report published by Innovest Strategic Value Advisors, the corporations who capitalized upon climate change opportunities have performed better than their industry peers. This value can only continue to grow, with government policies moving towards stricter emission controls, benefiting those socially responsible stocks that are geared toward solving the environmental problem.

5 Going green.

The socially responsible investing focus on green investments has been a significantly prominent staple of the screening process of sustainability. However, in 2011, expect additional “financially green” investment vehicles introduced to the global market. With growing consumer awareness fuelled by media coverage, the report predicted an increased demand for green investing – and related green financial instruments – offered by specialised investment firms. In addition, with the launch of several regulated and non-regulated green funds, focused on environmentally friendly initiatives and sustainable companies, the trend of green investments in the financial sector will be a big mover in 2010.

6 Community investing.

Having grown five times in value since 1995, community investment efforts will continue to be a leading trend in social investing for 2011. With the private real estate market in the US either decreasing or hitting a plateau, the supply of land available for low-income housing and economic projects increases – creating additional opportunities for community investments.

Final Remarks

Don’t let the recent events on global stock markets scare you off. Green investment fundamentals are rock solid. Green Investing is at the nexus of stimulus support by governments around the World. But it’s not just governments. Corporations, too, are ramping up their Green investments. You may be familiar with some of them. Big companies like Intel… PepsiCo… Dell… and Wal-Mart are investing substantial amounts of money in solar, energy-efficient buildings, sustainable food practices and other renewable technologies.

World leaders and CEOs of multinational corporations aren’t tree-hugging liberals getting into Green Investments because they want to “make the world a better place.” They are shrewd economic realists betting big dollars that Green technology is vital to their economic survival. A few years ago, Green Investing may have been the domain of environmental idealists, but today it is one of the fastest-growing sectors on global markets. It is still early days, and the sector is still young enough to provide tremendous opportunities to the discerning investor. Green is here to stay. And it’s shaping up to be the cornerstone of the 21st century economy.

We can show investors that socially responsible agriculture investments in the emerging markets,can lead to both great profits and a better world for future generations.

Our goal is to provide consultancy to managers of unique, green investment opportunities that will maximise the profit for investors, as they at the same time work towards a healthier planet.

An investment fund is a type of investment vehicle used to invest in the stock market. An investment fund is where the investor contributes a sum of money into that fund, which has already been invested into certain areas of the stock market. The idea is to minimise the risk by spreading the amount invested into several areas of the stock market at once.

This has the following advantages:

· Minimises risk to the investor as the fund will be configured to buy stocks and shares in different commodities.

· Can be configured on the basis of risk, so the more adventurous may look for a high risk, high return fund, while a more cautions investor may look for a low risk, low return fund.

· Avoids the scenario of putting your eggs in one basket, which many financial people would advise against doing.

· They are good for the inexperienced investor as they invest in many areas of the market.

It is worth remembering that stocks can do well one year and perform poorly the next.

Investment funds still require key decisions to be made, especially in the area of risk. Though some investment funds may be labelled as cautions, or low risk, they can still carry a significant risk of not making money in the stock market, and subsequently high risk funds may not carry as much risk as originally thought. This is due to the changing nature of the world economy, and one of the many reasons why the stock market is watched closely.

It is always a good idea to seek some kind of advice on financial matters, as the issues can be complex and difficult to grasp without guidance. The key here is to ensure you choose a financial advisor or investment company which is not just interested in your cash but wants to provide a good service. Some decisions should be made by the investor, and the investor alone as there is no need for outside interference. When choosing a good fund manager, ensure you choose one which basis their fee on the quality of service rather than making unnecessary decisions on your behalf.

Investment funds represent a good way to learn about investing and they are a good investment vehicle in their own right, especially as they are effectively a ready made financial portfolio. They are used by both the seasoned investor and the beginner, and offer value to both.

Investment funds often represent investors investments on a large scale.

