Investment Articles

As recently as 2006 it was commonly heard that real estate was the safest investment you could make. But even in 2006, there were some people, known as “insiders” who were actively investing in movies. They knew about the profits others were making with real estate, yet they kept investing in movies. Logic says there had to be some reason for them to keep doing this. This article will explain why some intelligent and knowledgeable people are enamored with investing in movies.

It is as easy to make a movie and market it, as it is to make an apartment building and market it. It just involves two different types of know how. To build a rental unit, different experts are hired for the various aspects of the building, such as carpenters, electricians, plumbers, and so on. An investor does not need to know how to do any of the actual jobs, the investor just needs to know how to coordinate everyone, as well as get the building permit, and apply for zoning changes if needed and so on. The investor can hire a contractor who then hires the various tradespeople, instead of doing it themselves. To make a movie, an investor can hire a contractor, known as a producer, to hire the cast and crew and coordinate everything.

The rental life of an apartment can usually be expected to be about 50 to 60 years. It can be more, and it can be less, with factors such as rot and termites to be considered. During this time, a lot of effort is involved in the management of the property, by way of maintenance and insurance for example.

Movies can have a revenue life of 60 years or more as well. And once made, there is no maintenance. Humphrey Bogart is still making money for someone! You can verify this by checking your TV movie listings, and you will see that many movies made 20 to 30 years ago, are still very popular, and they are shown repeatedly on TV.

For the same investment, a movie can make up to a thousand times as much as a rental property. This is especially true for low budget movies. With a digital camera, a home computer, and unknown actors, a quality movie can now be made for only $200,000 to $300,000. There have been movies made for under $30,000 which have made 100 million dollars. It takes research to find a promising movie project to invest in, the same way it takes research to find the land in the right area on which to build a successful rental unit. There are movie investor “insiders” who are happy to perpetuate the myth that movies are very risky, because they want to keep others away from what they know is a very lucrative industry to invest in. And compared to apartments, movies are a lot more fun!

I am making a low budget movie. On my site, I have an article which conclusively proves that movies beat real estate. The article was not written by me, it was actually written by a real estate expert. You can read the article through the link below. You can then go to other parts of my site and learn all the details, including how it can be made for only $145,000. I am seeking investors with $10,000 up. http://www.samandleah.com/realestate.htm

The site is very complete, with nothing hidden. In my life I have been told that I am too honest, but it’s the only way I want to be.

Fine wine investment market has changed dramatically in the last twenty years and is booming, even more so since Hong Kong removed a duty they had on wine, and demand has risen dramatically.

Investors look to alternatives ways to invest their money in trying times and with Asia’s rapid wealth, which looks only to increase, more and more money will be invested in fine wine. Investing in wine is thriving amongst the Asian markets, especially with the increasing demand from China.

Wine is generally more stable than stock-market linked indices allowing investors to securely own a tangible asset. Wine has always held its value and the reason why Bordeaux is a worthy asset is simply down to the laws of supply and demand. Investors want high returns from wine and fine wines can be a good, low-risk long term investment and less likely to follow the same paths as equity markets. There is no doubt that over the last 25 years wine has been a sound investment. Even in a bad harvest with a low quota, wines still get consumed and demand still remains stable and even grows with prices increasing up to 20% a year. Some wine investments have already outperformed gold and crude oil investments.

Fine wine is the only asset that operates with a perfect supply curve. It is the uniqueness in demand in wines that create a consistent growth curve which is why wine has little in common to other asset classes in terms of volatility. Wine investment is tax free as it does not attract Capital Gains Tax. VAT and Duty may also be avoided if your wine investment is kept in bonds.

Fine wine as an investment should be bought from a reputable source and storing the wine correctly is vital to ensuring its investment potential. There is a huge choice of fine wine investment companies to help people get into the market, and investors need not know anything about vintage wine.

Case prices vary but some top performers can command £5000 for each case and it is not uncommon for prices to be double that. Investors should benefit from a full market cycle between three and five years with maximum returns on an eight to ten year period. It has always been said that wine matures with age and so does the investment. As wines mature and become consumed, they becomes rarer which adds value to investments.

Wine investment is not a new trend, and is no longer the domain of the knowledgeable few as more and more investors are benefiting greatly and joining this exciting and vibrant market.

Written by Vin-X wine investment brokers, http://www.vin-x.co.uk.

