October 2008 Topic - Investment Planning

01.  Investment Planning 101
02.  Tips for investing in tough times
03.  Investment Options

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1. Investment Planning 101

Regrettably, the days of job security are a thing of the past. Decades ago employees worked the same job for years and then retired with a pension. In today's economy no one is assured a job, especially one that will offer retirement benefits that are suitable to live on. The task of planning for retirement is gearing more toward the individual than the government. Investing is one of the most practical tools in helping someone prepare for the golden years.

We have accomplished that the goal of investing is to make money, however keep in mind everyone has different circumstances and needs. Which brings us to the fact that investing vehicles that may work for someone may not be the best option for another individual. The best way to narrow down the investing vehicle that will most beneficial to a specific case can be broken down into two areas. These areas are investment intentions, and investment character.

To put it clearly investors have a few questions to ponder when researching the right place to put money. Income, security of funds, and capital appreciation should all impact an investment decision. Age and the financial situation a person is in, can also play a big role in deciding which investment option will be most beneficial. Obviously a multi millionaire will have different objectives than a single mother. It is wise to think of how long you want to invest money. The shorter your time horizon the more cautious you must be with the avenue of investments you make.

The next area is character. It is often overlooked, but character has a lot to do with investing. Are you someone who likes roller coasters, fast cars and the thrill of unpredictable situations? Or are you someone who likes to plan things and prefers the safety of staying at home and cuddling up to your favorite book? The way you are in your daily lives will demonstrate greatly in how you should invest. The last thing you want to do is have sleepless nights due to the fact that you are worried about your financial losses or gains.

On October 3,2008 the government approved a $700 billion financial rescue package. This bailout is considered the largest financial intervention since the Great Depression. The bill was passed to hinder the economy from falling into a deep recession. The Federal Reserve chairman Ben Bernanke advised that the bailout bill is a "critical step" in rebuilding credit flows and to strengthen the markets.

The bill was passed for many reasons. One of the main triggering points in getting the bill passed though was the Stock Market. The Monday that the original bill was rejected there was a 777 point drop in the Dow, which is the largest decline in history. The economic crisis suddenly hit Main Street and was no longer just a Wall Street crisis. Americans lost over $1 trillion that day in a matter of minutes. These were ordinary people just like us who invested their retirement into the market.

The other key factor in getting the bill passed was raising fears of a deep recession. There was data released that the unemployment rate was at its highest level since just after the attacks on September 11,2001. The government reported that payroll employment dropped by 159,000 in September of 2008. Senator Charles Schummer released a statement in which he said "The problems of Wall Street have now hit Main Street with full force." Republicans and Democrats alike both agree that our country needed this bill in order to avoid a financial meltdown.

Will our markets ever be secure again? Will I be able to send my children to college? Will I be able to pay rent this month? These are all questions that families are asking at the dinner table every night. Most agree that the bailout bill was vital to saving our economy from a downfall. Some feel very strongly that the government is simply bailing out Wall Street instead of the consumers. I am not going to argue either side. In the end the bill was imperative to get our economy on the right track. Helping Wall Street in turn will benefit the everyday consumer in many ways. Many of us overlook the fact that this bill actually made it safe to invest again. An enormous amount of people lost thousands of dollars the past couple of months. However, by taking the right steps and being vigilant investing is still one of the best ways to save for your future.

Throughout this month's newsletter there will be tips on investing as well as investment options. I urge everyone to research any investment vehicles that you choose to use. Our country's economy had a bump in the road, yet it is still a land of opportunity. As long as you are a well educated consumer the investment world has a lot to offer all of you.

2. Tips for investing in tough times

Get out of debt. Take the steps needed to control spending in case the unexpected happens, such as a loss of job. Pay down existing credit card balances. The smaller balances will let you have more cash flow in times of financial crises.

Be ready. In our economy today no one can predict tomorrow. It is better to be safe than sorry. Have an emergency credit card with a higher credit limit than you usually would need. If you are a homeowner take out a home equity line of credit while you are still creditworthy. Hopefully, it will remain untouched; nevertheless if you have a loss of income it will be there to rescue your financial needs. It will be a struggle to receive a loan after you have lost income.

Ignore the negative press. Look at the positive aspects of our economy. The new bill that was passed is going to take some time to boost our economy; on the other hand the stock market is looking ahead to better times.

Find a comfortable spot and stay there. Investors seem to follow the trend. Now is the perfect time to reevaluate all investments. Be at ease with your investments. It is more important now to be diversified. For the pessimistic clients invest in short term investments.

Don't buy all at once. Brokers will not be happy about this tip, but it is one of the best available. Never buy or sell all at one time. Try to get the best price over time. For instance, if you plan to buy 500 shares of a stock do it over a couple days or weeks. It is recommended to do it in 100 share increments.

Research the stock before you buy. It is wise to look into stocks that suddenly take a dive. These are sometimes the best stocks to buy. Let's sit back for a minute and analyze this. Why did the stock go down? Is the company failing? Is it a fixable problem? With a few answers you may be able to figure out if this is a damaged stock or damaged company. Investors pull out of stocks too quickly sometimes not realizing the stock will gain earnings by next quarter.

Don't be penny wise dollar foolish. It is inevitable in the stock market. You get the people who panic when the stock drops 5 to 10 points. Suddenly the investor has to get out right away. No one ever made money doing this. Not in all cases, but most it is best to just sit on the stock for a little while and see which course it will take.

Stick to the names you know. I am aware it can be limiting however it is always best to stay with the investments that you have researched. Whether you are a pro or just beginning, you can always have too many positions.

