Stock Options Continue, Despite Scandals

The stock-option backdating scandal has hit over 150 companies nationally as of October 2006. The financial advisory firm Glass Lewis has said that over $10 billion is involved in the various companies charged with backdating stock options. The analysis was in Glass Lewis' weekly ``Trend Alert'' advisory.

Stock-options generally are a perfectly legal option for companies to reward their employees by giving them a discounted option to buy stock. The idea is to bind the employee closer to the success or failure of the company, and reward him or her for better performance, by being able to tangibly share in the company's shareholder value.

Some companies choose to have broad-based employee stock option plans. These plans give most employees the right to participate. An employee stock ownership plan (ESOP) is a type of employee benefit plan. The company contributes its own shares to the ESOP plan and arranges for this to provide tax benefits for the company and its employees. Many of these plans involve companies that have not "gone public" and are closely held. Probably as many as 10 million employees in the United States participate in stock option plans. Other plans allow employees to buy stock through payroll deduction plans, through a substantial, 15 percent or more, discount. ESOPs from a legal standpoint are different from straight employee stock option plans, in that they are much more broad based. The scandals involving stock options involve leading executives who are allowed to buy stock at a price that has been dated in some cases years before the present, so they can make an immediate profit selling stock of over 50 percent.

A 401k plan involves stock ownership by employees, but in a diversified portfolio of stocks. Some of these plans include a matching plan where the employees pay over time for an amount of company stock for their retirement fund.

Stock options in various forms are a big time business. Take the case of Microsoft. Microsoft receives cash by issuing employee stock options, after which the company then receives billions of dollars in tax deductions. This can be pretty strange, but it is definitely significant. A large portion of the salaries that Microsoft pays out are in the form of stock options. These options allow employees to buy stock at a fraction of the market price. The employees only pay taxes on the portion of the stock price they pay that is discounted from the market price. Microsoft made over $5 billion off the stock market in one year, tax-free.

Stock Market Strategies For Investors

Investors can use a number of strategies to invest in the stock market. To begin with, they need to analyze market trends, learn about the market in which the companies they are interested in operate, and purchase shares at an appropriate time.

Usually, good companies announce their profits, or their status in the market, at certain times of the year. The prices of their shares tend to increase before such announcements are made. Therefore, investors need to watch out for these periods, and not purchase shares at this time. In other words, it is important to wait for the right �Market Timing' for trading in shares. Some basic stock market strategies for investors are listed below: -

Make a well-planned investment portfolio that satisfies a particular level of risk tolerance.

Keep reviewing and updating the investment portfolio to keep up with market trends.

The technical analysis of stocks helps in gaining better knowledge about a company: its profits, its market capitalization, and its future growth prospects. Equally important is to be able to understand and apply the quantitative measures of the stock market.

Since investing in the stock market is complex, inexperienced investors should always seek help from financial advisors and stock market analysts before committing themselves and their money.

The motto being "Buy Low and Sell High", always buy shares when their prices are low, and sell them when the price goes up.

Invest intelligently. A sharp sense of the market, along with a good knowledge of the company you plan to invest in, helps in making better investment decisions. Investors should thoroughly research the market in which the chosen company operates.

Long-term vision and planning is vital. Investors should evaluate their capital strength, and set their tolerance limits, before investing in a company. This means, knowing when to hold on to the shares, and when to quit.

It is generally advised to devise and apply an exit strategy cautiously. Investors can make their exit when they have gained good returns over a certain period.

The returns gained from selling the shares of a company can be re-invested in some other, promising higher profits.

Investors should also set their tolerance limit for the amount of loss that they are ready to bear when the market is down. They can exit when their losses approach or cross this predetermined limit. This strategy of limiting the amount of loss an investor can withstand is commonly known as "Stop Loss Limit".

Another strategy investors can follow is to �Buy and Change Frequently'. Market research shows that every company has some limit on the expected gains from their shares. Investors can therefore move out of a stock when they have achieved maximum returns from shares accordingly. It is important to invest in a variety of companies to withstand the losses of a few.

The objective of any investment is to maximize returns while minimizing risks. Diversification helps in maximizing returns from investments in stocks and bonds by managing risks better. Investors ought to distribute their investments across several categories like foreign securities and mutual funds to be on the safe side, and in the process enjoy good returns.

