Why Mutual Funds?
The stock market is generally considered the best investment over the long haul, but one of the riskiest, especially if you’re a beginner investing for the first time. No one is guaranteeing your money and the factors that control the price of a stock can be complicated. The pool of billions of dollars from many people’s accounts can support a top notch investing team to make decisions without the hefty price bill of paying for them yourself. Also, a mutual fund is significantly less work than managing your own stock portfolio. Choosing stocks, watching their prices to buy in, watching their prices to know when to get out, and making sure what was a good investment 5 years ago still is can be a full time job in itself. Many people just don’t have the time or inclination to do this properly. If this is you a mutual fund can be an excellent choice.

What to Look For When Buying Your First Mutual Funds?
The first things you want to do when buying a mutual fund, especially your first ones, is make sure they have a long healthy track record. Look for mutual funds that have been around for 20 years or longer. If they haven’t been able to stand the test of time you don’t need them right now. The stock market has averaged around 8-10% per year annual returns. The mutual fund you are looking at should at least have maintained this return over the last 20 years to be in your consideration. Also, look at the worse years the mutual fund has had and see if you can stomach that kind of loss without bailing out.

The second thing you want to look at is the performance of the current portfolio manager; he will be driving the decisions. You mutual fund broker should be able to fish up where this person has worked prior.

The last note of caution is you want to make sure you are well diversified. At least split your investment money into four fund pools. I like small cap, international, blue chip, and commodity.

Related posts

• Zachs Investment Research Free Trial Offer (0)
• Beginner Investing Hosts The Investing Carnival (0)
• Beginner Investing – Learn About Channel Trading (0)
• Technical Vs Fundamental Analysis Explained (0)
• Investing Freebies (0)

6. Margin Calls – This is probably the scariest thing about owning a short position in any company.If the stock you’ve decided to short moves in the wrong way (stock price rises), your broker will insist that you do one of two things. One, deposit more money into your account, enough to cover the purchase price of the stock at the current price. The other choice is that your broker will insist that you sell some of your long positions to cover the margin call or they will do it for you in their own way.

7. Early Sale – If the original owner of the shares that you borrowed decides to that they want to sell the stock, you must replace it — either by finding other shares through your broker or buying it on the open market. Remember all you did originally was “borrow” the shares.

8. Short Squeeze – If you’re new to the stock market then this is a term that you might not be familiar with. It’s a term that is used quite often on Wall Street. A short squeeze is when the price of the stock jumps up in value quickly, causing short traders to “cover” their positions. Which means that they have to buy shares to cover the ones that they borrowed. This typically causes higher prices, which prompts more people to sell and to take profits. This is something that you may never want to get caught in the middle of because of the ferocity of the situation as well as get quite expensive.

9. Properly Covering You Position – You may not even realize it, but you can have a short and a long position at the same time. When you go to “cover” your short position, you need to tell your broker clearly that the shares you’re buying are to cover your short position. If you just buy the share while still having a short position, you’ll have conflicting positions. Many times people are in a rush to cover their position, that they may not even realize their mistake of overlooking their selection, especially online traders.

10. Dividends And Taxes – If you have borrowed and shorted a dividend-paying stock, you will receive the dividends, but you, in turn, must pay the original owner the value of those dividends. Also, should you hold a short position for more than one year, well, tough luck — the IRS still treats capital gains as short-term gains. Ah, Uncle Sam is always reliable!

I hope these ten things I’ve given to you will help you in your trading. If you are new to the stock market, then it’s wise to stay away from shorting stocks until you learned more of the basics.

Related posts

• Beginner Investing – The Chase (5)
• 10 Things To Know About Shorting Stocks: Pt.1 (8)
• Jim Cramer: Action Alert Plus Free Trial (3)
• Financial Blog Carnivals (1)
• Beginner Investing: Diversify Your Portfolio (1)

A DRIP is a program run in-house by a publicly listed company. They are often offered to employees of the company, but they are also open to external investors who can meet the companies minimum share threshold to participate – usually this threshold is quite low.

