Your Questions About How To Invest

Maria asks…

What is the best way for a young person to invest into mutual funds?

I’m a student and would like to invest money into the market. What are good investing sites and were can I get helpful advice for choosing stock?

John answers:

I agree with Stephen J about mutual funds.
For investing ideas I think the best way to get started is to invest in what the best traders are buying. This is the idea behind the site, http://www.Top10Traders.com – this is a free site that lets you create a portfolio of stocks with $100,000 in “play” money. Each day the site ranks the best performing portfolios, so you can see how your picks perform compared to other investors. You can also read posts on investing from the best traders, as well as share your own investing ideas.

Here are this month’s best traders:

http://www.top10traders.com/top10standin…

Good luck !

John asks…

Can any one adives where to invest for good return every month?

I have to invest around 5 lacks reupees where to invest for good return every month like shreeomsainath company any other company do you so pls.

John answers:

Hi Raja,
You never know the financial condition in India these days. A company today might just as well be non-existent tomorrow. Thats why, a better option becomes Forex.
With and amount so large, even if you invest a very small portion of it in Forex, you’ll get such amazing returns that you cant imagine. Its perfectly allright if you are not aware of how to read its signals and understand how and when to invest. You can always get great softwares that do all that you need and bring out the money maker in you within minutes.
I found a link that has the Top 3 forex trading signals.
Http://monetarymatter.com/forex-system-reviews/
Its so much easier to get fantastic returns from them. Good luck with yours!

Richard asks…

What are all the differant ways to invest?

Im young, and I need to know how I should invest for everyday life, short term goals, and the long term, like retirement.

I just wanna do it right if I can ASAP

I could use all the help I could get, Thank You.

John answers:

If you are young, and you want to invest, be in it for the long haul, and don’t get greedy.

They say asset allocation is the best way to look at your investments. There are stocks, bonds, real estate, and cash. You want to diversify!!! Let me say that again because it is soooo important: DIVERSIFY!

You also want to buy low and sell high. How to do both? First, decide on how to split up your assets. Let’s say you go 30% stocks, 30% bonds, 30% real estate, and 10% cash. Start by buying some of each. If you have too little money to diversify, then buy shares in mutual funds. You get professional fund management and diversity without having to have deep pockets. Inside each category, again you want to diversify. Buy stocks in small companies, big companies, domestic companies, and foreign companies. Buy different stocks or funds, and when you buy funds, don’t just buy one fund. Buy several funds with different companies and different fund managers, etc. With bonds, buy tax-free muni bonds, federal bonds. City level, state level, fed level.

Now, how to buy low and sell high? Every three months, take a look at the value of your portfolio. Real estate is screaming these days. You will find that the real estate portion of your portfolio has grown, and perhaps stocks have shrunk. So, sell off some real estate and buy stock! Seems stupid right now, but once the next stock boom comes, you got in on the ground floor, and when real estate tanks, you got out! Always re-adjust back to the initial percentages among stocks, bonds, real estate and cash.

They say this is the best way for a young person to do well without much risk over their whole life.

Or, just become a greedy pig. Go to California and buy a 800 sq ft house in the hood for $850K, and hope it goes to $1M before it tanks. Just remember, you’re on the hook for the $850K if it tanks.

Robert asks…

what is the cheapest site to invest in the stock market?

I want to invest around $50 per pay check in the stock market but i dont want to pay tons of fees for my small investment.

John answers:

Hi,

There is a way to invest in stocks without a broker and if you keep reading I will tell you how.

The method is called DRIPs.

A DRIP is a Dividend Reinvestment Plan. It offers indidual investors, even a15 year old, a cost-effective way to build equity in a stock.

The DRIP is run by a corporation and it allows people to make cash purchases of stock or to reinvest dividends (if any). I have a DRIP program with Goodyear Tire and Rubber, but it ran into problems a few years ago and stopped paying dividends.

You only need one share of stock to become eligible. In some cases it can be purchased directly from the company, but normally needs to be purchased through a broker. You could have your parents open up an brokerage account and purchase the share in your name.

There are no fees or commissions when you reinvest your dividends.

There are lots of companies that do this – over 1000. The company likes them because it’s a low cost way to get capital or cash for their business. Because of that companies welcome new investors into their DRIP plans.

What makes DRIP popular is that most of the plans require very small cash outlays even as low as $10, some as low as $5.

Some of the world’s largest companies like IBM, AT&T, and McDonald’s have DRIPs.

