Online Investment Advisors

‘What Are Online Investment Advisors?’

keyboard with green financial advisor button
In the past whenever we wanted financial advice or help with investments, we would visit an financial investment advisor (FIA) or wealth management consultant to discuss our requirements and needs for our financial betterment and retirement planning. A lot of people still do appreciate the value of having a close and personal relationship with their financial advisor, enjoying the trust and bond that is built up over time with them. Having said that, there is fast becoming a move towards online investment services, which does eliminate both the personal relationship you have with your FIA, and reduces a lot of the costs involved.

Online Investment advisors, commonly referred to as ‘robo-advisors’ (although the industry does not like that term) offer investment management away from the boundaries of a traditional FIA’s office environment.

The main difference between the two, a personal advisor and a ‘robo-advisor’ is, of course, the human element, but additionally whereas a personal advisor will be there to talk you through your financial planning, robo-advisors will take your information, offer you suggested services to meet your form filled goals, and away you go.

Online Investment advisors use the latest algorithm and performance related charts, to advise to the minute, what are the best investments for you. They offer a fast service and cover the same investment platforms as FIA’s, such as ETF’s stocks, mutual funds, bonds, IRA’s etc. You can also, depending on which online advisor you use, you can also receive asset management, investment advice, financial planning, portfolio management and analysis. Plus there are a number of online services that will manage your investments too.

‘Are Online Investment Advisors Better Than Personal Investment Advisors?’

The simple and short answer is, no they are not. A lot of FIA’s actually use online investment services to help them provide a full and extensive service for their clients.What online investment advisors provide is the option for every person, no matter what their current financial status, to start and manage their own investments at a level and pace that suits them. The commissions charged are a lot less than those charged by personal advisors, so there is a money saving element to them as well.

I personally like to use both online investment advisors and an FIA. Having both helps me to find and manage the best investments the way I like, but for those who are technologically advanced and like to do things themselves, using online investment services is a good choice.

hedge fund image

What is a Hedge Fund?

Hedge Funds – What You Need To Knowhedge fund image

A hedge fund can be considered as a form of partnership between an investor and a fund manager or general partner. The investor contributes money to the fund and the work of the fund manager is to manage the investment to fulfill the fund’s goal. A hedge fund, as the name suggests, is supposed to act as a hedge against market fluctuations. The fund is supposed to generate returns whether or not the market is declining.

One of the main characteristics of a hedge fund is that it is not open to every individual. In essence, only wealthy individuals are allowed to invest. To invest in a hedge fund, you’ll need to meet certain net worth requirements. This is currently set at a net worth of 1 million dollars excluding the investor’s primary residence. Because of this restriction in investment, if you have a large capital amount, but fall short of the requirement for a hedge fund, it may be worth considering investing in a gold IRA instead.

With a hedge fund, an investor is allowed to pull together a wide variety of securities. You can basically invest in anything from land to stocks, derivatives or even currency. However, mutual funds usually have a limit on what you can invest in and this is usually stocks and bonds only.

There are also a lot more fees involved when it comes to a hedge fund. Other than the expense ratio, you will also be charged a performance fee. The amount or type of fee structure will depend on the kind of hedge fund you choose to buy.

The other important thing about hedge funds is that they are controlled by private companies. The hedge fund is allowed to do pretty much whatever they want so long as the investors are notified beforehand. This kind of openness and flexibility may appear to be very risky which sometimes it is. But some people have obtained long-term returns because of investing in hedge funds.

When buying a hedge fund, you will be required to buy an operating agreement. This is basically a legal document that outlines how the fund works. For instance, it may state that in the agreement, you will receive 20% of any profits over 5% every year and that you can invest in anything anywhere in the world. This 5% is known as a hurdle rate because you are required to achieve that percentage before you start earning any performance compensation. Upon filling the form, this investment agreement is sent to the fund administrator which is basically an accounting firm that does all the administration work after which they can begin managing the money.

Why Invest in Hedge Funds

Hedge funds are supposed to give some good returns on investments because for one, you are allowed to use a wide range of strategies and also you pay a lot of fees to actively manage the money. But lately, this hasn’t been the case. A good number of high net worth individuals are claiming that it is difficult to invest in hedge funds. There could be some good reasons to explain this.

