Investors are always on the lookout for good investment ideas, although it can be difficult for small investors to determine where they should invest their money. The best investments are those that have the lowest risk and that offer some sort of guarantee on return. Nearly all investments carry some sort of risk with them, and when investing money, there is no real way to be sure that you will get the return that you are looking for. You can even lose money. Nonetheless, there are some good investment ideas that small investors should consider.
Real Estate
The real estate market right now is still in a slump, but most experts agree - now is the time to buy. This is true for those who are looking to make the move into home ownership and also true for folks who want to invest in real estate. With a large inventory of homes on the market, there is no shortage of investment opportunities. Look for short sales, foreclosures and other so-called "distressed" properties to maximize your opportunity for a return. Keep in mind that real estate investments may take awhile to become profitable, but once the market is on the move again, you stand to make some good money.
Stocks
Any list of good investment ideas would be remiss if it failed to mention stocks as a viable option for investors of all sizes. The stock market is nothing if not volatile, but stocks are still a good way to invest your money. Buying into particular stocks is affordable for everyone, and stocks allow you to diversify your investments. What's more, you can also buy and trade stocks online easily, thanks to services like ETrade.Com.
T-Bonds
Government bonds or U.S Treasury bonds are usually thought to be one of the best and safest investments, since they are backed by the full faith and credit of the United States government. Keep in mind that t-bonds have maturity rates of seven years or longer and usually offer a return of at least five percent. Treasury bonds are basically the government's way of borrowing money from consumers and paying them interest for doing so.
Gold
There is some controversy about whether or not a list of good investment ideas should include gold. Historically, gold has always held its value, although the price of gold has started to slow down recently. As a rule of thumb, gold sells for more when the U.S. dollar is weak, which is why gold saw such a comeback during the worst part of the recession. Nonetheless, exchange traded funds and gold certificates can be quite lucrative to own as an investment. Most people do not physically buy gold bars and keep them in a safe anymore. The best strategy for gold investing is to buy gold at rock bottom and sell it during periods when the dollar is weak.
Deposit Accounts
Good investment ideas do not have to be risky. For the small investor who does not want to risk his investment dollars on any investment that may not pay off, there is always the bank deposit account. Savings accounts and certificates of deposit can be great for those who just want a safe place to invest their money while collecting a token amount of interest income. Bank deposit accounts are insured up to $250K by the government's Federal Deposit Insurance Corporation or FDIC, which means if the bank holding your money goes belly-up, you won't lose a dime.
Wednesday, 31 October 2012
2013 And 2014: Bond Bubble Vs Bond Funds
If you are presently investing money or plan to invest money in bond funds you should understand what effect a bond bubble would have on your investment if the bubble bursts in 2013 or 2014. What's a bond bubble, and which funds are most dangerous to invest money in?
All bond funds (also called INCOME FUNDS) invest money for their investors in debt obligations called bonds (debt securities) and pass the interest income they earn to investors in the form of dividends, which are often automatically reinvested to buy the investor additional fund shares. A bond bubble is like any other bubble (like a stock bubble) in the financial markets. When prices reach EXTREME levels that are not sustainable, you've got a bubble. When that bubble bursts prices fall like a rock.
Average investors have been investing money in bond funds for years while selling stock funds; and fund companies, as well as the U.S. Government, have been investing money heavily in debt securities as well. This heavy buying activity sends bond prices up and interest rates down. And interest rates have hit EXTREME record lows, which means that bond prices are extremely high - hence, a bond bubble.
Why should you care about the bond bubble? Remember, these debt securities trade in the open market after their original issue, just like stocks do, so they fluctuate in price. Investors invest money in them for the relatively high interest income they pay. When interest rates go down bonds go up in price because they pay an interest rate that is fixed, making existing bonds more attractive relative to other income producing alternatives. When rates go up, debt securities and bond funds that hold them go down in price (value).
In 2012 you could invest $1000 in the highest quality 30-yr bond and earn 3% a year, or $30 a year in interest income for the next 30 years. What would you be willing to pay for that same investment if you could earn 6% or $60 a year in a new issue of the same security in 2013, 2014 or beyond?