Richard Teahon writes for Fundsnet.co.uk, which was founded by Chairman Simon Dixon, with a view to reduce the cost of financial investing. It offers a variety of financial products, including but not limited to stocks and shares ISAs, consultancy and advice, trust and pension investments, emerging markets, commodities, and unit trusts and OEICs. The product range was created to suit every type of investor.

The Solar Panel Process

Long before a solar panel (called a module in the industry), can be installed on a business or household rooftop, there are some steps that must take place. It all starts with plain ol’ sand, from which silicon is extracted via various chemical processes. The refined and nearly pure silicon, called polysilicon or poly, is then heated and cast into cubes, called ingots. Cube-shaped ingots are then sawed into square wafers. Then the magic happens. The polysilicon wafers are then placed on a substrate, usually glass, to make a solar cell. A number of cells are then arranged together and set in place to form a panel. The final package is called a module. That’s how a solar panel is made in a nutshell. But hidden in those few steps are hundreds of companies, thousands of patents, and more than a few investment vehicles that can make those “in the know” a lot of money.

For nearly a decade, the industry surged ahead with a compounded annual growth rate over 40%, and investors made a lot of money on the companies making it happen.

The solar market is still set to triple in size in the next five years. By 2015, installed solar capacity will grow another 347% to over 72 gigawatts as utilities worldwide are incentivized and forced to adopt sustainable production assets, and as solar energy reaches price parity in a growing number of markets. In order for those forecasts to hold true, improved policy is going to have to do battle with current economic conditions. The Current State of the Solar Market is currently facing rapidly falling prices, both for its raw material and its finished product. A seasonal dip in demand and the related oversupply of panels coupled with the general economic slowdown and restricted lending has led to an up to ~30% decrease in selling prices for solar modules. Of course, the operating costs of solar companies have not fallen as quickly, forcing companies to reduce profit margins as they sell discounted panels. In fact, in the recent price scramble, Chinese manufacturers have opened an advantage over historically dominant European companies. Established Chinese producers are currently offering contracted prices of about €2.00 per watt, while European suppliers are struggling to break below €2.50 per watt.

As such, Chinese solar companies are poised to gain some European market share. You should see that reflected in their share prices over the next few quarters. Even with the economy in the pits, the German solar market–the largest in the world–is still set for steady growth, thanks to renewed lending by German state bank KfW and national political commitment. Funding for rooftop and small ground installations is also flowing again from large European investment banks and local savings banks. Other countries in the European Union will take longer than Germany to heat their solar markets back up. Any astute investor should thus ensure that they have exposure to the German market, which is predicted to be one of the earliest to recover from the current economic downturn. Only the most highly efficient panels with the best prices and best warranties will be purchased. Smaller Chinese companies are probably the most at risk. Balance sheets for all solar companies will be off for the next few quarters as reduced demand from the recession and cyclical seasonal patterns works its way off balance sheets.

In addition to Germany, the U.S. considered the sleeping giant of the solar industry is also doing much to ensure a robust solar rebound. Here’s a snapshot of what the U.S. recent stimulus did for the solar industry: Investors are now able to take a 30% federal refund on the value of a new installation before deducting any state incentives. So a theoretical $100.00 dollar solar system in North Carolina (35% state credit) now only costs the investor $35.00-because both federal and state incentives are now calculated from the full price. Best part is, those federal incentives have no cap and the project need only be finished by 2017 to qualify. This incentive alone will rapidly increase solar demand as homeowners and investors a like rush to get discounts on solar installations on the taxpayers’ dime. But there are many more solar provisions in the stimulus that will only magnify the gains that can be taken on the right solar stocks. There’s also $6 billion dedicated to paying the fees on guaranteed loans. This clause is aimed at encouraging banks to make loans for renewable projects. Most estimates say that $6 billion in guarantees will translate into $60 in new loans.

What constitutes a lucrative investment strategy really depends on you as an individual investor – what can be considered lucrative to some is low yield to others, but there are certain common elements.