The Buy and Hold Investors' Nightmare

Being a Buy and Hold investor is like living through a nightmare where you find yourself the main character of the Greek "Myth of Sisyphus."
Futile and Hopeless Labor: In this myth, Sisyphus is condemned by the god Zeus to an eternity of futile and hopeless labor. He must roll a heavy stone to the top of a mountain. But then the stone rolls all the way back down � and Sisyphus has to push the stone back up again to the top.
A sentence of "futile and hopeless labor" is similar to the situation that Buy and Hold investors have faced during many periods of stock market history. Since "Bull" Markets are inevitably followed by "Bear" Markets, the investor's hard-won gains from the Bull Market up-cycle evaporate as market prices fall during the Bear Market down-cycle.
That's not to say the stock market hasn't gone up over time. Looked at over hundreds of years, the market has grown at a 7% average growth rate. You might say: What's the matter with 7%? The problem is that in order to have a statistically high probability of achieving an average growth rate that high, you should expect a potential wait of as long as 20 to 40 years!
Bear Markets Appear at Regular Intervals: Looking at the past 200 year historical record as author John Mauldin does in his book Bull's Eye Investing, there have been 7 "secular" bull market cycles and 7 secular bear cycles � the bulls averaging 14 years in length and the bears 15 years. The word secular means "era" as in a long time.
Bull and bear cycles are long enough to consume a major portion of your earning years. Look at the cycles of the past century: The Depression-era bear market cycle lasted from 1929 to 1945. Then the bull cycle after World War II lasted from 1946 to 1964. After that, a new bear market cycle lasted from 1965 until 1981. The most recent bull cycle lasted from 1982 to 2000.
� 15 to 20 years is a long time to wait for nothing better than a zero or negative return.
We are Now in a Secular Bear Market Cycle: Bull market cycles are preceded by very low stock market valuations (low P/E ratios); and bear cycles begin after periods of very high valuation.
� The "bubble" peak year of 2000 saw record-high P/E ratios reflecting manic levels of bullish hysteria at the end of an 18-year secular bull cycle.
It is quite reasonable to view the 3-year bear market that began in 2000 as just the opening act in a new secular bear cycle that could easily last until about 2015 if you assume an historical average.
� But secular bear cycles will include bullish interludes � just as bullish eras have included regular bearish phases.
Secular Bear Cycles have Plenty of Ups and Downs: In fact, during the average bear market cycle, roughly 42% of the years have been up years according to John Mauldin in Bull's Eye Investing. The intermediate up-cycles last about 2 years on average. On the flip side, secular bull cycles show a similar but opposite tendency. Since 1900, about 17% of the years during secular bulls have been down years.
The current bullish phase in the stock market is most likely just one of those bullish intermediate up-cycles that usually appear in the middle of secular bear cycles where the predominant, long term trend is down. So the current bull market period is likely to roll over into a continuation of the secular bear down-cycle that began in 2000.
A Nightmare for Buy and Hold Investors: So far in this decade, Buy and Hold investors have probably felt like the mythical Sisyphus. After making fantastic gains during the Roaring 90's, many investors lost between 30% and 70% on their stock market portfolios during the bear market of 2000 to 2003. Then a bullish interlude began in 2003. If an investor was fully invested at the beginning of this phase, they have probably recouped about 70% of what they had lost.
� Almost 7 years into the new secular bear market cycle and the average Buy and Hold investor is still down about 15%, in spite of the recent bull market interlude.
The Nightmare has only Just Begun: The current bullish interlude is likely running out of steam. At nearly 4 years in duration, this bull is getting "long in the tooth" by historical standards. Looking forward from where we stand today, the average investor can expect a pattern of more frequent and punishing Bear Market periods in between Bull Market interludes.
Since the total return on stocks has typically been negative or near zero over a complete secular bear cycle, the Buy and Hold investor � who has already waited 6+ years � could easily have to wait another 6 to 7 years and still receive no positive net return.
Most investors' natural reaction would be to flee the exits and put all their money in bonds, CD's and bank accounts. But how is a growth-oriented investor to know when it is safe to get back into the market � when to take advantage of the drop in stock prices?
� Now there is an effective way to make the market's up and down cycles your friend, how to know when it is safe to get back in to the market as well as when you should get out.
Market Timing to the Rescue
Market timing has historically been a rather dubious art, particularly as practiced by a colorful variety of "market gurus" who tried to build reputations by picking market tops and bottoms.
� But computers and quantitative modeling techniques are changing the reputation of market timing. Today, increasing numbers of sophisticated investors are coming to appreciate the potential effectiveness and power of disciplined market timing techniques.
The primary benefit of a longer-term market timing model is to capture the big market trends � up and down. If you can effectively capture the up cycles and avoid the down cycles, your portfolio will be miles ahead of the Buy and Hold investor.
But You Have Heard that Market Timing Doesn't Work: Yes, that is what you've heard from the entrenched interests within the financial business � they can make more money off you as a Buy and Hold investor. But there are a growing number of financial advisors, investment newsletters and portfolio managers that are embracing the new technology simply because it works.
� And now there are several mutual fund families that cater to market timers. The two biggest are Rydex Investments and ProFunds, Inc.
One alternative to market timing is to hire an investment advisor who is a very good stock picker. The challenge will be to successfully pick stocks that continue to perform well during bear markets when an extremely high percentage of all stocks go down. That is a huge challenge and good stock pickers are very hard to find.
Another alternative is to structure your portfolio with a high percentage of bonds and cash, using a traditional asset allocation approach. This method will reduce the potential degree of loss during Bear Markets, but whatever portion you allocate to stocks could still lose 40% or more and may take you many years of patience just to reach breakeven.
The Best Alternative: Tactical Asset Allocation
You can take long term market timing one step further and build it into a disciplined asset allocation process that dynamically follows changing market trends in multiple asset classes (such as bonds, stocks and real estate).
The point is to use timing techniques for each asset class to capture the up-cycles and avoid most of the periods of under-performance and losses.
� This is the most efficient approach to asset allocation � because it mostly eliminates the long periods of under-performance that would be inevitable using a traditional asset allocation of fixed investments.
The average investor can now more easily access this sophisticated approach through multiple avenues � individual investment advisors that use the approach and investment newsletters that offer model portfolios based upon market timing techniques. In addition, several mutual fund companies, including Rydex Investments and the Hussman Funds, have introduced mutual funds based upon market timing technology.
And there is the "do it yourself" approach. An increasing number of trading software packages offer the analytic capabilities for individual investors to experiment with their own quantitative timing techniques. Many day traders have already figured this out.
But as a long term investor, your objective should be to invest heavily in the market during a period like the 1990's and then to be out of the market during a bear market like 2000 to 2003 when a huge destruction in value occurred.
� Capture the huge trends and you will mostly compound profits on top of profits and the power of long term compounding will take over to accelerate the growth of your portfolio.
We aren't in the 1990's Bull Market anymore. You will need a more sophisticated investment strategy to be successful in the years ahead ... one that can make money in spite of the inevitable bear markets. Now you can avoid the nightmare and tragedy of the Greek Sisyphus. To stay on top of the volatility observed in market cycles Mark recommends that you subscribe to a investment newsletter that provides you investing tips and advice about market timing.

Stock Valuation - The First Step Towards Intelligent Investing

Stock valuation can be considered as a tool for picking out stocks that will bring you good returns. Imagine buying a car without knowing its value, or investing thousands of dollars in property with no potential. Sounds scary? Yet, this is exactly what it amounts to if you put money into deals without assessing their value.

Intelligent investment needs a lot of effort. If you want to invest in stocks, the first thing to look out for is its valuation. Valuation of a stock means the price or �actual' value it holds. If you are doing stock valuation then you need not study the stock chart every time or worry about the trend in the market or the interest rates of the stocks. Never invest in stocks without knowing the value, because that is like going up a blind alley where you have no idea what you will end up with.

Investment in stocks without valuation is like risking your money deliberately. While the fluctuations in the stock market cannot be avoided, with the accurate valuation of a stock, you can minimize the risk factor. It will ensure that you not shoot in the dark, and make sensible investments. Use the valuation of stocks to serve as a guide for buying and selling stocks.

Instead of pouring your hard earned money into stocks without valuation, it is better to be patient and carry out a thorough research to determine the worth of stocks before buying. You do not have to be a math genius, or a stock market guru either. All you need is basic mathematical skill, and the perseverance to look for all the valuation information available.

You cannot make the most of valuation if you do not understand or appreciate its importance in the stock market. Spending a large amount in buying shares based on what others say may well result in losses. Neither should you buy based on media hype, as this may mislead you, and you may end up losing every penny you invested. Owning stocks of a company in the form of shares can be a very good wealth-building tool for you as it grants you claim on everything that the company owns. Hence, assessing the value of the company, the profit it is generating and how beneficial it can prove to you, is a worthwhile enterprise. Valuation can prove to be especially beneficial for middle class investors, as they have limited resources to overcome losses incurred in the stock market.

Therefore, valuation can be considered the key factor in buying stocks. Just as one assesses the value of anything one buys on the basis of a specified standard, stocks too need to be valued to determine whether the investment will bring you returns or not. Be aware, there are companies in the stock market that are making huge profits, but their stocks are of no value. Hence, spending time on carrying out your own research will help you pick up the right stock for your portfolio.

How To Avoid Mistakes When Investing In Shares

The promise of making a lot of money has been heard by many, and many have found out that it just is not as easy as they had heard. They lost money - sometimes a lot of it. They then turned away from the stock market and ended up totally disillusioned about it. The truth is, they may have been somewhat confused about it in the first place. They may have thought it would come to them just like it did to others - without knowing the why's or the how's. Here are some strategies that you can use in order to help you to avoid the common mistakes that others have made.

Get A Realistic View

By looking at the market with your eyes open, you can come to understand not only the profit possibilities, but also the possibility of losses. The truth is that the higher the possible gain there is, that it is always associated with the increased likelihood of loss. The safer investments always bring a lower level of profit, and the safest investments have attached to them the lowest levels of profit.

Understand The Market

One of the greatest benefits that you can have to help you avoid a lot of potential pitfalls in your investments is to understand the principles of investing. In other words, read all you can about the process, how to judge a good stock, etc. The more you know about it yourself, the wiser you will be able to invest your funds - and hopefully see a profit. You will also be able to develop a worthwhile investment strategy - both for the short term and for the long term.

Diversify

It is smart investing to place your available investment funds into a minimum of 6 different kinds of shares. Some suggest that you go as many as 20 in order to diversify safely. Spread your investments into different kinds of stock (sectors) that are not related. This way if one type of market does not do well, then the other ones should. This enables you to still make money from some of your investment.

It is usually a good idea to diversify into more than just the stock market - at least until you really understand what you are doing. The smart investor will take a portion of their investment money and put a percentage of it into secure investments like trust funds which are solid investments, and possibly also bonds, which are the most secure, but do provide less interest.