Here we list some of the best investment ideas and tackle the challenge of finding the best safe investments for 2012. What might appear to be one of the best investment ideas to the uninformed could turn out to be one of the worst.

Looking at the big picture for investment ideas in 2012, moderation in asset allocation and a balanced investment portfolio will be the most basic key to success. There are 4 asset classes, and average investors need to spread their money across at least the first three to keep their overall portfolio risk moderate. The 4 categories in asset allocation are: safe investments, bonds, stocks and alternative investments like gold and real estate (optional). Asset allocation can be simplified, because there are mutual funds available to average investors that represent each of the 4 asset classes. Now let’s get more specific about the best investment ideas for 2012 starting with safe investments.

Safe investments earn interest and do not fluctuate in price. You will need to look outside of mutual funds in 2012 to find the best safe investments because record low interest rates have taken yields on money market securities (and hence money market funds) down to just about zero. One of the best investment ideas if you have an account with a discount broker or major mutual fund company is to shop for one-year CDs paying higher rates if you can’t get competitive rates from your local bank. Do not tie your money up for longer periods just to earn a little more interest. One of these days interest rates will go back up and you will be locked in at a lower rate and face penalty charges if you cash in early.

Finding the best safe investments will be truly challenging in 2012, but here are some more investment ideas. If you are in a retirement plan like a 401k that has a fixed or stable account option do not overlook it. You can often get a much higher interest rate there (maybe 4% to 5%) than anywhere else outside of your retirement plan. If you own an older retirement annuity or universal life insurance policy, it might have a fixed account you can add money to that is guaranteed to never pay less than 3% or 4%. Remember, truly safe investments like U.S. Treasury bills and bank money market and savings accounts are paying WAY LESS than 1%!

Over the past 30 years bonds and bond funds have become a favorite with investors because they have been consistent performers and returned on average about 10% per year… basically about equal to what stocks have returned, but with considerably less risk. Many investors have fallen in love with their bonds funds and consider them to be among the world’s best safe investments. Bond funds are NOT safe investments. They have performed well since 1981 (when interest rates and inflation were at record highs) for one primary reason. Both inflation and interest rates have been falling for 30 years, which has sent bond prices higher. Loading up on bond funds now is NOT one of the best investment ideas for 2012. In fact, it is one of the worst investment ideas.

When interest rates and/or inflation turn around and head upward bond funds, especially those that hold long-term bond issues, will be losers. That’s how bonds work. One of the very best investment ideas for 2012 is to sell your long-term bond funds if you own any, and switch to funds holding bonds with average maturities of about five years. These are called intermediate-term bond funds; and average investors should have some money invested here as part of their asset allocation strategy to add balance to their investment portfolio. These are not truly safe investments, but they are much safer than long-term funds.

My best investment ideas in the stock department focus on stock funds. Do not go heavily into the more aggressive funds that invest primarily in growth and/or small company stocks. These pay little if anything in dividend income and tend to be more risky and volatile than the average stock fund. Go with funds that invest in high quality large-company stocks with excellent dividend paying histories. Look for funds that are paying 2% or more in dividends. One of the best investment ideas for 2012 and beyond: invest in no-load funds with low yearly expenses. No-load means no sales charges, and low expenses mean higher net returns to the investor.

Alternative investments include the likes of real estate, gold and other precious metals, natural resources, commodities, foreign investments and so on. One of the best investment ideas for managing a truly balanced investment portfolio is to include this fourth asset class as well. The simplest way for the average investor to add these alternatives to their portfolio is with mutual funds that specialize in these areas or sectors. My best investment ideas here: don’t go heavily into any one area, and don’t chase after a sector (like gold) just because it’s hot. Real estate and natural resources funds would be my picks as two of the best investment ideas in the alternative investments asset class.

Moderation and diversification across the asset classes will be the key to asset allocation in 2012. I have also listed some specific best investment ideas for keeping the average investor in the game and out of serious trouble should the investment scene turn ugly. Above all else memorize this: long-term bond funds are not among the best safe investments for 2012. They are not safe investments, period.

Author James Leitz teaches investment basics, stocks, bonds, mutual funds and how to invest in his investing guide for beginners called INVEST INFORMED. Put Jim’s 40 years of investing experience to work for you and get up to speed at http://www.investinformed.com. Learn how to invest.