The benefit of DRIP investment is that you can start with a very low volume of shares, and gradually increase your shares over time. You usually set a fixed cash amount that you will use every month to buy more shares, and this can be set up to be automatically deducted from your bank account – in essence, it is a forced savings system. The strength of a DRIP lies in the fact that any dividends paid by the company on your shares are automatically reinvested, and this has a compounding effect on your number of shares over time. Many companies also offer shares to participants in the program at a reduced rate, and of course you pay no brokers fees if dealing directly with the company!

Although it might not suit day traders out for short term gain, a DRIP is a great tool to have in your arsenal when building a long term portfolio.

Related posts

• Beginner Investing – Learn About Channel Trading (0)
• Who to Trust: Where to Invest Your Money Online (0)
• Save Your Money When Investing In Long-Term Growth Stock Picks (0)
• Learn to Earn: A Beginner’s Guide To The Basics Of Investing and Business (10)
• Investing Online For Dummies (2)

Typically when you buy shares of a company, you buy at a low price and then sell it at a higher price than what you paid. In shorting a stock you “borrow the share from a broker and sell them at a certain price and at a later time, you buy those those shares at a lower price to return to the broker. There is more to it that just this simple explanation of the process.

1. Risk – There is more risk involved in shorting a stock then there is in buying a stock to go up (long) in value. If you borrow a stock while it’s trading at $20 and it runs up to $100, then you’re out $80 a share. Unlike when you “go long”, you can only lose $20 a share as it falls to $0.

2. Locating A Stock – In the past year there has been a law passed that prevents someone from borrowing stock if you can not locate any available shares. In recent years, a trader would borrow shares that no one had and wait for the price to drop to buy the covering shares, but how can he buy them if no one had any? In this case it was referred to “naked shorts”.

3. Outstanding Short Position – The number of shares of a company held short, it is measured in absolute numbers, and/or a percentage of the float of the stock. Usually if the position is more than 10%-20% of a company’s total shares, it means that the bad news has already been factored into the stock’s price. If you find a company with a large short position, you need to avoid it all together.

4. – Margin Account – To be allowed to short stocks you will need to open what is referred to as a margin account. A margin account is where the funds will come from for you to borrow the stock. Take into consideration that you will be charged from your broker a “broker loan rate” (fee) based on the price of the stock. Also you will not get any interest on the margin account or have it rolled over into a money market account on the funds not being used.

5. Liquidity – Just like I said about an outstanding short position, if a company has too many share outstanding (liquidity) you need to avoid the stock. A stock that is not highly liquid should not be shorted. In this case you may find yourself stuck in the stock where you may not be able quickly liquidate your position.

In a future post, I’ll discuss more stock shorting tips for you.

Are you subscribing to our feed? If not click here.

Related posts

• Beginner Investing – The Chase (5)
• Beginner Investing: Diversify Your Portfolio (1)
• Beginner Investing (0)
• 10 Things To Know In Shorting Stocks: Pt.2 (0)
• Zachs Investment Research Free Trial Offer (0)

1. Stock or Equities

Stocks and equities are basically the same thing. They’re securities that represent owning a piece of a company. There are also equity mutual funds, which are also in the same class. There are several ways to acquire stocks and/or equities. You can purchase shares of a company through Initial Public Offers (IPO’s). You can buy from a broker and/or brokerage house (i.e. TD Ameritrade). Also, if your company offers a 410K plan, you can buy stocks through their program. What good about owning equities is that they are easily liquidated if you need to raise capitol right away. Their performance is quite volatile and generally give the best returns over the long haul. With the way equities move in value over the short term, in most cases they’re not ideal for short term investing unless you are very active on a daily basis.

2. Fixed Income Securities or Debt Instruments

Securities that will generate return within a period of time fall in this class. Bonds are the most common of them all. Returns are in the form of dividend income and/or interest. Bonds are issued by either the government, a company that want to raise capital to increase their business or a bank fixed deposit. It’s basically a loan to them from you. They can be purchased through corporate bonds, bank fixed deposits or debt mutual funds. They are considered a safer mode of investing since they aren’t as volatile as equities. It is also used by investors to protect their stock portfolio. The yield varies depending on the economic conditions at the time of issuance.