Seek Counsel From Professionals

Unless you have money to just throw away, it would be a real good idea to seek help from someone who understands the market better than you do. There are professionals out there, financial advisors, brokers, etc., that are more than willing to help you build a solid portfolio for your investments. Their expertise can spare you a lot of unnecessary loss, and get you on to the right track to some solid profit.

Make Your Investments For The Long Term

While there is different thinking about the markets and how to invest, the general idea is to make your investments for the long term. Experienced stock market experts tend not to watch the market everyday, but only check on it once a month and many of them only quarterly. Watching it everyday leads to a lot of anxiety - since the market normally fluctuates a lot from day to day. Overall, though, it generally moves upward.

Stock Market Screening

Wouldn't it be great if we had a magic crystal ball that would tell us just what was going to happen to the price of a stock over the next two years so that we did not have to conduct any stock market screening. Well we don't have a crystal ball that will predict the future all though we do have the opposite, the past "HISTORY". Due to the powers of the internet you and I have the ability to obtain effective stock market research position by conducting positive stock market screening. With the correct stock market screening you can download, for free, years of financial data on any company that is traded publicly. Although this is the opposite of the future if approached correctly utilizing the principles of investment strategies and stock market screening this can be used to our advantage to help establish an effective stock market research position.

The term "Lift-Off Stock" is a term that I use to describe a stock that is ready to take off in price and continue to do so over the next year or two. What is ironic about the term is the fact that while lift-off stocks do exist how do we conduct stock market screening to identify them at the beginning of their price increase? Well I bet I know what you are thinking. Now that you have this huge power of access to financial company data you can down load all the historical financial data for hundreds of companies that are all traded publicly. Then you would use the theories of stock portfolio management to identify all the companies that have had lift-off to the price of their stock. Once you have completed this you would find what they all had in common with their financial data just before and prior to lift-off. I bet you are now thinking "FANTASTIC" well make sure that you call me as soon as you finish compiling all your data. You see the problem with this plan is the amount of time, man-power, money and resources you or I would need to accomplish this is simply way beyond my means.

There is an individual though who I assume had the same idea, Investors Business Daily publisher "William J. O'Neil". And there is one huge difference between Mr. O'Neil and myself, and that is that he did have the time, man-power, money and resources at his disposal to accomplish this because that is exactly what he did. Mr. O'Neil & Co. had been analyzing stock since the 1950s with the use of computers. Due to this he had compiled a huge amount of fundament and financial data on thousands of stocks. Mr. O'Neil took the data of these stocks from the years 1953 through 1993 and identified 500 stocks that had the highest gains during this 40 year period. He then analyzed the data to identify what all these stocks had in common before they started, what I previously defined as "Lift-Off".

Now I will get back to Mr. O'Neil's findings later in this article but first I what to point out the importance the principles of investment strategies carry with regards to stock portfolio management. When we purchase stock we are purchasing a percentage of ownership in that entity. Just as a mortgage company will check our credit before lending us the money for that purchase, we should also check the credit of a company that is a candidate for future investment prior to investing. And just as a credit company has set up guidelines that determine whether or not they will lend you money so should you set up guidelines that any entity must meet before you will invest in them. If you do this with a quality amount of research and thought based on your personal financial situation you will greatly improve your return while reducing your risk for that ultimate goal of optimum return vs. risk formulation. Now there are several very good stock portfolio management strategies that have been developed and you should by all means know them fundamentally, Mr. O'Neil has developed one of them that we are going to cover. What you must do is identify which principles of investment strategies will best fit your personal financial goals and status with as little tweaking as possible. It is ok to adjust our chosen stock portfolio management strategy to fit our personal situation as long as we monitor them and make adjustments for those tweaks that are not effective. This process of adjustments is covered in my Successful Online Portfolio Management e-course in which the simple process of setting up and analyzing your investments with Excel spreadsheets is explained.

Now back to Mr. O'Neil and his findings. O'Neil identified seven characteristics that were all found in the top stock performers and then combined them all into a strategy he call "CANSLIM". He first introduced CANSLIM in his best-selling book, "How to Make Money in Stocks", I believe now to be in its 3rd edition. The foundation of CANSLIM is based on a momentum investment strategy. A momentum strategy is one that consists of fast earnings growth with a strong price chart. But O'Neil also included several requirements that are not associated with a momentum strategy. The seven financial requirements for the CANSLIM investment screening strategy are as follows:

C - (Current Quarterly Earnings) Current quarterly earnings compared to the same quarter of the previous year must have a growth of 18% or more.

A - (Annual Earnings Growth) A stock must have an annual earnings growth of 25% or more over the previous year.

N - (New High Price/Share) The stock selling price must be at or close to a new share price high.

S - (Supply VS. Demand) Shares of stock outstanding must be no more than 25 million.

L - (Leader in Industry) 12 - Month Relative Strength must be 80 or higher.

I - (Institutional Ownership) Institutional Ownership is the percentage of shares of stock outstanding owned by institutions i.e. mutual funds, pension plans, insurance companies, etc. O'Neil wanted percentage of shares outstanding held by institutions to be low, although he does not give a parameter for this I would suggest anywhere from 5% to 35%.

M - (Market Direction) O'Neil advises against using the CANSLIM strategy in a weak market because momentum stocks go down when the market drops. There are several theories on what determines a weak market for momentum stocks and you should come to your own conclusion. One that I particularly like is using the Russell 2000 Index 200 day average as a benchmark. If the Russell 2000 is trading below its 200 day average then it is considered a weak market if above it is a strong market.
This is a stock portfolio management screening strategy that I like, with a few alteration, to use when looking for lift-off stocks. If you would like to know more about the CANSLIM principles of investment strategies read the book "How to Make Money in Stocks" by William J. O'Neil in which these strategies are covered in much more detail. One thing that I would like to point out is this, while the CANSLIM strategy is a very legitimate strategy worth your time to look at, there are several other very legitimate strategies also and you should develop a basic understanding of them as well to ensure that you develop a strategy that is based on your personal financial situation. Remember we should have a portfolio of diversification which not only includes different entities classifications but also different risk structures based on what our individual goals are and how our personal financial structure is composed.

Scott G. Henderson and Strategic Resolutions, LLC do not have nor have had any affiliation with Investors Business Daily and the CANSLIM organization and does not represent any entity associated with them. The contents of this article are entirely the opinions of Scott G. Henderson and he has received no compensation from these entities or any entity associated with them.

Learn to Buy and Sell Stocks Online

Technology has widened the scope for tremendous growth in the stock market. Stock dealing on the Internet involves only execution of the orders. You can buy or sell your stocks from more than 100 online brokers instantly. Online trading is the quickest and the most convenient way of dealing in stocks.

Steps to trade stocks online:

- The first step involves identifying a good online broker, to avail of inexpensive services and tools.

- Make sure that the online broker has an easy to navigate website. The web pages must load quickly, since you may have to look at more than one chart while you wait for the right price to buy or sell the stocks.

-The trading screen should be well organized for you to double-check all the information before trading.

- Do not opt for delayed quotes. A delay of 15�20 minutes can affect your chances of profit. Ensure that you avail of real time quotes. A good online broker will execute your interests as quickly as the stock moves a point. If there is an unnecessary delay in filling in the order, you could stand to lose.

- Take time to choose the best online broker because the wrong choice can turn online trading into a nightmare. It pays to access the stock trading forums and conduct thorough research.

-Reputed online brokers are equipped to provide quick confirmations on orders and offer account balance information and current portfolio updates.

- Look for an undervalued company. Do not just buy the first over publicized share you come across in the headlines of the local business newspaper. Because publicity may increase the price and the market capital of a stock but it may not be beneficial for you as a buyer.

- When the stock market drives down the price of a stock, you can make big money on the investment made after identifying that stock. This is due to the fact that stocks that fall hard are observed to bounce back and show good quarters for investors.