If you are presently investing money in a high-quality long term bond fund, the fund owns the debt securities. You own fund shares, and a very small part of a large investment portfolio. A bursting bond bubble means that bond prices fall off a cliff - resulting in higher interest rates and big losses for investors. The problem with long term funds is that they hold bonds that are locked into low interest rates for a long time (20 years or more). In July of 2012, the highest quality bonds in the world, which are the U.S. 30-year Treasury bond, fell to an interest rate yield of less than 2 ½%... having been as high as 14% in 1981!
That's why bond funds have been a good place to invest money, basically for more than 30 years. Interest rates have been falling. In 2013 and 2014 we're likely looking at the flip side and a bond bubble because rates can't get much lower, but could go up significantly. Few investors today have a handle on what happens when interest rates go up. The last time bond fund investors got rocked was between 1977 and 1981 when rates just about doubled. What happened to long term bond funds? They lost almost ½ of their value. Long term funds are the most dangerous to own in 2013, 2014 and beyond.
Bond funds that hold debt securities that on average mature in like 5, 6, or 7 years vs. 20 or more pay lower dividends; but are a much safer place to invest money to avoid heavy losses if the bond bubble bursts or at least deflates. Why? The securities they own, and the investor is investing money into, are in fixed income securities that have an interest rate that's only locked in for a few years vs. 20 years or more. Upon maturity (in 5, 6, or 7 years) the securities are redeemed, and owners (like fund companies) get their principal (like $1000) back and the security no longer exists (like a loan you pay off). The fund then simply replaces the security with another one to stay fully invested.
The bond bubble bursting could send your investment portfolio into a tailspin in 2013 or 2014 if you are holding bond funds that hold long term maturities. Remember, these funds have been good steady performers for years, even in the recent environment of lower and lower interest rates. The reason investing money here has been quite profitable for many investors is NOT because they have earned high interest rates and paid investors high dividends in recent years. Their dividends have been only relatively high compared to earning less than 1% at the bank.
Investing money in bond funds has been profitable because lower interest rates have sent bond prices (and hence bond fund share prices) higher. But remember, these funds involve risk. If the interest rate trend reverses in 2013 or 2014 bond funds will lose money. If the bond bubble unravels severally and in a hurry, many bond fund investors will get hit hard. Take a look at the AVERAGE MATURITY of your bond funds. Look for funds with an average maturity closer to 5 to 7 years vs. 20 or more.
All bond funds (also called INCOME FUNDS) invest money for their investors in debt obligations called bonds (debt securities) and pass the interest income they earn to investors in the form of dividends, which are often automatically reinvested to buy the investor additional fund shares. A bond bubble is like any other bubble (like a stock bubble) in the financial markets. When prices reach EXTREME levels that are not sustainable, you've got a bubble. When that bubble bursts prices fall like a rock.
Average investors have been investing money in bond funds for years while selling stock funds; and fund companies, as well as the U.S. Government, have been investing money heavily in debt securities as well. This heavy buying activity sends bond prices up and interest rates down. And interest rates have hit EXTREME record lows, which means that bond prices are extremely high - hence, a bond bubble.
Why should you care about the bond bubble? Remember, these debt securities trade in the open market after their original issue, just like stocks do, so they fluctuate in price. Investors invest money in them for the relatively high interest income they pay. When interest rates go down bonds go up in price because they pay an interest rate that is fixed, making existing bonds more attractive relative to other income producing alternatives. When rates go up, debt securities and bond funds that hold them go down in price (value).
In 2012 you could invest $1000 in the highest quality 30-yr bond and earn 3% a year, or $30 a year in interest income for the next 30 years. What would you be willing to pay for that same investment if you could earn 6% or $60 a year in a new issue of the same security in 2013, 2014 or beyond?
If you are presently investing money in a high-quality long term bond fund, the fund owns the debt securities. You own fund shares, and a very small part of a large investment portfolio. A bursting bond bubble means that bond prices fall off a cliff - resulting in higher interest rates and big losses for investors. The problem with long term funds is that they hold bonds that are locked into low interest rates for a long time (20 years or more). In July of 2012, the highest quality bonds in the world, which are the U.S. 30-year Treasury bond, fell to an interest rate yield of less than 2 ½%... having been as high as 14% in 1981!
