Investment Planning

• Investment Strategies
• Systematic Investment or Dollar Cost Averaging
• Value Averaging to Reduce Risk
• Your Personal Asset Allocation
• Take a sensible step with a Laddered Portfolio
• The Hottest Investment Tips
• State Investment Regulatory Agencies
• Investment Scams
• Risk Management

Investing Guidelines

One thing remains certain when investing: uncertainty. It's what makes investing so difficult emotionally. While the long-term performance of equity markets has historically been a steady up trend, short-term direction is always unpredictable. Amid all of this misgiving about the market's course, what should investors do? Here are some suggestions:

Build a well-diversified portfolio where different sectors will complement each other and may not always move in the same direction at the same time. It should comprise cash equivalents, bonds, equities, and real estate and tangibles. Your Financial Advisor will help determine how much weighting to give each category and how to sub-allocate within each given an individual's time horizon and risk tolerance.

Amid market turmoil, some investors may realize that they don't quite have as much stomach for stock market volatility they thought. Upon discovering risk tolerance is much lower than imagined, move incrementally toward a more appropriate investment mix. Not everyone can withstand extreme stock market volatility, and shouldn't have to. A well-diversified portfolio generally helps to offset instability and can put investors on the path toward achieving financial goals.

In the event of a market downturn, investors should determine how long they could go without selling stocks, considering income, pension, Social Security and cash and bond holdings. This exercise can help bring the market's short-term swings back into perspective and help re-focus long-term goals.

Consider keeping an investing diary. Investors sometimes suffer from selective memory. They may remember thoughts of selling stocks right before a market downturn, but forget that they had that same thought many other times prior to the market's rise. By keeping a diary, investors can see how often their instincts may be wrong.

People have advisors for various aspects of their life, whether religion, athletics, tax or legal, among others. However, investing is one of the most difficult activities many ever undertake.

The road to successful investing

The road to successful investing is paved differently for each investor. One investor's road to success may be the high road while another's may be the low road. But common to both investors is basic principles that are true to form no matter which road an investor finds himself taking. Below is a listing of some of these basic principles that may lead an individual along the road to successful investing.

The Rule Of 72

How long will it take my investment to double? This is a common question many may have concerning their investments and think a calculator is needed to provide an answer. But a calculator may not be needed, at all. The tool to use is called the Rule of 72 and, best of all; it is simple and free. This is how it works. If an individual has an investment they think will grow at an assumed rate of return per year, then simply dividing that rate of return into 72 will provide a rough estimate of the number of years it will take for the investment to double in size.

For example, let's assume an investment is assumed to grow at an average rate of return of six percent each year. Simply divide six into 72 will give a rough estimate that it will take 12 years for this investment to double (72 / 6 = 12). This formula assumes a fixed annual rate of return and the reinvestment of all earnings. Keep in mind that very few investments offer a guaranteed rate of return and that an investment's past performance does not guarantee future performance.

The rule of 72 may also be used to show the negative power of inflation. This may be an especially handy tool to those individuals in their retirement's years and, also, for those approaching the retirement decision. Using this tool an individual can estimate the number of years it will take for his or her cost of living to double. Or put another way, how long before an individual's purchasing power is cut in half.

For example, let's assume an individual is retired and forecasts an inflation rate of five percent per year. An inflation rate, in general terms, is the rate of increase in the prices of goods and services individuals purchase over time. Forecasting an inflation rate of five percent means the individual is assuming the prices of the goods and services he or she will purchase in the future will increase at a rate of five percent per year. Using the rule of 72, simply dividing five into 72 will provide a rough estimate that the individual's cost of living will double in 14 to 15 years (72 / 5 = 14.4).

Of course, this article is no substitute for a careful consideration of all of the advantages and disadvantages of an investment strategy to meet your goals. Before implementing a significant investment strategy consider consulting your financial advisor.

Investment Risks

The potential return from any investment can generally be linked to the amount of risk the investor is willing to assume. Finding that balance between the return you desire and the risk you can handle has never been easy. What makes this problem even trickier is that your financial goals - and thus your risk tolerance - inevitably change throughout your life. Therefore, the investment that was right for your goals of yesterday may not be so appropriate today.

It is a good idea to review your investments periodically with risk tolerance in mind. If you heed the advice of your financial advisor, you probably already review your account statements on a regular basis to monitor performance and change any investments whose time has passed. Take some extra time when doing this to screen your investments for inappropriate levels of risk.

Most people identify risk management with safety of principal. This is true to an extent - a dollar locked in a safety deposit box for 10 years will most likely be worth a dollar when it is taken out. Of course, that dollar is not likely to have as much purchasing power in 10 years as it does today. In other words, locking your money away exposes it to inflation risk. What you gained in stability, you lost in buying power.