Have you ever thought of your future? Have you ever thought about ways on how to grow your savings? Have you ever put these two together: savings for your future?

Instead of spending your money on the latest gadget, shoes, or designer purses, why not familiarize yourself with safe investments that would generate profit in the long run? What if something bad happens to you, will you be able to pay for the bills incurred? Do not feel overconfident and satisfied with what you have in the present.

Investing your money somewhere else than a bank is a good option but is also a risky one. In any case, you must act and prepare now. Life is so short to be procrastinating and hanging around without a plan for the future.

One common way of investing money is stocks trading. The stocks market consists of complicated snakes and ladders, though. One wrong move will bring you down to the pit. So you must have a strong ground on the different concepts, trends and rules of stocks and dividends.

Every investor should aim for a high-performing portfolio. Learn how to build an investment portfolio to safeguard your money from potential losses. Your portfolio should be organized according to your risk tolerance and investment goals. Start early and invest on small amounts at first while you familiarize yourself and develop a goal and a strategy.

Investing your money on precious metals is also quite promising. Gold trading usually generates high profits for investors. Gold is considered more as a currency than a commodity. It is used as a hedge against currency devaluation. Silver, platinum, and bullion coins are good investments as well. Platinum is actually the most expensive precious metal. It is considered as the most valuable trading commodity. But unlike gold, platinum’s value decreases in times of economic crisis. When the economy is stable, platinum’s value is double the price of gold.

Moving your money around and learning how to make more money out of your existing reserves is more practical than having it sit in your bank account and gain little interest over time.

Developing sound saving habits at an early age is a good thing. Learning to invest your money on something that is deemed to be profitable will benefit you in due course.

Start saving and investing your money now so that it will grow into a healthy savings that would enable you to fund your future needs. Do not just settle for what you have now. Continue to learn new things. The world has a lot in stored for all of us. Every achievement takes patience and commitment.

Read more helpful business and Internet marketing advice from Louie Sioco’s blog.

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

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

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

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

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

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

Benefits and Disadvantages of Investing in the TSP Funds

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

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

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

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

Contemporary art is, with very few exceptions, much cheaper than the work of past masters. This is true of generally all works of art, and especially of paintings and sculptures. Hence art investments are considered by some lucrative, since you don’t need that much money to start them. Yet as it often happens with investments, things are not as simple of that – there are some points to consider before you decide to invest in contemporary art.

Investing In Contemporary Art Is Not Necessarily Cheap

Good art, the one that has the potential to significantly increase in value in time, is never cheap. Contemporary art is no exception. Truth be told, only a limited number of current works of art are expected to become highly valuable in the decades to come. These are the best to invest in, yet of course they are for the most part already highly valuable, not to mention close to impossible to acquire, having already privileged possessors. The remaining art pieces, the affordable ones, don’t have a place in art history guaranteed, and investing in them will always be a bit of a gamble. Hence safe art investments are not at all cheap.

Invest In Contemporary Art If You’re Uncertain About the Economy

It’s generally agreed that investments in art are good for keeping your money safe during periods when there are great fluctuations in the economy. Good art is timeless, and its value almost never depreciates suddenly. Good art is no exception, yet note that safe investments are only those made in enduring pieces that are sure to be talked about in a few decades. Knowing how to spot these rare pieces is an art in itself.

Investing In Contemporary Art Will Not Make You Rich Overnight

It takes an art savvy with a lot of money to spend and extremely favorable market conditions to make a lot of money from an art investment. Most investments bring moderate gains, and this over a number of years. So, if you want to invest in contemporary art you don’t only need a nice budget, but also a lot of patience. If you’re not sure to possess the latter, then art investments may not be for you.

In conclusion, contemporary art investment are worth it, especially if they are used as a means to safe guard already acquired wealth, rather than for making a lot of money quickly.

If you are looking for best investment opportunities such as investing in art, wine, shares, gold, silver, property, etc. experts at Compare the Financial Markets will help provide valuable assistance.

The best investment strategy for 2012 and beyond will differ from the popular investment strategy offered by most investment advisers and financial planners today. The investment landscape has changed. Here’s a strategy for making the best of it.