3. Real Estate

I don’t think I really need to explain what real estate is, but to cover all bases, ownership of land, homes, or commercial property are considered real estate. Real estate is sold in the open market by buying land, houses or commercial property, as well as taking ownership through inheritance.
Another way to invest in real estate is through funds that only involve real estate properties. They are known as REIT (Real Estate Investment Trusts). Investing in real estate can bring great rewards. Look at any wealthy person and you will see that they’re investing in real estate. To own rental properties will bring high yield over the long term while the tenant’s rent will (in most cases) cover the mortgage and other monthly expenses.

4. Gold

Again I don’t think there’s any need to explain what gold is other than it is the most sought after precious metal in the world. There was a time that the American dollar was related to gold, referred to as the gold standard. Gold can be purchased through jewelers as well as banks. Once can also invest in gold through gold ETF’s (Exchange Traded Funds) and mutual funds. The benefit of investing in gold is that it has always held it’s value against inflation. It’s not effected by the fluctuations in either the stock market or any currency. Many of the smart investors hold a position in gold to help hedge against the volatility in the markets. Gold will bring high returns over the long period of time.

5. Commodities

Commodities consist of of any type of tangible item that can be bought or sold. Precious metals, base metals, ferrous metals, agricultural products are just some of the many things that are considered a commodity. To invest in these you would need to go through a commodity exchange, such as NYMEX (New York Mercantile Exchange) and the CME (Chicago Mercantile Exchange) to name a few. I don’t recommend a beginner investing in commodities. The risks are very high and unless you have advanced knowledge in this area, I say stick with the equities (stocks) that handle these products.

To properly make it in the stock market, you should have a well balanced portfolio. I suggest that you learn more about each one before investing any of your hard earned cash in the markets. It will help you to seek the advice of a professional before doing any of the things that were discussed here in this post. General questions are always welcomed and I will do my best to answer and help.

Freebies For You!
Free Trial To Cramers Action Alert
Free Investing Membership

Related posts

• Beginner Investing: Researching Stocks (4)
• Zachs Investment Research Free Trial Offer (0)
• Losing A Little Is Better Than Losing A Lot (0)
• Investing Freebies (0)
• Free Trial To Action Alert For Investors (2)

The first one is the The Festival Of Stocks, where we submitted Beginner Investing Glossary.

The next two are the 87th edition of the Carnival Of Money Stories and the 88th edition of the Carnival Of Money Stories, where we mistakingly submitted Beginner Investing-Researching Stocks to both editions. (oops-sorry!).

Freebies For You!
Free Trial To Cramers Action Alert
Free Investing Membership

Related posts

• Losing A Little Is Better Than Losing A Lot (0)
• Investing Freebies (0)
• Free Trial To Action Alert For Investors (2)
• Finance Blog Carnivals (2)
• Beginner Investing: Mutual Funds (0)

I’ve learned quite a lot and still have more to learn. As I increase my knowledge in investing, I will share it here, with you.

FOREX, which stands for the Foreign Exchange, is relatively new to me. Like everything else that I want to invest in, I make it a point to learn all that I can about the opportunities that are out there for us to trade, invest and profit in.

In this post I will list some of the key words and terms that are used when trading currencies. Don’t worry, none of the words or terms will force you to learn another language to understand them-lol. In no particular order I will list some of the basic ones for now and in a later post I will go continue with others. If you have any to add, feel free to leave them in a comment and I’ll add them in a later post.

Commodity Futures Trading Commission (CFTC)
The Commission is a United States agency that Congress set up in 1974. The duties of the commission is to monitor trades in commodities, futures as well as options for any fraudulent practices. They have the power to fine and/or suspend and companies or traders who are in breech of any trading laws.

Currency Pairs
All FOREX trades are based on the pairing of currencies. One currency is traded against another (i.e. the US dollar/Japanese Yen. You would see it listed as US/JPY 115.95. How you would read that is the base currency is the US dollar and for every dollar that is traded, you will receive 115.95 yen in return.

