Investments Nearly three quarters of all U. S. households invest in the stock market. And half of all U. S. households invest in mutual funds-the nation’s fastest growing type of investment.
Some investors are saving for a comfortable retirement, other’s for a child’s education. Whatever their goals, shareholders benefit from broad diversification, professional investment management, and ready access to their money. If one decided investing was a sound way to secure their financial future, their next step is to build a balanced portfolio by selecting an investment company and / or suitable investment types. While it may seem daunting-and even overwhelming-there is always someone who stands ready to help an investor. EXPERIENCE Investment Principles In my experiences in dealing with many investment companies, I’ve seen and done many tasks in helping novice and advanced investors chart a course to their financial well being. I have over two years of investment experience with the second largest investment management company in the industry, The Vanguard Group.
The company I work for is an old, conservative company with many long-standing values. For example, client-focused values, competitive investment offerings, low costs, diverse fund offerings, and responsive client service. The company was founded on those reasons and continues to prove their great reputation and established lower cost concepts. However, with the changing of the times, so should the company, but in Vanguard’s case its not happening for the benefit of our clients.
The Essay on Investment Companies
Investors need to consider a lot of factors before investing their money in any firm. Company stability and ability to generate profits is the main attraction for any investor. Bank of America and Apple Inc are some of the most stable companies in their respective fields. Besides these are some of the highest paying industries in the world today. Bank of America Bank of America is the largest ...
Vanguard uses a canned financial plan for people we consider conservative, moderate, or aggressive investors. This works in some cases but the problem that I have is every person’s situation is different than the client before. I feel each client should have individual planning based on his or her specific situation. This is a very hard task for a company that has only three offices in the U. S (Valley Forge, PA, Charlotte, NC and Scottsdale, AZ).
This benefits the clients because it does lower our costs dramatically, however, it makes things difficult for us to properly plan one’s retirement to the fullest investment potential possible, in other words, making their investments suitable for each client.
Practices and Products with Emphasis on Problems of the small investor That brings up another problem I’ve had extensive experience with. More than two decades ago planning for someone’s retirement or college education was much easier. Companies were small and investors were smaller. Today, companies are huge and investors are still small for the most part. The biggest problem for the small investor is cost.
Costs are a critical consideration in investing, but are often overlooked by investors. Costs should never be left out of the investment equation. Here’s why: In a money market or bond fund, lower cost result directly in higher yields for investors. In common stock funds, lower costs can provide a significant enhancement to the compound rate of total return achieved over a period of time. The cost of owning a mutual fund, called the expense ratio, can be quite high depending on the type of fund and company that offers that fund.
An expense ratio is the percentage of a fund’s average net assets used to pay annual fund expenses. The expense ratio takes into account management fees, administrative fees, and 12 b-1 marketing fees. Transaction fees or loads also effect cost. These fees are paid either going into a fund, coming out of a fund, or both. These fees are used to help offset the cost of maintaining smaller accounts. It costs companies more to maintain smaller accounts; therefore, smaller clients put less into their pockets as earnings.
The Review on Factor Affecting People Investing in Mutual Fund
An application of the Theory of Planned Behavior Kuah Kean Lam Research report in partial fulfillment of the requirements for the degree of MBA 2008 ACKNOWLEDGEMENTS I would like to thank my supervisor, Dr. Nabsiah Abd. Wahid and my co-supervisor, Dr. Datin Joriah for their invaluable guidance in helping me with this research. Special thanks also go to Associate Professor T. Ramayah for his kind ...
The less one spends in fees, the more money one earns. Such a simple process, but easier said than done for the smaller clients. Once the accounts reach a certain asset level, the account fees are waived. Vanguard rewards the larger accounts for having to pay those fees for so many years. Besides cost, the smaller investors aren’t educated enough to make long term investing decisions. This is true with the majority of small investors I’ve dealt with but not all.
Sources of Information In my experiences talking to the smaller investor, they all say one thing the same. “It takes money to make money.” That statement is so far from the truth. Any amount of money can make money with the right investment choices. That’s where I come in. I not only help clients with their investment decisions, but I educate them so they can make future decisions on their own.