That's why bond funds have been a good place to invest money, basically for more than 30 years. Interest rates have been falling. In 2013 and 2014 we're likely looking at the flip side and a bond bubble because rates can't get much lower, but could go up significantly. Few investors today have a handle on what happens when interest rates go up. The last time bond fund investors got rocked was between 1977 and 1981 when rates just about doubled. What happened to long term bond funds? They lost almost ½ of their value. Long term funds are the most dangerous to own in 2013, 2014 and beyond.
Bond funds that hold debt securities that on average mature in like 5, 6, or 7 years vs. 20 or more pay lower dividends; but are a much safer place to invest money to avoid heavy losses if the bond bubble bursts or at least deflates. Why? The securities they own, and the investor is investing money into, are in fixed income securities that have an interest rate that's only locked in for a few years vs. 20 years or more. Upon maturity (in 5, 6, or 7 years) the securities are redeemed, and owners (like fund companies) get their principal (like $1000) back and the security no longer exists (like a loan you pay off). The fund then simply replaces the security with another one to stay fully invested.
The bond bubble bursting could send your investment portfolio into a tailspin in 2013 or 2014 if you are holding bond funds that hold long term maturities. Remember, these funds have been good steady performers for years, even in the recent environment of lower and lower interest rates. The reason investing money here has been quite profitable for many investors is NOT because they have earned high interest rates and paid investors high dividends in recent years. Their dividends have been only relatively high compared to earning less than 1% at the bank.
Investing money in bond funds has been profitable because lower interest rates have sent bond prices (and hence bond fund share prices) higher. But remember, these funds involve risk. If the interest rate trend reverses in 2013 or 2014 bond funds will lose money. If the bond bubble unravels severally and in a hurry, many bond fund investors will get hit hard. Take a look at the AVERAGE MATURITY of your bond funds. Look for funds with an average maturity closer to 5 to 7 years vs. 20 or more.
Best Stock Fund and Bond Fund Investment Strategy for 2013
The best investment strategy for 2013 will differ from conventional investment strategy for both stock funds and bond funds. Many investors have fallen in love with their bond fund because it has been their best investment, in terms of performance, for years. It's time to look beyond 2013 in putting together your best investment portfolio to balance risk vs. return to limit the possibility of significant losses going forward.
Hindsight is of no value in the investment world, and even the best stock fund or bond fund will lose money if the investment environment goes against one or the other asset class. As an investor you need balance, and for the average investor this means you need both kinds of mutual funds in your investment portfolio. Now, you also need to re-think your investment strategy in both cases, because interest rates have been falling for 30 years and have recently hit EXTREME all-time lows.
What this means is that even though bond funds have performed well vs. safe investments and even stock funds - the best investment strategy now is to start limiting your exposure to risk in this asset class. The reason: these funds perform well when rates are falling, and lose money when rates rise. Even the highest quality or best bond funds are subject to this phenomenon called "interest rate risk". The signature of long term bond funds is interest rate risk.
So, what's your best investment strategy to get both income and growth in 2013 and beyond and what are the best funds to own? Look for intermediate-term bond funds with investment portfolios where the average maturity is 5 to 7 years vs. 10 to 20 years or longer, to increase you safety factor. You will sacrifice some dividend income, but will greatly reduce interest rate risk. Then, look for the best stock fund investment that will both lower your risk of owning a stock fund while making up for the dividend income you have given up.
What you need to understand is that your bond fund has likely been your best investment in recent times not because it has paid such high dividends - but because it has been going up in value due to falling interest rates in the economy. There are stock funds out there right now that pay higher dividends, and do not have interest rate risk. Your best investment strategy would be to emphasize these funds, since some of the best stock funds pay higher dividends than the average bond fund.
