Hot Stock Tip: Don't Take Tips

Well meaning friends and advisories often send out specific picks as to what to trade and when.

Unfortunately, there are inherent dangers in such programs, despite everyone's best efforts. First, even with Twitter, your mentor makes the trade, sends you the details and you must receive it. Then you act on it. Most often, you miss the move simply because of the time delay in this process. Imagine getting the message to buy long. By the time you get it, the trend reverses. In good faith, you buy long and quickly realize you're now in a 'hope and hold' situation. The move is over.

Frankly, as a trader, the last thing I'm thinking about when I'm looking to enter a position, is to send out a message. My focus is where it should be: on the trade itself. Be wary of traders who are not focusing on the trade at hand. Their concentration should not be on advising folks on trades in the moment; it needs to be on the trade at hand.

Secondly, and I stress this endlessly, you yourself should become the expert. It is you, who should learn how to read the technical indicators, make the assessments and determine the entry and exit points. As traders, you are not merely mechanics clicking the keys on others' whims. Be able to read the raw data and form your own determinations. It is actually not that difficult once you learn how. Imagine knowing this information and acting on it at will. Your money tree will always be in bloom.

Candlesticks are raw data. So are moving averages, stochastics and all the other input items that entail a trade. By relying on others - regardless of who they are - you are putting your faith and confidence in someone else's interpretation of what the markets are doing. Is this not the very reason you got into trading your own accounts? Did your financial guru not squander away your money already?

Recognize that traders who act on tips are likely an insecure breed with too much money, destined to lose it. Even if the tipster is correct, by the time you get the tip, it's history. In this day of the internet, everyone has essentially the same knowledge available. Learn to use it effectively and place the odds in your favor.

Tips are for waiters and cabbies, not to be played in the stock market.

A note about Hugh:

Trader Hugh is a successful, full time options trader and trainer on the NYSE. Learn but one strategy well and you could make an excellent living. As part of the training, Hugh provides 'one on one' sessions and Live Trading, where you watch and learn everything Hugh and his cohorts trade, every Tuesday and Thursday morning.

Enjoy a free trial with Hugh, just for the asking. Just reach out to me at http://www.estockoptiontrading.com/

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Performance and Behavior - Part 2

Last month we considered the idea that investor behavior accounts for far more of the real-life returns in an investment portfolio than investment performance. In fact, we showed how the Dalbar Corporation in their annual Quantitative Analysis of Investor Behavior, indicates that the average stock fund over the past 20 years had an average return of over 4 percent more - per year - than the average stock fund investor.

If this premise of "behavior trumps performance" is really true, then how can we explain the investing world as it has existed for decades? There are billions of dollars spent on advertising, analysts and infrastructure in this behemoth system of financial services that communicates and supports this message: "We can help you time the market just right. We can help you choose the best stocks to beat the market. Your investing troubles are over. We can be your guru." How do they make investors believe this? Basically, they baffle them, charm them and appeal to their emotions. They use every psychological fallacy, influence technique and emotional entreaty "in the book" to enact their plan of compliance. And it undoubtedly works with great efficiency and effectiveness.

I wish we could take the time and space here to talk about all of the techniques they use. JWA University has featured several books over the years that would explain many of them (such as Paradox of Choice, Economic Facts and Fallacies and Why Smart People Make Big Money Mistakes). But let's focus on just three emotional compliance techniques to make the point.

1. Appeal to Bias (or the Confirmation Bias)

X is true because I desperately want to find any possible evidence to confirm my bias and will selectively ignore anything that does not.

OR, for example:

The financial advisory system is structured so that "experts" can advise which stocks, bonds and other financial instruments can be selected and timed to provide superior returns on a consistent basis.

This line of reasoning is fallacious because it has no bearing on whether the belief is true or false. Just because the financial industry has successfully conveyed that this is a true statement does not support that the statement is true. But what a powerful impact this assumptive attitude has had. Ask any man or woman on the street what an investment advisor does and you will get an answer that contains similar components to "they help you pick winning stocks and advise you on when is the right time to invest." Both are exercises in futility.

2. Appeal to Authority (or the Expert Fallacy)

Person A is (claims to be) an authority on subject S.

Person A makes claim C about subject S.

Therefore, claim C is true.

This is a sister fallacy that often times simultaneously appeals to the Confirmation Bias and exponentially increases the behavioral influence over its victims. The Financial Industrial Complex will often parade what they claim to be "brilliant economists" who are adept at making the most accurate macroeconomic forecasts. Then they march their Chief Investment Strategist out to all the business talking head shows to convey the market metrics that coincidentally just happen to simultaneously promote his/her fund or fund family. The truth is that no matter what the market or economic topic might be, there will consistently be a healthy balance of "experts" taking either side of the claim made to the investing public. This gives investors ample opportunity to selectively cherry pick the experts willing to defend and deliver a "solution" that caters to his/her biases. These highly educated, highly paid, highly positioned executives make the case compelling. You can begin to easily see the pattern that is emerging with the coercing techniques. You are also catching on quickly I'm sure, that these are transferable to any walk of life in which one might want to make a point. Politics comes to mind...

3. Appeal to Emotion

Favorable emotions are associated with X.

Therefore, X is true.

This one may be the most effective and insidious of the three we have chosen to discuss. It is so simple and immutable. It works in almost any situation concerning any topic. But let me challenge you to do something that you will find intriguing. One evening while watching TV, just do an unscientific survey of the appeals to emotion in the commercials you see. Yes, this means you will actually have to watch them instead of fast forward through them. But within two to three hours, you will be fascinated with what you see. Note the recurring grandparent themes, or "saying goodbye", and the number of ads featuring dogs! (To make it even more fun, make a note concerning financial advertisements only.)

I think you would agree that believing something simply because A) you are looking to confirm your biases, B) an "expert" said so, or C) "it makes me feel good"; is NOT how a wise and prudent person makes good decisions. These items speak to the very essence of behavior - which is what we already emphatically stated - is the key to success.

So how do you feel when you consider how these and many other compliance techniques are employed on you constantly? Hopefully, by simply being reminded that techniques such as these exist, you may be able to inoculate yourself when they are used against your best interests.

Next time we will delve into some more practical applications of proper behavior as we consider the virtues of patience and discipline when it comes to investing. You may be surprised when you learn what these terms really mean to the wisdom based investor.

Until then, be on the lookout for compliance techniques in your life - and try to be on your best behavior!

Come visit our website at: http://jwafinancial.com/ and sign up for a free consultation today!

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Investment Basics 101

In order to invest you must first decide upon a particular type of investing. Once you do this, you can start teaching yourself more about your style.

Although each style incorporates different tactics and therefore requires a unique approach, most investment styles overlap when it comes to the basic elements.

To build a foundation, you will need to know the types of orders available.

Before we move on, you ought to know that stocks are the main instrument for investments. Each stock has a "ticker" symbol. For example, Apple's stock ticker is "AAPL". More importantly, stocks have a certain number of shares, and those shares are what you buy. Imagine you're buying a tiny piece of the company. The typical amount used when buying shares is 100, and it's called one "lot". Of course, you don't have to buy 100 shares, you can buy odd numbers of shares. Any number not rounded to 100 is considered an "odd lot". This means that if I buy 16 shares, it's an odd "lot" of shares.

Types of Orders:

There are two basic orders you can place: Buy and Sell. Each have variations however, which can make buying or selling a stock seem complicated if you don't know what you're getting into.

To start, the simplest order is a Market Order. This means when you place the order, you will get filled at the most immediately available price. If you buy at the market, you're purchasing a specific amount of shares immediately at the current price.

The other common order type is called a Limit Order. This is when you set a specific price to buy or sell at. To illustrate, if you want to buy a stock at $20, placing a buy limit order would allow you to buy the stock only until the price hits $20.01. Once the stock price buys/sells at $20.01 or higher, your order would not get filled. If you want to sell a stock at $20 using a sell limit order, the order would get filled all the way up until the price hits $19.99. At $19.99 or lower, your order would not get filled and the transaction would not take place. Basically, a limit order gives you some degree of control over the price you buy or sell a security at.

There are other types of buy and sell orders, but they are more complicated and will be explained at a later point in time.

Armed with the information from this article, you've almost learned all the basics. Visit How To Become An Investor to learn the rest, including an introduction to financial statements and what trading hours are!

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2013 And 2014 Bond Bubble - Best Investment Funds If Bubble Bursts

If the bond bubble bursts in 2013 or 2014 it will be headline news and it's best to know where your best investment funds - the best mutual funds to invest money in - are now. The best mutual funds to invest money in will invest your money in what are called "alternative investments". If you are not familiar with these specialty funds, it's time to pay attention.

There IS a bond bubble because bond prices are absurdly high, which has resulted in record low interest rates. If you are an average investor your best investment vehicle takes the form of mutual funds; but it's your job (or your financial planner's job) to find the best mutual funds to invest money in. Most investors (and financial planners) see only 3 basic choices to invest money in: safe investments, bonds, and stocks. Alternative investments like gold, silver, basic metals, real estate, natural resources, and other commodities and TANGIBLES are too often ignored.

I suggest that alternative investments are your best investment if the bond bubble bursts in 2013 or 2014 because tangibles like basic materials (like copper and aluminum), oil, and real estate have an INTRINSIC VALUE. They are not just financial assets like stocks and bonds. The best mutual funds will be those that invest money in these areas (for you). Here's the logic.