For a start, investing in hedge funds can be difficult because they are never advertised. Unless you have an affiliated broker who informs you when such opportunities arise, you will never get a chance to invest. The provision that bans advertising has been argued to be outdated even though it was put in place to protect investors.

The other issue that makes it difficult to invest in hedge funds is that the general partners can basically reject your offer even though you have the money to invest without giving a reason. It’s not like mutual funds where anyone is given an opportunity to invest so long as they have the money.

General partners may also set up certain minimal requirements for investing in hedge funds. You may not be able to meet all these minimum requirements especially the minimum amount of investment that you should make. And since there is always a limit to the total number of individuals who can invest, the general partners are likely to make that figure high. You can find hedge funds that require a minimum investment of $100,000 whereas others require a minimum of $10,000,000. If the minimum amount is too high for you, then you may want to consider a mutual fund, or if you have a minimum amount of $20,000 you may want to invest in gold.

When buying hedge funds, it’s best to remember what they do. The funds can take long and short positions and they often make big directional speculations on the markets. These funds seek to maximize profits in any kind of market and minimize or hedge risk. But hedge funds can be highly leveraged.

You also need to consider the management fees and the amount they require to take up in profits. There are certain factors that will affect hedge funds such as the low-interest rates and low volatility so you may want to consider this when buying. But across the board, hedge funds have had a good share of poor returns. Some investors have withdrawn their funds because of failing to see much value from them. But there are still others who have made a kill. The trick is to understand the kind of risk involved and returns you are likely to receive prior to buying.

How to Buy Hedge Funds

Hedge funds present far more flexibility than mutual funds mainly because they are designed to attract the sophisticated investors. There are a number of things you need to understand when buying a hedge fund.

For a start, you need to know that there are fees which have to be paid to the fund managers. Fund managers can receive one of these two forms of compensation: assets under management (AUM) fee and incentive fee. Thus, the fee structure will appear something like 2 and 20% which means the AUM fee is 2% of assets and the incentive fee is 20% of all profits. There are certain fee caps that may be put in place to prevent fund managers from taking too many risks. There is also a tax bill that you may have to settle. So, in general, hedge funds have hefty fees and taxes which you need to consider.

Secondly, you need to understand how leverage and short selling works. These two are great tools for hedge funds, but they may present a great risk. Hedge funds attempt to reduce risk but mainly maximize the return on investment. That is why fund managers will try to hedge against a low performing market by shorting the market.

Nowadays, there are so many strategies that have been used in hedge funds. Each hedge fund strategy is structured in such a way that it will take advantage of certain market opportunities when they arise. The strategy used will determine the risk attributes and investment opportunities that are available with the hedge fund. Because hedge funds are very diverse, the investors can have a wide range of choices as to what they want to invest in and how.

Hedge funds usually require a large initial minimum investment and they are only limited to a number of accredited investors. It’s also important to understand that the investments are illiquid which means that you will not be able to withdraw your money in the fund for at least one year which is known as the lock-up period. Withdrawals are not allowed whenever you please. They usually happen at certain intervals, which could be quarterly or bi-annually.

Hedge funds can be a suitable form of investment if you want to put away a sizeable amount of money and diversify your portfolio. A well-diversified portfolio will consist of hedge funds and this is one of the best ways to maximize ROI.


The Risks involved in Hedge Funds

Investing in a fund of hedge funds does have some potential risks. Even though it offers a lot of flexibility and diversification, there are certain risks that you need to be aware of. Let’s look at each one of them in the section below.

Unregistered investments

Since hedge funds are generally not subject to the SEC’s registration, it becomes difficult for the investor or even the fund manager to verify the information that has been reported or even analyze the performance of the hedge fund. It becomes easy for an unscrupulous fund manager to engage in fraudulent activities.

Too many investment strategies

Many of the investment strategies involved when investing in a hedge fund are just too risky. Most of the hedge funds present a high risk of capital loss especially when the wrong strategy is in use. It’s easy to wipe out your entire life’s investment. If you consider yourself a conservative investor who cannot afford to lose all you have then perhaps hedge funds are not for you.


Hedge funds are very difficult to transfer or resale. This illiquidity is what makes them a suitable form of investing for wealthy individuals who want to put their money on a long term basis. You may want to sell your hedge fund units and get out of the investment but fail to get a market for it.