Buy the best companies. In your everyday life you buy brands that you know and trust. You don't buy cheap shampoo, laundry detergent or cars because you trust the name brands and it is reliable. The same goes for stocks. It may cost more however your earnings will be greater, plus you will achieve the invaluable peace of mind.

Let go of the past. Your mind will run in different directions as to whether you made the right decision. Stop, this is only damaging emotion and not worth the headache. Your emotions have a lot to do with investing and you need to have a positive psychology to make investment decisions. Learn from past mistakes and move on. Don't live with the would I, should I and could I.

Diversify, Diversify and Diversify. This is the only concept that works for everyone. Think of the old saying don't put all your eggs in one basket. Mutual funds are great to achieve diversification. In the stock market you can diversify without going into mutual funds. This goes back to the other tips research and do your homework. Figure out which stocks or investments you are comfortable in and go for it. You have a better chance of earning on many different than just on one. Common sense would tell you if one fails you may make up the loss on another one.

Defend only your favorite. It is great to have many stocks that you like. However, when the Market drops like it did last month get out. Some of us optimistic people make the assumption that all our stocks will come back up. The problem with this is that if they don't you have lost all capital. Pull out and go back when the market improves.

There is no faith or hope in the stock market. Just like there is no crying in baseball this is just one of the unspoken rules. Famous line of a shareholder "I hope stock X goes up to where I bought it and then I will sell it". If you are hoping or counting on faith get out and do it now. No company shoots for low earnings but things happen. You do not care where the stock was the only thing you care about is where it will go in the future. If you are praying for a miracle liquidate it before it is too late.

3. Investment Options

Bonds
A bond is a loan given by an investor to a company. They are actually forms of debts that companies and governments take to be capable of producing a surplus capital. The investor is considered the lender and the company is the borrower. The bond has what is referred to as face value. This is the amount that the bond can be purchased for. The money is given back to the investor with interest on the maturity date. There are many benefits to investing in bonds. A bond promises payment of principal and interest so it is considered a safe investment. On top of that they provide tax advantages. Certain bonds, which are referred to as convertible bonds, can even be changed to stocks. The risk of bonds is that the company may call back the bond early resulting in a loss of financial gain.

Mutual Funds
Mutual funds do carry a risk, however are one of the safer investments. Basically a mutual fund is a financial product that gives you flexibility to invest in numerous areas, while being overseen by a professional. This type of investment allows the investor to lower the risk of financial loss. By putting funds in numerous securities the chance of all investments failing or taking losses is greatly reduced. Investors find it less challenging to achieve diversification through mutual funds as opposed to investing in many stocks or bonds. Another enticing advantage to mutual funds is they are affordable and can be liquidated at the current net asset value.

The disadvantages to mutual funds include fees, and lack of control. Investors are required to pay sales charges, fees and some other expenses even if the fund does not perform well. With this investment the financier does not have much control. People who are not familiar with investing may look at this as an advantage. The investor has no say as to what their money is put into or when it is exchanged to another stock. Prior to investing in mutual funds I urge anyone to research the mutual fund and look at the strategies of the company. Inquire as to how long they have been in business and research the funds historical performance. There are many websites that will give this information such as www.moodys.com.

Stocks
Stocks, which are commonly referred to as shares, are a part of a company that anyone can buy. In essence the buyer owns a portion of that company. Now let's not get carried away unless you are a big shareholder you will not have any say as to how the company is ran. The shareholder will however benefit when the company has good earnings.

known as common shares. Common shares carry a higher risk of losing your investment, if the company takes a turn for the worst. Preferred shareholders have a higher rank than common shareholders. With that said they could also lose money if the company they invested in closes down or takes losses. Preferred shareholders have more of an influence in company's decisions and receive higher dividends.

Certificate of Deposits
Investors looking for a reasonably low risk venture that can be liquidated into cash easily often go for Certificate of Deposits (CDs). A CD is a type of account that offers higher rate of return that a regular savings account. Basically you invest money into this account for a specified amount of time. The bank or institution will pay you interest while holding your funds. If you have to withdraw before the account expires you will have to pay a penalty.

Prior to investing in a CD be sure to read the fine print. You will want to inquire when the CD will mature. I am aware this sounds like common sense, however many investors end up tying money up for years longer than expected. Always get all terms in writing. Another key issue to research is any call features. This would give the issuing bank the right to "call" the CD after a disclosed amount of time. A call would take place if interest rates drop. If this is the case be sure to have it specified that you will receive the full amount of your original deposit plus any accrued interest returned to you. It is imperative you understand your penalties for withdrawing early and if your interest rate will change. In addition to that investigate the bank or firm you are going through.

Real Estate
For years people have made a lot of money buying properties and selling them for a profit. In 2001 home prices skyrocketed and people quit their day jobs to strictly "flip" properties. Recently, however home prices have dropped to a record low and many people are upside down on mortgages. Our foreclosure rate is at an all time high and is predicted to decline more. Even with all those scary statistics real estate is still considered a safer investment if you do it right. The most common type of real estate investing is rental properties. A person will purchase a home and rent it out to cover expenses of the property. The homeowner is responsible for paying the mortgage, taxes and any other costs associated with maintaining the property. The tenant pays the owner a monthly rent for living there. In an ideal situation the rent will cover all maintenance and expenses of the property, plus have a surplus for a monthly profit. The hope though of the owner is to have all expenses paid for while the house appreciates in value.

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Got a question? Then contact our Education Team on 561-883-2398 Ex.310 United conducts regular seminars on financial education, including "How to Budget", come along and join us! To reserve your seat contact our Education Team on 561-883-2398 Ex.310

Newsletter 10
Rev.1
October, 2008