Like that dollar in the box, some investments are also exposed to inflation risk. There are many other types of risk as well, which apply to different securities. The following are some of the types of investment risk you should keep in mind.

While the variety of risks is substantial, you should not let risk management intimidate you. People participate in the financial markets because the rewards have often enough outweighed the risks. By carefully assessing all the risks an investment offers and periodically reviewing the holdings in your portfolio with your financial advisor in consideration with your risk tolerance, you should be able to find a level of risk that is appropriate for meeting your investment goals.

Avoid being the victim of an investment scam

It has become common to see headlines in local newspapers about investors being the subject of investment scams. These crimes are not isolated to the senior citizen population or to a specific geographical location. Victims are being reported all across the country and across gender lines.

The question becomes, how do you protect yourself from becoming the next victim? Listed below are some suggested tips that can be used.

The Internet offers an almost endless array of investment opportunities. However, you should be aware that some of these authentic looking opportunities might not be legitimate. As always, it pays to be cautious before investing.

The North American Securities Administrators Association offers these tips to give scammers the boot:

• Don't assume that your on-line service screens investment claims.
• Steer clear of seldom-traded stocks that are hyped on-line. Swindlers will post multiple "alias" messages to spark a buying frenzy and send the price of the stock skyrocketing - artificially, of course.
• Insist on getting printed information before investing. Never buy anything based only on what you pull off the Internet.
• Never give your address, telephone number or credit card number to a stranger over the Internet.
• Make sure any investments you're considering are registered with your state's securities office. If they're not, they cannot be sold to you legally.
• Don't assume that the person touting the investment is whom he or she claims. To sell, the person must be registered with your state's securities agency.

For more information, write to NASAA at One Massachusetts Ave. NW, Suite 310, Washington D.C. 02001. or click here

Click here for State Investment Regulatory Agencies

Investment Clubs

Testing the waters of the financial markets can be an intimidating experience. Many individuals have found that they can make the experience more rewarding, entertaining and successful by taking a team approach to investing. Investment clubs can be a functional and non-threatening way to experience the intricacies of the investment markets.

When you decide to organize an investment club, your first job is to decide how the members of your club are to be chosen. There are several ways you may get a group together. If you belong to an organization such as a neighborhood social club, church group, service club, veterans organization, or other club, you may have a ready-made group of friends who will be interested. If you live in an apartment or condominium complex, you may find a number of your neighbors will be interested in joining a club with you.

Many clubs are formed by people who work together. If you plan on drawing a group from the place where you work, it is best to select just half of your members and ask each member to bring in a friend/member from outside the organization. This adds a greater variety of experience to your membership.

There are three things to keep in mind in the selection of membership for the club. Most importantly, the members should enjoy one another's company. You are beginning a long-term program which may last the rest of your life. A little variety in the occupations or interests of the members may be helpful in the club. There are, of course, many quite successful clubs where the membership has come from a single profession.

The members should agree on the kind of investment philosophy they wish to follow in order to prevent a fundamental disagreement at a later date. Very few clubs have been successful in using a short-term, speculative approach to investing. Those which have amassed large sums over the years have had a long-term investment outlook.

All prospective investment club members should be prepared to investigate and analyze securities and make periodic reports. The club offers a pleasant social opportunity, but anyone who regards the activity as simply "a night out" presents a problem for the club and may hinder its progress. The individual who recognizes that he/she is making a commitment that hopefully will involve them in a lifetime program of investing and financial study is likely to be the best member.

Finally, before going any further, be sure to consult a financial advisor who can answer organizational, tax and operational questions and provide investment direction to make your investment club experience a fulfilling one.

As with all Investment Planning decisions, seek the advice of a qualified Financial Advisor for coaching through the ups and downs of the emotional investing roller coaster and remain focused on long-term goals.

Articles

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Laddered Portfolio

Does this story sound familiar to you? An investor visited a local bank because his one-year certificate of deposit (CD) had reached maturity. He stepped up to the teller and announced he would like to roll his investment over into a new, one-year CD at the same rate. The teller, amused, tells the investor he is out of luck and then points to a display that lists the bank's current CD rates -- two percentage points lower is now the best the bank can offer.

Investors are often disappointed to find out that the current interest rates are much lower than those of their previous fixed income investments. Fortunately, however, a proven investment technique is readily available to help make the most of an evolving interest rate environment. Adopting a "laddered" portfolio approach allows an investor to minimize the interest rate risk that is associated with large, short-term fixed income investments.

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