- Your losses can be limited in the fast moving stock market, if you gather sufficient information on the stocks you intend to buy and the investment risk attached. Consider the long-term growth opportunities of a particular company before buying stocks online.

- According to the wall street journal, if you have your stocks in a great company then the best time to sell your stocks is �never'. If you cancel the online trade, immediately contact your firm to ensure that the original transaction was not executed.

- Always remember that trading of stocks online is not an instantaneous process. Technological �choke points' like a slow or faulty Internet Service Provider or computer can slow down the process of your orders reaching the firm. You can also avail of telephone trade or faxing your order. However, these alternatives also come with similar delays.

When a number of investors trade at the same time, prices change and delays become unavoidable. As an investor, you could suffer unexpected loss. You should make sure that you understand all the nuances of buying and selling stocks online, before you make any move.

The Wild World of Stock Trading

There are many people who think that stock trading is a quick way of turning a profit. The image of stock trading also is a highly romanticized one, thanks to stock trading portrayals in the media and film. While it is true that stock trading can be a quick way to earn from an investment, it is equally just as easy to lose money from it and that is not necessarily

The truth is, stock trading is not for the faint hearted. Furthermore, more complex and adventurous stock trading moves are not for beginners or the uninitiated because trading stocks can be a very complex process. To be really adept at stock trading, you will need to have a very good understanding of the market, trends, and some years of experience to have a good grasp of how things go. It is however possible to acquire basic knowledge on the process so that you can decide if stock trading is something you want to get into.

For starters, it is important to understand that the term stock trading does not mean that you trade stocks for stocks. You will actually have to trade your money for stocks, or in short, the whole process involves buying and selling stocks. The stock market is the avenue wherein these stocks are bought and sold. The market is not an actual place; it is a network of stocks, buyers and sellers. Some stock trading is done in stock market floors or through the internet.

Now, an individual cannot directly buy or sell stocks. One will need the aid of a stock broker and pay the necessary commissions and taxes with every stock trading transaction. At this time, you may be wondering what stocks are and why are they traded. Stocks are shares from a publicly listed corporation. Stock holders acquire the benefit of being able to vote on who the board members should be as well as earning dividends from the company's profits. A more sober and safe approach to the stock market is buying stocks from a blue chip company and just earning from dividends.

This method however is not as volatile or possibly as lucrative as actively buying and trading stocks. The philosophy behind actual trading is basically to be able to buy a stock at a reasonable price and be able to sell it soon after for a profit. The profit is earned of course from the rise in stock price.

The rise and fall of stock prices and therefore choosing the right stocks to buy and sell is the tedious process. Financial and stock market analysts can help you out here. That is why it would be good to acquire a trusted and dependable stock broker who knows the ins and outs of the market and will also be able to give you advice on how and what stocks to trade.

At this point, you may be wondering how you can begin to choose a company that is publicly listed whose stocks you might want to trade with because the numbers of stocks available as well as the publicly listed companies are a lot to say the least. It would be helpful at this point to segregate the market by sector and you may want to choose one that trends indicate is about to boom or rise in value.

Needless to say, despite expert advice and analysis, stock trading carry a lot of risks and may not be the best investment choice if you are looking for something stable.

Small Business Secret #2 - Build Your Business Knowing How You Will Exit the Business

Creating a small business from nothing is easy to do anyone can do it, by simply filling out a few forms at a government office and then you have your small business. Making it successful is the hard part but also knowing how to get out of your business is as important to your business as owning it. Way to many people startup small businesses but then have no idea how they are going to exit it and in the end the way they build their business in many many cases results in them not getting the windfall they had hoped for.

Let me be really honest with you, if you build your business correctly and make it successful, you can make millions, but you can cost yourself money in not knowing how you will dispose of it and building it in away in which selling is not easy.

Now, I hear it now, but are not all businesses built the same way?

Well in fact no and if you structure your business in the wrong way, it can affect your ability to offload your business.

So what are the ways business owners can exit their business?

Let me list them straight off -

1. Sell to another small business owner
2. Sell off Franchises and Areas to Master Franchisors
3. Sell your business to an Equity Group
4. Sell Shares in your company to other people
5. Publicly List Your Company Shares

The first secret to building a Successful Small Business is to know how your business will look when you are finished. Now based on what your vision of your business is will depend on which of the 5 options you will take.

For example, my team and I are developing a new business that we have decided in three years will be publicly listed. The way in which we are designing this business is very different to how we are growing and building our other businesses. For example, our car cleaning business has been designed specifically to be franchised which has meant we have essentially built each area as its own small business that is profitable for a single operator and will bring them in a good weekly wage and small profit on their investment.

In designing our publicly listed company we have to treat it in a different way so that it is designed to meet the needs of serious investors like institutional buyers. Now by know way am I saying I am an expert in this area but some companies are more suited for public listing than others.

For example if you are building your company for a listing on any of the worlds stock exchanges, investors are looking at three core areas -

1. Good Solid Business Growth (double digit growth)
2. Solid growing profits (double digit profit growth)
3. High Potential for Share Value Growth

If your business does not have those elements then you could be punished in a big way on the stock market with a low share price and in many cases you can loose more money than you make. A few years ago I bought into a small diamond mining company because of this one reason. The share price of the company had been savaged by the bigger players and in those players driving the share price to on 1 cents a share, simply because its potential for high share value growth and profit return per share was simply not there. What happened in the end was that the Publicly Listed Company was bought out by an equity group and was changed to a privately owned company. I actually bought the shares for less than 1 cent a share and the cool part for me was that I made a couple of 100% profit on those shares, but those people who invested when the company was publicly listed lost a large amount of their investment. This really drove home to me that you need to be careful about what you do when you want to get out of the business. In this case, publicly listing the private company cost the owners and shareholders more, than if they had of stayed private.

In the end the company which had an initial listing of 10 million dollars sold for a couple of million dollars. The original shareholders lost an investment of over 8 million dollars. The owners would have been better off keeping the company private and selling it to another mining company or a publicly list company. The reason I know this to be true is because the private equity group did that just 18 months later and I know they doubled their money.

On the other end of the scale, do not just sell your business to anyone. When you build a small business, one of the things that will happen is that you will build a very close relationship with your clients and many of them will become friends. Make sure that when you decide to exit the business, that you talk to your existing customers prior to exiting because getting the wrong person into your business can hurt them as well, both financially and personally.

There is no right or wrong answer to what you should do when it comes to exiting out of your business, but always have a clear strategy on how you are going to exit and build your business towards that exit strategy. If you are partnering with someone else to build your business, make sure that when you create your partnership agreement that you both have a clear understanding of how and when you are going to exit the business.

I have seen so many small businesses destroyed by partnerships that are fine for the first couple of years but then the partners fall out and because one partner wants to exit now, it puts such a clear strain on the business that the business collapses.

One of the clear things I have learned about business is that you must have a vision of what you want for your business and work back from that vision and develop your timeline for success.

Five Things You Need To Remember Before Starting a Small Business

Everyone knows someone who has decided to go into small business but did you know that 70% of all small businesses fail within the first 12 months of operation. In some countries that failure rate is as high as 85 to 90%. Small Business is one of the toughest industries you can ever decide to take on and most people who go into small business go into it for the wrong reason.

I have started 4 small businesses over the last 10 years and every single one of them has been started from scratch and survived into a thriving business. Just recently I have decided to sell one of the businesses off cause it had done what I expected it to do which is the first issue you need to think about.