The bond bubble bursts - which means that BIG investors sell bonds and send bond prices into a tailspin. The really big investors (like insurance companies, pension funds, and mutual fund companies) SELL as much and as fast as they can. FEAR strikes the stock market and heavy selling sends prices (in general) down. Bond funds are pummeled and DIVERSIFIED equity (stock) funds are severely bruised. Where will the big investors invest money now? Since they've just cashed in billions and billions in the markets, the money they've taken in has to go someplace. And what about average investors who thought they owned the best mutual funds, bond funds?

Big money will flow to the money market (the safe haven). It will also search for the best alternative investment. For most people the simplest way to invest money in this alternative arena will be through specialty equity (stock) funds that invest money in stocks of companies involved in specialty areas like precious metals, energy, basic materials, and real estate. These should be the best mutual funds and your best investment to earn higher returns if the bond bubble bursts and the stock market in general tumbles.

The best investment strategy for 2013 and 2014 will be to cut your exposure to bond funds and general diversified stock funds. The best mutual funds to invest more money in: money market funds for safety, and specialty funds that invest in the "alternative investment" arena for growth and higher returns. The best investment portfolio should include all 4 asset classes: cash (safe investments), bonds, stocks, and alternative investments.

Should the bond bubble burst in 2013 or 2014 high uncertainty and risk will make it difficult to invest money and find the single best investment or best mutual fund. Spread your money around and diversify across the 4 asset classes to achieve true balance. That's the best investment advice I can think of.

Author James Leitz teaches investment basics, stocks, bonds, mutual funds and how to invest in his investing guide for beginners called INVEST INFORMED. Put Jim's 40 years of investing experience to work for you and get up to speed at http://www.investinformed.com/. Learn how to invest.

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Performance and Behavior - Part 1

Harry Truman once said, "The only thing new in the world is the history you don't know." This Yogi Berra-esque quote by the former president simply states the obvious. So how does this apply to the investing world?

For all the machinations that individual investors - and their investment "gurus" - go through trying to successfully time the market ups and downs or pick the hot stocks or mutual funds, there is one investing maxim that has stood the test of time: Investment performance means almost nothing in the long-term, investor behavior means almost everything.

To make this point, I would like to take you back in history some four decades, to a Friday the 13th in April of 1970. Does that date sound familiar? Apollo 13 is one of my favorite all-time movies. Perhaps you remember where you were when you heard about the difficulty our astronauts had encountered so many thousands of miles away that day. The fact that they returned home safely was at least providential - if not miraculous.

If you have an iPhone in your pocket, pull it out for a minute. It is estimated that this machine contains more computing power than existed on earth in 1950. When Apollo 13 blew up it destroyed the mainframe computer. The device you are holding in your hand is a million times smaller, a million times cheaper and a thousand times more powerful than all the computer power that was available to NASA on that fateful night. So what does this have to do with investing? More on that in a moment...

Let's go back to my statement concerning performance versus behavior. Each year, Dalbar, Inc., a securities market research firm, publishes a Quantitative Analysis of Investor Behavior. Since 1994, Dalbar has been measuring the effects of investor decisions to buy, sell and switch into and out of mutual funds. Once the investor data is compiled, the return is compared to the S&P 500 Index, which of course is a proxy for the U.S. stock market. The difference in the returns of actual investors against the S&P 500 provides a good way to measure the effects of A) seeking superior investment performance through active means (ie, picking and timing), as compared to B) regulating for proper investor behavior by holding a super-diversified passive portfolio for the long term and letting the invisible hand of the free market do all the work. Over the years, these reports have shown again and again that the average investor earns less than mutual fund performance reports would suggest. Why is that? Simply put, humans are emotional beings that make emotional, sometimes rash decisions about their money.

Here is more history to make the point: Dalbar reported the average stock fund investor had an average annual return of 3.49% for the period beginning January 1, 1992 through December 31, 2011 versus the S&P 500 return of 7.81% per year. The average equity investor underperformed the S&P 500 by 4.32% for the past 20 years on an annualized basis. And here is a calculation you won't be able to do in your head: If you had invested $100,000 in an S&P 500 Index fund on January 1, 1992, your account would have grown to just under $450,000 by the end of 2011 (This assumes tax-free growth in a retirement account). However, the average stock fund for actual investors' $100,000 would have only grown to a little over $230,000 based on Dalbar's behavioral research. How important is investor behavior? Shall we say doubly important.

Now, back to Apollo 13. What does it have to do with our conversation here? Optimism. No matter how optimistic we are about the future, we cannot be optimistic enough when it comes to the entrepreneurial commitment to excellence and the innovation that free markets spawn. In 42 years, we have gone from a rickety old space capsule (by comparison) to a small gadget that gives us the world at our fingertips. And by the way, the S&P 500 Index was at 87 on the day Apollo 13 exploded. I will say again - it was at 87. That is not a misprint. The day I wrote this article in early August, it stood at around 1400 - and that does not include the dividends paid over this four decade stretch. So we have experienced tremendous growth in the great companies in the supreme free market system of all of history. But this did not occur without setbacks. Since 1970, we've seen three years where markets dropped by more than 20% and 5 years where it dropped more than 10%. These down markets represent ample opportunities for investors to have behaved badly (i.e. panic and sell out at the bottom). But overall, the S&P is up about 1,440% since the day Americans held their collective breath for the safe return of our brave men.

As you can see from learning this new insight, the issue is not the market. Most everyone can make a financial plan work well with a market return on equities in their portfolio. The issue is behavior. How can investors behave in the right manner to assure financial success? This is where a real understanding of history comes in.

We have named our current monthly newsletter series "Wealth with Wisdom." I prefer the following definition of wisdom: rational action under uncertainty. 1 There is perhaps no better metaphor in modern day life for uncertainly than the stock market. Over the next several months we will try and provide an installment of wisdom that will benefit you and those you care about as you seek the best ways to behave when it comes to your money.

"A wise man will hear and will increase learning;
and a man of understanding shall attain unto wise counsel."
-King Solomon, Prov. 1:5

Come visit our website at: http://jwafinancial.com/ and sign up for a free consultation today!

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Business Opportunities For NRIs In The Indian Market

India is the largest democracy in the world. The country ranks second in the world in terms of total population. The liberalisation and globalisation of the Indian economy has led to more foreign direct investment (FDI) inflows in Indian markets. As a result, the scope for business in India has increased.

There are plenty of business opportunities in India for Foreign Investors, Non-Resident Indians (NRIs), Persons of Indian Origin (PIO) and Overseas Corporate Bodies (OCBs). The country offers liberal policy regime, along with easy availability of loans, funds and various other initiatives, which makes India a lucrative investment destination for NRIs and PIOs.

Some of the promising sectors where NRIs may invest include power, pharmaceuticals, mining, hotel & tourism, coal & ignites and other infrastructural projects. NRIs can also invest directly in Indian real estate except buying agricultural lands or plantations. They can look at huge number of central and state sponsored projects in key infrastructural sectors like education, healthcare and construction for higher returns.

Business Opportunities in India

Some of the major factors that help businesses in India to flourish include:

* High number of people with disposable income, emerging middle class, low cost competitive workforce, and investment friendly policies

* Availability of rich natural resources

* Availability of a considerable section of population proficient in English

* A well-established banking system consisting of public and private banks and other financial institutions

* Competitive advantage in Information Technology, which can be used to enhance productivity in Industries

* Improved infrastructure for business ventures

Steps for NRIs /PIOs to start business in India

* Applying and getting PIO card (Person of Indian origin) - to make investments in properties, etc

* Getting permanent account number (PAN card) from the Indian tax department, making it smoother to undertake all business and investment transactions above Rs. 50,000

* Selecting a right and highly profitable business in India among various available options

* Selecting an experienced person/ business professional to plan business and investments

* Selecting a business partner in India and start a business

Investors can also take the help of business incubators and facilitators to become established and sustainable during their start-up phase. Business incubators are programs designed to nurture the development of entrepreneurial companies. They provide the companies with business support services, business advice, assistance with business planning, market and international networks, and also help in obtaining finance. Incubators usually offer companies rental space with flexible leases, basic office services and access to equipments all under one-roof. Successful completion of a business incubation program increases the chances of a start-up company to stay in business in India for long term.

Government Initiatives

To attract foreign investment into India, the Government is offering several facilities to NRIs, PIOs and OCBs. The economic reforms have brought policy changes in terms of ease of entry, investment, location, usage of technology, import and export. These changes have created an investment-friendly environment, which results in more business opportunities in India.

NRIs are permitted to open bank accounts in India with funds remitted from abroad, foreign exchange brought in from abroad or with funds legitimately due to them in India, with authorized dealer.

Further, the Reserve Bank of India (RBI) has granted general permission to NRIs/PIOs, for undertaking direct investments in Indian companies under the automatic route.

Harjeet is an Indian - born mass-market novelist, who covers the world internet related topics. He writes columns and articles for various websites and internet journals in the domain of Business Opportunities in India and Business in India.

OIFC

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How to Invest For Profit

People are often looking for new ways to create additional money to help them pay their bills and general expenses which are seemingly going up at a faster rate than wages, or to get rid of or at least reduce the day-to-day stress involved with the traditional work place.