Pricing risk

The assets in which the hedge fund invests can also be quite complicated. It may be a challenge to price these securities appropriately which puts the investor at risk.

Settlement risk

If one or more parties involved in the transaction fail to deliver the securities then you risk losing all your investment. This is a kind of risk you cannot afford to take if you are not ready to deal with losing a lot of money.

The other issue is that hedge fund managers are simply trying to time the market and this can be very difficult to do. When an unexpected economic event occurs, you risk losing all your investment even though the fund had shown a positive long-term trend. In case the fund loses money, the managers do not get a percentage of that loss. This means that the fund managers are not exposed to the same level of risk as the investors. In turn hedge funds become very risky to investors who may lose all their money.

There are risks in all types of investments, be they stocks, mutual funds or hedge funds.

The Different Hedge Funds Available

Hedge funds can be broken down into any number of categories depending on the investment strategy that is being used. We are going to look at some common types of hedge funds and when you should consider buying them.

Directional funds

Fund managers of directional funds will take a very high risk in an attempt to obtain a higher than expected return. Directional funds are somehow exposed to the fluctuations in the stock market. Some people claim that they have stock-like returns which simply mean that the funds returns will not be steady all year round but will fluctuate from time to time. Directional funds are known to give very big returns in certain years and plummet terribly in others. But if you are a long term investor then this shouldn’t be a problem especially if there is a positive upward trend.

Non directional or absolute return funds

Regardless of what the market is doing, an absolute return will give you a steady flow of income. This happens because the fund manager has attempted to eliminate all the market risks so that your fund is not dictated by the market performance. Once all the market risk is removed, the performance of a non-directional fund is solely based on the manager’s skill. This is one of the best forms of investment for a conservative investor because it offers a much lower risk than directional funds and can give some returns. Absolute return funds have been likened to investing in bonds because of their relatively steady nature and also low returns.

Equity long-short

A fund manager may choose to purchase long positions in stocks that are expected to appreciate in value and at the same time short-sell equities which are expected to decline. This means that the fund can sell equities that it actually never owned or intended to own. In a scenario where the long positions balance the short then the fund can take a neutral strategy. This fund typically takes both long and short positions in the hopes that they will outperform the general market.

There are other types of hedge funds such as the market-neutral funds and event-driven funds. Event-driven funds as the name suggests, attempt to take advantage of market events such as mergers and natural disasters or political turmoil to obtain higher returns. Macro funds are also another type of mutual funds that take directional bets on the market based on factors such as the fund’s philosophy.

What is a Mutual Fund?

Mutual Funds – What You Need To Knowmutual funds risk

A mutual fund is a form of investment that basically diversifies your investment portfolio. This is because unlike investing in a single item like stocks, with a mutual fund you get to pool several assets and obtain returns from different directions. Mutual funds allow investors to put their money in stocks, bonds and cash without having to make any separate purchases or trades. It’s basically the simplest form of investment to build a diversified portfolio.

When mutual funds were introduced, investors were able to participate in the stock market in a manner that was not possible before. We all know that the largest form of investment nowadays is through stocks. But as an investor, you need to look at several options that can make you money and divide the risk. That’s why mutual funds allow you to consider options such as index funds, sector funds and growth funds. All these different kinds of mutual funds are issued by companies to allow their customers to make informed investment decisions.

The price of each share in a mutual fund is determined by NAV which is the net asset value. This is simply the total value of the assets or securities that the fund owns divided by the total number of fund shares outstanding. NAV fluctuates on a daily basis.

Before buying any mutual funds, it’s important to speak to a financial advisor who will explain to you the best form of investments especially if you are looking for a form of investment for your retirement savings. The investment strategy that is best for you will be dependent on your age, date of retirement and other factors which a financial advisor can walk you through.

But like all the other forms of investment, you need to understand that mutual funds have risks too. There are also costs involved with this kind of investing. Operating costs may vary depending on your mutual fund company. Make sure you know the fees prior to signing any agreement. Go through the shareholder fees to understand how much you are expected to pay.

You also need to note that you don’t have to be in a 401(k) in order to invest in mutual funds. This is a form of investment that is suitable for anyone. Just make sure you confirm that the mutual fund you are about to invest in is a proper fit for your portfolio.