I first introduce the client to a list of investment and financial books and magazines. I have them get some of these books and magazines and read them. I then tell them to have questions ready for the next time we meet. After answering any questions the client has, I then take them to many financial sites on the web and show them some helpful investment tools. The internet is the most powerful and cheapest tool in the industry today. As people use the internet more and more, the more the companies will be able to pass the savings along to the investor.
The last step of the education process includes discussing other investment companies and the management services they provide. Many people feel comfortable making financial decisions on their own with books and magazines on personal finance and the internet, however, others choose to meet their goals by seeking professional help. A professional advisor can often help people that: Lack the time or expertise to handle their own financial matters. Face changed circumstances- perhaps because of marriage, the birth of a child, an inheritance, a divorce, a new job, the sale of a business, or the receipt of a lump sum from a retirement plan. Need explanations, advice, or reassurance from an expert to navigate through the complexities and risks of the financial markets. Want a second opinion about a financial plan that they have developed on their own (or another advisor proposed).
The Term Paper on Url Web Cash Money Financial
Cyberlaundering: Anonymous Digital Cash and Money Laundering Copyright 1996 R. Mark BortnerThe author hereby grants the right to copy this article in its entirety or any portion thereof by any means possible and to distribute such copies freely and without charge. The author simply requests that when a portion of this article or its entirety is included within another work, that such copied ...
Finding expert help need not be difficult. But it’s not a step that should be taken lightly, so one should devote some time and effort before making that decision. People always ask me why I would discuss other investment companies. For one main reason… trust. I feel if I can discuss and describe other investment companies costs, fees, procedures, and products, the clients will see the vast industry knowledge I have and feel at ease with their choice.
I like to use that time to compare the other companies to mine and point out every pro and con with both companies. This gives the clients a clear understanding of different companies and what they offer compared to my company. Clients tend to seem more open and trusting after I do this and that only helps the company and I. OBSERVATIONTrainingWorking with people’s money isn’t easy and can be very trying at times. Difficult clients, bad market conditions, and lack of services available to a client can all be factors working against you in this business. Training is a very important piece of the puzzle in dealing with clients, different market conditions and the unexpected.
As a registered representative, I had to go through extensive training and continue to do so two years later. As things change and evolve in the business, one must continue to grow and one is constantly learning. There are many ways of learning; self-teach, classroom learning and computer-based learning are all effective types of learning and training. Training teaches people the skills, techniques and methods needed to be successful in the investment business.
Different techniques work better depending on the person applying those techniques and sometimes using more than one techniques can be very beneficial. Self-teaching is a good starting point, however, most people want the reassurance of someone telling them that what they think is really right. Classroom learning is beneficial because one can see how other people learn and apply those techniques in their own learning process, as well as, get different points of view regarding the training at hand. Finally, computer based learning is the “new” way of learning in today’s society.
The Essay on Stock market Investment
... a stock market investors ought to consider various aspects for instance, returns rate, inflation level, liquidity and return frequency (Mandelbrot et al 2006). Investment just ... risk is also associated with the stock market. Fortunately, investors have various ways of managing their saving/ funds. Firstly, they get to identify ...
Computers are quick and very helpful as well as convenient for those who are too busy to attend a training course. I myself, have attended thirty-two different training courses in the last two years, and have had the privilege of trying all three methods of training. I personally like and use all three methods because after trying different ways, I believe a combination of all three works best for me. Training isn’t just for the professionals to keep up on the ever changing industry, but also the investors.
The investors can utilize the same books, magazines and internet sites the professionals use. Processes- Mechanics of Purchase and Sale Most companies like Vanguard and Charles Schwab host investment forums all over the country, where investors can sign up for weekend classes covering basic investment processes. For example, rollovers, asset transfers and purchases and sales, which are the most commonly, executed processes. A rollover is done when someone is leaving their job or retiring and the company for which they worked had some sort of retirement plans like 401 k’s, 403 b’s, 403 (b) 7’s, money purchase and profit sharing plans. The individual has three choices: Roll the money over into an IRA at a financial institution. Roll the money into the same plan offered by their new employer.
Take a lump some distribution. The forum will teach the individuals what options they have and how to proceed with one of those options. They are also taught which methods are taxable and not taxable to them. Asset transfers are done when an individual has an IRA or CD (certificate of deposit) in an IRA at a financial institution and wants to move their assets to another financial institution.
