Is index investing right for you?

April 7, 2015 by
Image courtesy of Sailom at freedigitalphotos.net

Image courtesy of Sailom at freedigitalphotos.net

When investing in the stock market there is always risk.  There is a way to spread that risk over many stocks (portfolio) instead of just a few companies.  You can invest in an index.

An index is a statistical measure of the changes in a portfolio of stocks.  Some examples of indices are the S&P 500 (SPX), Russell 2000 (RUT), and NASDAQ Composite (NDX).  These indices represent a portfolio (a group) of stocks.  Unfortunately you cannot buy the index itself but you can invest in an Exchange Traded Fund (ETF) that represents the index.  The ETF for the  S&P 500 is SPY, Russell 2000 is IWM, the Dow Jones Industrial Average is DIA and the NASDAQ is QQQ

The benefit to this type of investing as opposed to individual stocks is that the risk is lower because you have a portfolio of a group of stocks.  For instance the S&P 500 is a group of 500 mid-cap stocks and the Russell 2000 is a group of 2000 small cap stocks.  It is instant diversification across a whole grouping of stocks.

Which would you rather invest in and why?  Individual stocks or an index?  Please comment.

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Invest in real estate without the leg work

April 2, 2015 by
Image courtesy of hywards at freedigitalphotos.net

Image courtesy of hywards at freedigitalphotos.net

Nervous about buying a property, rehabbing it then either selling it or renting it out?  Just not cut out to be the big, bad landlord or seller?  What if you could just invest in real estate without the leg work?  You can!

The vehicle for this type of investment is called “real estate investment trusts” or REIT.  A REIT can buy, develop, manage and sell assets in real estate.  It is similar to other security offerings but instead of investing in a single company, you are purchasing a portion of a managed pool of real estate.

This pool of real estate can generate income through renting, leasing and selling of property.  Then fund distribution occurs regularly to the REIT holder.  Some very good news is that REITs MUST distribute at least 90% of their yearly taxable income, to their shareholders in the form of dividends.  Nice!

Investing in REITs is a good way to get diversification without the leg work.  Sit back and let someone else do it!

Please comment your thoughts on REITs.

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Call maybe or put?

March 31, 2015 by
Image12 courtesy of StuartMiles at freedigitalphotos.net

Image12 courtesy of StuartMiles at freedigitalphotos.net

Do you want to control large amounts of stock for pennies on a dollar? Well who wouldn’t? With call and put options you can!

Each option that is purchased controls 100 shares of stock. For example the cost of an option might be $3 per share, so to control the 100 shares of stock it would cost $300. To purchase that stock, it might be $160 per share, so to purchase that same 100 shares would cost $16,000. With options you have the power of leverage!

Call and put options give you the right to buy (call) and sell (put) a stock at a specified price for a certain period of time. Always remember there is a time element to these options and you will recognize a gain if the stock price goes up (call) or down (put) enough to cover your costs (the stock price plus the cost of the option). If the option expires at or below the stock option price they are worth nothing. Zero, zip, nada! Keep your eye on those options…

Please comment on your success with trading stock options.

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Investigate options

March 25, 2015 by
Image courtesy of iosphere at freedigitalphotos.net

Image courtesy of iosphere at freedigitalphotos.net

There are many different ways to invest in the stock market. Would you consider investing in “the right” to buy an asset?  If you trade stock options, you are buying the right to buy shares of stock.  The definition of an option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date.

This scenario may help to further clarify how options work… The good new is you have finally found your dream home! The bad news is you don’t have enough cash to buy it. You decide to try to strike a deal with the owner that gives you the OPTION to buy the house for $400,000 in six months after you come up with the cash.   For this OPTION you pay the owner $6,000.

Consider these two potential story lines:

  1. During an inspection, the inspector comes across a stream in the back yard that is FULL OF GOLD! The property is now worth $5 million and because you purchased the option, the owner is obligated to sell you the house for $400,000. The profit on this transaction would now be $4,594,000 ($5 million – $400,000 – $6,000).
  2. During an inspection, the inspector comes across waste oil that has contaminated the soil. The cleanup costs will run into the millions. What you thought was your dream home now turns out to be your worst nightmare. But don’t fret! Because you bought an option you are not obligated to purchase the property. You will however lose the $6,000 you paid for the option but you have saved millions!

Options are derivatives; they derive their value from something else. With stock options, most of the time, the underlying asset is a stock or an index.  Click here to learn more about stock options!

Please click like if you trade stock options.

