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With Stock Markets at Record Highs, Is There Still a Smart Way to Buy?

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By Dan Caplinger

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The Dow Jones Industrials (^DJI) and the S&P 500 (^GSPC) have both climbed to new record levels recently, producing gains of almost 20 percent so far in 2013 as of July 18. Yet given how far stocks have come since the market’s meltdown in 2009 — the S&P 500 has risen more than 150 percent since then — some investors worry that buying stocks now is bound to turn out badly.

Before you swear off stock investing entirely, you should realize that not all stocks have equal prospects. Even with the market trading at highs, some stocks haven’t seen the same gains as the Dow and S&P. Moreover, even some stocks that are at or near their own record levels have the fundamental business strength to justify their share prices.

Let’s take a look at these two categories with some tips on how to find good stocks even with markets at record highs.

Strategy 1: Focus On Beaten-Down Industries.

Bull markets rarely take every stock higher. Inevitably, you’ll find some companies or industries that suffer setbacks and end up being big laggards. If the conditions that created those setbacks reverse themselves, though, then beaten-down stocks can catch up with market gains quickly.

We’ve already seen that phenomenon with homebuilders’ stocks. From 2009 to 2012, even as the rest of the economy started picking up steam, homebuilders performed badly as the housing market kept failing to post lasting home-price gains. In 2012, though, housing finally started showing considerable gains, with home prices rising double-digit percentages in the past year.

One possible place to look for a turnaround today is in commodity stocks.

A weak global economy has reduced demand for industrial metals like aluminum and copper, sending prices plunging and hurting producers like Alcoa (AA) and firms that that mine and refine those metals like Freeport-McMoRan Copper & Gold (FCX). Also, with fears of inflation and economic instability having significantly abated, gold and silver have seen dramatic price declines, and precious-metals mining stocks like Goldcorp (GG) and Barrick Gold (ABX) have fallen sharply as well. Those adverse conditions could last well into the future, but eventually, if the global economy starts to regain its strength, then commodity demand should rise and pull commodity-related stocks up.

Keep in mind, though, that turnarounds can take a long time to materialize. If you don’t have the patience to wait for other investors to see the promise of a struggling industry, then this strategy could leave you frustrated for months or even years into the future.

Strategy 2: Seek Out High-Flying Values.

Just because a stock trades at all-time highs doesn’t mean it’s not a good value. If a company expects its sales and income to grow at a fast rate in the future, …read more

Source: FULL ARTICLE at DailyFinance

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3 Beach Reads That Will Make You a Way Better Investor

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By Michael Lewis

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For those who have had the pleasure of completing an undergraduate finance program, it is a mild surprise (to say the least) to find that the real world of finance and investing is quite different from the efficiency-laden lessons of academia.

While this is frustrating to those who paid the price in time an tuition, it should be encouraging to the average investor who has no formal education in the subject. The truth is, right now, retail stock pickers have the same tools and tricks available to them as the world’s most successful investors.

So, in the spirit of summertime leisure, here is a hot list of books for investors that will get you on par with the very best.

The Classic Text

To recommend “The Intelligent Investor” is by no means a novel idea (pun absolutely intended), but it is, by far, the greatest quick read on the subject of stock picking. Written by Warren Buffett‘s mentor, Benjamin Graham, “The Intelligent Investor” provides the mental lattice all investors would do well to cling to.

Sure, the book champions value investing, which is not the only way to invest, but it can help investors of all kinds — even those interested in the next big technology winner.

Graham spells out the difference between speculation and investing — a concept that is often cited but which few seem to truly espouse. The Columbia professor and investing guru uses the allegory of Mr. Market to describe the battiness of the public markets, and how you can use that to your advantage.

While academic finance touts Efficient Market Theory — the idea that securities are priced with near perfection at all times — Graham posits nearly the opposite: Stocks can fall out of favor for reasons that do little to reflect the intrinsic value of a company — creating a price rift. Graham, Buffett, and the majority of the world’s greatest stock pickers believe that stocks drift toward that intrinsic number over time. Their track records support the claim.

With clear explanations of concepts such as margin of safety and defensive investing, “The Intelligent Investor” should be No. 1 on every investor’s reading list.

The Everyman Investor’s Bible

Peter Lynch, vice chairman of Fidelity’s investment advisory and former manager of the Fidelity Magellan Fund — the strongest performer of its (and his) kind from 1977 to 1990 — is great at writing simple, actionable investment lessons.

“One Up on Wall Street” is the shining example on the subject of DIY investing.

Though “The Intelligent Investor” is itself a very readable, simple book, Lynch’s classic explains in plain language strategies you may already employ. For example, Lynch loves “buy what you know,” the art of walking down the street and observing which brands are moving fast and which stores have lines …read more

Source: FULL ARTICLE at DailyFinance

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7 Smart Money Moves to Make Before the Stock Market Rally Ends

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By Dan Caplinger

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The stock market has been on a tear over the past four years, more than doubling since the financial crisis. Many investors have recovered much of the money they lost during the market crash in 2008.

That said, recent bumpiness in stocks suggests that the end of the long bull market may come sooner rather than later.

While trying to time the market is an impossible task, here are some smart moves you can make with your money right now to protect yourself from the next market downturn while still putting yourself in a position to reach all your financial goals.