Perhaps you are looking to make life a bit easier for you and your family by earning extra money each month. Or perhaps it is your intention to possibly replace your job income to enable you to become time free. Whatever your incentive is you have to establish what you expect to gain from your endeavour.

This would be the starting point in formulating a detailed plan which will allow you to achieve the level of income that you need. For example if your goal is to earn $3,000 a month then your plan for achieving this would have to be significantly different if your goal was to earn a few hundred dollars a month.

There are many ways to achieve your goals. One possible way is to develop your very own investment portfolio. It is possible that in a relatively short period of time (it will not come overnight however) you could you reach your goals whatever they are, without necessarily having to spend thousands in the process.

Leave nothing to chance and with some helpful information you can succeed. However a cautionary note like everything else in life there can be no guarantees that you will be successful.

Making investments can be very daunting if you are new to the game and have limited or no experience. Initially it can seem that your investments are increasing nicely and then the opposite happens, with you facing a potential loss.

No one wants to see their investments heading the wrong way but there are things that you can do to minimise this risk. Whatever the market there are ways to boost profits and limit losses and there is help available for you to help you achieve success.

It does not matter where your interest lies it could be in stocks, commodities, FOREX, options, or even real estate there is further information available to help you whatever market type you are interested in.

Having the most suitable knowledge available can be the difference between success and failure, knowledge which is appropriate and applicable to each the type of market featured.

Different market types and trading styles can be more profitable at different times, and consequently the knowledge is available which will help and educate you in this respect.

The right knowledge can mean the difference between success and failure. The Investing for Profit Mall site is there to provide you with the knowledge suitable and applicable to each type of market featured.

So go ahead, look around and find the investing strategies that are right for you by visiting the links page at:

http://www.howtomakemoneyonline.uk.com/

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More Faith In The Future

"Every decision is risky; it is a commitment of present resources to an uncertain and unknown future." - Peter Drucker

This quotation reminds me of three things about life:

Number 1: Risk is a way of life. There is simply no avoiding it in any realm. Our job is to assess and choose the risks that we believe will pay off the most (or cost us the least).

Number 2: We must decide to do something. To do nothing is really a decision to do something - nothing. Furthermore, when we decide we must be committed to it.

Number 3: The future is uncertain and unknown. But would we have it any other way? That is exactly what brings the adventure to life, isn't it? The upside resides only in the unknown.

It is always amazing to see studies like the one Franklin Templeton did over the last three years in which they surveyed 1000 people to see how they thought the stock market had performed. In all three years (2009, 2010, 2011) half or more of the respondents said the S&P 500 had ended "down or flat" for each of those three years. The reality? 2009 +26.5%, 2010 +15.1% and 2011 +2.1%. So maybe they did not miss it by much last year, but the point is there is a negative bias among most Americans when it comes to the economy. This is because bad news sells advertising. Therefore Americans are inundated with bad news which shapes our view of history AND the future.

But news outlets who are trying to sell ads are not the only culprits. I believe there is a prevailing sentiment in our nation in which certain political persuasions want to set a negative tone about the future in order to gain more dependency on government and this affects investor behavior very negatively. Think about this. How often do you hear the word "sustainable?" Sustainable energy, sustainable food, sustainable communities. We have centuries worth of oil and natural gas within our borders alone - and that does not count that which we have not yet discovered or accessed. Farmers in America are paid NOT to grow more food. We have natural resources that have not been touched and open land as far as the eye can see that can support communities far and wide. Is it possible that government would rather us not be so optimistic so that they may enact more control? "Sustainability" maintains that aura of "Uh oh, we are running out of something - or everything. Better just hope we can sustain it." How about we just open up markets and reduce taxes and regulations so we can thrive? To me, sustainability is code word for "we give up." Forget that.

Additionally, as we see much of American history erased from the texts books in our schools, I believe it has a measurable effect on our view of the future. You have heard all the lines... "Those who refuse to learn from the past are doomed to repeat it."... "The more we know about the past, the more we can predict the future." Well if the past is portrayed only in incomplete terms, where does that leave us? Many are asking us to eschew capitalism in favor of more "certainty" in our future; via greater government programs. One tactic to win minds to this way of thinking is by revising our history to write out American Exceptionalism and write in America's shortcomings and mistakes. I say tell it all.

But don't leave out the greatness of our story - how we came together to form a new nation of historic and even EPIC dimensions. It had never been done! America truly is a miracle. We must tell our children that great men and women of optimism have always come together in difficult times to find solutions. We must show how the free market gives us the capacity and opportunity to do anything we set our heart and mind to do in this country. Because we are free. This grand bargain of security for less freedom - they can keep. The supposed future of "certainty" which limits risk, also limits opportunity. The notion of making everyone equal in the economic outcomes of their lives is a recipe for failure.

It has been tried and has never worked. In fact it cost not just billions of dollars, but over 100,000,000 lives in the 20th century. We must maintain our faith in the future. The facts of the market tell us this over and over again. See the evidence. An old joke in the USSR said, "In Russia, the future is predictable. It's the past that keeps changing." Let that sad joke of the Soviet Union never be said of America. Because if we choose to sit down and not correct those who rewrite or omit history, then they - not we - will write the future. Optimism must always be the only reality. Spread the word.

Come see check out our website at: http://jwafinancial.com/ and request a free consultation today

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Tactical Asset Allocation Can Be Successful - With the Right Model

Portfolio returns in excess of an index can be achieved through active investment management in two ways: security selection, and active (or tactical) asset allocation. Research shows that about 90% of a typical balanced stock-bond portfolio risk and return comes from Policy asset allocation - see Brinson et.al. (1986, 1991), Ibbotson & Kaplan (2000). Clearly, potential for adding value through actively managing asset allocation is at least as large as from active security selection. However, while active security selection is widely practiced, tactical asset allocation (TAA) has been largely overlooked or out of favor. Here, we discuss some of the reasons for this, and describe the process that should be followed in order to successfully perform TAA.

TAA is an investment strategy that centers on altering investment proportions to take advantage of differences in expected performance and risks of broad asset classes (such as stocks and bonds) or sub-classes (such as U.S. and global equities). Several requirements to the investment process stem from this definition. First, the responsibility for TAA must be placed with the group within the investment organization that spans across asset classes - typically the office of the Chief Investment Officer. Second, it has to be based on accurate, timely asset mix information (actual and benchmark). Thirdly, the effect of these investment decisions has to be measured as part of performance evaluation. Lastly, TAA decisions have to be largely based on systematic quantitative results rather than on judgment.

Because the implications to performance are so large, many investment managers already attempt actively managing their asset allocation, even if implicitly. You may hear this in your investment strategy meeting: "We want to be positioned defensively due to anemic economic recovery in the U.S." (or due to "debt crisis in Europe" or whatever the current concern may be), or "We would like to take advantage of the rally in equities." However, doing this implicitly, without the proper process and structure, is dangerously likely to result in underperformance.

Clearly, successful TAA requires timely, accurate calls on expected asset class performance. "Active management is forecasting", say Richard Grinold and Ronald Kahn in their well-known book Active Portfolio Management (1999). The authors establish the following relationship between active return (alpha) and forecasting skill, or information coefficient (IC):

a = s * IC * Score

The key to achieving good performance from TAA, therefore, is the skill (IC) of forecasting asset class returns.

This, of course, is not easy. Qualitative judgment is likely to be affected by the prevailing sentiment in the market which will be exactly wrong at market turning points. Many managers use a set of indicators to help determine future market direction. This is a step in the right direction, but at any point in time, there usually is about the same number of indicators that give a positive signal as negative. How do we know which indicators are currently relevant, and what the proper weights are to each? In addition, a set of disjointed indicators cannot produce a history of return forecasts, which is required in order to determine if the method has any skill. One needs to combine predictor factors into a consistent statistical model that produces return forecast series, correlating which to actual returns gives IC.

Numerous published studies have tested predictability of the stock market via factor models. Generally, they find little evidence of out-of-sample forecasting ability; small excess returns that are achieved by some models often don't justify the costs. It is common to interpret these results as not supporting the idea of actively managing asset allocation at all. But there is light at the end of the tunnel!

We attribute the lack of success of the forecasting models commonly described in academic literature to two reasons. First, while some of them are quite sophisticated from the statistical standpoint, they tend to miss important aspects of what works in investment practice. Second, researchers often limit the set of factors to only a few variables that are commonly described in macro-economic literature as drivers of business cycles. We found that using much broader set of variables selected empirically rather than fitting a pre-defined economic theory, is necessary to build a model with good forecasting ability. These variables should include economic, valuation and market factors employed by investment managers as predictive indicators. An example of a factor that is not common is the CBOE implied volatility index ("VIX"), which is known by practitioners to be inversely related to market returns.

Thus, we recommend that investment organizations develop return forecasting models that address these shortfalls, provided that the organization can devote proper resources to it. The focus should be on equities as the main source of return variability in a balanced portfolio.

Alternatively, an investment manager may wish to partner with a research firm that provides return forecasting. This solution has clear advantages for many managers. First, it is cost-effective - creating an internal research team to spend considerable time (likely years) developing models would be expensive, and success would not be guaranteed. So, outsourcing this from a vendor of return forecasts may be the only viable solution for sophisticated smaller managers. Secondly, immediate access to vendor return forecasts can potentially help improve client portfolio performance much sooner than an internal solution.