The best investment strategy for 2013 will be to lower your allocation to bonds and funds that invest in them, while also lowering your risk in stocks (growth funds) that pay little if anything in dividends. At the same time, it is always wise to lower your cost of investing in mutual funds of both varieties in order to increase your net return. Now, let's get more specific in terms of the best bond funds and best stock funds to invest in so we can put our investment strategy in action.
The best investment strategy for bond funds: go with intermediate-term INDEX FUNDS with NO sales charges and low yearly expenses. This can save you 3% or more upfront and about 1% a year for expenses. This is significant when you consider that you can't earn 1% a year on most safe investments, and most bond funds won't be paying dividends of even 3% in 2013. Plus, longer term funds have significant downside risk called interest rate risk.
The best investment strategy for stock funds: Go with stock INDEX funds that invest in large companies that pay higher than average dividends. Consider real estate equity funds as well for even higher dividend yields. If you include both in your investment portfolio, and go with no-load funds to avoid sales charges and lower your yearly expenses, you could net an average of 3% or more in dividends. Plus, these funds have less downside risk than growth funds that don't pay significant dividends.
The best investment strategy for 2013 will provide you with a relatively attractive dividend income - while lowering your risk in both your stock fund and bond fund investments.
Hindsight is of no value in the investment world, and even the best stock fund or bond fund will lose money if the investment environment goes against one or the other asset class. As an investor you need balance, and for the average investor this means you need both kinds of mutual funds in your investment portfolio. Now, you also need to re-think your investment strategy in both cases, because interest rates have been falling for 30 years and have recently hit EXTREME all-time lows.
What this means is that even though bond funds have performed well vs. safe investments and even stock funds - the best investment strategy now is to start limiting your exposure to risk in this asset class. The reason: these funds perform well when rates are falling, and lose money when rates rise. Even the highest quality or best bond funds are subject to this phenomenon called "interest rate risk". The signature of long term bond funds is interest rate risk.
So, what's your best investment strategy to get both income and growth in 2013 and beyond and what are the best funds to own? Look for intermediate-term bond funds with investment portfolios where the average maturity is 5 to 7 years vs. 10 to 20 years or longer, to increase you safety factor. You will sacrifice some dividend income, but will greatly reduce interest rate risk. Then, look for the best stock fund investment that will both lower your risk of owning a stock fund while making up for the dividend income you have given up.
What you need to understand is that your bond fund has likely been your best investment in recent times not because it has paid such high dividends - but because it has been going up in value due to falling interest rates in the economy. There are stock funds out there right now that pay higher dividends, and do not have interest rate risk. Your best investment strategy would be to emphasize these funds, since some of the best stock funds pay higher dividends than the average bond fund.
The best investment strategy for 2013 will be to lower your allocation to bonds and funds that invest in them, while also lowering your risk in stocks (growth funds) that pay little if anything in dividends. At the same time, it is always wise to lower your cost of investing in mutual funds of both varieties in order to increase your net return. Now, let's get more specific in terms of the best bond funds and best stock funds to invest in so we can put our investment strategy in action.
The best investment strategy for bond funds: go with intermediate-term INDEX FUNDS with NO sales charges and low yearly expenses. This can save you 3% or more upfront and about 1% a year for expenses. This is significant when you consider that you can't earn 1% a year on most safe investments, and most bond funds won't be paying dividends of even 3% in 2013. Plus, longer term funds have significant downside risk called interest rate risk.
The best investment strategy for stock funds: Go with stock INDEX funds that invest in large companies that pay higher than average dividends. Consider real estate equity funds as well for even higher dividend yields. If you include both in your investment portfolio, and go with no-load funds to avoid sales charges and lower your yearly expenses, you could net an average of 3% or more in dividends. Plus, these funds have less downside risk than growth funds that don't pay significant dividends.
The best investment strategy for 2013 will provide you with a relatively attractive dividend income - while lowering your risk in both your stock fund and bond fund investments.