Up until recent times you could stay out of serious trouble by simply allocating about half of your investment assets to stocks and the other half to bonds. That’s the traditional investment strategy often recommended for average investors, and most people deal with it by putting their money in stock funds and bond funds. Stock funds are the growth half of the equation and the risky part of the strategy. Bond funds are considered the relatively safe investment designed to pay higher interest income. Over the years losses in one fund type were usually offset by good returns in the other.

Welcome to the year 2012, where bonds and bond funds will likely not be such a safe investment. Stock funds are never safe and 2012 will be no exception to the rule. Asset allocation will be only half of the story going forward. Selecting the right funds within each category will be the other key to success. Let’s look at your best investment strategy in both fund categories, and the reason why certain funds will be your best choices.

Two things stand out about the so-called recovery the USA has supposedly experienced over the past few years. First, the economy did not recover as it has in the past after a recession – 9% of the working force is out of work. This makes for a weak economy and puts pressure on the stock market and stock funds. That’s why you’ll need to be careful about which stock funds you include in your investment portfolio.

Second, interest rates have been driven down to historically low levels to stimulate the economy in general and the pathetic housing market. Even with a 4% mortgage rate average folks can not qualify for a mortgage or afford to buy a house. Today’s ridiculously low interest rates mean savers can not earn a respectable interest income in truly safe investments. It also means that bond funds could be a trap in 2012 for people who don’t really understand bonds and bond funds. Let’s look at the best bond fund strategy first.

Even the best bond funds of the past few years could be big losers in 2012… if they hold long term bonds in their investment portfolios. When interest rates turn around and go back up the bonds they hold will lose significant value because new bonds will become available that pay more attractive (higher) interest income. Your best investment strategy for bond funds is to own funds that hold corporate bonds that mature in about 5 years to 7 years. CORPORATE BOND FUNDS pay more interest income than similar funds that invest primarily in government bonds. Funds that hold bonds maturing in 5 to 7 years (intermediate term bond funds) will be much less affected by rising interest rates than long term funds holding bonds that mature in 20 years or more. That’s a fact, and that’s how bonds work.

Your best investment strategy for stock funds will be to go with GROWTH AND INCOME funds that invest in high quality companies with a history of paying 2% or more per year in dividend income. If the stock market gets truly ugly in 2012 and beyond these funds will be your best bet to sidestep huge losses. In a bad stock market funds that pay little or nothing in dividends are usually the big losers.

Sometimes it pays to be aggressive and take on more risk. The year 2012 looks like a time to get more conservative and live to be a risk taker another day. Most investors need to hold stock funds and bond funds as well as truly safe investments like bank CDs. Your best investment strategy for 2012: allocate your investment assets with 40% going to INTERMEDIATE TERM CORPORATE BOND FUNDS and the same going to high quality GROWTH AND INCOME STOCK FUNDS paying 2% or more in dividend income. The other 20% of your investment portfolio goes to safe investments like bank CDs.

Author James Leitz teaches investment basics, stocks, bonds, mutual funds and how to invest in his investing guide for beginners called INVEST INFORMED. Put Jim’s 40 years of investing experience to work for you and get up to speed at http://www.investinformed.com. Learn how to invest.

During the economic crisis of the past decade, markets and industries crashed and hundreds of companies and millions of people were caught with their pants down. This ordeal has taught everyone the value of security during uncertain times. One of the surest ways to buffer yourself from economic crunches is by making sound investments. While there are traditional investment strategies available to first-time investors, alternative investments are rapidly gaining momentum, and for good reason.

Alternative Investments: The Basics

Alternative investments refer to investment strategies that go beyond traditional investments like stocks, bonds, cash, or property. Popular financial assets in the alternative investment category are:

1. Hedge Funds

2. Private Equities

3. Financial Derivatives

4. Venture Capital

5.Commodities

They also include several tangible assets including, but not limited to, the following:

1. Wine

2.Antiques

3. Stamps

4. Art

5. Coins

Characteristics of Alternative Investments

Unlike traditional investment strategies, alternative investments are not direct fixed-income or equity claim on the assets of an issuing body. They are complex in nature, so most of these assets are held by accredited, high net-worth individuals. They also tend to lack liquidity and have a low correlation to traditional financial investments such as shares of stock in a company. This low correlation adds to its appeal, especially with investors who are looking to diversify their investment portfolio (the low correlation coefficient will be discussed in depth in a later section).