Books:
Richard Grinold, Ronald Kahn
"Active Portfolio Management: A Quantitative Approach for Producing Superior Returns and Controlling Risk" (1999)

Links:
Performance Analytics Inc.
Equity index return forecasting
contact@parmodel.com
http://www.parmodel.com/

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Commercial Property VS Residential Property

Cost

Commercial property purchases tend to be larger projects, requiring greater outlay than residential property investing. Deposits also usually need to be larger - for commercial properties the purchaser usually needs to put up at least 30 per cent of the purchase price. Interest rates on commercial loans also tend to be higher.

Compared:

Commercial: larger properties and usually a larger minimum deposit required, at at least 30 per cent of total purchase price.Residential: - smaller deposit required, usually at least 80 per cent of total purchase price but in some cases purchasers can borrow up to 100 per cent.

Returns

Net income for landlords tend to be higher for commercial investment, ranging around 7 - 10 per cent after costs. In part this is due to the fact that tenants pay for insurance, ongoing maintenance and other outgoings.

Compared:

Commercial - tends to attract higher net income. Tax deductions can be more substantial as depreciation tends to be higherResidential - investors usually need to pay all maintenance and associated costs.

Length of Leases

Commercial contracts attract longer lease periods. Most commercial leases are signed for three years or more.

Compared:

Commercial - leases are longer, being usually three years or more, and even up to 20 yearsResidential - shorter leases of around six - 12 months in length

Risk and Property Values

While historically, the majority of residential property has tended to double every decade or so, demand in commercial property can fluctuate with the business cycle. However, both types offer good capital growth opportunities for keen investors.

Compared:

Commercial property - property value growth is harder to predict, but risk can be minimised by choosing to invest in a popular and in-demand commercial areaResidential property - property value growth tends to be more predictable, with steady growth in demand pushing up prices over the longer term

Maintenance Costs

Most residential property maintenance is the responsibility of the landlord, while the leasor or the owner of the commercial property usually passes on responsibility for maintenance to the commercial tenant.

Compared:

Commercial property - the tenant has responsibility for ongoing maintenanceResidential property - the landlord covers maintenance costs for the property, though this can be negatively geared

Tenants

Residential properties are generally easier to let as it takes longer to find commercial tenants. However, commercial tenants tend to pay more attention to maintaining the property as part of their business, and this may even be a condition in commercial leases.

Compared:

Commercial property - commercial tenants tend to keep properties in their original condition or even improve themResidential property - residential tenants tend to be easier to find than commercial tenants

Both types of properties have their pros and cons and it's advisable to research the types properties well before you make an investment decision and start thinking about issues associated with purchasing such as stamp duty, home loan fees, property law fees, tax, and other issues.

View the original article here

Best Types of Investing Education

Online training in investing education is the best option for useful information today. Students who get educated through distance learning are motivated individuals who can easily adapt to different mediums and dynamic training methods, which help them to have a unique perception of what investing education is all about. This develops their quantitative and practical goals. The student gets updated with the field's latest trends. Online training in investing education is a practical approach to student's personality development. Full-time workers who get stuck in their jobs all day long and to those who don't have enough time, online investment education can be a gift to them using which they can achieve financial freedom.

A good positive impact for the students is the mindset development, where they can obtain a perception of a successful investor and become smart. This is possible with online investing education. They will learn how to invest and to generate a high income just by doing a minimal work. The students become instinctive and start to take rational and smart decisions which lead them to ultimate millionaire's mindset .You can start taking lessons on Investment education at a very young age even though you do not have money to invest, so that by the time you have enough money to start investing you would be ready with a better understanding on financial markets and would know exactly where to invest, when to buy, when to see and how much time should you hold the stocks. An individual is never too young to learn "investing education" as this will help him in achieving the ultimate freedom financially

Online investing education will not only help the students in teaching the methods to become a smart investor, but also will give you the definitive instinct to become intelligent and smart in investing and in turn helps to become a wealth creator.

Other ways of investing education include the gaining timely knowledge through news papers and dedicated business channels on the television. If you pursue Investment as a full time career then this modes of investment education will be highly useful. On the other hand if you are a part time investor then online investment education suits you more. Person to person transfer of knowledge will also help, if you are unsure of what to do, just go to a good, experienced investment broker and get educated. There are many good paper-practice trading platforms that are offered by some good brokers and other financial institutions; you can use them to full extent till you get ready to start investing.

Investing requires time and effort, so after you start investing you should always keep in touch with the general trends. So investing education is a necessity to every one and it is a continuous and a never ending process. The more you get educated, the more you gain perception and knowledge that are very essential to hit the bull's eye.

Learn more about investing education [http://www.investment-help-info.com/Investing-Education.html] or follow the links to an archive of closely related articles to investing education [http://www.investment-help-info.com/Investing-Education.html].

Mr C M LATTER

Beginner Stock Market Investing Tips

There is no certain time that a person should decide on when deciding to start investing even with the the economy getting worse and worse. There is also no particular product that you start investing your time and money is right away. The best thing a person could do is sit down and look at all the options that are offered and choose the one that fits you and your budget the best. The number one thing a person looking to getting started in investing could do is to first learn the stock market investing basics and get as much information as possible from different very well known sources.

The longer you spend in investing, the more you will come to know about the ins and out of investing. Beginner stock market investing is listed on tons of great website's that can help you along the way. The best thing a person could do for themselves would be to start very simple. It is a good idea to start investing in smaller funds first and then expand when you feel comfortable. There are so many different avenues to take when investing in the stock market so choosing the right one for you is the best route to go.

The first thing that a beginner in stock market investing should do would be to sit down and figure out what your investment goals are - be it big or small. Some questions that you may want to ask yourself are:

Are you going to be investing in the short term or the medium term?
Are you doing the investing for your retirement?
Do you need to invest to get money before your retire?
Are you saving for your children's college?

Those are just a few questions a person may want to ask themselves before diving right in. There are also many different types of investment accounts that you may want to start investing your money is when starting such as:

Certificates deposit
Discount Brokerage
Full Service Brokerage
401K or 403B
Traditional IRA

Again those are only a sampling of what is out there for investing purposes. Be sure to take a closer look at all options before beginning your investments.

Once your investment accounts are open and you have put your finances in, it is time to depart on the investing process. Some great stock market tips that you may want to follow would be to:

Choose your levels that you want to invest in.
You will want to choose your asset class to invest in. Such as money market accounts or CDs.

Once you've pegged down how you would like to invest then it is time to determine the actual investments. Shopping and looking around for the highest percent possible on your CDs will help you gain the most money possible. It's a good idea to see which firm is offering the best deals by visiting a few brokerage firms or banks. The most popular investment is to trade stocks. Starting with mutual funds is always a great idea for investment beginners. You should look into investing in Bond Funds if you are nearing retirement age. You can of course use them if you are young but they are mostly done by the older generation.

Taking the time to sit down and determine the best things about investing will benefit and make you more money than upright jumping right in. It is very important to remember that the stock market is very risky and there is no guarantee that you will make any money. It is very possible that you may lose all your money in your investments. For someone who is a novice in stock market investing you may desire to talk to a few banks or brokerage firms. If you need help just ask - they all have people who would be willing to help you. The stock market can be a very rewarding thing just take time to learn as much as possible so you will be sure to benefit from it in the end.

Qwoter provides free stock tips and investment advice. By giving each investor and stock trader with the tools, news and information so they can find the next hot stock themselves - all for free! Learn the stock market investing basics to protect your money and investments.

How to Invest the Easy Way

Learning how to invest requires time and effort. Fortunately, mutual funds have simplified investing for the average investor. In the past few years the process of selecting mutual funds has been made easier. Target retirement funds are now available through major mutual fund families, and are offered by many 401(k) plans as well.

The target retirement fund advantage: one-stop shopping, virtually no investment knowledge or experience necessary. Just buy and hold, pay your fees/expenses and maybe sales charges. Professional money managers handle all of the investment decisions based on the retirement year you pick. Just select the target fund closest to the year of your planned, or past, retirement. Example: target retirement 2030 fund would be appropriate if you plan to retire within two or three years of the year 2030.

Once invested you never need to make another investment decision or worry about how to invest. As you approach retirement and become more conservative, so does your investment portfolio.

Target retirement funds are typically mutual funds that simply invest in other stock funds, bond funds, and money market funds of the same mutual fund company. Target funds dated far into the future, like target 2040 or 2050, will be heavily invested in stock funds for many years to come. If you invest in a target 2020 fund today, your money will be invested primarily in stock funds and bond funds, mostly stock funds the first few years.

If you are already retired and don't know how to invest, you might consider putting your nest egg into the safest of these funds, the retirement income fund. These target funds invest about 80% of your money in safer income-producing investments like bond funds and money market funds to provide you with income in retirement.

It doesn't get much easier. Plus, you can save thousands on mutual fund sales charges by buying one of these funds through a no-load mutual fund family instead of through an investment professional.

Target funds are the easy way to invest in a professionally managed retirement portfolio targeted to your station in life. The idea behind these investments: young people need growth and can accept higher risk, middle-aged investors will accept moderate risk for higher-than-average returns, and older folks will accept some risk to earn a higher level of income in retirement.

The problem is: if you don't understand investment basics or how to invest based on your personal risk tolerance, you might select a target fund that is not really suitable for you. In other words, the same shoe will not fit all investors of a given category. Some young people are conservative, and many retired folks are uncomfortable taking even a small risk with their retirement nest egg.