Appetite for risk
It goes without saying that the higher the potential profit or yield, the higher the risk there will be in a given investment. No investment is completely risk free, although some investments, like homes, bonds, and precious metals can certainly appear to be. We’ve all witnessed what a recession can do to even the most steadfast investments, so bear this in mind when considering in something previously regarded as bulletproof.

Elements of a lucrative investment strategy
A lucrative investment strategy consists of several common denominators. Firstly, the strategy will be risk balanced, meaning that there is an appropriate balance between the level of risk in the investment. Too low a risk, and the investment will yield too little. To high a risk, and the investment will be tantamount to gambling. The strategy will also take into account yield, meaning that an investment strategy will be selected that clearly meets the investor’s goals for profit. Goals need to be reasonable, achievable, and realistic, and devoid of any greediness or fantasy. Lastly, a timeline needs to be developed. Some investments will be necessarily short term – like getting in and out of a rising stock – or long term, like purchasing a piece of property.

Pitfalls in the strategy
What was formerly a lucrative investment strategy could turn into a nightmare if you don’t watch for some common errors. Trying to make too much money too quickly is one of the easiest traps to fall into, and it’s a vicious cycle as well. Many investors have seen initial successes only to raise their risk threshold to the point where they take greater and greater risks with the promises of making more money, ultimately leading to total failure. At the high end of risk, there is very little difference between an investment and a slot machine.

Your lucrative investment strategy needs to start with a plan of clearly defined goals, only after your house is in order and you have plenty of savings on tap. Your investment plan is the most important document you create, because it will be a roadmap for you to follow, and keep your greed in check. Once you’ve met your investment goals on a particular investment, your plan will remind you to exit that investment. Remember, a lucrative strategy must be relatively safe and relatively long term to truly be called lucrative. Many things are lucrative for short periods of time every once in a while – not many things are lucrative reliably and for long periods of time.

Diversity is the final key to a lucrative investment strategy. It’s unwise to keep all your investments in the same form, and some diversification is necessary for profit as well as for safety. Your portfolio should be a good mix of investment vehicles to protect you against any market fluctuations, and keep your holdings strong and secure.

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As The Bank Of England base rate rests at its unprecedented low of 0.5%, savers may be wondering which savings and investments will provide the most lucrative return, or if investing in new products is even worth it at all. With a gloomy financial forecast, our savings and investments are now more important than ever and it pays to be clued up about the best saving products on the market.

THE BOND BASIC

Just as the public will find themselves in a position of needing to loan money at some point or another in their life (mortgages for example), companies and the government also occasionally need a financial lending hand. The substantial amount of money that such large infrastructures require is best accumulated through issuing bonds to the public market. A bond then, is a loan in which a member of the public becomes the lender to the borrower, or issuer of the bond, such as a bank. The number of investors, sometimes thousands, each provide a portion of the capital needed by the issuer. In exchange for the bond the investor is rewarded with interest payments.

THE FIXED RATE BOND

If you have a financial lump sum to invest then a fixed rate bond could be the perfect investment vehicle. As the title implies, a ‘fixed-rate’ will pay a guaranteed amount of interest for a set length of time. You will have the security of knowing in advance what your savings will earn.

FIXED RATE BOND FACTS

- Gives exactly what it says on the tin; the advantage or guarantying a set or ‘fixed’ amount of interest. This gives a sense of security that if the Bank of England base rate drops, and therefore your issuers interest rates also, then you will remain on a higher interest rate. In this case your investment will be working hard for your money.

- The interest rates offered in bonds are usually higher than instant access savings accounts.

- Fixed rate bonds are especially good for savers that are easily tempted as you will not be able to touch your money until the fixed term is completed.

- There is usually a a minimum deposit ranging from £1 to anything even over £50,000.

- There is also a set length of time in which you will be contracted into your bond usually ranging from 6 months to 5 years.

- Depending on which bond and provider you are with, you probably will have no access your savings during the fixed term. It is important to invest money you can only afford to lock away.

- Early closure, withdrawals or deposits may not be allowed or result in an additional charge.

- Having a set rate means that you know exactly how much you will receive by the end of your return so you can plan and organise your finances.