Tuesday, 30 October 2012
Good Investment Ideas That Small and Big Business Executives Should Consider
Even though having a good education and a well-paying job guarantees a comfortable life, people who want financial security even during economic downtimes should invest their wealth. As a result, they will still have a source of income, even if they lose or retire from their professional jobs. However, although there are many businesses that people can go for, they should meticulously choose a venture that has minimal risks. They can consider the following good investment ideas:
The Stock Market
One promising investment idea that people should consider is trading in the exchange market. Though there is a common misconception that the stock market is a reserve for big-business executives, it requires low starting capital and is among the most profitable ventures to date. For instance, people can easily find reputable trading platforms on the internet, buy cheap penny stocks, and then double their investments as they begin to register good profits.
Moreover, small investors who do not have the financial muscle can buy shares of starting companies. These are usually cheap and can increase in value over a short duration. However, even though the Forex market is a promising business idea that people should consider, they should remember that nothing comes easy. They should research, do the mandatory legwork, and coin efficient strategies that enhance their chances of success in this global marketplace.
E-commerce Websites
The web is an exquisite platform where people can market their products and or services to a global audience. They only need to create simple and navigable websites or blogs and make money by selling their personal goods. Furthermore, people can use several promotional tools to make money. For instance, they can subscribe to various Pay Per Click (PPC) campaigns, display contextual advertisements on the websites, and earn money when readers click ads.
Small investors can also contact manufacturers and or big marketing agencies and subscribe to their affiliate programs. They can then create promotional pages that market their affiliate products and earn a commission when people buy the product from their websites. Although this investment idea is among the cheapest, and easiest to start, people must have loyal readers who will promote their sales initiatives. Therefore, it is imperative that they develop quality content, monetize their websites, and develop effective marketing campaigns.
Securities and Bonds
Securities and bonds are good investment ideas, especially to people who want to supplement other forms of investments. For instance, depending on their areas of residence, they can buy government bonds at a moderate price, and earn interests. Moreover, they can diversify their options by buying mutual funds. Because of their safety and high maturity or current interest rates that they attract, people can easily raise money to fund their development projects.
Real Estate
With the heightened need for cheaper, but better accommodation options, investing in real estate an exquisite idea that people who have the financial muscle should consider. Although the starting is discouraging, those who have gained a foothold in this industry smile all the way to the bank. By building unique and high-quality properties, they can entice their customers to buy subjectively rather than objectively.
People who consider the foregoing investment ideas will enhance their financial security and have a stress-free future even after retirement.
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The Stock Market
One promising investment idea that people should consider is trading in the exchange market. Though there is a common misconception that the stock market is a reserve for big-business executives, it requires low starting capital and is among the most profitable ventures to date. For instance, people can easily find reputable trading platforms on the internet, buy cheap penny stocks, and then double their investments as they begin to register good profits.
Moreover, small investors who do not have the financial muscle can buy shares of starting companies. These are usually cheap and can increase in value over a short duration. However, even though the Forex market is a promising business idea that people should consider, they should remember that nothing comes easy. They should research, do the mandatory legwork, and coin efficient strategies that enhance their chances of success in this global marketplace.
E-commerce Websites
The web is an exquisite platform where people can market their products and or services to a global audience. They only need to create simple and navigable websites or blogs and make money by selling their personal goods. Furthermore, people can use several promotional tools to make money. For instance, they can subscribe to various Pay Per Click (PPC) campaigns, display contextual advertisements on the websites, and earn money when readers click ads.
Small investors can also contact manufacturers and or big marketing agencies and subscribe to their affiliate programs. They can then create promotional pages that market their affiliate products and earn a commission when people buy the product from their websites. Although this investment idea is among the cheapest, and easiest to start, people must have loyal readers who will promote their sales initiatives. Therefore, it is imperative that they develop quality content, monetize their websites, and develop effective marketing campaigns.
Securities and Bonds
Securities and bonds are good investment ideas, especially to people who want to supplement other forms of investments. For instance, depending on their areas of residence, they can buy government bonds at a moderate price, and earn interests. Moreover, they can diversify their options by buying mutual funds. Because of their safety and high maturity or current interest rates that they attract, people can easily raise money to fund their development projects.