Issue 1. Have a Clear Understanding of What You Want To Achieve In Your Business

The majority of people, who actually go into business, go into it for the wrong reasons. Even I have been guilty of that. So what is this wrong reason, most people start a small business because they believe they can do a better job then their current boss. Maybe this is true, maybe it is not but what most people really want is better working conditions and better pay. No one can blame you for wanting that. If that is all you want, then I strongly suggest you stay away from small business.

One of the key issues you must remember before evening thinking about starting a small business is this. Do you know what your business will look like? If you were walking down the street, how would you want to be found? What impression do you want to give to your clients? What clearly do you what to achieve in this business?

The second clear understanding you must have of your business is, when will you know when it is finished? When you have built what you want to achieve and more importantly, how will you get out?

See most people when they go into business have no exit strategy and that is one of the worst things you can do. Before you ever start a business, the first thing you must work out is how you are going to get out of the business.

Two years ago, I started a small car cleaning business. My wife and I both started it because she wanted to see if she could build a business. Our exit strategy was to sell the business once it was done. How we would sell it was something we were not sure of?

See we could have taken a number of approaches to this. Our exit strategy could have been to franchise the business, sell it to a single owner or to float it on the stock market. We chose that we only wanted to sell it to another owner, but we still built the business in such a way that there was still plenty of growth and opportunity in the business for the new owner, but we had removed the risk for them on how to run the business by clearly documenting everything they needed to do to run that business.

Before ever starting a business, always think about how you will exit the business, when you have achieved your objective for that business. If you do not have an exit strategy in mind, then you will never get out of the business.

Issue 2. Keep a Strict Schedule

Small business is consuming. Unlike in large corporations where you can hire many people to do a range of tasks, small business requires the small business owner to do many of the tasks themselves. Some of the tasks include doing your books, lodging trademarks, doing the ordering etc. Often when you start in small business, you can not afford to hire people to do these tasks.

What I have personally found is that if you do not keep a tight schedule and document your meetings and tasks you have to do then it will not take very long before you will be swamped by all the things you have to do in the business every day. It is this phenomenon that often leads small business owners to quit and fail in the first twelve months. Let me tell you this, the warning signs that this is starting is when you say to your wife on a Saturday or Sunday afternoon that you are going down to the office to catch up on paperwork for a few hours. Once you get into this habit, you will never stop doing it and the business will consume you really quickly.

I strongly recommend all small business owners keep a diary. My preference is to use Microsoft Outlook, simply because it includes a calendar and you can make sure that each day you schedule your work plus your appointments to make sure you do not forget anything. If you do this, then you will find over time you can get through this plus you will learn how long it should take to do the various jobs that make up your business and whether it is worthwhile in getting someone to actually do those tasks for you.

Issue 3. Build Your Own Mastermind Group

I read a book a little while ago called Think and Grow Rich and is written by a gentleman called Napoleon Hill and he talks about the thirteen secrets to success and obscene wealth. One of the things that I learned both from this book and being a small business owner was that I needed a Mastermind Group.

The Mastermind Group is simply a group of professionals who can help me achieve my objectives for my business. Literally anyone can be part of your mastermind group and some of those would be people like a lawyer, an accountant and other people like your peers who can help you in building your business but it may also include people who are not in business as well to help you keep that balance. The Mastermind Group are really those people you turn to for advice and direction. You do not necessarily have to take their advice but a good mastermind group will allow you run through scenarios on what is happening and the potential outcomes.

Issue 4. Have one night when you do something on your own for you!

One of the big issues that I have had over the last ten years is that I have not been doing every single week is something on my own but I say that I am in the process of changing that. Often when you start in business, with the excitement of building your own business you get so consumed that you forget about a life outside of your business and your business becomes your life.

This is really not a good thing nor is it healthy. Even multi-billionaires do things for themselves outside of business. Look do not get me wrong, business is fantastic and fun and can be both enjoyable and a nightmare however there are other things out there outside of business.

When you start a small business, do not neglect your sports, do not neglect doing something social, if you do, in the long run you will find that you business suffers. Plus, in small business it is very easy to become bitter and twisted but by maintaining those none business activities it will help you to balance your life.

Issue 5. Don't neglect Your Partner or your Family

I would love to see the divorce statistics for small business owner's because I am quite sure that the divorce rate in small business would have to be about 70 or 80%. The majority of married couples (and I am talking about 90% of the small business people I Know) that I know who have gone into small business in their 30's have actually been divorced within 18 months of them starting the business.

Look there are lots of reasons why this happens, but in a lot of the cases, the partner who has gone into business neglects their family and money gets tight. In the partners case it is not their fault it is simply because the person gets consumed into the business and they forget they have a life outside of the business.

If you have a family, make sure that you do at least one activity a week as a family. Whether it is having a family night at home such as a video night or games night, or even just going to the park to play once a week, make sure that you do it. PLUS, you must ensure that at least one night a week must be for just you and your partner. If you do not do that your marriage or relationship will suffer.

One thing I share with all the people who come through our training business is that if you want to go into business that is cool but you must be prepared to accept two things �

1. You must be prepared to start from scratch if your business does not work
that is you must be prepared to start with just the shirt on your back.
2. You must have 100% support of your partner and family

If you cannot accept these two things, then do not go into business because too many people who I see that start on this journey fail and end up miserable and have such a downward spiral which leads them to doing something silly, like take up drinking, drugs or try to commit suicide. Remember, 70% of all small businesses fail within the first 12 months. If you were a betting man would you back something that only had a 30% chance of winning, not likely, yet people still go into small business.

The bottom line is this, small business can be the most awesome ride of your life, but it can be also the most difficult and when you choose to go into small business, take your time and plan what you want to achieve. Remember the old saying if your Fail to Plan, you Plan to Fail.

Reverse Mortgages Expected To Help Boomers Retire

Reverse mortgages are becoming popular financial planning tools for seniors in retirement. When Social Security was first implemented in 1935 the average life expectancy was 65 years. Today people are living healthier lifestyles and with improved medical technology we are living far longer than Franklin D. Roosevelt ever imagined. This is a sort of good news/bad news statistic. One of the greatest fears for older Americans is that they will outlive their assets. Even if you thought you adequately funded your retirement when you first retired, you may live so long that you will run out of funds to support yourself. The fear of insolvency will increase as life expectancies continue to climb and Social Security and Medicare become more tenuous. The enormous pressure that will be put on these entitlement programs when 78 million baby boomers begin to retire in the next couple of years, is almost incalculable. One thing for certain, is that we are all going to have to take steps to be personally responsible for funding a greater portion of our own retirement and health care than we might have predicted.

One funding source that has been gaining in popularity in recent years is the reverse mortgage. A reverse mortgage is a special type of loan that allows a senior homeowner (62 or older) to convert part of the equity in their home into tax-free cash that can be used for any purpose. There are no payments made by the borrower during the life of the loan and the loan only becomes repayable when the homeowner permanently leaves the home. The homeowner does not have to own the house free and clear, but if there is an existing mortgage on the home, it will be paid off with the proceeds from the reverse mortgage. Whatever remaining equity is left can be distributed in several different ways to the homeowner. The most popular forms of receiving the excess proceeds are either as a lump sum or as monthly tenure payments to the homeowner for as long as they live in the home.

Housing wealth has soared during the last five years in most areas of the country. However, the savings rate during that same period of time has declined. Combine that with the severe losses that many people suffered in the early 2000's in the stock market and you can easily see that the obvious choice for many people that need to supplement their income is to tap into the equity in their homes. Many retirees are finding that they are "house rich and cash poor."

Reverse mortgages are becoming more mainstream and originations of these mortgage instruments has nearly doubled in the last year, according to the National Reverse Mortgage Lenders Association. New and more innovative reverse mortgage products are on the horizon as lenders scramble to fill the needs for higher loan limits and more flexible products. As more reverse mortgage products become available in the market place, some are predicting that costs for these loans may decrease.