- A fixed rate bond could be used as an income or income growth in retirement. Its set rate means you know exactly how much you will receive so you can plan and organise your finances.

- It is low risk investment as you are guaranteed a fixed, steady interest rate, even if interest rates drop. Alternatively, the national rate of inflation could increases higher than the interest you will earning in a bond.

Interest rates are constantly fluctuating and there are always new fixed rate bonds being released onto the market. As with any kind of investment or saving, comparing the market for the best fixed rate bonds will reward you in the long term.

Searching for the best fixed bond rates can be a headache. A bond comparison website is one way to search for the best fixed rate bonds and may help you to secure a competitive interest rate for your savings.

As an online entrepreneur, one thing you learn is that the competition out there is stiff and massive so when you make the first dollar, you deserve one big thumbs up. Now that you’ve minted some money online, my next question is, what are you going to do with it? Buy some online merchandise, pay your bills, save it in your bank account, donate it to a good cause, invest it or plain burn it. Whichever you choose, its still the right choice after all its your money. However, indulge me a little bit and let me show you a different way. I suggest you invest it, why? Because if you invest it, you can still do all the above with your money and some, if not more, of it will still be around to spend when you retire.

First things first, we need to ask and answer each of the following questions:

What is investing?
Who is an investor?
What is an investment?
What do I need to be an investor?
Am I an investor right now?
What should I expect when I invest?

- What is an investment? This is the act of putting money into something, in this case an asset, with the expectation that I will gain something in return.

- Who is an investor? Anyone who takes the risk to investment their money in assets with the sole objective that in the future it will pay back more than what they bought it for. To be an investor you need the financial resources and knowledge on how, where and when to invest.

- What is an asset? An asset is anything that is considered to have economic value. In other words you can exchange it for cash. Simple examples include your car, house, computer, website e.t.c. Cash is also an asset.

- What is a liability? In the context of business a liability is any obligation owed to someone else. Simple example include a loan, unpaid bills etc.

- What is capital? These are the resources required in a business to generate revenue or wealth. Simple examples include money, tools and equipment, premises etc

- What is a share? A share is a single unit of capital. Assuming you have company whose capital is worth $1,000 which in this case is 100% of the capital. A share in that company is worth $1,000/100 = $10.

- Who is a share holder? An individual or legal entity that owns shares in a company. If you own 50% of the company, your shareholding is (50/100 x 1000) x $10 = $500.

- What is a dividend? This is the portion of a company’s profits that is paid to the shareholders. Assuming Company A made $100,000 in profits and its is decided that each share holder will receive $1 per share then if you own 50% of the company you will get $50.

- What is interest? This is the compensation paid for using someone else’ assets or financial resources. Interest rate is usually calculated in percentage.

The one rule of investing you need to know is that there is always a risk involved, you could make or lose money when investing. However, an investor’s job is to mitigate the risk involved and ensure that the chances of making a loss are reduced and those of making money increased.

What are the major investment vehicles available to the layman or beginner investor?

- Stocks or Shares – This is where you buy a part of an existing company, private of public. The return in this class of investment is dividends and capital growth when the stock price goes up or there is a share split or a bonus. These can be purchased at the stock exchange either on the day to day market trading but the best time to enter this market as beginner is when a public company is offering an IPO (Initial Public Offer).

- Collective Investment Funds – In funds, many individual investors pool their money together into a pool fund which the fund manager uses to invest in one or many types of investments like stocks and real estate local and/or off shore on their behalf and also manages the investment portfolio on a day to day basis. The gains made from this portfolio is then divided among the members of the fund depending on how much each has invested into the fund. The biggest benefit in this group is that one gets to invest and benefit from assets, e.g. blue chip counters, that you would not afford if you went into it as an individual.

- Business – Business is the activity of making money or any activity carried out with the main goal being to make a profit. It could be the sale of tangible goods or provision of services. In this case you invest your money in the company that sells the goods and services and in return you get dividends as a shareholder. This is always a good place to start your journey to becoming an investor. There is enough money from the business to start building up an investment portfolio slowly and if you make a mistake and lose money you have a fall back.