 Why Invest in Mutual Funds What are mutual funds?

There are many good reasons to invest in mutual funds. For most people, it’s one of the best investment decisions they have ever made because this is money that is managed professionally and offers diversification. The simplicity of mutual funds means that investors with little financial management background; time or money can still use this as a suitable investment vehicle. So we will look at some good reasons to invest in mutual funds.

  1. It is professionally managed

A mutual fund allows you to take advantage of an experienced professional who will choose the right forms of investment to ensure the fund grows. Once you put in money in the fund, the manager will decide which stocks to buy and sell in order to make a profit; which means you don’t have to put in all the hard work, time and research involved when making investment decisions.

  1. Liquidity

Getting in and out of a mutual fund is quite easy compared to most forms of investment. You can easily get a suitable buyer for your mutual funds in case you want to sell them but keep in mind that you can only sell them after the NAV is calculated at the end of the day. However, there are certain fees that you will have to pay when selling your mutual funds such as the back-end load fees.

  1. Suitable for small investors

Mutual funds allow you to make smaller transactions without having to incur numerous commission charges. You are also able to make large-scale transactions for less money when it comes to buying mutual funds. The more securities you buy, the cheaper the investment is going to be because you get to reduce the transaction fees. But if you choose to buy only one security then you are likely to pay large transaction fees.

  1. Asset diversification

One important reason why diversification is important when investing is that it helps to reduce the impact one security has on your entire portfolio. Diversification is really the best way to manage risks and this is something that mutual funds offer. You are able to buy stocks from different industries and with varying maturities. But in order to gain adequate diversification, you may need to purchase more than one mutual fund. You want to invest in different industries so that your money is spread over a variety of companies. In case prices fall, your portfolio doesn’t suffer.

How to Buy Mutual Funds

There are thousands of mutual funds in the market. Understanding how to buy a mutual fund is one of the best investment decisions you can ever make. It helps you to choose a mutual fund that will have a positive impact on your portfolio. Factors such as the past performance of the mutual fund are certainly important to consider when making this kind of purchase. But it’s also important to have clearly defined goals and objectives before getting into this form of investment. In this article, we’ll give you 3 important considerations when buying a mutual fund.

1. Understand why you are investing In the mutual fund

Like in any other form of investment, if you don’t know why you are investing then your chances of success will be very slim. Knowing why you are investing will help you to choose the right type of mutual fund for your portfolio. Most people will get into this form of investment in order to save for retirement. This means that factors such as your age, health and wealth must be considered when buying mutual funds. But people invest for different reasons so always make sure you consider your unique situation. If you are investing for retirement purposes, understand that life doesn’t stop after you retire. You could still invest because you may have three or more decades in life.

2.What level of risk can you take?

Despite the popularity of certain types of mutual funds, always understand the level of risk that you are able to take when investing. For instance, if you want to buy mutual funds and you have a spouse whose pension covers your living expenses, you can allocate more money to stocks even though it’s somewhat risky. The other dilemma you are likely to come across is whether to invest in index funds or a more actively managed fund. Remember that index funds track a specific index.

3. Consider fund performance

It’s always important to know how the mutual funds you are interested in buying have performed in the past. However, keep in mind that there are certain seasons where almost all mutual funds experienced a sharp decline. Just look at the fund’s absolute return and compare this with funds offered by different companies. Just because a fund has been performing extremely well for three years in a row doesn’t mean that they will keep up the same level of performance. You need to know the strategy they play to understand what is expected from the fund in the future.

The Risks Involved

Mutual funds also pose some level of risk. The kind of risk involved will depend on what the fund invests in. In many cases, if the chances of obtaining great returns are high then the risk will be higher. We will look at different types of risks of mutual funds and try to explain how you could end up losing money if that risk is not mitigated.

Currency risk: If you invest in a particular currency then there is always the risk of it declining and you end up losing your money. Your investment can easily lose value if the currency in which you chose to invest in has declined.

Credit risk: This is mainly a risk observed when buying fixed income securities. Trouble comes in when the bond issuer is unable to repay the bond. This can happen because they went bankrupt and are unable to meet their financial obligations. You will end up losing your investment.