Like with any other mutual fund, you need to understand the nature of the investments held in a target retirement fund portfolio. Virtually any of these funds can lose money, and in 2008 the vast majority of them did. Why? Because these funds have market risk, and 2008 was a horrible year for the stock market. Let's take a closer look at the risk involved.

If you plan to retire in 2040 and invest in a target retirement 2040 fund, 90% or more of your assets will be invested in stocks. If the stock market drops 40% as it did recently, expect that you will lose almost 40% of your investment value. A 2050 target fund could be 95% invested in stocks.

If you plan to retire in 10 or 20 years, beware that a 2020 target retirement fund will be about 60% invested in stocks and a 2030 fund about 80%. If you are not comfortable with this risk, consider putting all or some of your retirement assets into a safer target fund. For example, a 2010 fund bought today would only be about 25% invested in stock funds.

If you are retired, your obvious choice appears to be the retirement income fund. These funds might invest about 20% in stock funds and the rest in bond funds and money market funds. There is other risk here as well, because long-term and intermediate-term bond funds have interest rate risk. If interest rates in the economy go up significantly, more than likely the value of these funds will fall.

The simplicity of target retirement funds is a nice feature. Just be aware of what you are getting into before you put all your eggs into one basket. Never assume that everything will be just fine. There will always be bumps in the road ahead.

It is always better to be informed so you can deal with difficult times, and avoid major losses. Do yourself a favor and learn how to invest.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com .

Learn to Invest Successfully

Learning to invest requires a knowledge of both investments and investing. You must first understand the nature of the investment options available to you. Then, you'll need to learn investing strategies that you can use in order to manage your investments successfully.

If you learn to invest as an informed investor, better long term returns are achievable at only a moderate level of risk. Huge losses of 40%, 50% or more can be avoided even in times of financial crisis and a stock market crash.

We will use Torie and her 401(k) plan as an example of how to invest. She is willing to accept a moderate or medium level of risk. Her plan offers 20 different investment options, varying in terms of safety vs. income vs. growth potential or higher returns.

Torie's first and most important investment/ investing decision is how to allocate her money across the various asset classes or investment choices available to her. In other words, where to invest money, and in what proportion or percentage is the question.

Since Torie already has a sizable amount of money in her 401(k) and is adding or contributing more each payday, she will need to make asset allocation decisions on two levels.

She decides to allocate the money in her existing portfolio so that 25% of it is very safe, 25% is relatively safe and pays a higher income, and 50% is invested at greater risk but offers the potential for higher returns. Then, to keep it simple, she decides that her future contributions from her paycheck will be allocated likewise: 25%, 25%, 50%.

Let's take a closer look at Torie's investment choices and her investing strategy.

Of her 20 investment options, two are safest: a stable value fund that pays interest, and a money market mutual fund that pays a dividend, interest, that varies with prevailing interest rates. Torie decides to allocate 25% of her portfolio assets and new contributions to the stable value fund, because it usually pays a higher rate than the money market fund. Thus, 25% of her assets will be invested safely.

Three of her options offer higher income in the form of dividends. These choices are riskier than the two above, but not as risky as stocks. Because they invest in either long-term or shorter-term bonds, these are called bond funds. Torie selects to have 25% of her existing portfolio, plus 25% of her future contributions to go to the intermediate-term bond fund. It offers relatively high dividends with only a moderate level of risk.

The other 15 choices are either stock funds, or hybrid stock funds that invest in stocks plus some bonds as well. These hybrids are called balanced funds. The stock (or equity) funds available to her range from aggressive growth funds to international stock funds to conservative stock funds to specialty stock funds.

Torie will have 50% of both her portfolio and her future contributions invested in stock funds, but she will mix it up so that she is diversified. Her largest holding will be a large diversified stock fund that invests primarily in stocks of major U.S. corporations. The remainder of her money earmarked for stocks will be divided between an international fund that invests in foreign stocks, and a specialty fund that invests in stock of companies in the real estate business.

Torie's asset allocation, or investment mix, will look like this:

*25% to the stable value account

*25% to the intermediate-term bond fund

*25% to a large equity-income fund

*15% to an international stock fund

*10% to a real estate stock fund

Her total adds up to 100%. All future contributions going into her 401(k) account will be invested based on these percentages unless she decides to change them. For example, as she ages she might want less going into stock funds.

Torie's portfolio will be invested based on these percentages also, at the time she instructs her plan to allocate her assets in this way. Over time, however, her portfolio allocation percentages will change as some of her investments perform better than others.

It is Torie's responsibility to assure that her portfolio allocation percentages do not get out of line. It is up to her to rebalance her portfolio periodically, like once a year. Whenever the 25%, 25%, 25%,15%, 10% targets change significantly, her attention is required.

Example: The stock market has been on a roll for three years and Torie's large equity-income fund is now 35% of her total portfolio value vs. the 25% target. Her stable value account now represents only 15% of the total vs. 25%. Torie needs to rebalance to get back to her targets by moving money from the stock fund to the stable account.

As Torie ages she will need to change her target percentages to make them more conservative. She will want less invested in stocks, and more in bonds and safer fixed investments when she retires.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com.

"Learn to Invest" Investor Quiz

Are you up to speed on investment basics and investing strategies? Test yourself. Perhaps it's time you learn to invest. Answer true or false to the following questions, the correct answers follow. Your first investment lesson also follows the quiz.

1. Stocks and bonds are both equity investments.

2. Bonds are poor investments when interest rates are rising.

3. High and rising interest rates are usually good for the stock market.

4. The three basic types of mutual funds are growth funds, income funds, and stock funds.

5. Most Americans invest most of their 401(k) assets in mutual funds.

6. Stock funds are riskier than bond funds and pay higher dividends.

7. Portfolio rebalance and dollar cost averaging are sound investing strategies for average investors.

8. Money market funds invest in stocks, bonds, and short-term debt.

9. Real estate investing usually involves financial leverage which acts to enhance safey.

10. You can indirectly have an investment in gold by owning shares in a specialty mutual fund.

Tally your score. Only questions two, five, seven, and ten are true. If you only missed one or two answers, you know some investment basics. Even so, you probably need to learn to invest using proven investing strategies. If you missed three or four you need to learn investment basics and investing strategies. If you missed five or more you need to get busy and learn to invest.

Here's a brief explanation of the correct answer to each question. Consider this your first investor lesson.

Question #1: Stocks are equity investments, representing ownership. Bonds represent debt.

Question #2: When interest rates go up, bond prices or values go down, and bond owners lose money.

Question #3: High and rising interest rates have a negative effect on corporate profits. This tends to send stock prices down.

Question #4: The three basic types of mutual funds are money market funds, bond funds, and stock funds. Balanced funds might be considered the fourth basic type, and they invest in stocks, bonds, and money market securities.

Question #5: Mutual funds are the lion's share of the investment options offered in typical 401(k) plans. Most 401(k) investors allocate most of their plan assets to them.

Question #6: Bond funds pay higher dividends.

Question #7: Portfolio rebalance and dollar cost averaging are valuable investing tools or strategies for average investors.

Question #8: Money market funds invest in high-quality short term debt, money market securities.

Question #9: Financial leverage means borrowing money, which is typical in real estate investing. This increases potential returns, but increases risk to the investor.

Question#10: By owning shares in a specialty mutual fund, a gold fund, you can profit as the price of gold rises.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com.

8 Reasons to Invest in Australian Property

Property and especially Australian property is an excellent investment. Not only is it much harder to lose money in property than in the stock market, but with property you also benefit both from steady capital growth and from rental income. And as rental income increases over time it protects you from inflation. At the same time you can borrow money to buy property and despite Australia's high taxation environment, property investment can be very tax efficient.

Let's have a look at these advantages and some more beneficial aspects of residential property investment in a bit more detail.

1. An investment market not dominated by investors

First of all, you need to realize that some seventy percent of all residential property is "owner occupied" and only thirty percent is owned by investors. That means that residential property is the only investment market not in fact dominated by investors, which means that there is a natural buffer in the market that is not available in the share market. To put it simply, if property values crash by 10%, 20% or even 40% we all still need a home to live in and so most owner occupiers will simply ride out any major crash rather then sell up and rent (compare this to the stock market where a major drop in prices can easily trigger a serious meltdown). Sure, property values can and do go down but they simply do not show the same level of volatility as the share market and property offers a much higher level of security.

And if you don't believe me when I tell you that residential property is a safe investment, then just ask the banks. Banks have always seen residential real estate as an excellent security and that's why they' lend up 90% of the value of your property; they know that property values have never fallen over the long term.

2. Sustained growth

Property prices in Australia tend to move in cycles and historically they have done well, doubling in cycles of around 7 - 12 years (which equates to about 6% to 10% annual growth). We all know that history is no guarantee for the future but combined with common sense it's all we have. There is no reason to think that the trends in property of the last 100 years would not continue for the next few decades, but to be successful in property investment you must be prepared and capable to ride out any intermediate storms in the market, but that applies to any investment vehicle you choose.

Australia's median house price between 1986 and 2006 as published by the Real Estate Institute of Australia (REIA) shows that back in June 1986 you would have bought an average home for $80,800. That same home would have been worth $160,500 in 1986, which is pretty much double of what you paid 10 years earlier. Another 10 years later in 2006 that average home was worth some $396,400. So between 1986 and 2006 that average home went up by nearly 400% or about 8.3% per annum.