Filed Under: Real Estate, Stock Market Tagged With: , , , ,

Stick to your boundaries

March 18, 2015 by
Image courtesy of Stuart Miles at freedigitalphotos.net

Image courtesy of Stuart Miles at freedigitalphotos.net

Some important elements to your stock trading plan are the stop-loss (S/L) and take-profit (T/P) points. A successful stock trader will have planned what price they are willing to pay and sell at. If you don’t know these points it wouldn’t be prudent to invest.

The point at which a trader will sell a stock and take a loss on the trade is called a stop-loss (S/L). Conversely, the price at which a trader will sell a stock and take a profit on the trade is called the take-profit (T/P) point.

If you don’t stick to these points in trading then in most cases you are rolling the dice and hoping for a good outcome. Be a successful trader and establish your S/L and T/P points then follow them. You will be a better trader for it!

Do you stick to your S/L and T/P points?  If so, click the like button.

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Don’t hit the panic button!

March 11, 2015 by
Image courtesy of Stuart Miles from freedigitalphotos.net

Image courtesy of Stuart Miles from freedigitalphotos.net

The stock market goes up and down.  You can bet on it.  Kind of.  When you have made a trading plan that takes into account your risk tolerance, stick with it.

It can become difficult when the market is not going in the direction that benefits you but a well constructed trading plan should be carried out.  Trust your instincts from when you were in the planning stage, not the emotional state the market can put you in.

For an additional article on the importance of following your plan, click here for Don’t Lose The Trade Before You Enter It.

Please share your experience when you stayed with your trading plan when you began to panic.

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Looking back to go forward

March 4, 2015 by
Image courtesy of renjith krishnan from freedigitalphotos.net

Image courtesy of renjith krishnan from freedigitalphotos.net

History tends to repeat itself. So when you develop your stock trading plan it is imperative you “back test” your plan to see how it would have performed in the past. It should be tested in both bullish (increasing) or bearish (decreasing) markets to determine the plan’s performance. Back testing can display the risk you are taking with your money. Once you have a solid plan, you can change one rule at a time to see if you can improve performance. But remember you have to back test the changed plan in all different types of markets, all over again. It is a great way to “dial in” your plan by attempting to lower your risk and increase your rewards.

Click like if you have a trading plan.

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Grow tax FREE?

February 27, 2015 by
Image3 Courtesy of Stuart Miles from freedigitalphotos.net

Image3 Courtesy of Stuart Miles from freedigitalphotos.net

A ROTH IRA allows tax free growth of your after tax contribution. It is quite a deal! If you are married, you can open one for yourself and one for your spouse then make the maximum contribution to each.  It is as easy as opening a bank account. But it is just a holder for your money, you will need to pick a method to get your tax FREE growth! You can invest in lots of different ways, like money market accounts, stocks, bonds, real estate or mutual funds. Really whatever way you are comfortable with. If you are interested in trying out stock options, check out  www.lockeinyoursuccess.com or contact us regarding questions on real estate investing. This one is sure to set you up to succeed in your future with contributions to a ROTH IRA!

Click like if you are contributing to a ROTH IRA this year!

Filed Under: Money Management, Real Estate, Stock Market Tagged With: , , , , , ,

What type are you?

February 25, 2015 by
Image courtesy of nongpimmy from freedigitalphotos.net

Image courtesy of nongpimmy from freedigitalphotos.net

Stock traders typically fall into two broad types. Most traders start out as a discretionary trader, mostly relying on a combination of intuition and knowledge to discover high-probability trades. A discretionary trader will follow a trading plan but really goes with their gut on whether or not to place the trade.

The other type of trader is a systems trader. A systems trader will set up absolute rules to follow and will follow them. This type of trading can lend itself to some trade automation by following “if, then” rules. With this type of trading there is no “gut” feeling it is all driven by rules.

Which type of trader are you? Please comment.

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There are a lot of animals in the market!

February 18, 2015 by
Image courtesy of Michael Elliott from freedigitalphotos.net

Image courtesy of Michael Elliott from freedigitalphotos.net

Stock traders many times will use common animals to describe the market.  Here are some:

Bull or Bullish – describes an upward or increasing trend.  Signals the economy is strengthening and typically stock prices rise.

Bear or Bearish – describes a declining or decreasing trend.  Signals the economy is weakening and typically stock prices fall.

Chicken – used to describe someone who is afraid to lose.

Pig – used to describe impatience or greed.

Keep these definitions in mind when you hear them.  It will help guide you in your investments!

Did we forget any other animals?  Please comment.

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