All asset transfers are not taxable to the individuals. Finally, the prospective clients learn the mechanics of the purchase and sale of a stock or mutual fund. With purchasing or selling a stock, there are many different ways of performing both. One can decide between a market order, when the stock is purchased or sold the immediate time the individual executes it.
A limit order, where an individual can set a specific price to which a stock is either purchased or sold because stocks are continuously traded throughout the day, however, these orders don’t always fill because market orders take precedence over limit orders. There are other ways of purchasing and selling stocks but the forums only teach the basic methods. Purchasing and selling mutual funds are much easier. Mutual funds don’t trade continuously throughout the day; the price or NAV (net asset value) is determined at the close of the markets.
The Essay on Develop a stock market
(a) Dependable law and regulations The existence of dependable laws and regulations, not only from the government but also from the enterprises themselves is a necessary conditions since these all the organizations to compete and cooperate with the oversea and worldwide companies. (b) Resolution of policy risk Investor confidence in reliable property right and stable, market-oriented policies are ...
An individual purchasing or selling a mutual fund will receive the same price unlike that of stocks. These forums are becoming more prevalent today because companies like the smarter investor. Forums are great for enhancing investor’s knowledge, building client relationships and it’s also a great marketing tool for investment companies. PRINCIPLES Test of a Good Investment When working with novice and advanced investors, the same two questions are always asked. First, How is my fund doing? That question is an essential one to consider before investing in any fund, or when one reviews an existing investment portfolio to make sure it’s on course toward meeting one’s financial goal. Unfortunately, evaluating a fund’s performance can’t be done simply by checking the investment returns of the fund, even though that is a good starting point.
Instead, an investor should see how the fund’s returns compare with those of similar funds or with appropriate market indexes. It’s also important to consider whether the fund is suitable given the investor’s financial objective and time horizon (the length of time one will need the money).
Two issues that are often overlooked involve costs and taxes. Costs can significantly reduce earnings on a fund investment as I stated earlier, while taxes reduce the earnings that one is allowed to keep-and different types of funds have very different tax implications.
While past performance may help one to better understand a fund’s risk and return characteristics, history is not a reliable predictor of future results. It’s also important to study the fund’s current characteristics, which can give one a sense of how the fund may perform going forward. To evaluate a mutual fund’s investment performance, investors should start by studying its total return. Simply put, total return is the sum of a fund’s income and capital returns-after ongoing expenses are paid. The nature of total return varies greatly from one type of fund to another, but all include one or both of the following components: Income return- A mutual fund may produce current income from investments in interest-bearing securities such as bonds or money market instruments, or from dividends paid on common stocks owned by the fund. Yield is the dividend and interest income that a fund pays over a time period-and it should not be confused with total return, which includes any capital returns.
The Essay on Stock Investment
STOCK INVESTMENT Having an imaginary million dollars, with the purpose of investment, makes it quite impossible to come up with the right decision of how to maintain a high level of financial security, as the money is not real. Therefore, the considerations of security will not be here quite as important as they are in the field of real stock trade. Nevertheless, there are a certain guide lines, ...
Capital returns- When the securities held by a mutual fund rise in value-or appreciate-above the price at which they were purchased, the fund has a positive capital return. This can create capital gains when the fund sells the securities or when an investor sells fund shares. Investments that can generate capital gains can also suffer capital losses if the securities decline in price. Merely knowing a fund’s past total return-particularly for shorter periods such as one or two years-doesn’t enable one to properly evaluate the fund. Investors should use long-term performance data whenever possible, compare a fund’s returns with those of similar funds or with an appropriate market benchmark, and keep in mind that market conditions vary from year to year-so it’s unlikely that last year’s performance will be duplicated the following year. The longer the period covered by fund performance data, the more reliable one’s conclusions are about the funds record-unless the fund has changed advisors during that period.
While comparing returns over just one year is of little value in determining the relative merits of two funds, comparing year-by-year returns can be a revealing exercise. When comparing two funds, it is essential that one compares total returns for the same time period for both funds. Market conditions can vary significantly from one period to another, even for long periods of time-a phenomenon called “period sensitivity.” For instance, U. S. stocks had an average annual total return of 14.
