A Prospectus is a legal document that must be filed with the Securities and Exchange Commission (SEC) when an investment is offered for sale to the public. The most commonly known forms of a prospectus are those that accompany a mutual fund, ETF, or an annuity when purchased by an investor. For an annuity and/or a mutual fund, a Prospectus contains details on the fund management. Continue reading...
Bollinger Bands were developed by famous trader John Bollinger as a technical analysis tool to discern the likely trading range of a security. A Bollinger Band is typically two standard deviations from a moving average line, both above and below the average. Standard deviation is another word for the average volatility of a price over a length of time. It is typical for a trader looking up the historical price chart for a security to compare it to a moving average line. Continue reading...
There’s no reason why you shouldn’t be able to choose investments that are suitable and beneficial for you, without a personal investment advisor, if you’re willing to learn. There is an abundance of information out there, and if you have some discernment you are likely to be able to find investments which will serve their intended purposes for you. You may have heard that there are different investment objectives: preservation of capital (avoiding the risk of losing money - especially which keeps up with inflation), growth, income, and mixtures of these. Continue reading...
The single best control mechanism over the performance of your investments is the maintenance of an asset allocation strategy. When testing various methods of predicting and controlling returns in a portfolio, researchers found that having and maintaining an asset allocation strategy was the method that reaped the most predictable returns – with 80-90% accuracy. Asset allocation is the distribution of various asset classes and investments into a portfolio mix in a deliberate way to gain specific amounts of exposure to each investment. It is a practice used to diversify and manage risk. Asset Allocation is a dynamic process; it’s not something you do once and forget about. Continue reading...
All of the investments held by an individual or mutual fund or other entity are referred to as that person or entity's portfolio. These investments can range from securities to cash to real assets held for the purpose of preservation, growth, or income; essentially anything that is part of a long-term financial strategy that is held separate from daily operations and cash flow can be considered part of a portfolio. The gains and losses of all the singular investments held are totaled up to find the overall return of the portfolio. Continue reading...
There are many apps and online programs that investors can use, often for free, to help keep an eye on their holdings and to track their investment portfolio. In addition to the software accessible through your custodian, you might want to look at the programs available through Morningstar, Microsoft Money, and others. Apps on your phone (CNBC, TheStreet, Barron’s, MarketWatch, etc.) can keep you updated on market news related to your stocks, mutual funds, and ETFs. You can also subscribe to market commentaries delivered via email. Continue reading...
Also referred to as passive income, investment income is money paid to an investor from the dividends, premiums sold, or sale of assets in their portfolio. Some investors treat it like a part-time job, such that there is nothing passive about it. In retirement, investors often receive income from bonds, preferred stock, and dividend-paying common shares. Income can be pulled from several kinds of investments, including real estate, and it is likely to be taxed at ordinary income tax rates. Continue reading...
The main idea behind index investing is that markets are efficient, and, especially with the low fees of indexed funds, it can be a winning strategy. Index investing is a simple strategy of choosing the indices which reflect your investment beliefs and offer diversification, buying mutual funds or ETFs that track these indices, and holding them for a long period of time. The last 10 years have seen the propagation of index funds for any specific market, industry, country, commodity, etc. Continue reading...
Straddles are options strategies that use both a call and put on the same underlying asset at the same strike price and expiration. The Straddle strategy involves either buying a call and a put with the same strike price and expiration, or selling a call and a put with the same strike price and expiration. The former is known as a Long Straddle, and the latter is known as a Short Straddle. Long straddles profit from significant price movement in either direction on the underlying asset. Continue reading...
Investing in commodities has lately become accessible to even small retail investors via ETFs. There are now literally hundreds of different commodity ETFs, linked to various individual commodities and baskets (such as agricultural baskets, commodity indices, etc.) These instruments are very complex and sometimes do not reflect the behavior of the underlying commodity. While investing in commodities may significantly diversify your portfolio, it requires profound knowledge of the behavior of the underlying assets. Continue reading...