Point
The minimum change that a price can move. Often referred to as a pip (price interest point).

Majors
When a trader or investor refer to “The Majors” it’s refers to the more popular traded currencies like the US dollar, Euro, Japanese Yen, the British Pound, Canadian Dollar, Swiss Franc and the Australian Dollar.

Fundamental Analysis
A method that is used by brokers and traders to predict price movement within a stock. It involves key data like earnings, dividend payouts as well as risk evaluation.

Base Unit/Currency
This is the first currency quoted in a pair, it is used to measure profit or loss. An example is EUR/US 1.32, which means that for every one Euro it will be traded for $1.32 of US currency. The base unit will always have a value of 1.

Convertible Currency
A convertible currency is one that does not require authorization from a central bank in order to be traded freely against other currencies in the FOREX market.

European Monetary Union (EMU)
A union consisting of eleven European countries, Germany, Italy, Luxembourg, France, Finland, the Netherlands, Austria, Belgium, Portugal, Spain and Ireland. The union is responsible for establishing the Euro which replaced the national currencies of the EMU members in 2002.

LIBOR
LIBOR is an Acronym which stands for London Interbank Offered Rate. They are the Federal Reserve funds rate of the UK. It refers to the interest rate that are charged by banks to other banks when exchanging monies.

Freebies For You!
Free Trial To Cramers Action Alert
Free Investing Membership

Related posts

• Beginner Investing: Free Stock Market Tools (2)
• Zachs Investment Research Free Trial Offer (0)
• Losing A Little Is Better Than Losing A Lot (0)
• Keep Emotions Out Of Investments (4)
• Investing Freebies (0)

There are many words and terms used that you may be unfamiliar with. Here are the meanings of some

This post will cover many of the words and terms that are used when trading stocks. These are only a few but I’ll cover more in upcoming posts.

Cost Basis:
Cost basis is referring to what you pay for the stock. If you were to buy 100 shares at $30 per share then your cost basis would be $30. Now if you go ahead and by another 100 shares as the price drops to $25 per share, your new cost basis would be $27.50 per share (100 X $30)+(100 X $27.50)=$5750.00/200 = $27.50

Incrementally:
When you start to build a position in a particular company, you don’t go ahead and buy all your shares at once. Stock prices rise and fall and the time and if you purchase all your share at on price then the value falls you either have to sell at a loss or hold until the price comes back up in value. Buying incrementally will also help you lower your cost basis.

Diversification:
As you build your portfolio you need to keep in mind that you can’t just buy stocks in one sector. If you were to buy stocks in three companies and all of them were in the energy sector, you would lose a lot of your capital (cash) on a day that the sector took a big loss because the price of oil dropped. The idea is to not put all your eggs (investments) in one basket. What you need to do is have your investments spread out over different sectors. You also need to be aware what sectors effect other sectors (more of that in another post).

Fundamentals:
When researching any stock you need to look at what is referred to as fundamentals. It’s basically the financial information that can be found in a company’s earnings report or annual statements. An earnings report is information that the company puts out quarterly to inform their shareholders of the condition of the company as well as any future guidance.

Long/Short:
At times you will hear a stock analyst state they “long a stock” or “short a stock”. When they refer to “long”, they mean that they are invested in that particular stock for it to go up in value. If they state that they “short” a stock, they expect the company’s stock will go down in value because of one of numerous reason and they’re investing in it to go down in value.

Dividends:
Some companies will give their shareholders a cash payment. This is usually done on a quarterly basis and is given to shareholders that are listed on record at the time of payment.

Yield:
The yield is calculated by figuring the annual dividend divided by the stock price. The yield is referred to in percentage terms such as 5%.

Freebies For You!
Free Trial To Cramers Action Alert
Free Investing Membership

Related posts

• Beginner Investing: Learning From Mistakes (1)
• Keep Emotions Out Of Investments (4)
• Investing Freebies (0)
• Beginner Investing: When Research Pays Off (3)
• Beginner Investing – The Chase (5)