Liquidity risk: All types of mutual funds are exposed to this type of risk. There may come a time when the fund cannot find a suitable buyer for an investment that is declining in value. No one wants to buy a worthless investment and hence you may end up selling it at a loss because there are no buyers.

Interest rate risk: This is also a type of risk that is more common in fixed income securities. The value of your investment is likely to go down when there is a significant rise in interest rates. This means there’s a risk of losing your money.

Foreign investment risk: When you invest in foreign countries then there is always the risk of losing your money because of issues such as political instability in the country where the investments were issued. You need to assess the level of risk a foreign investment presents and understand the challenges the country is facing and how this is likely to impact on your own mutual fund.

Market risk: This is another form of risk that will be there regardless of the type of mutual fund you choose to invest in. There are certain things that are unavoidable and will affect the entire market. When this happens, the value of your investment will decline.

Before buying a mutual fund, understand the level of risk involved and what the company that is issuing it has done to reduce this risk.

 The Different Types of Mutual Funds Availablesecurities investments

The kind of securities you invest in a mutual fund will depend on your goals. The different types of mutual funds allow investors to choose a program that is designed to suit the level of risk they are willing to make and at the same time fulfill their goals. We’ll look at a number of mutual fund schemes to help you obtain basic information prior to making any decisions.

Open-ended mutual fund programs: This is a mutual fund scheme that allows an investor to buy or sell securities whenever they want. There’s really no fixed maturity date which helps to minimize the risk involved in a mutual fund.

Index schemes: When you invest in an index fund then it means that your security will perform based on the movements of certain index’s. Popular index’s such as Nifty and Sensex act as a benchmark that determines how well your investments perform.

Sector funds: If you would like to invest in a specific sector such as construction, you can buy sector funds. Sector funds simply focus on a particular segment of the economy. This is a program that allows investors to obtain high returns, but they really have to take some high level of risk.

Close-ended mutual funds: When you invest in a scheme that has a specific maturity date then you have bought a close ended fund. Investors can only buy during the initial launch.

Fixed maturity plans: FMPs are a form of close ended mutual funds because there is a defined maturity period. The good thing with fixed maturity plans is that they have lower expenses or fees charged to manage them mainly because there is no active trading of debt instruments in the portfolio.

Inverse funds: These are usually sought after by sophisticated investors who are looking to take high risks in order to generate some good returns. These funds increase in terms of value when the market is not performing well and decrease as the market rises. Unlike traditional mutual funds, they don’t perform well in downward moving markets so investors use them to profit during such seasons.

Bond funds: This involves investing in numerous individual bonds from different sectors. For instance, you can choose a fund that only invests in treasury bonds whereas another invests in corporate bonds. You can choose to invest in short or long term bonds depending on your goals and the amount you would like to invest.

Mutual Funds V Hedge Funds

There are certain similarities that exist between mutual funds and hedge funds. For starters, both of them are managed portfolios. This means that as an investor, you can make some good money with or without any financial knowledge or having to research on what’s going on in the market. There is a manager or a group of manager to do all the work for you. They simply use their expertise to choose the securities that will bring you the most value. Both are also a great way to instantly diversify your portfolio and have your money managed professionally. But here are the differences between mutual funds and hedge funds.

For a start, hedge funds aim at producing positive returns regardless of how the market is doing. This is not the same as mutual funds because in most cases they will not perform well if the market is declining. Mutual funds are usually managed relative to an index benchmark. This means that when an index is performing low then the mutual funds will not give positive returns. On the other hand, hedge funds aim to offer absolute returns.

Secondly, with a hedge fund, the manager is also expected to put in a certain amount of the capital required in order to gain trust from the investor. If this expectation is not fulfilled then this can be interpreted as a bad sign. But when it comes to mutual funds, the manager is not expected to risk his own money in the strategy.

Thirdly, mutual funds are considered more liquid compared to hedge funds. You may be able to withdraw your mutual funds at any time, unlike hedge funds which usually have a lockup provision that only allows you to withdraw the funds at specific periods.

The other major difference between these two popular forms of investing is that mutual funds are offered via a prospectus, unlike hedge funds which are issued through a private placement memorandum. This means that the paperwork involved will be very different when buying any of the two funds.