Very wealthy investor like DRIPs because it allows them to bypass the broker’s commisssion which lowers the investors cost of investing

Another benefit is known as dollar-cost averaging where a fixed amount is invested on a regular basis. The stock rises and falls with the market, but by investing periodically, the average cost of the shares tends to average out and not be affected by the market swings.

Liquidating or selling your shares can be a problem because brokers want to get a commission for selling and buying stock for investors, but the company will buy them back in some cases.

Dividends are considered income and used to be taxed by the IRS, but a change in the law makes them non-taxable. But if you sell your shares and make a profit you have to pay tax on the profit. There are two types of taxes for profits or capital gains: one is short term and costs more than the other kind of capital gain which is called a long-term capital gain and that occurs when you hold a stock for more than six months.

Goodyear Tire and Rubber’s stock symbol is GT, but don’t invest in this one because it doesn’t pay a dividend yet..

YUM is the symbol for Yum! Brands, Inc and they own Pizza Hut, Taco Bell, and Kentucky Fried Chicken on the New York Stock Exchange (NYSE)

This Web site has a list of DRIPs: http://www.directinvesting.com/

To find DRIPs that pay good dividends, look in Investors Business Daily, Barrons, or the Wall Street Journal. There is a column that has dividends and return %. Most don’t pay as much as a Treasury Note or a CD, but they have earnings growth to offset that income disadvantage. Than look them up in the URL above.

Google this keyword “DRIP lists” for more Web site. Be careful. Some of them charge a fee to sign up.

Kindest Personal Regards,

Walt Brown
Site Build It Certified Webmaster
capecod1@capecod-beaches.com

Michael asks…

what about investing in bonds?

I have a stock funds but do i need to invest in bonds. I’m looking to invest in a roth ira at vanguard.

John answers:

Investing for optimal portfolio growth involves proportioning your investment between risk and risk free and bonds offer relatively risk free returns or at least risks that can be estimated from the risk premiums. A Roth IRA is simply a tax sheltered account, you can invest in bonds, stocks, funds, whatever security you choose with the money you have in the account.

Ben Graham, in his book “The Intelligent Advisor” advocates evenly dividing your portfolio between bonds and stocks and periodically rebalancing them back to the 50/50 state particularly after a major market movement like a market crash thereby buying low, selling high. This is identical to Claude Shannon’s famous tangent during an engineering lecture where he derived “Shannon’s Demon” as a method to harvest volatility from the stock market, it’s called “Shannon’s Demon” in reference to “Maxwell’s Demon” which is a mathematically identical construct dealing with thermodynamic entropy while Shannon dealt with information entropy.

In 1738, Daniel Bernoulli wrote a paper titles “Exposition of a new theory on the Measurement of Risk” which was translated into English in a 1954 issue of Econometrica. His paper provided guidelines to estimate the optimal proportioning of investments given your available resources by the use of the log utility of wealth. Basically, he said that in matters of investing, the best choice is that with the highest geometric mean of outcomes. If you assume that that a stock investment has a 2% per year chance of total loss (based on a report that the average life expectancy of a Fortune 500 company is 40 years) and that there is a 8% per year chance of a 60% loss (based on the assumption that there is a reasonable chance of a market downturn at least once every decade) and a 12% return otherwise (economists use 12% as a proxy for stock market investments) and you consider proportioning your portfolio between the stock investment and cash with X being the percentage of the portfolio to invest, you would adjust X to maximize the equation:

e^( 0.90 * ln( 1 – X + 1.12 * X ) + 0.08 * ln( 1 – X + 0.4 * X ) + 0.02 * ln( 1 – X ) )

which would be at a maximum of 1.01025 when X is 0.45 so you would invest 45% of your portfolio in the stock and the rest kept as cash for optimal growth. However, if you assume that the risk free portion is kept at 3.5% return (current 10 yr US Treasury bond rate) perhaps by having a margin account, holding the long term bond in margin as equity and using the margin to portfolio balance then the equation to maximize would be:

e^( 0.90 * ln( ( 1 – X ) * 1.035 + 1.12 * X ) + 0.08 * ln( ( 1 – X ) * 1.035 + 0.4 * X ) + 0.02 * ln( ( 1 – X ) * 1.035 ) )

which would be a a maximum of 1.03521 when X is 0.08 so the maximum portfolio growth would be achieved when you invest 8% in the stock and the rest in the 10 year US Treasury bond. Of course this neglects the probability that interest rates will rise and hence better opportunities will arise thereby depreciating the market value of the bond but this illustrates that the risk free guarantee of a return is very much desirable and should prompt a heavier weighting towards bonds than one would expect.

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