- Foreign Exchange or Forex – How would you like to buy currency when is cheap and sell it again when its more expensive. for example if the USD is worth 0.9CAD today, you can buy some and a sell it after a few days or weeks when its worth say 1.1CAD thereby making 0.2CAD per dollar. Suppose you’d invested like a 1,000CAD you’d have made like 100CAD all in one transaction.

Remember, an asset brings income which means the house you live in is not an asset, though your banker might tell you otherwise. However, if you buy a house and rent it out, it becomes an asset. The opposite of asset is liability, so as an investor you should always work towards increasing assets and reducing liabilities. That way your gains increase every day else you’ll be losing money if liabilities are going up and assets down.

Are you an Investor, a Business Owner, an Employee or Self Employed? The investor earns income from his investments, business owner from his businesses, employee a salary working for the business owner, self employed from specialized skills or services to the business owner and investor.

These four individuals ways by which income is earned are part of the Cashflow Quadrant as explained by author/investor Robert Kiyosaki of Rich Dad Poor Dad fame. The Cashflow Quadrant and many more investor self help material available at the Tuwaze Duka. (Duka means ‘a shop’ in Swahili)

I suggest you start by setting some goals at the beginning of the investment journey and then maintain a diary on the investment transactions and decisions you make every day. After several months you can compare and analyze them against the achievements you will have made after several months.

More Free articles available Tuwaze Library.

The recent rise of gold prices and volatility within the economy has begun to challenge the notion of wealth, productivity, and output that many people hold in their minds. The typical situation for most people, is that they think of wealth as being measured in money. For people like Ben Bernanke, money means currency. For people like Bill Bonner, money means gold. However, in both cases, wealth is something much deeper.

Wealth as Money

It is not surprising that most people view wealth and money as being the same thing. After all, your 401k is measured in money, your house is measured in money, and you salary is paid in the form of money. The thing that is important for people to consider is that money doesn’t represent wealth itself… it represents a medium of exchange for wealth. By producing something that is worth one dollar and receiving that dollar, it allows you to purchase something else that is worth one dollar without the necessity of bartering and trading.

The benefit of money to the functioning of a smooth economy cannot be over-stated. However, it is important to understand that the money itself is not your goal. Money is a medium of exchange that makes it easier to purchase the things you want when you want them. However, without a population of people who recognize the value of money for trade and exchange, it is just paper.

Another insidious problem with money is that it can have its value debased by government action. Since the government controls the amount of currency in circulation, it has the ability to influence the price of items through its monetary policies. If the government prints a lot of money in order to finance its spending, it will de-value the money already in circulation. In this scenario, money serves as a superior way to transfer value, but a very poor way to store value.

Wealth as Stuff

Another popular view of wealth is to think of it in terms of things. This is where most gold and silver investors place their sentiment. The fundamental belief is that commodities hold a constant real value while government currencies frequently become de-valued. The general thesis of this belief is quite accurate. Gold and silver are constant value commodities that cannot have their value directly eroded by the Federal Reserve.

However, there is another factor of gold and silver that must come into consideration. Their value is exclusively a product of what other people think they are worth. For most people, gold and silver do not have a very high use value. You can’t eat them, and they don’t directly improve your life in many manners outside of jewelry. They are a store of value that depends on other people wanting to use them as a store of value. Your house represents a store of value that gets pushed up in value when other people wish to live in your area. However, its value is also subject to the willingness to pay of buyers, and can fluctuate very wildly. In this way, a commodity-based view of wealth has some of the same deficiencies as a currency-based view of wealth.

Another view of wealth in regards to stuff is thinking about wealth in terms of consumable commodities. By and large, consumable commodities have a much higher use value than gold or silver, since they can be eaten or used to make clothing, or any number of things. However, the principal deficiency of consumable commodities is that they tend to be perishable. Oddly, the strength of gold and silver is the deficiency of consumable commodities and vice-versa.