Lastly, mutual funds do not present as much flexibility as hedge funds. This is because the manager of a mutual fund cannot easily change his strategy. But when it comes to hedge funds, there’s that freedom to change the strategy quickly because there are only a few constraints to deal with. Consider all these differences when choosing a type of fund to invest in.

What are Stocks?


Stocks – What Are They?

stocks chart

To own part of a company, you buy stocks, shares or equity. All these terms represent the same thing: part of a company’s assets or earnings. When you invest in stocks, you become a shareholder. Shareholders are a group of people or organizations that own a company and are entitled to voting rights as stated in the contract of said company.

When you buy stocks or shares, you are issued with a stock certificate which acts as proof of ownership. You can use this document to trade shares. If you use a broker, they will maintain an electronic copy of the stock certificate to simplify trading.

But it’s also important to note that shareholders do not have a say on every activity that goes on in the company. You can have a say in choosing the management but not on daily operations of the business. But larger investors and entrepreneurs who own a huge part of the company have more power to make decisions.

A company issues stocks for several reasons. The main reason is that it helps the company to raise money. They will borrow from several people and then when they use the money, they will share the profits with all shareholders.  Sometimes the company doesn’t want to borrow money from a bank or issue bonds for various reasons and so it decides to seek equity financing because it doesn’t have to pay back the money or make interest payments along the way.</p>

When a company issues the first sale of a stock, it is regarded as an initial public offering, which is also known as an IPO. Buying stocks does carry certain levels of risks which you must understand before you buy. I do cover this in another article on the risks in buying stocks. You also need to know the difference between buying a debt investment and an equity investment. Stocks are an equity investment which means that you are not guaranteed the return of your money together with the interest payments.

It’s also worth noting that when a company goes bankrupt, it may be impossible to recover your investments. Bond holders are usually given more priority than shareholders. Some companies may pay dividends while others may not. The ones that don’t pay dividend allow investors to make money in the open market when their money appreciates over time.

Although investing in stocks might sound very risky, people have made lots of money out of this form of investing. History has shown stocks have outperformed all other forms of investment like bonds and savings accounts because they usually present higher interest rates. Stocks can have an average return of 10-12% whereas bonds can have a much lower average return of 4-6%.

Investing in Stocks – The Basicsinvesting in stocks

So you’ve decided to invest in stocks. What next? First, know that you’ve made a sound investment decision. Historically, stocks have been shown to outperform all other forms of investments. But the way you choose to invest in the stock market will determine your chances of success.

There are basically different forms of stock investing such as individual stocks, EFTs, domestic stocks, foreign stocks and index funds. Don’t feel intimidated if you are not familiar with any of these terms. You’ll learn about each one of them as time goes on.

For now, you need to know how to choose the form of stock investing that is right for you. To do this, you might want to consider the following.

First, the kind of stocks you will invest in will be largely dependent on the kind of person you are. Are you a risk taker? Are you the kind of person who prefers to play it safe? There are cases where you will be presented with an opportunity to invest a lot of money and make a killing or potentially lose everything. In many cases, it’s those risky investments that pay out more than the safe ones. That’s why even long-term bonds have higher interest rates than short-term bonds.

Secondly, understand that the prices of stocks fluctuate depending on several factors. The economic fluctuations may significantly affect the prices of stocks. When bonds are not performing very well, there’s a high chance that the stocks will be doing immensely well.

You also need to understand what actively managed funds are. Actively managed funds are simply stocks which are chosen with a goal in mind, usually to beat a specific index or to achieve a certain return. This type of funds tends to have higher taxes.

Understand also how stocks work. Stocks trade in exchanges. In the US, there are a variety of exchanges and the major ones are the New York Stock Exchange and American Stock Exchange. These exchanges handle their stocks in different ways, but the rules of buying and selling are more or less the same.

The purpose of stock exchanges is to bring together buyers and sellers. The buyer will set a bid, which is a price which they are willing to pay to acquire stocks and the sellers will have an ask price which is what they are willing to accept. The difference between the two is known as the spread and it usually goes into the broker or professional handling the exchange.