Real Estate
With the heightened need for cheaper, but better accommodation options, investing in real estate an exquisite idea that people who have the financial muscle should consider. Although the starting is discouraging, those who have gained a foothold in this industry smile all the way to the bank. By building unique and high-quality properties, they can entice their customers to buy subjectively rather than objectively.
People who consider the foregoing investment ideas will enhance their financial security and have a stress-free future even after retirement.
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Tuesday, 23 October 2012
How to Invest in Oil
Investing in oil is considered a wise investment among many investors. After all, there will always be a demand for oil at least in the foreseeable future. As a long term investment, investing in oil can reap large rewards. There are several ways to go about investing in this commodity. Of course you won't actually be owning or purchasing the actual oil itself. You can invest in individual energy company stocks. You can invest in mutual funds that specialize in holdings of oil company stocks. You can purchase oil stock futures, contract futures which are typically very expensive. You can also invest in a commodity exchange traded fund or ETF.
So what is an ETF? It is a fund that can be comprised of various oil and gas related investments, such as options or futures contracts. Investing in an ETF is a simple way of getting into oil without getting into the oil business. As with other funds, you must carefully read the fine print to make sure that the fund's goals and objectives meet your investment requirements. Some funds will be more growth oriented and aggressive while others will try to minimize the risk with more conservative investment strategies. Of course, not all risk can be eliminated, so keep this in mind when investing.
Investing in oil can also be risky because it is tied to countries in volatile regions of the globe. Global economic conditions, wars, terrorism, all these factors can cause the price of oil to fluctuate wildly. It is this volatility that offers such a large opportunity for making money by speculating on the future price of oil. Politics can also play a part in oil prices. OPEC has changed output many times to prevent large price reductions in oil prices. Nations such as Saudi Arabia have long favored the US and have increased output to help the US economy at times.
Another element of risk that can affect oil prices is accidents. There have been spectacular examples of this recently in the Gulf and many tanker oil spills over the years. Because of the volume of oil involved, these environmental disasters are hugely expensive to clean up and can cause huge losses for oil companies.
As you can see, oil is an unusual commodity with very unique and complicated investment issues. Evaluating the risk is not a simple matter because, unlike investments in commodities like wheat or orange juice, many factors such as politics and economic climate can effect large changes in oil price. You must be prepared for this when considering any oil investment. Risk comes with the territory here, and even though there is a lot of potential for big profits, the downside is just as huge and you can wind up losing a significant portion of your investment. Because of this, only consider investing as much money as you can afford to lose without creating a financial hardship for yourself or for your family.
So what is an ETF? It is a fund that can be comprised of various oil and gas related investments, such as options or futures contracts. Investing in an ETF is a simple way of getting into oil without getting into the oil business. As with other funds, you must carefully read the fine print to make sure that the fund's goals and objectives meet your investment requirements. Some funds will be more growth oriented and aggressive while others will try to minimize the risk with more conservative investment strategies. Of course, not all risk can be eliminated, so keep this in mind when investing.
Investing in oil can also be risky because it is tied to countries in volatile regions of the globe. Global economic conditions, wars, terrorism, all these factors can cause the price of oil to fluctuate wildly. It is this volatility that offers such a large opportunity for making money by speculating on the future price of oil. Politics can also play a part in oil prices. OPEC has changed output many times to prevent large price reductions in oil prices. Nations such as Saudi Arabia have long favored the US and have increased output to help the US economy at times.
Another element of risk that can affect oil prices is accidents. There have been spectacular examples of this recently in the Gulf and many tanker oil spills over the years. Because of the volume of oil involved, these environmental disasters are hugely expensive to clean up and can cause huge losses for oil companies.
As you can see, oil is an unusual commodity with very unique and complicated investment issues. Evaluating the risk is not a simple matter because, unlike investments in commodities like wheat or orange juice, many factors such as politics and economic climate can effect large changes in oil price. You must be prepared for this when considering any oil investment. Risk comes with the territory here, and even though there is a lot of potential for big profits, the downside is just as huge and you can wind up losing a significant portion of your investment. Because of this, only consider investing as much money as you can afford to lose without creating a financial hardship for yourself or for your family.
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