What is the purpose of investing? Your desire to transfer purchasing power from today to the future.
What are some reasons for investing? (1) financial emergencies (2) future purchases�(3) added income such as retirement (4) the ability to leave a large estate to heirs or charity.
Click on Stocks (side bar) for a list of indicators that value stocks, measure investment risk, and some stock investing fundamentals.
Click on Bonds (side bar) for bond terminology and bond fundamentals.
Click on Mutual Funds (side bar) for mutual fund information. Consider the age and size of a mutual fund. If the fund is new, it will not have a long track record with which to judge it. Also, the larger the fund, the harder it is to trade large blocks of stock without affecting the stock price.
Click on Annuities (side bar) for information, tips, and pros and cons of annuities.
Click on Benchmarks (side bar) for stock market benchmarks and tables of past market performance.
What is portfolio construction? Your financial planner should match investment products to your needs. He or she should consider your goals, specified time horizon, the amount and what type of risk your are willing to take, how much liquidity you will need, tax planning, and what financial resources you have that can be invested. The economy, changes in tax laws, and technological changes will affect these decisions and so the portfolio should be monitored on at least a semi-yearly basis. some other things that will affect your portfolio construction will be changes in your family.
The financial planner that you choose should analyze all pertinent information that you have before making any recommendations as to what investments you should make. He or she should do this because a financial planner has an obligation owed to you called "duty to diagnose" and this is important to the financial planning process. He or she should also inform you of the risk involved in specific investments, especially those where you are expecting high returns, as a crucial part of the duty to disclose.
Below are some things to consider when you are trying to find the right investment to suit your needs.
Try to decide where the economy is and where it is going. Good luck with this one since professional economists themselves often disagree in their projections. Anyway , do the best you can with this one as any information that you can add to the equation can only help.
Will you need income from your investments, capital appreciation, capital preservation, or a combination of the three needs?
Analyze the investment performance over at least one entire market cycle, which should includes both a bullish and bearish market. This will give you some indication of how these investments will perform in both types of markets. Also, compare your investment with investments of similar types.
Make sure you are comfortable with the person that will manage your investment.
Make sure you know upfront the fees and charges associated with your investments. Remember the higher the fees, the loser the returns.
Remember that interest, dividends, and capital gains are usually subject to federal income tax even if you choose to have the funds reinvested.
Rule of 72
A simple way to estimate the number of years it takes to double your money based on any particular rate of return is called the "Rule of 72". Simply divide the annual rate of return into 72. Example 10% interest into 72 = 7.2 years 4% into 72 = 18 years or if you have a specific time period divide the interest into 72 to come up with the approximate annual rate of return. Example 6 years into 72 = 12% interest. The "Rule of 72" provides an approximate answer.