The high costs associated with reverse mortgages seems to be one of the biggest arguments against taking out a reverse mortgage. However, one must keep in mind that the cost of selling a home, which might include major repairs in addition to the real estate commission and closing costs, will almost always be greater than the cost of staying in the home and obtaining a life time stream of income for as long as you remain in the home. Additionally, it should be noted that the closing costs are not an out of pocket expense, the costs are financed into the loan, and not paid until the loan is paid off at the time the homeowner permanently leaves the home.

Educating yourself or a family member about a reverse mortgage is the only way to truly find out if a reverse mortgage is right for you or a loved one. Every senior that wants to apply for a reverse mortgage must go through a no cost HUD counseling class to be sure that they completely understand how the reverse mortgage works and what other alternatives might be available to them. Many safeguards have been implemented by the government, since the first reverse mortgages were introduced in the 1980's. Today's reverse mortgages are safe and offer independence and enhanced lifestyles to many "house rich and cash poor" senior homeowners. In depth information on reverse mortgages can be found at http://www.letyourhomepayyou.com

What Is Options Trading?

What Is Options Trading?

If you've been trading stocks for a while and want to do something a little more speculative, then maybe options trading is for you. At a very basic level, an option traded on the stock exchange means 'a right'. So an options trade involves giving someone the right to buy or sell a certain stock at a certain price by a specific time. If you buy an option to purchase securities, then it's called a call option. If the option you buy is to sell securities, then it's referred to as a put option. Some traders even go so far as to purchase both calls and puts on the same stock, with agreed prices and by an agreed date, then it can be called a double option, or sometimes a put and call option.

Confused yet? The hardest part of options trading is understanding all the jargon. But once you understand all the technical names for various instruments, you'll soon discover that what you really need to know is which way you think the stock price is going to move in the near future. That's it. Once you have an idea what's going to happen, then all you need to do is use the right option trade to benefit. For example, if you expect a stock's price is about to rise, then you would purchase a call option on that stock. This would enable you to buy now at a lower price, and sell in the future at a higher price. This trade works if the stock's price rises, but if it doesn't, you could be left holding a bunch of worthless options. When it comes to put options, it works the opposite way - you buy put options if you think the stock's price is going to fall. In both cases, you secure your right or option by paying a premium to the person selling the option.

The premium you pay is known as the option money. If the market moves against you, then the only money you will lose is the option money you've paid. So the good thing in options trading is that your losses always have a known ceiling. So if you don't want to risk large amounts of capital, but still want to use a smaller amount of money to gain from price variations, options trading can be the answer. The bottom line, though, is that options trading is something that you should only dabble in once you've spent time learning about the stock market, and if you are confident that you can make decisions calmly when the pressure is on.

Mutual funds- A Secure Investment

Mutual funds are a collection of stocks and/or bonds invested in different securities, which include fixed market securities and money market instrumentals. It facilitates investors to put their money under an efficient investment management. There are three types of mutual funds namely, income funds, growth funds, and balanced funds.

The basic principle underlying mutual funds is to pool in money with other people to convert it into funds. Mutual funds generally buy shares in stocks wherein an experienced fund manager performs the task of selecting, purchasing and selling off the stocks himself. Certificates are then issued to the shareholders as a testimony of proof of their partnership and participation in the emoluments of funds.

There are particularly three ways in which you can make money from a mutual fund. They are:

1. Benefits can be earned from the commission on stocks, and interests on bonds. All the income received all round the year is paid by the funds in the form of a distribution.
2. The fund will have an outstanding benefit provided the funds sell high priced securities. Most of the profits are given back to the investors in a distribution.
3. The value of the fund's share automatically increases with an increase in the value of unsold high priced fund holdings. Accordingly, you can always sell shares of your mutual fund for profits.

Many people find investing in mutual funds an attractive option to that of dealing directly with the stock market because it is comparatively safe. In fact, these days, mutual funds have become the first preference of many investors. Mutual funds provide a balanced and better approach compared to conventional stock market alternatives. It has an added advantage of investing in several distinct sectors and firms, so, if one company suffers losses, the others may be rising. Investing in mutual funds, therefore, minimizes the loss-bearing risk of monetary assets.

In a nutshell, here are the salient points of the advantages of mutual funds:

1. Cost-effectiveness of investing in mutual funds: The main advantage of investing in mutual funds is the efficient management of your finances. Investors buy funds because they lack the competence and time to manage their own portfolio. It is a cost effective method, especially for a small investor because it is expensive to get a manager to manage individual investments.

2. Diversification: Compared to individual stocks or bonds, mutual funds diversify the risk of bearing loss. The basic intention being to invest in a diverse number of assets in order to overcome the negatives of loss making stocks or bonds by the profits reaped by others.

3. Economy of Scale: The transaction expenses are relatively low as a mutual fund is bought and sold in large amounts of credits.

4. Liquidity: Mutual funds provide the opportunity of converting shares into cash at any point of time.

5. Simplicity: It is easy to buy a mutual fund. Most companies have their own automatic purchase plans, and the minimum investment rates are very small.

Therefore, investing in mutual funds is certainly a secure investment as the chance of loss is spread out, and the opportunity for gains are numerous. At the same time, it is both cost-effective and an investment that gives great future returns.

The days of depending on government largesse in meeting old age financial requirements are growing dimmer by the day. Hence, investing in mutual funds can be a wise choice, especially for those who plan for an early retirement and hope to enjoy a secure senior citizenship.

How To Invest Your Money Safely

When it comes to making investments, most people know that there is always room for a possible loss. Stock market investments in particular are rather notorious for taking a rather well funded portfolio and emptying it rather quickly. Of course, that does not happen all the time, otherwise no one would do it. If, on the other hand, you do not want to take what many consider to be an unnecessary risk, there are a number of other investments that are reasonably safer, can still bring a good return, and are definitely worthwhile. Here are a couple of them.

A common phrase that is often used these days to refer to the making of your investments safer is having a balanced portfolio. This means that you are not putting all of your eggs into one basket. You know that some markets are a much greater risk than others, such as trading on the stock market, and so you put some of your investment capital into some that are much safer and less likely to be lost. This "balance," created by placing some of your investment into a variety of potential interest bearing accounts, should result in an overall gain.

Investments Depend On The Person

If you are a young person, then it should mean that you would be willing to take a higher risk (assuming you have some capital that may be lost). The possibility of the highest gains, unfortunately, also come from the markets with the potential for the highest change. This means that there is a much greater likelihood of a real loss - especially if you do not know what you are doing. By using the services of an experienced trader however, a stockbroker that has been doing it for years, you minimize the possibility of loss. But you should only invest a portion of your finances into the stock market.

If, on the other hand, you are much closer to retirement age, then you do not want to take such a risk with your funds. Instead, you would want to place your soon to be needed funds into a much more stable growth account, where the loss can be minimized and yet still bring a return in interest.

Stable Investing In Trust Funds

If you are looking to stabilize your investments in the stock market with something that is relatively sure, then you need to consider mutual funds. This form of investing places your investment into the hands of investors that basically do the investing for you. They watch the market, manage the funds, and make the changes necessary in order to keep your account growing. After you inform them of what level of risk you are willing to take, then the rest is done for you. They take your funds and spread them over a diverse sort of investments, and it gives you a much more stable package.

The Most Stable Investment - Bonds

Probably the most stable investment you can make is to buy bonds. The safest, of course, are the US Savings Bonds. These are purchased at a set price and guarantee a set interest amount in a specified time period. You cannot get much safer than that - and probably not much is safer than the US Government - investment wise. If you are looking for the highest stability available, then you need to take some of your investment portfolio and add some bonds to it. Bonds are also available from other corporations, cities, etc., but their strength is limited to the financial strength of the company. The longer the time period of your investment - the greater the risk that the company may not be around.