8% for the ten years ending September 30, 1997, but an average of 17. 2% for the ten years ending October 31, 1997 (Morningstar).
An investor who compared one stock fund’s performance for that period ending October 31 might mistakenly conclude that the fund was superior to a second stock that had lower returns for the period ending September 30. The reason for the difference in total returns is that one of the measurement periods began after the October 1987 crash-when the stock market fell 22% in a single day. Understanding the components of a fund’s total return can help one determine whether that fund is appropriate given their investment goal, the amount of time until one expects to sell the investment in the fund, one’s tolerance for investment risk, and one’s financial condition. For instance, if one needs current income, they should select a fund (such as a money market or bind fund) whose total return come primarily from income rather than capital growth.
Analysis of Risk The second question most frequently asked is, “Is this investment risky?” There are six main factors that most commonly effect the stock market. They include: Market risk- General stock prices can move upward or downward dramatically. This risk may be reduced by holding an investment for a long period-at least ten years-or by investing in more than one asset class. Interest rate risk- Common stock and bond prices can rise and fall due to the changes in interest rates. When interest rates fall, bond prices rise.
Inversely, when interest rates rise, bond prices fall. Income risk- As interest rates change, so can the income provided by both money market and bond funds. Sector risk- If a fund’s holdings are concentrated too heavily in one sector, the fund is less diversified than the broad stock market and may provide less returns if that sector the fund is invested in is out of favor. Inflation risk- The risk that inflation will erode one’s investment returns. Currency risk- The possibility that fluctuations in the value of currencies will affect the price of one’s investment.
If the U. S. dollar rises against the German mark, for example, the returns on German stocks are diminished to U. S.
investors since each mark is worth less in dollar terms. Over the long term (1926-2000), returns provided by common stocks have averaged 11. 3% annually. But this average return masks a great deal of volatility because returns from common stocks have fluctuated within a very wide band. In 74 years from 1926 through 2000, the stock market has provided annual returns ranging from a low of -43.
1% (in 1931) to a high of 54. 2% (in 1933) (Morningstar).
This extreme volatility is the chief risk of investing, but it is a risk that tends to recede from investors’ memories after a lengthy period of generally rising stock prices. Time greatly reduces-but certainly does not eliminate-the volatility in returns from stocks.
Investment returns over short periods-even periods of several years-are notoriously unpredictable, which is one reason why investors often rely on long-term historical averages in setting their expectations about future returns. While those long-term averages do not predict short-term results, they may provide some clues for what investor might expect over the next 10 to 15 years. In recent years, the stock market has provided investment returns that have far exceeded the long-term average, and some measures of stock market value indicate that stocks are currently expensive compared with long-term historical averages. No one knows whether stock valuations will move back toward their long-term averages quickly or slowly, or even when such a trend might begin.
But investors should be alert to the considerable risk of investing in the stock market, especially when stock prices are high by traditional measures of value such as P/E ratios and dividend yields. Prudent investors will consider the stock market’s high current valuations in forming expectations for the future returns and in planning their personal finance. Although risk is inescapable when investing in the stock market, perhaps the greatest risk is that one will never invest in the market because one can never be sure when is the right time. Uncertainty is a permanent feature of investing and trying to discern the ideal time to invest is almost always a futile exercise. Investors are better served by using time-tested strategies for managing risk. All investors, novice and advanced should learn five simple ways of to manage their risk.
First, know thyself. Over periods of a decade or more, stock prices are determined mainly by fundamentals such as corporate earnings, dividends, and interest rates on competing investments. However, emotion can rule the market over periods lasting even several years. Successful investors acknowledge the presence and power of emotion and try to understand their own investing psychology.
In downturns, it may help to measure one’s results not from the peak value of one’s portfolio but from a point a year or two back. When prices are high, it’s useful to acknowledge that some portion of your gains may be taken back by the markets. The second thing investors should do is try and keep their balance. An investment portfolio should be developed by balancing the risk of characteristics of stocks, bonds, and cash investments against the returns one desires from their portfolio.