Also, compared with more common investments like mutual funds, alternative investments have higher minimum investment requirements and fee structures. The cost of purchase and sale is relatively high. In addition, they are subject to less regulation. While this may be good on one hand, it also has the effect of limiting opportunities to publish verifiable performance data. Hence, historical data on risk and returns may be limited. This data could be useful in promoting an alternative investment to potential investors.

Because current market values of some forms of assets are difficult to determine at the least, it is imperative for investors looking to invest in alternative investments to conduct proper due diligence. This especially applies to tangible assets like artworks and wine.

Some investors consider alternative investments as a good means to diversify their portfolio, thereby reducing overall investment risk. However, this is not the only reason why more and more investors are now looking into expanding their financial prospects via alternative channels.

The Appeal of Alternative Investments: Low Correlation, Absolute Return

Although there are a number of alternative assets presently being offered in the marketplace, a common characteristic among these numerous options is their low correlation coefficients with both fixed income and equities. Low correlation is considered important when choosing assets for inclusion in a portfolio, primarily because assets that are relatively uncorrelated with both bonds and stocks tend to have minimal exposure to systematic market risk factors. Absolute Return Strategies – strategies that seek a low correlation to systematic risks in the market, make it their objective to attain relative independence from the underlying equity or fixed-income market benchmarks’ overall performance.

Absolute return does not come without its challenges, however. There are potential constraints on the upside. To illustrate, when broader stock markets are picking up, investors with low-correlation alternatives may see their portfolios performing weaker in relation to those with traditional assets. This somehow implies that absolute returns can be maximized in negative market climates and tend to underperform during positive economic climates.

The Economic Atmosphere for Alternative Investments

It would not be an understatement to say that alternative investments were, for the longest time, reserved mostly to high net-worth investors. The broader retail market finds the field of alternative investments difficult to penetrate because of reasons mentioned earlier in this article:

- High minimum investment sizes;

- High minimum fee structures; and

- Assets with no liquidity.

Recent years show a change – an evolution – in the economic atmosphere, where alternative investments are concerned. Progress in global financial markets has developed and provided greater opportunities and a wider range of products through which more investors can enrich their portfolios with alternative assets. Directional alternative assets like commodities, real estate and foreign currencies, as well as hedge strategies like buy-write become accessible to more investors through exchange-traded funds (ETFs), exchange-traded notes (ETNs), and mutual funds.

These options were not available until recently. With increasing entry points into alternative investments, investors now find themselves able to participate in innovative investment approaches that promise increased profits. If alternative investments appeal to you, now would be the best time to start investing in alternative assets.

PublicMining.org is a free resource about the mining industry for the discriminating mining investor.

It’s difficult to decide where to put your money these days.

I mean, really – what are our primary “safe” investment choices today?:

Bank account? Sure, however the paltry interest you’d receive would be completely outpaced by inflation. You would actually lose money keeping it in a checking (or savings) account.

Certificate of Deposit (CD)? Basically a glorified bank account. You’d get more interest than a normal checking/savings account, but not by much. The biggest downside is that you lose liquidity, since you have to “lock up” your money for a specified period of time.

Money market account (MMA)? Better than a CD in terms of liquidity, but pays less interest. You may get penalized if you write more than a certain number of checks. It’s a medium between a checking/savings account and a CD.

401k? This is perhaps the most UNsafe option of them all. Expense ratios are rising (the costs of using mutual funds, which typically make up a 401k), and the markets have dropped and or have been otherwise very volatile over the last few years. It will be a very long time until they stabilize again.

US Treasuries? Once considered the safest investment, the United States is increasingly becoming in danger of default on their debt. This fact led to the downgrading of the country’s credit rating. Would you feel safe putting your money somewhere that you might not see again, never mind earn interest?

Real Estate? Now we’re getting warmer. The only problem with traditional real estate is that it’s expensive! Having a 20% down is a must these days, and for most people, they simply don’t have that kind of cash.

So where is a savvy investor supposed to put money where he or she can profit, no matter if the investment succeeds or if the investment falls through?

Enter tax lien certificates. Tax lien certificates offer high returns with very little risk, which is precisely why less-savvy investors have misguidedly called them a tax lien certificates scam.

When back property taxes are owed, the county issues a lien on the property. Wanting to get their taxes, the county holds auctions for these liens which investors can buy (for the price of the owed back taxes).