How To Purchase Stocks

You have two main options when it comes to buying stocks. You can decide to buy stock with tpan>he help of a broker or directly from the company. A good thing with using a brokn>erage firm is that they can manage your portfolio and ensure e>verything goes according to your investment goals. But before you decide to buy stocks, you need to understand the difference between mutual funds and individual stocks and decide which of the two you should buy.

Muntual funds are stocks which are bundled together and represent different companies. When you choose to buy mutual funds, you are investing in a small portion of different copan>mpanies at the same time. If the value of one company in the fund increases then your portfolio will not be significantly affected because you have to consider the performance of other companies.

On the other hand, individual stion”>tocks are the ones you buy when investing in a single company. This kind of stock has a much higher risk than mutual funds because there’s no diversification of your investment portfolio. You are basically relying on a single company’s performance. But if the value of the stock increasespan> then you’ll make more money than what you would have made in a mutual fund.

Before buying stocks, look into the different companies and make a smart decision. Don’t just focus on the stock price and the number of shares because some companies may be overvalued in the sense that the company is considered worth more than what it actually is. So don’t brush off the companies that have a low stock price because many of them are undervalued. Your goal should be to buy low and sell high but try as much as possible to buy undervalued stocks and sell overvalued ones.

If you have an option of buying stocks without a broker then go ahead and do that because it will save you a lot of time and money in the process. Get online and look for companies whose stocks you would wish to buy and find out if they have direct stock purchase plans or DSPPs.

If you choose to work with a broker, make sure you find a reliable one who can even help you to make sound investment decisions. Understand when their commission rates apply and ask all the questions before signing any agreement with a brokerage firm. Pay close attspan>ention to the rates offered regarding the types of stocks you plan to trade often.

The Various Types of Stocks AvailableWall St and Broad St street sign in NYC

Stocks can be categorized into two broad terms, common stocks and preferred stocks. The majority of stocks are common stocks which represent a part of a company and the ability to claim dividends on a portion of their earnings. Individuals are given common shares and they get one vote per share to elect board members of the company. Common stocks usually have the highest risks but yield higher returns than almost any other form of investment. If the company goes bankrupt then the common shareholders will not receive any money until the bond holders, preferred shareholders and creditors are paid.

Preferred stocks are the ones that present a lower level of rispan>k and the shareholder have more voting rights. An inven>stor who has preferred shares can be assured of a fixed dividend forever. The advantage of being a preferred shareholder is that, first you will be paid off before common shareholders in the event of bankruptcy when the company is liquidated. Secondly, the company can decide to buy the preferred stock at any time for any reason so it’s easy to liquidate your stocks.

Companies us>ually have their own classifications of stocks depending on how they want to differentiate their shareholders. For instance, if the company wants the voting power to remain within a certain group of people or individuals then they will have different classes ofan> stocks with different voting rights. You can find one class of shares which has investors who have 10 votes per share whereas another has only a single vote per share. Most companies have class A and Class B Shares

Class A shares are the ones given to people so that they can have an extra voting ability. Shareholders belonging to this class may have 10 votes per share they own. This is a class that is usually reserved for the insiders, founders and family members of the organin”>span>zation. That is, the people who want the control of the company to remain internally even if they don’t own a majority of the stock.

Class B shares on the other hand are the ones reserved for the majority. Shareholders belonging to this class usually have one vote per share they own. The difference between the two classes is usually noted by a symbol at the end. Companies can have many other different share classes in order to separate voting rights among its shareholders.

Penny Stocks – What Are They?penny stocks image

Many people consider penny stocks to be stocks that trade for under $5. Others consider the term penny stock to mean stocks that trade off the major market exchanges. However, it’s important to note that there are large companies with stocks that are trading below $5 per share whereas some small companies are trading for more than $5 per share.

So it would be best to define penny stock as a stock offered by a very small company and comes with high risk because of their lack of liquidity and limited disclosure. Companies that offer penny stocks are usually given limited regun>latory standards to comply with. There are also fewer requirements for investors who want to buy penny stocks.

Instead of defining pe<>/span>nny stocks based on the pricing, this type of stock can be defined based on where it is trading. These stocks can refer to any stock that is trading on over the counter bulletin boards or pink sheets. Generally, these stocks are much riskier than the regular stocks. There are 4 main reasons why penny stocks are risky.