In some cases, one may want a portfolio that consists of only one class of assets, such as stocks. In other cases, one may want to include more than one type of asset-stocks and bonds-in order to reduce risk. Bonds, depending on their quality and maturity characteristics, offer various levels of yield and principle stability. They may soothe an investor’s nerves in periods when the stock market is slumping. Stocks historically have compensated for their wide fluctuations in price by providing the highest potential for long-term returns and for growth in dividend income over time. And cash investments-such as money market funds, bank accounts, and Treasury bills-offer peace of mind because of their stable prices.
Some investor prefer short-term bonds as an alternative because they generally provide higher yields than cash investments. Thirdly, investors must learn to be patient. As stated earlier, time mutes the risk of holding stocks. By riding out the inevitable bear markets, one enhances their chances of achieving solid, long-term returns.
History suggests that the longer the holding period, the less likely an investor is to receive negative returns from the market. It also shows how severe losses from the market can be over relatively brief periods. Fourthly, investors need to tune out market noise. They shouldn’t be swayed by market fluctuations or the large array of opinions and predictions from market analysts and forecasts. One’s investment strategy should be based on your personal objectives, time horizons, risk tolerance, and financial circumstances. It should not be determined by the direction of the financial markets or the opinions of “the experts.” And lastly, investors should take their time while investing.
If one has a large sum of money to invest in stocks or bonds, one shouldn’t feel compelled to invest all at once. Similarly, if one decides to sell a portion of their holdings, plan to redeem shares gradually through a regular series of transactions. This strategy of dollar- cost averaging can substantially reduce the risks of investing. If one is in a state of anxiety about the markets, “sell to the sleeping point” (Morningstar).
One should not make large, abrupt changes in the strategic asset allocations that one determined were right for them. Rather, limit the changes in the portfolio allocations to 10 or 15 percentage points.
If one has 65% of their assets in stock funds and feel too nervous, reduce the allocation to 50% or 55% in the portfolio. But don’t abandon any type of asset. Rather, keep in mind that investing is a long-term voyage and that the best decision most investors can make is to develop an investment strategy and goal and then maintain a steady pursuit of that goal. APPLICATION Various Types of Investments Taking all that into effect, now the investor gets to apply what they learned and choose between many different types of investments. There so many different kinds of investments available to investors, but here are the four most common investments. First, individual retirement accounts (IRA’s) are tax deferred accounts where an investor can purchase cash accounts, stocks, bonds or mutual funds as their invest of chose.
There are two types of IRA’s and they are: Traditional IRA’s- These are tax deductible depending on one’s AGI (adjusted gross income).
Investors can contribute up to $2000 a year pre-taxed dollars, but no more. Once the money is put into these accounts the investor can not remove it without a 10% penalty until the age of 59 1/2. There are exceptions to that rule (i. e. death, first home purchase and post secondary education costs to name a few).
When the investor reaches the age to remove the money without penalty, it’s taxed as ordinary income. Roth IRA’s- These are not tax deductible depending on one’s AGI (adjusted gross income).
Investors can contribute up to $2000 a year post-taxed dollars, but no more. Once the money is put into these accounts the investor can not remove it without a 10% penalty until the age of 59 1/2. There are exceptions to that rule (i.
e. death, first home purchase and post secondary education costs to name a few).
When the investor reaches the age to remove the money without penalty, it’s given to the investor tax-free. Secondly, and probably the most aggressive and volatile investment types are individual stocks.
Stocks are common stock of corporations, and the bulk of their total returns usually comes from capital returns, although they can also receive income from dividends and short-term cash investments. These are traded on many exchanges around the world and are continuously traded throughout the day. Thirdly, investors can choose to invest in individual bonds or bond funds. Bonds invest in long-term debt, and they typically earn the largest part of their total returns from interest payments-but they can also generate capital gains or losses. And lastly, investor can invest in mutual funds. Mutual funds are many different companies common stock lumped and managed together making one fund investment.
Mutual funds have been around for 70 years and have only grown in popularity in recent years. One can invest in many different types of mutual funds, for example, stock funds, bond funds, and balanced funds. With all that to swallow, one should entrust their money to a company that offers competitive investment performance, has a well-earned reputation for integrity and honestly, and provides investors with responsive and courteous service. If an investor isn’t comfortable managing their own money, they should then consider a professional advisor, because one’s money can’t make money if it’s not invested. Bibliography Morningstar. Real Expectations For Market Returns.
2000. web.