Not bad. And quite in line with the longer term history.

In fact, as Michael Keating points out in his blog on 24th January 2008 (Why Melbourne's properties will keep rising), it is actually on the low side compared to the historical average. Australia's property prices have been tracked for something like the last 120 years and on average they have risen 10.4% per year. Just in case you might believe that had to do with Australia being a newly found colony, and don't believe this would be sustainable in the long term, consider this. In the UK records of property sales go back till 1088 and analysis of the data shows that in those 920 years UK property on average has gone up by 10.2% per year.

3. Buy It With Other Peoples Money (OPM)

Now just in case the above has not been enough to convince of the value of residential property investment, let me tell you one of the great secrets of creating wealth, which also applies to investing in property. The secret is OPM. Other Peoples Money.

Secret? No - that's just marketing hype you see on the web, but the power of Other People's Money or more common referred to as leverage or gearing is absolutely critical to building wealth. And, in the case of property the leverage you can apply is substantial. As I mentioned above, banks love residential property as security and therefore will easily lend you 80% or 90% of the value.

It was Archimedes who said, 'Give me a lever and I'll move the earth'. Well, as an investor you don't want to move the Earth, you just want to buy as much of it as we can! When you use leverage you substantially increase your ability to make profit on your property investments and, importantly, it allows you to purchase a significantly larger investment than you would normally be able to.

Let's have a look at how this works. Imagine there are five investors each with $50,000 to invest. Say they all buy an investment that achieves 10% growth per annum and has a rental yield (or return) of 5% per annum. Investor A borrows 90% of the value of his investment property (Loan to Value Ratio or LVR of 90%) and investors B, C and D borrow 80%, 50% and 20% respectively. Investor E doesn't borrow at all and goes for an all cash transaction.

Let's start with cashflow, which is here simplified to rental income minus interest paid. Investor A, who geared 90%, has a negative cashflow of $15,500 for the year whilst Investor E who borrowed no money at all has a positive cashflow of $2,500. But that's not the whole picture because each of the properties increased in capital value and once we include that the picture changes significantly, Investor A has a net worth increase of $34,500 whilst Investor E who didn't gear increased his net worth by only $7,500. In terms of return on investment Investor A achieved a 69% return on his initial $50,000 whilst investor E achieved a return of 15%.

That's pretty impressive for one year. And if the investors let their properties grow one or two full cycles we're talking about serious wealth creation. And once the investors have enough equity in their investment property they can use that to fund a second purchase which after a few years growth will allow the purchase of a third and we're on our way to wealth! That is, those investors who geared as Investor E is not going anywhere fast.

However, it is not all that easy. As you saw Investor A incurred a negative cashflow in his first year and would continue to do so for a few years until the rental income had grown sufficiently to pay his interest. He has to fund this annual shortfall from his salary. And this is called negative gearing - you borrow money to generate capital growth in your property but incur an annual shortfall in the near term. For most investors this means there will come a limit on how many properties they can buy with negative gearing, as they don't have too much spare income. If you look in our strategy sections you can read more about negative gearing and techniques to avoid paying the shortfall out of your own pocket. We also address cashflow positive properties.

But let's get back on topic and have a look at some more compelling reasons to invest in Australian residential property.

4. Income That Grows

We've discussed that Australian residential property vestment is safe, with long term growth prospects and combined with the right level of leverage can create significant wealth. We also briefly touched on the fact that it generates a rental income. The good thing is, that over the years the rental income received from property investments has increased and this increase has outpaced inflation. In fact the last few years have shown tremendous increases rents - I know because the rent on my investment properties has been booming. Still is actually.

Ok, but are rents likely to keep growing? Well, statistics show that the level of home ownership is slowly decreasing in Australia. There are a number of reasons for this like demographic trends but, in particular, as property prices keep rising, fewer people are able to afford their dream homes. The latest Australian Bureau of Statistics figures confirm that more and more Australians are renting and many industry commentators are suggesting that the percentage of Australian who will be tenants in the near future will go up to 40%. So demand is growing. We also know that supply of good quality rental properties is limited (very low vacancy rates across all of Australia) and the government is having difficulty providing public housing. So all in all, it is very likely that rents will continue to grow at a pace faster than inflation - good news if you intend to become a property investor!

5. Tax Efficient

When it comes to investing in property, your best friend is the bank as they provide the leverage you need to accelerate your wealth creation. Your second best friend is your tenant, as without a tenant your investment property would stand empty and your third best friend is the taxman.

The taxman? Absolutely. How can that be when Australia is not know for attractive tax rates, in fact the opposite?

Well, first of all the interest you pay on the loan to buy an investment property is fully tax deductible and if you own the property longer than a year you only pay capital gains tax over 50% of the gain. Add to that various depreciating allowances and you have the makings of a very tax efficient investment. If you do your homework, the bank will happily give 80% or 90% of the money you need to buy your investment property and once you own it, your tenant and the taxman will pay your interest and your rental expenses. Guess who gets to keep the capital gains, you! Talk about OPM.

6. Millions of Millionaires

And if the above doesn't get you going, consider this: most of the world's richest people got rich by investing in property. Those that didn't get rich from property typically invested their newfound wealth in property.

So, if the majority of wealthy people have used investment property to increase their wealth than why not use that knowledge to you advantage and do the same! There's nothing wrong with seeing what successful people do and applying those principles to your own life.

Even McDonalds make more money through its real estate than through selling burgers and fries as it owns most of the land and buildings in which it's franchises are located!

7. You Can Do It Too

Before you say, it's OK for the rich, but how the heck am I going to get into property investing, let me tell you this. You do not need to be very wealthy to get into property investment; it really doesn't take large sums of money to get involved. And that's because many of the banks will lend 80%, 90%, 95% and sometimes even 100% or more of the value of a residential property. As long as you have a steady job and a little starting capital (spare equity in your home) you can afford to buy investment properties.

It has been shown over and over again that careful and intelligent use of real estate can enable ordinary people, like you and me, to become property millionaires in about 10 years. If you truly intend to become one of the wealthy people in the future, you should probably take a serious look at using property to your advantage.

8. Too Much Hard Work?

There are many ways to make money and some say that property investment isn't that easy and takes a lot of time and effort. It takes time to get an understanding of the property market and how to go about investing in property. It can take weeks if not months to research areas and find the right investment property for you. And then it only gets worse, you have to organize finance, get a solicitor to deal with all the legal work. Just the finance and legal work can take 30 to 60 days. And once you own the property the work isn't over, as you need to look after it and do your tax!

Nobody said it would be easy. Nobody said you didn't have to get your hands dirty.

It will take time and you will have to work at it and educate yourself. But hey, if you are serious about creating wealth and retiring early then property is a great way to achieve that. And once you've started and get some experience under your belt, you'll see that I gets easier, and actually the process of building a investment property portfolio can be very rewarding and a lot of fun too.

So, to come back to the original question, my choice for property investment is based on the low level of risk and robust long-term performance property compared to the alternatives. Investing in property, if done well, is Simple, Safe and Reliable.

Please note that this article does not include the charts and tables of the original article.

Erik Hupje is an experienced international investor in Australian Real Estate and shares his experiences and knowledge through http://www.retireonproperty.com

5 Sure Fire Ways to Avoid Investment Fraud

For anyone that has ever looked for investments on the internet, you have probably come across HYIP oriented investments. HYIP is an abbreviation for High Yield Investment Program, which refers to a type of investment where the investor has the potential to generate a substantial return on their investment. This sounds great, except that the overwhelming majority - and I do mean the overwhelming majority - of these supposed investment funds are frauds. This article will tell you the main things can alert you to a fraud before you end up putting your money in one.

1.    They Guarantee High Returns

No credible fund manager would ever, ever promise a guaranteed return on their investment. Why? Well, simply because genuine investments don't operate like that. You may have months and years of extremely impressive returns, only to be followed by periods of unimpressive or negative returns. Historical expectations are fine, but they can't predict the future. If you are looking into an investment that promises a guaranteed rate of return (and its not some kind of low yield fixed income investment), then you should stay away. This is definitely one of the biggest fraud signs to look out for.

2.    They Promise Against Loses

This is somewhat related to the first point, but it pertains to the investment's risk level. One day, out of complete curiosity, I went on to live support with one of the large HYIP sites. When I asked about the security of my investment, I was told that it was completely safe and protected. When I enquired further, the person that I was speaking with couldn't explain how this was possible, aside from stating that it would be managed by professionals who have been trading for many years, and that it was diversified. None of this is an assurance of safety, and is simply a façade for the uninformed. The last straw came when they mentioned to me that it was also guaranteed by some other secretive fund full of cash. Even if there was such a source of capital, how could it be sufficient to pay back the principal for all of their investors if they collapsed? Frankly, it couldn't - and realistically, it doesn't need to, since it doesn't really exist in the first place. Any reputable money manager is going to be candid with you about the risks of the investment. If they try to claim that they have no risk, or attempt to obfuscate their level of risk, it is best to give them a miss.