In addition to creating a balanced portfolio, you need either to become very knowledgeable about financial investing, or you need to seek professional counsel. Many people lose a lot of money every year simply because of unnecessary risks. These risks would never have been taken if they had sought counsel from someone who knows much more than they did about the market and investing methods. A truly balanced portfolio will also have an expert to help guide you through the many potential hazards of the investment world.

Celebrity Ownership � Who's in YOUR Portfolio?

Are you a fan of baseball cards or action figures? Is the thrill of day trading better than your morning cup of coffee? A similar concept has recently emerged that you will love. Now, you can actually own various celebrities and profit from your entertainment savvy. Finally your desire to read the antics of the most famous people in the world does not have to conflict with the rest of your online activities. CelebrityContest.net has developed a unique algorithm to determine the market "value" of celebrities at any given time, thus equating celebrities to the stock market, but with obviously more attractive potential.

The Concept
The premise behind the site is to offer a fun, yet informative way to be involved in the entertainment industry. The game of investments is free, but there are actual prizes distributed monthly for the top performing portfolios. Gossip columns and forums are excellent sources of speculation and information pertaining to the proffered celebrities, and the forums also offer an opportunity to network and build community among other "cool members."

An additional element to the overall concept is the ability to track certain stars and the public's reaction to their publicity stunts � both intentional and not. If a certain actor is wildly popular on Monday and is snapped up for many portfolios, but then suddenly dumped on Wednesday, there is a clear message about whatever the actor was publicized doing on Tuesday. Above all else, however, building a portfolio of the stars you've had your eye on anyway can only be fun, and if you really know what you're doing - possibly even rewarding.

The Algorithm
The "value" of each celebrity changes on a frequent basis to reflect the overall popularity of that individual. To calculate the value of the celebrity, CelebrityContest.net has developed an algorithm to ensure the value is computed ethically and systematically. Routinely, the website "crawls" major search engines such as Google News, Google Blog Search, and Technorati to find the celebrities. The value of each is relevant to the age and prevalence of the information as it compares to the historical average for that individual.

The difference between the new value determined by search results and the celebrity's historical value is the change in price. This amount is then spread during the interval between updates. The price of each celebrity is also dependent on the volume of trades that individual receives. Heavily owned celebrities generate a great deal of hype, which will make their portfolio value increase. This is simply pure celebrity economics.

Owning Celebrities
The daily activities of celebrities fascinate and consume us. They make up a significant percentage of the daily news and are among the most popular web searches. Now, there is a single location to not only find and discuss the latest celebrity gossip, but actually find a way to take action as well. Get on the cutting edge of the entertainment industry and snatch up celebrities as they are on the way up to maximize your portfolio value, but be sure to dump any celebrities that are quickly on their way down. Buy low and sell high, after all.

The Invisible Killer Of Your Investment Return

So what is the biggest threat to your investment portfolio? Well if your portfolio is structured with a majority percentage of your total assets in stocks you will most likely be thinking a stock market crash. If you have large holdings in bonds the answer would most likely be a huge decrease of the nation's money supply causing interest rates to climb to record highs. And if most of your money is in cash entities such as a savings account with your credit union you might feel that the financial collapse of that institution is the largest threat to your money. Well think again - the largest threat, and it really is not a threat because it is real and constantly present 24 hours a day 7 days a week, is in my opinion "INFLATION"!

Inflation is the invisible killer to the value of your investment, and just like rust on your automobile, it never sleeps. It is the dark invisible demon that not one financial institution ever talks about. You will never see it printed on any monthly or yearly statement you receive from your financial organization. And it is a lot larger factor than you most likely have ever imagined.

Most people during the last 20 years have completely forgotten the term "inflation" because the last decade the inflation rate has been running around an average of 3.1% a year. This is nothing when compared to the late 1970's and early 1980's when double digit inflation was the norm. So why should you have to worry about inflation? Well let's put it in perspective.

* At an average annual growth rate of 10.4% a year, stocks will double your money about every seven years. Factor in inflation, which has historically run at about 3.1% annually, and it will take more than 10 years to double your actual buying power.

* Likewise, bonds, which have historically grown at 5.4% annually, will double your money every 12.5 years. After inflation, however, it will take 26 years.

* If your money is in cash, you'll have to wait 23 years for the nominal value of your account to double, assuming the cash earns the historical 3.1% annual return. But even your grandchildren won't see the real value of your money double.

If the inflation rate is 3.5% the actual purchase value of your money is reduced almost in half every 12 years. This is actually amazing when you put it on a larger scale. I recently had a client contact me and inform me they had just sold their business for net earnings of $5,000,000 after all costs and taxes were paid. This client then began to inform me that a relative had placed the entire $5 M in a trust that was paying 4% so they would just live off the $200,000 a year interest payments. Well they then wanted my advice and here is what I presented them with. First they must pay taxes on the $200,000 which is 15% for capital gains so that is $30,000 right off the top (this does not include state and local taxes but we will just use 15% to keep it simple). So now you are left with $170,000 to live on right? Wrong, unless you don't care what your money is worth in 10 or 20 years. Because if inflation is not accounted for what your standard of living is on $200,000 today must be reduced to $100,000 12 years from now (if inflation does not increase above a 3.5% average). So then we say no problem lets just adjust for inflation and we will be fine right? Wrong again, at 3.5% inflation the value of the $5 M must be increased by $175,000 to hold the same purchase value at the end of the year. So now this client has to borrow $5000 to just break even. See the client must earn a return of 8.5% on the investment to generate a real value of just over $200,000 a year income. And the client must realize that they are now on a fixed income so inflation has even more weight to the equation.

Now I know that most of us do not have $5 M to live off but if we are to retire in a comfortable fashion it may not be so off from reality. So what ever you do when you are planning your financial future and how to get there make sure you adjust for inflation into the beginning, middle and final structure of your investment strategy. This will help insure that you meet these financial goals you set for yourself and family.

If you found this article to of value and would like to acquire a much more in-depth understanding of Portfolio Management click on the following link:

http://www.OnlineInvestmentGuide.com

� 2006 Strategic Resolutions, LLC All Rights Reserved

Invest Now: Advice for Beginners

So you've just plunked down a cool three grand on the latest, greatest, behemoth high-definition plasma TV with all the bells and whistles. You have all your friends over for the big game, and while their gazes are fixed to the vivid colors and much-too-clear close-ups of sweaty 300-pound linemen, the only thing you can focus in on is a serious case of buyer's remorse.

Sure, the TV is nice and all, but deep down you know it wasn't the wisest of financial moves. Ready to ditch your spendthrift ways and learn how to invest, rather than waste? Then read on, my friend.

Rule: Dump high-interest debt first

First things first, before you even start to think about investing, you must get rid of your high-interest debt. That means credit card balances have got to go. Sit down, crunch the numbers, and put together a plan that will quickly eliminate this debt. Most credit cards carry an annual interest rate of 16 to 21 percent.

If only you could get that kind of return on your money! Credit card companies are raking in the dough on interest fees that continue to compound month after month. It's a vicious cycle, and one you need to break free of. Try not to use credit cards at all, and if you find yourself in a bind and absolutely have to swipe the plastic, pay off your balances in full each month.

Rule: Invest for the long-term

Okay, once you're free of that high-interest debt (low-interest and tax deductible debt like a mortgage or student loan can actually be advantageous) and you have a nice little chunk of change to stash away, you're ready to invest. But where do you start? Good question.