Typically, the returns are between 16-18% which is set by the county to encourage delinquent owners to pay their taxes, and also interest investors in buying them.

Plus, because the lien is backed by a real asset (the property itself), if the delinquent owner completely defaults on the back taxes owed, the lien holder get the property free and clear.

There is a lot more great information about tax lien certificates available at http:/www.taxliencertificatesscam.com, along with resources to help you get safely started investing in tax liens.

U.S. Treasuries are considered one of the safest investments in the world. Why? Just take a look at the yield on the 10 year bond; despite the deadlock in Washington and the media induced fear that the U.S. may default on its debts, the world still believes that the U.S. will not renege on its debt. As a matter of fact, while the stock market declined recently because of inaction in Washington, the yield on the 10-year bond actually dipped below 3 percent (when investors buy Treasuries, the yield goes down). Because U.S. Treasuries are perceived to be risk-free, they are used as a bellwether for other bonds as well. Corporate and municipal bonds are compared to U.S. Treasuries to assess their risk; when the interest rate between a non-Treasury bond and a Treasury bond is wide (also known as spread), the Treasury bond is considered riskier, and vise versa. But just because the U.S. Treasury is assumed to be default proof, it does not necessarily mean that it is risk free. While default risk is important to consider, investors must also recognize that bonds exhibit other risks beyond default risk. Below is a list of the different types of bond risks investors should be aware of.

Default risk – is the risk the borrower (U.S. government, municipality, or a corporation) will not make interest payments as promised. Investors perceive U.S. Treasuries to be default proof because they believe the U.S. will always pay its obligations. Many investors falsely believe that municipalities are also default proof, but in 1994, Orange County, California defaulted on its debts.

Interest rate risk – is the risk that interest rates will change after issuance. For example, assume an investor buys a 10 year bond for $1,000 paying 4 percent annually, which means the investor will receive $40 per year for 10 years. The investor is exposed to interest rate risk because if interest rates increase, the investor will still receive $40, but the price of the bond will decline because no one would want to pay $1,000 for a bond paying 4 percent when the market interest rate is higher than 4 percent; the reverse is true if interest rates decline. The change in the price of the bond given a change in interest rates is measured using a term called duration.

Reinvestment risk – Continuing with the same example from above, as the investor receives $40 in interest payments every year, it is assumed that he/she will reinvest that interest payment at prevailing market rates. If prevailing market interest rates are below 4 percent, the investor is exposed to reinvestment risk because they will reinvest those payments at lower rates.

Liquidity risk – Liquidity is the ability to buy or sell an investment quickly without difficulty. Bonds do not trade the same way as do stocks. Whereas stocks are easily traded throughout the day on an exchange where there are usually thousands, if not millions of shares traded in a single day, bonds (except for U.S. Treasuries) are traded through bond dealers where trades occur much less frequently. This infrequency of trading within the bond market leads to stale prices and liquidity risk.

Spread risk – As mentioned in the opening, U.S. Treasuries are used as a bellwether for other bonds, and a bond’s riskiness is measured by the spread between its yield and that of a comparable Treasury. Hence, spread risk is the risk that the bond’s yield will widen against that of a comparable Treasury; the wider the spread, the greater the risk of the bond.

Downgrade risk – Bonds are rated by major credit rating agencies, despite whether investors still trust the rating agencies given the Mortgage Backed Security debacle. Nevertheless, bond ratings are important for many investors, especially institutional investors such as banks, endowments, pensions, etc. Such institutions have policies that prohibit them from owning low grade bonds, so they rely on the ratings to screen bonds. Downgrade risk is the risk that a bond will be downgraded by one or more of the credit rating agencies and lead to a sell off among those bonds.

I identified six risks of investing in bonds. However, there are additional risks that apply to complex bonds as well. When bonds have more unique features such as calls, puts, zero coupons, etc., the risks multiply. Many investors wrongly assume that if they invest in a bond and hold it to maturity, that they are not taking any risk. But as you can see from the various risks identified above, investors must be aware of the complexities associated with investing in bonds, and learn how to manage those risks.

ACap Asset Management is a Fee-Only financial advisory firm providing comprehensive financial advice specifically tailored for doctors’ needs.

Ara can be reached at aoghoorian@acapam.com, on the web at http://www.acapam.com, or on Facebook by searching ACap Asset Management.