3.    They Take Direct Control Of Your Money

Anyone familiar with the Madoff fiasco should know that one of the first ways to spot a fraud or ponzi scheme is if you are sending your checks directly to them. Scammers are usually very skilled - more skilled, in fact, than many legitimate investment funds - at setting up easy ways for you to send them your money. You can usually wire it, send a check to them, or even use paypal. Customers are often fooled by the guise of professionalism that this creates and don't notice the insidious problem: they are sending their money directory to a firm that could well be a scam, with absolutely no 3rd party oversight. Genuine investment firms house their money at an independent custodian, so the client is able to have their account in their own name, with no potential for fraud on the part of the investment firm. This is definitely more tedious in terms of paperwork for the client, but the lack of this necessary safeguard is a easy way to spot a fraudster.

4.    They Aren't Sufficiently Transparent

Most of these investment scams won't allow you full access to your account. Sure, they might send you monthly statements, but that means absolutely nothing. A statement can be forged to swindle $50 Billion from many large investors, so they can definitely be very convincing. Instead, what you need is the ability to actually login to your account, allowing you to view every activity that happens in your account as it occurs. This includes making an trade, taking an trade loss or gain, and any fees charged to the account.

Finally, I would even be hesitant about trusting the ability to access this information through the investment company in question. Many of these frauds have complex software, capable of reproducing what your investments should be doing, even if your capital isn't really invested at all. As with the previous red flag, the only sure fire way to avoid an investment scam is if you are able to access your account information through a third party custodian, rather than directory through the investment firm.

5.    They Aren't Able To Explain Their Market EdgeNo successful investment fund is going to give away the specific details of how they generate returns, but they should be able to offer a verbal overview of their market inefficiency. If they are unwilling to do this, or if they give some convoluted explanation, you should be suspicious. It doesn't have to be incredibly complex, but they should be able to offer you a general idea of how they are able to profit.

Finally, don't be tricked by people who claim to have gotten regular payments on Internet forums or investment review sites. Firstly, they could obviously be fake - but even more likely, as in the case of ponzi scams, they may well have gotten payments. In a ponzi scheme investors get regular payments that come from the initial investment in their account or the accounts of fellow investors. Regular distributions is no sign that it isn't a scam; in fact, returns that are too regular may well be the sign that it is a fraud, since real investments are not cash machines, and tend to go through up and down periods. That said, with this guide, you should be able to avoid any investment frauds that you encounter. Just remember that any one of these by itself isn't automatically a deal breaker. If they the red flag goes up for several of these, however, I would be very apprehensive of investing any money with that firm.

Christopher Muir is President and CEO of Invariant Capital Management, a New York-based managed Forex fund. Invariant specializes exclusively in robust, systematic trading strategies, focusing primarily on the G10 currencies.

How to Invest Like a Hawk in a Human Emotion Filled Market

As I grow older, I begin to think more about what life is all about and realise that at the end of the day, what we all really want is financial independence.

I believe that I cannot achieve financial independence by punting the market as the playing field is not level and the odds are against the investor who is usually at the bottom of the information hierarchy.

I think it is fair to say that the average lifespan for humans is around 80 years. Retirement age is around 60 years old. This gives most of us an additional 20 years of life beyond retirement. Hence, it is good for all of us to be able to plan ahead and do something that we can continue doing for the rest of our lives. However, as we age, there are lots of things that we cannot do past the age of 60. Physically many of us would have aged by then but mentally, I believe many of us will remain quite sharp. This is why I believe that investing is probably the one career that a person can practice right up to the time one is called up.

In fact, as we age, I believe that we would have a lot more experience in business. As well as that, we should be able to control our emotions better as we too have a lot more experience in life. Added together, as we age, we should become better investors.

This is why I encourage all my friends, whether they are professionals or employees, to consider investing as a hobby while they are still working. Investing is an art that is refined with age. Much like wine. One is bound to make many mistakes in his early investing days and the earlier one starts on this journey, the more likely, he will be a better investor in the years ahead.

Investing is really about spending time researching stocks and shares. Going through their fundamentals, technicals and many times, the annual reports over the years. This is very time consuming and is a very lonely occupation. But I have not found any shortcuts to making investments work for me.

A fundamental investor will keep researching and researching and this can be boring. But this is the basis of fundamental investing - patience with researching and researching. A trader usually relies on technical analysis, trading tools or simply gut feel.

Traders are not investors. People who look at charts are mostly traders. They look for signal to buy, and grab without thinking..if price moved up with volume, then they profit, if not they cut loss.

Of course, if one is just starting out, better to test water first and investing in our younger years is more like an education. However, as we age gracefully, investing should be something we take very seriously and passionately to prepare us for the future when we will no longer be so employable.

Value Investing is boring when compared to trading. We buy from fearful and confused investors and then sell to the greedy traders. Once you start to practice value investing, you need patience to see result.

The market is the sum total of human emotions which interestingly is manic depressive. When emotions are good, stock prices zoom like there is no tomorrow. When the feeling is bad, it can hit rock bottom and yet there will be no takers. This is the reality of our markets and to be a fundamental investor in Singapore, one has to be able to take the rough and tough of investing and watch one's fundamental stocks get beaten and bruised. One has to have lots of patience and guts as well during these depressive states.

My investing strategy:

1. Focus on only a few stocks

2. Identify a tipping point for each stock (eg building a train station next to its key property)

3. Buy slowly into any stock (as my timing is usually not good)

4. My investments are long term (This is money I can afford to leave under the pillow for years)

5. Low liquidity is OK (I am a collector and have no intentions of selling early)

For my long term investments, I only have about 5 stocks. My rationale is simple. If I diversify too much, even if a stock rises 100%, it may not increase the worth of my portfolio significantly. My aim in investing is to multiply my net worth. For the stock that represents over 50% of my portfolio value, you can bet that I watch it like a hawk. I look out for announcements on the company and try to understand as much as I can about the industries in which it operates. Good thing about having a few stocks is that you can focus.

As human beings, by nature, we are all risk adverse and when we invest, the natural tendency is to spread our risk all over the place. Sadly, many so called professionals recommend this spreading of risk approach to their clients.

But to me, if I want to invest properly in the stock market, I must be willing to take risks. I reduce my risk by understanding the companies that I invest in thoroughly. I understand their industries and keep myself updated on what is happening worldwide. I do not reduce my risk by spreading my investments as thin as I would spread butter on a toast.

When I am too heavy in a stock position that it starts to affect my sleep, then I feel that I have gone over the limit and the degree of worry is too excessive. Humans should not be deprived of sleep as this will eventually affect our mental wellbeing, which in turn may affect our alertness and we can eventually make mistakes in our investments. As such, when I lose sleep over an investment, I know that I am better liquidating my position regardless of whether the trade is profitable or not.

Somehow, I feel more at ease managing my own money. If I lose money from my investments, I take it as part of investing. Nowadays even when I lose money, my pulse rate remains much the same as I have already accepted the fact that investing means that you will lose money at times. So long as you make money overall, you are fine.

Summary/Conclusion:

As young investors who hold our own full time jobs, investing can only be a pastime which we can pursue after office hours. As such, we should make full use of our time to read up as much as we can on investment, as diversified views on investment as possible. By understanding different theories and methods of investing, we can then form our opinions on which suit us better and from there on, to use that unique method of us to do our own investment.

Investing is a twenty-year college course that will then see you through till you go West. For now, I am just into my first year.

Guide to Successful Investing - Take It Seriously

If you've chosen to manage your own money you've taken on one of the most important tasks which will ever befall you in life. Apart from the love of our families, and perhaps our careers, the next most important thing is how we manage our money. That is, whether that little bit you've set aside grows, stagnates, or worse, whether it shrivels and dies. This will depend on the quality of the decisions you make now and into the future.

Of course if we manage our money better, then perhaps we'll be in a position to shorten our careers, or not have to rely solely on them to produce our income allowing us to spend more time with our families. I certainly know what I'd rather be doing...working 9-to-5 or playing with my kids...

Yet unfortunately most people do not put anywhere near as much time, effort or consideration into their investing as they do into their families and careers. Too many adopt a "She'll be right mate" approach with their investing. It takes a very distant back seat to the rest of their life, yet in so many ways it's just as important as forging a successful career. Get your investing right and there'll be plenty more to leave to your loved ones when you finally check out!

In my seminars and workshops I'll often push people on their investing approach and try to get to the heart of just how much time and effort they're actually putting into their investing. The results are uncannily consistent: Not enough! Most investors simply have no comprehension on the work required to be successful in the markets. They truly believe that they have a sound and credible investing plan but in actual fact their methodology falls far short of one.

"What I do is find blue chip stocks with a good story and hold them for the long run. The market goes up in the long run, how hard can it be?" This has shown to be an extremely faulty plan (or not really one at all) over the last few years as markets have melted down.

Blue chip stocks have shown to be no more reliable or safer than their more speculative counterparts and indeed, many have simply vanished. There's far more to successful investing than buying so called blue chip stocks and hoping for the best.

Unfortunately most investors can be described as 'hobby' investors. They're part-timers. They don't put the same time, effort, consideration and professionalism normally reserved for their careers as they do into their investing.

Professional career investors however will without fail possess a well thought out, researched, tested and documented approach. This is more commonly referred to as a "trading plan". It makes sense that every successful individual or business achieved that success through excellent planning and execution of a well thought out plan - and certainly not by luck. Investing is, and should be no different. Luck has nothing to do with it.

Why is it then that so many investors come into this game with no plan whatsoever, or a plan of attack which can only be described as "flimsy"? They're simply hoping to get lucky!