Wealth as Economic Resources

Finally we come to a view of wealth in terms of economic resources. Another way of stating this is to say that wealth represents the ability to produce things of value. In the ancient days, wealth came from livestock that would produce milk, eggs, and offspring that were valuable as a source of food or for breeding more livestock. In the contemporary world, a ’share’ of ownership in a company produces dividends that result from the value that is captured through profitable operations. As individuals, our greatest source of wealth is our ‘human capital’… or our ability to deliver valuable services in exchange for compensation.

In most cases, this great source of wealth is not directly valued since it is intrinsic. It does not sit on a balance sheet, and is not tallied in a statement. An investment such a rental property that produces value for the tenants whom pay rent in exchange for the right to occupy the property is a real source of wealth. However, the creative mind that purchases the property and organizes a system for using it to create revenues that exceed the cost of operating plus the cost of capital represents a much greater and much more powerful source of wealth.

In the end, real wealth always is and always has been produced by people who are able to generate products and services that are valued by others. When the value of these services exceeds the cost of delivering them, it results in a profit. For most people, their greatest source of wealth (their human capital) is slowly used to acquire secondary sources of wealth that are not limited by the extent of their personal efforts.

The individual ability that each of us possess may be much greater than any of our investments that we own, but those investments have a very important characteristic. That characteristic is the ability to create passive income… income that does not require constant effort. In this way, wealth becomes a much more complex subject since it is inclusive of both our efforts to produce value and the passive effort of investment vehicles that we own to produce value.

Ultimately, all forms of real wealth must produce value. As we are starting out in life, most of that value will come from our personal efforts. Over time, our personal efforts allow us to invest in vehicles that produce passive value. As more time passes, those investments will generate returns that allow us to purchase more investments in a process known as compounding. This cycle of wealth all starts with a decision to focus on creating value through both our efforts and our investments.

Sincere Thanks, Douglas J Utberg, MBA

“Business, Life, and Everything In-Between”

Many people who are seeing low return on their savings accounts often look to other ways they can increase the returns on their hard earned cash. And why not, money does not grow on trees or anywhere else, and it is only natural that those hours of toil put in at the workplace should translate as a nice profitable return.

Subsequently, many people have looked at the stock market and its various investment vehicles as a way of making the money do the work. One method which is often favoured by all types of investors is investing via an investment fund.

Unless you have an exceptional insight into the stock market, investment funds offer a way of investing into the market without having to pick out individual stocks and shares, which unless you have a good insight into the markets and are a highly experienced player in the game, it is probably a good idea to avoid at least in the first instance.

Investing into an investment fund involves paying into a fund which is already invested into several areas of the market. There are different types of funds which are designed for different types of investor.

A key decision to be made which will affect your investments is how much risk you are willing to take with your money. You are probably familiar with the term risk vs. return and basically the higher risk the potential for a higher, more profitable return. The lower the risk and the return is less but in some instances may offer stable growth.

However, this is a very general description of risk vs. return, as it is possible that a more cautions fund will be prone to high risk factors and vice versa.

If you are an experienced investor you may already know which funds you are going to invest into for the coming year. You will know that a fund can do well one year but no so well the next. Nonetheless, like the beginning investor, you will probably do well to at least obtain guidance on investment funds from a good fund manager.

The key to a good fund manager is to choose one which is happy to only step in when they have to. Many financial companies and advisors step in at every opportunity which is paid for by the investor, and in many instances this is the only reason they do.

Whether you are a beginner, or a seasoned investor, try and find a fund manager or fund management company that is happy for you to have as much control as possible over your fund.

Investment funds offer a good vehicle for investing for the beginner, as well as offering good returns as an investor’s investment.

Richard Teahon writes for http://www.Fundsnet.co.uk which was founded by Chairman Simon Dixon with a view to reduce the cost of financial investing. It offers a variety of financial products, including but not limited to stocks and shares ISAs, consultancy and advice, trust and pension investments, emerging markets, commodities, and unit trusts and OEICs. The product range was created to suit every type of investor.