Why penny stocks are considered risky

For a start, information about companies that are listed in pink sheets is much more difficult to find. These companies are not required to file with the Securities and Exchange Commission so they tend to get away with so many things which present a high risk to you as an investor. Sometimes even the information that is available about the penny stocks doesn’t come from credible sources.

Secondly, penny stocks don’t have to fulfill minimum standards in order to trade on the pink sheets or OTCBB. These smaller exchanges usually do nan>ot impose strict standards compared to major exchanges like the NYSE.

The other risk of investing in penny stocks is that n>some compan>panies which offer penny stocks have obtained false recommendations from media houses like radio and TV shows. They pay these sources to recommend their company in order to persuade investors to buy their stocks.

Penny stocks also don’t have much liquidity. Once you invest in them, there’s a highon”> chance that you wouldn’t be able to sell it fast. This low level of liquidity means that it’s hard to find a buyer of penny stocks so you may be required to lower your asking price until it is considered attractive to another buyer. Furthermore, companies that offer penny stocks are usually newly formed and don’t have a history so it’s hard to determine the stock’s potential.



The Different Types of Investments

return on investments chart

When it comes to investing for your financial future, what is the best investment for you? Well, that is a question that only you can answer. You may prefer short-term gains as opposed to long-term, you may like taking high risk with your investments or you may be a low-risk individual. There are many personal factors that play a part in determining what kind of investment best suits you. And that is why there are many different types of investments, to suit the different types of investors.

When it comes to the various types of investments, they tend to fall into certain categories.  I’ve outlined the categories below, along with the type of investment that falls into each category t o help you if need be, get a better understanding of investment types.

Ownership Investments

Ownership investments are as they say they are; when you invest in something you own that asset that you have bought and you expect it to increase its value over time (the time frame depends on various factors) for example:

the most obvious of ownership investments is your own business. Millions of people around the world start their own business for many different reasons, but ultimately it is for ownership investment. They produce a service or product with the aim of making a profit.

You buy stocks (also referred to as shares or equity) in a company, meaning you now own a part of the company. The amount you own depends on the number of stocks you buy. You expect the value of those stocks to go up over time, and the length of time you hold on to these stocks, along with the profitability of the company, will determine the growth of the stocks.

Real estate is another ownership investment. I’m not talking about buying a home to live in, although that too can come under ownership investment once you pay off your mortgage, but I am referring to buying property to either flip or rent out. You buy a property, renovate it and sell it for a profit, or rent it out for a monthly residual income, either way, real estate falls into this category.

You will of course gathered from the home page that I have put emphasis on precious metals investment. Gold and silver, platinum, even diamonds and anything else that can be classified as precious such as works of art and high-value collectables, fall into the ownership investment bracket. You have a tangible object that over time you want to see increase in value so that you get a return on your investment

Lending Investments

The second category of investment types is lending investments. This is when you actually buy a debt with the view of being paid back, with some profit, but not a lot. These types of investments are naturally seen as low reward investments because they have a very low risk associated with them, so if you are someone who likes to take little risk investment wise, then this category would suit you.

The types of investments that fall within this category are the following:

CD‘s – a CD or certificate of profit is where you are issued a promise note from your bank in exchange for your investment. Unlike a savings account where you can take your money out whenever you want, having a CD means you keep your money in the investment for a agreed and set period of time. The longer you leave your money in the CD, the higher the interest you earn. Again this type of investment is a very low-risk investment because the return is also very low.

Next you have bonds. I’m not going to go into detail here about what bonds are or how they work, because I have a designated page for bonds, as you can see from the navigation to the side. But the reason why bonds are a great investment, even if they too are low risk, is because as I have mentioned on numerous other pages, investing properly and effectively is about diversification and investing in bonds is a great way to help diversify your investment portfolio.

Fund Investments

Fund investments are basically a group of similar investment grouped together. So for example, you may want to invest in reality, precious metals and bonds. All of these can be grouped together in a fund. You may have a fund that is solely made up of stocks, but you diversify your stocks by investing in different industry types such as renewable energy, manufacturing, construction and banking and so on. How the fund is made up is determined by what you want to invest in, your risk type and return you want to look for.

You will see to the side I have a section designated to mutual and hedge funds, along with stocks to give you a better understanding of what all the different investment types are and mean.