I see far more investors who are not achieving their full potential, are not even aware of what this is, than those who are - hands down. I'm not sure that there's any way to sugar coat this - but most investors I meet are lazy and complacent. Unfortunately for them, they just don't realise how lazy and complacent they actually are!

Most truly believe that they're doing a bang-up job. Then I point out that the goal is not to just make money, but to beat the market. Sure it's great to make a 10% return over the course of a year. But what if the market went up 20%? If this is the case then you've made money, but lost significant opportunity. You would have been better off by simply giving your money to an index fund manager, not having any stress, not putting in any effort, and just matching the market.

Most investors I talk to realise that what they thought was a good performance is actually costing them thousands and thousands in missed opportunity! A dollar not earned today because of laziness and complacency is going to cost you $6.72 in spendable capital in 20 years at a compound rate of 10% per annum. That might not sound like much, but extrapolate it out over every investing dollar you've flittered away over years and you'll get some idea of just how important it is to get your investing right today.

If every successful individual and company achieved such success through meticulous planning and execution, why do so many investors put their hard earned money at risk in the market without the same application? Can you afford not to have a trading plan? Can you afford to be lazy and complacent and treat your investing like a hobby? Are you going to have a well defined, researched, tested and proven investing plan or are you going to leave it to chance?

The major part of being professional is executing a well documented, researched, tested and proven investing plan. Unfortunately however, not only do many not have such a plan, they overestimate the amount of effort they're applying to their investing. Rather than treating their investing like a profession, it's relegated to 'hobby' status.

I'm going to use an analogy to illustrate this concept. It's one I've been using for quite a while at my workshops to prove the point of just how hard and how much time and effort is required to be truly successful in the markets. You'll understand what I mean in a second, but funnily enough this analogy used to work well until quite recently. It's now the source of great amusement to my students!

I'm a keen weekend warrior golfer. I say warrior because you can often find me conquering the shrubs and bushes at a local golf course near you on a Saturday morning. No shrub is too thick, and no forest too impenetrable in my quest to find my ball after a wayward tee shot.

Sure, I like golf, but I'd hardly call it my profession. It will only at best be a hobby for me. I've got precious little time to practice my game and therefore most of my practice occurs in actual game-time when I really should be reaping the rewards of my efforts during the week. My lack of time in seeking golfing perfection is of course a big issue, but apart from my near phone number handicap, I would have to say that my biggest handicap is probably my lack of talent. I really don't have much of it when it comes to yielding a club...

I'd like to say that my excuse for why I'm so lousy at golf is that I wasn't born with the innate genius of Tiger Woods (you might be getting some idea of the mirth this analogy now causes in my workshops!).

However, one could argue whether Tiger was born with his talent and that's why he's so good, or whether it was an acquired ability? We are of course talking about Tiger's golfing prowess and no other innate ability to score (ok, that's the first and last joke I'll make about that!).

How did Tiger get so good? Was he born with it or did he work really hard to acquire his talent? Well, I think his talent has more to do with the fact that he started playing golf as soon as he could walk and hold a club. He had an excellent coach and mentor in his father, he has worked almost religiously on his game seeking out the best professionals to show him where he's going right and going wrong. Then there's the practice. Tiger's a bit of a hero of mine (golfing only) and I've seen a few documentaries on him. I've seen him practise rain, hail or shine for 8 hours a day. He'll chip 300 balls out of a bunker, step one metre back, and chip another 300 balls, and so on.

I can only conclude that the secret to Tiger's success isn't actually a secret at all: It's hard bloody work! Time spent practicing, which gives you experience, which gives you confidence, which gives you...you guessed it...talent! Who would have thought it would be so easy (hard!)?

It's not enough to say that practice makes you perfect however. That's just something our teachers told us at school to make us feel better about sucking at whatever it was we were doing. It's more accurate to say that perfect practice makes for perfect application.

You see, there's a big difference between any old practice and perfect practice. Anyone can grab a set of golf clubs and bash away at 300 balls in a bunker, take a step back and do it again, and again, and again until the cows come home. Believe me, I have done this in the past and it certainly hasn't made me a Tiger Woods.

Every shot tiger takes, both in practice and in a tournament situation, is recorded and studied. Not just by Tiger, but also those who he's employed to coach him. Nothing gets taken for granted, and nothing gets missed. By constantly having an action, feedback, and adjustment loop, comes improvement. Continue this and you could improve to the point where you turn your hobby into a profession.

This is really the difference between me and Tiger. I don't have a golfing coach so I have no idea that I'm doing wrong. Even if I did, because I don't have an experienced coach I have no idea how to fix it. In my defence however, I really have no intention to quit my day job and start playing golf for a living. I'm never going to have enough drive and discipline to devote the time, resources, and importantly money required to invest in getting myself to that level. If I contribute none of these things then I should not be surprised that my hobby stays just that - something which gives me pleasure from time to time, but which ultimately costs me money.

What's this got to do with our investing? Well clearly there are plenty of traits which Tiger applies to his golf to achieve his returns that we need to bring to our investing approach.

Are we going to treat our investing like a profession and put in the appropriate time and effort and apply this with sufficient passion and discipline? Or are we going to be a 'weekend warrior investor' and treat what we do with our money as a hobby? Certainly the two approaches are likely to generate very different results.

Let's bring this back to your investing. I'll say your investing because I certainly don't treat my investing like I treat my golf. You see, apart from the cheque Australian Stock Report send me for writing this column and presenting at their Workshops, my investing is what pays the bills. I simply can't afford to take this for granted. If I want to succeed, that is to beat the markets and grow my wealth in such a way that I rely far less heavily on other forms of income, which then helps me spend more time doing what I enjoy the most - spending time with my family (not golf), then I must be professional in my investing approach. It's simply too important' not to be. My investing simply can't be a hobby if I want the results I seek...

This means that I must bring all of the traits to my investing which Tiger employs for his golf. Discipline to commit the necessary time to do my analysis and research. To create a well researched and robust trading plan. To implement this plan religiously and through ongoing feedback and response to improve it. I must take the time to make all of this happen and not be so arrogant that I ignore help from those who have gone before me and have themselves achieved the success I desire. I've got to take this seriously.

Now my question to you is: "How seriously are you taking your investing?" Is it a hobby? Are you one of far too many "punters" I talk to about their investments who say things like "Yes, I have a few stocks...yes I think they're going ok..." Whose approach is most often one of "Oh, yes, well I read the financial section of the paper and a couple of financial news websites and try to pick blue chip stocks; then I just stick them in the bottom drawer and hold on." When pushed on the time they've spent developing their approach, the answer is invariably: "Oh, yes, I keep an eye on things."

Remember what I said before about my lack of time to practice, and that I end up doing my practice in game-time on the run? Does that resemble your investing? Do you feel that you're learning on the job? Or should you be learning and honing your skills before you put your hard earned money at risk in the markets?

If you feel like you're feeling your way as you go, then it sounds more like someone talking about a hobby than a serious business! There's far too much to chance! Where is the discipline? Where's the perfect practice? Where is the relentless application and drive to improve, succeed, and exceed?

Let me make one thing very clear here. If you treat your investing like a hobby it will no doubt give you some fleeting pleasure from time to time, like my golf, but also like my golf it is going to cost you money. Whether that be upfront in the form of dismal losses during a bear market, or whether that be from underperforming the index in a bull market - it's going to cost you.

So how do you 'get good' at investing? Take a leaf out of Tiger's book. A coach is a good place to start, an investing coach in this case. Someone who knows the rules of the game who can make objective decisions as to where you're going right and wrong - and on how you can continuously improve.

It's not enough to say: "I'll just bash away at it until I get it! I'm ok - I don't need your help I can figure this out myself..." Remember what we said: It's not practice which makes perfect, rather, it's perfect practice which makes perfect. If you have no idea what the correct approach is in the first place, it could take you many years and a small fortune before you figure it out.

Real professionals spend many years and the same small fortune at university studying to achieve their qualifications. They seek out knowledge, structured, researched and proven knowledge. They aren't so arrogant to say that they will figure it out themselves. Imagine if a brain surgeon said "Don't worry I've read a few books on cracking heads and it's been a hobby of mine for ages now - I think I've got the hang of it so get on the table!" Why should investing be any different? Get some help, go to investing university!

This is where our Workshops come in. In these workshops my colleagues and I get to the heart of what makes you tick as an investor and how we can make you a better one. More importantly, we will give you a number of tried and tested systems and processes to go through before, during, and after each and every investment you make to improve your consistency and results. Keep in mind however that whilst we can show you exactly when and where to enter an investment, we can't give you the discipline and passion to follow such a plan! That's up to you.

We all want the benefits of improved investment performance. The rewards of such improvement could be lifestyle changing. However, are you prepared to put in the hard work to achieve these rewards? Most investors aren't. Your biggest impediment to becoming a better investor is simply getting started, to committing to your improvement by becoming more professional in your approach. The hard work begins now.

Carl has delivered presentations on trading and investing to over 20,000 people throughout Australia and New Zealand and has helped countless clients to improve their trading outcomes. He also writes the long running and popular 'Terms of Trade' column in the finance section of Melbourne's Saturday Herald Sun newspaper.

Carl is currently the Head of Education at Australian Stock Report. Carl and his team teach technical analysis, money management, and trading psychology to intimate classes in a live trading environment. These workshops utilise strategies designed to take advantage of trading opportunities on all asset classes including equities, FX, commodities and indices.

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