There are so many ways to invest your cash, all of them offering different advantages and disadvantages. If you know you're going to need access to your money within the next couple of years, look into a savings account, money market fund or certificate of deposit (CD). You won't be rubbing elbows with Bill Gates anytime soon, but these funds do offer limited growth for the short term.

But if you want to see a real return on your money, always invest for the long term. Put away money that you know you won't need until a long way down the road, like retirement. Stocks, bonds and mutual funds are all great long-term investments, with stocks historically showing the highest rate of return over time. In fact, from 1926 to 2005, S&P 500 stocks showed an average annual gain of 10.46 percent. That's more than double of what bonds�the next highest performer�returned in the same time period.

Rule: Do not, we repeat, DO NOT, invest in stocks short term

On October 19, 1987, the stock market crashed 22.6 percent. It was the biggest one-day drop in history. If you invested in the stock market around its peak in 2000, three-fourths of your money would have disappeared in the next three years. The lesson: stocks are not for the impatient. Stick with them through the years, though, and history shows you'll be very happy when it's time to cash out.

Rule: The worst investment strategy is doing nothing at all

Sure, markets rise and fall, and there's no guaranteed amount that you're going to make on your investments long-term. But whatever you make, it'll be a lot more than if you invested nothing at all. Also, the longer you wait to invest, the more money you miss out on in the long run. Thanks to the wonderful world of compounding interest, time is money in the investment world. The TV can wait; start investing as soon as you can. You won't be sorry.

Finance Guide Basics

Every one or rather almost every one in this world would
definitely want to have his or her future secured. Thus,
every person who earns even a bit would like to save some
of the money and this is where the topic of personal financial
management comes into picture. Whatever be your purpose of
saving money, it needs to be regulated and updated.

Investment in stock markets is one option for the same. With
the advancement in technology and thereby, in means of
communication (for instance, the internet), the behavioural
pattern of the stock markets can be known within an instant
of time. Moreover, as the presence of the stock markets being
in every country, one can see the maximum numbers of investments
all over the world are made here.

Another option where you can regulate your finances is by
buying stocks. It is argued that although they are the diciest
and most fickle instruments for investments, they can bring
tremendous returns in the long run and can even leave you
resistant to the rate of inflation. By owning a particular
amount of stock, one is deemed to be the owner of a certain
value of a company i.e. the more stock is owned by you the
more faction of the company is in your hands. The prices of
the stock ca change in accordance with all the factors
affecting the stock markets for instance, economic,cultural
and business trends.

Often it is seen that we tend to leave the saving for college
and retirement till the last minute and then certain unwilling
consequences have to be borne. College planning resembles
retirement planning. There are bound to be questions in one's
mind like how much one should save for such kind of expenses
etc. it is recommended that where the planning for retirement
should start in one's early twenties, the planning for college
should start right from the birth of the child. It is agreed
by many that early planning and savings can be of huge benefits
in the long run. Planning for the college will include looking
for various colleges for alternatives, tuition fees and any
extra expenditure that might occur at the time for sending a
child to the college. Starting all this early enough will
provide adequate time to the parents to look for availing loan
facilities and decide their strategy accordingly. Retirement,
which is inevitable, has to be planned on the similar lines as
that of the college planning. Starting early and being realistic
are the keys for such kind of planning. Starting early means
to start soon after one has completed his or her graduation.
By being realistic it is intended to convey that one has to
save according to one's requirement of the kind of life proposed
to be lived after the retirement. This is to say that one has
to focus on the facts basically, for instance, if one plans to
live like a king with housemaids serving all the time and a
castle like house then one has to save much more than a person
who chooses to live a modest life with a simple house and an
off-hand vacation.

Hence, you should manage your finances cautiously with investing
in the right thing at the right time and saving money for the right
time, because surely, time is money!!






Article written by Mansi Aggarwal.

Earning Money � The key to survival in a rich man's world.

In the world we live in today, money is the lifeblood of society. It can bring you comfort and security, or lack of it can bring you strife and worry.

There are thousands of ways to earn money, but they are not for all people. Some are better suited towards being part of a larger structure such as a large business. There is a great amount of support available from being in a corporation and there is always the prospect of moving up the ladder. History is full of men and women who have started at the bottom rung and become millionaires later in life. Some people just don't like having a boss. They would rather be unemployed than work in a white collar job, and so they tend more towards internet business, working from home, or running local events.

Depending on how business orientated your mind is, there is a wide field of options. If you can understand the fast paced, high stakes world of the stock market, then you can earn tremendous amounts of money buying and selling shares. If you have a more practical mind, then there are vast amounts of money available in labour such as steel work. If you are n empathic person then maybe social work would be right for you, helping people for a living.

Money controls our lives in the western world. People will kill for it, steal it and beg for it. However, without money, we would have a hard time, as it allows so much freedom. The crucial point of money is that it holds a value without having a second function. Trading by swapping items would be very difficult indeed.

We use banknotes and coins for most of our money. Banknotes are held as an imperfect form of money as they actually lose value on a very small scale, and it is technically not money but rather a promise to pay money. We increasingly use electronic money, i.e. wire transfers and internet transfers as this system is quick and does not require physical money. In any case earning money is the key to survival in the modern world, both a tool that liberates us and a chain that binds us.

FOREX Fundamental Analysis

Most FOREX traders rely on analysis to make plan their trading strategy. This article will discuss fundamental analysis. The other common form of analysis is technical analysis. After reading this article you should have a better understanding of fundamental analysis and how to use it as part of your FOREX strategy.

Political and economic changes are the basis of fundamental analysis. These can frequently affect currency prices. Traders that take advantage of fundamental analysis will gather their information from a variety of news sources. They are looking for information about unemployment forecasts, political ideologies, economic policies, inflation and growth rates.

Fundamental analysis will provide you with an overview of currency movements and a broad picture of the economic conditions. Most traders then will combine their fundamental analysis with technical analysis to plot actual entrance and exit points as well as confirming the information provided by their fundamental analysis.

Just like most markets the FOREX market is controlled by supply and demand. Many economic factors can affect the supply and demand but the two most critical ones are interest rates and the strength of the economy. The over all strength of the economy is affected by changes in the GDP, trade balances and the amount of foreign investment.

There are many economic indicators released by government and academic sources. These indicators are usually released on a monthly basis but will sometimes be released weekly. These are pretty reliable measures of economic health and are closely followed by all traders.

There are many indicators that are released but some of the most important and commonly followed are : interest rates, international trade, CPI, durable goods orders, PPI, PMI and retail orders.

Interest Rates - can cause a currency to either strengthen or weaken depending on the direction of movement. In some cases high interest rates will attract foreign money, however high interest rates will frequently cause stock market investors to sell of their portfolios. They do this believing that the higher cost of borrowing money will adversely affect many companies. If enough investors sell of their holdings in can cause a downturn in the market and negatively affect the economy.

Which of these two affects will take place depends on many complex factors, but there is usually an agreement among economic observers as to how the current change in interest rates will affect the general economy and the price of the currency.

International Trade - If there is a trade deficit (more items imported than exported) it is usually considered a negative indicator. When there is a trade deficit it means that more money is leaving the country to buy foreign goods than is entering the country and this can have a devaluing effect on the currency. Usually though trade imbalances are already factored into the market consideration. If a country normally operates with a trade deficit then there should not be an affect on the currency price. The currency price will normally only be effected by trade differences when the deficit is greater than the market expected.

The measurement of the cost of living (CPI) and the cost of producing goods (PPI) are a couple of other important indicators. You should also watch the GDP which measures the value of all the goods produced in a country and the M2 Money Supply which measures the total amount of currency for a country.

In the US alone there are 28 major indicators, these can have a strong effect on the financial market and should be closely watched. This information can be found many places on the internet and is provided by many brokers.