Alpha is a risk ratio which measures gains or losses relative to a benchmark, indicating whether an investor is being compensated with a return greater than the volatility risk being taken. Alpha’s counterpart, the Beta figure, measures how closely an investment follows movements in the market as a whole or, when examining mutual funds, how similarly the funds move to their relevant indexes. Alpha is expressed as integers, which can be translated into percentage points above or below a benchmark for a time period. Investors are interested in higher Alpha figures: the larger the positive Alpha, the more the fund in question has outperformed its benchmark. An Alpha of 2 indicates a performance 2% greater than its benchmark; inversely, a -2 Alpha would denote 2% underperformance. Continue reading...
Market neutral is a term used to describe strategies of investing that are poised to benefit whether the market goes up or down, or even if it stays stagnant. Some professionally managed funds might take a market-neutral stance in their entirety, or investors might employ market-neutral strategies for specific parts of their portfolio. Market Neutral means that your position as an investor is neither bearish nor bullish, and you may be able to profit whether the market moves up or down, or even if it doesn’t move at all. Options traders, for instance, have a wide variety of market-neutral positions that they can take, since profiting may depend more on the presence of volatility rather than price movement in one direction or another. Continue reading...
A ‘poison pill’ is a maneuver by a company to make itself less attractive to a hostile takeover. It can be used in an effort to avoid the takeover altogether, or at least to make the takeover more painful for the bidder. One type of poison pill is a “flip-in,” which allows shareholders to buy shares of the company being targeted at a discount, which makes the takeover more expensive and more difficult. Continue reading...
The ladder provides the bondholder with a degree of freedom and some liquidity to take part in possibly improved interest rates in the future. The ladder strategy distributes your funds uniformly among bonds with various durations. For example, if you have $10,000, you buy one bond with a duration of one year, one bond with a duration of two years, etc. If the interest rates go up when the shorter-duration bonds expire, you will be able to reinvest this money with a higher coupon rate (of course, keep in mind that your longer-duration bonds would have fallen in price). Continue reading...
A barbell strategy avoids intermediate-term bonds and equally invests in very short term and very long term durations. The barbell strategy divides a sum, for instance $10,000, equally among bonds with short durations and bonds with long durations. If the interest rates will go up sharply, the proceeds from your short-duration bonds will be reinvested into new bonds with much higher coupons. If the interest rates drop sharply, the proceeds from the bonds with shorter durations will be reinvested at a much lower coupon, but on the other hand, your long-duration bonds will rise sharply in price. Continue reading...
Custodians are the institutions which hold your securities for you and provide some related services. Some will have various arrangements and relationships with exchanges and broker-dealers, and some may do everything in-house; such things have bearing on what your investment options are, how much equity you must have for margin, what kind of fees you pay for various services, and so on. Different custodians tend to structure their fees and services to a particular type of clientele or a particular account size. You may outgrow the custodian you have, or you may discover that there is a better, more affordable option for an account like yours. Continue reading...
Commodities can be acquired through brokerage services that can access the commodities markets, or you can buy the stocks of companies that bring commodities to market. Investors can also gain exposure to commodities through mutual funds and ETFs that focus on them. There are a few ways to invest in commodities. One simple way is to purchase the stock of companies that produce commodities. You can also invest through futures contracts, which are agreements to buy a certain amount of a commodity at a certain price at some point in the future; this is the primary way that commodities are traded. They can also trade at spot, which means at the current price, or through the use of other derivative instruments, such as options on futures contracts. Continue reading...
Residual income is a stream of income that persists from one work project or investment. Residual income is also known as passive income, and is income which comes from an investment of money or work in the past, where minimal or no additional money, work, or maintenance is required. Residual income could come from investments such income-generating real estate, or work completed such as a published book or acting in a commercial. Continue reading...
Momentum investors usually have their own models for determining whether they think a price trend (to the upside or downside) is set to continue - sometimes it’s looking at a 3 month trend, sometimes a few weeks, sometimes even longer. The idea is that once a trend is established, an investor can buy into its continuance (if its an upward trend), or sell into (or sell short) if it is an established downward trend. Momentum investing is by no means a proven method, but sophisticated investors will try to use models to increase their probabilities of success. Continue reading...
An investment center is an almost autonomous division of a company whose purpose is to generate returns on invested money. Cost center and profit center are terms used for various kinds of business divisions when observed from a solely financial, instead of operational, standpoint. These categories help a business to identify and group its similar assets for evaluation. A cost center can be turned into a profit center if it manages to reduce costs enough to generate a profit. Continue reading...