1. Get in the Habit of Investing Regularly.

Many people make the mistake of thinking that they don’t have enough money to invest regularly. Instead, they buy stocks only occasionally when they have big windfalls like a tax refund.

But with the automatic investment options that many employer retirement plans and brokerage companies offer, you can put even modest amounts of savings to work for you on a regular basis. That will make you more likely to keep investing even if the market drops, allowing you to take better advantage of bargain opportunities that inevitably arise during downturns.

2. Diversify.

If you’re like most people, you’ve heard plenty of tales of how a single stock made millionaires out of all of its investors. But for every anecdote like that, there are 100 untold horror stories of investors who lost everything gambling on one company.

The secret to successful investing isn’t finding a single perfect stock, but rather putting together a diverse portfolio of promising investments and building it up over time. Owning many different stocks keeps you from losing your shirt on a single piece of bad news, and boosts your chances for earning solid returns.

3. Rebalance.

When the stock market rises sharply, your overall portfolio mix gets out of balance, overemphasizing stocks and giving you too little in other investments like bonds and cash. Back in 2008, many people were surprised at how big their losses were, simply because they hadn’t realized how much their stock positions had grown during the bull market from 2003 to 2007.

Rebalancing involves selling off some of your winning stock investments to raise cash or invest in bonds or other types of investment assets. By targeting specific percentages for stocks, bonds, and other investments, it’ll be easier for you to keep a well-balanced portfolio.

4. Shore Up Your Emergency Cash Supply.

During bull markets, it’s tempting to put all your cash to work in the market. Moreover, savings accounts are paying next to nothing in interest right now, making having a cash stash seem like a waste.

Yet as an insurance policy, it’s still

From: http://www.dailyfinance.com/2013/04/19/investing-tips-bear-market-stock-downturn/

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What Is Cost-Benefit Analysis?

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By Selena Maranjian

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April is Financial Literacy Month, and our goal is to help you raise your money IQ. In this series, we’ll tackle key economic concepts — ones that affect your everyday finances and investments — to help you make smarter choices with every dollar decision you face.

Today’s term: cost-benefit analysis.

Most of us are familiar with the term, and have a basic grasp of it. It refers to how a project or decision might be evaluated, comparing its costs with its benefits. In many cases, it’s a like a quantified pros-and-cons list.

Applying cost-benefit analyses in the business world and your own personal finances can be very effective, helping decision makers avoid just going with their gut or with very rough calculations.

The Most Bang for the Buck in Business

In the business world, companies’ managers might think in terms of costs and benefits if they have several possible actions they can take. For example, a cost-benefit analysis can help them determine whether to build another factory, buy a certain company, issue more stock, or expand their employee retirement benefits.

Economists apply cost-benefit analysis when they want to estimate the effect of various actions, such as government incentive programs to support the housing market, or subsidies for certain industries, or changes in tax rates, or spending on infrastructure.

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The analysis can take various forms, and can involve varying degrees of complexity and precision, everything from considering opportunity costs (i.e., what is given up by making a given choice) to applying probability estimates to outcomes, to calculating the net present value of various options (which involves translating future costs and benefits into current dollars).

Assessing the costs and benefits helps zero in on the action that offers the most bang for the buck. It’s good to remember, though, that these analyses are not necessarily precise, as they often include estimates, especially for qualitative factors.

Cost-Benefit Analysis in Our Lives

When pondering big decisions (or even some small ones), using cost-benefit analysis can help you be a bit more rigorous in your decision making process and more confident in the final decision you make. It comes in handy in all sorts of situations, such as when you’re:

  • Weighing different career or job options. In this case, you might factor in any costs associated with getting the required training, the amount you’ll expect to earn, the degree of enjoyment you’ll get, the location, the commute, the wardrobe, the hours, the employee benefits, and so on.
  • Deciding whether to rent or buy a home, and what kind of home, too. You might consider costs such as the down payment, mortgage, insurance, monthly rent, along with the cost of commuting from various spots, the satisfaction provided by each location and home type, the expected cost of repairs and

    From: http://www.dailyfinance.com/2013/04/19/cost-benefit-analysis-definition/

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What Is Compound Interest?

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By Selena Maranjian

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April is Financial Literacy Month, and our goal is to help you raise your money IQ. In this series, we’ll tackle key economic concepts — ones that affect your everyday finances and investments — to help you make smarter choices with every dollar decision you face.

Today’s term: compound interest.

The concept of interest is familiar to most of us. We know that with many bank accounts, for example, we earn some interest — though it’s rather paltry these days.
It’s Financial Literacy Month, so throughout April we’ll be examining key economic concepts that affect your everyday finances. Today’s term: net worth
But there are several kinds of interest that are calculated and represented quite differently than simple interest. Compound interest is — pardon the pun — one of the more interesting ones.

First, let’s start with simple interest. Here’s how it works: Let’s say that you’ve parked $1,000 in an account somewhere, earning 10 percent per year in simple interest. In year one, you’ll collect $100, bringing your total to $1,100. Great, eh? In year two, you get… $100. That brings your total to $1,200. In year three, you’re at $1,300. You’re probably catching on to the idea by now. You keep earning that interest rate off your initial principal.

Small numbers become big numbers

Enter compound interest, which is far more exciting.

Start again with $1,000 and factor in an annual 10 percent compound interest rate. In year one, you get $100, for a total of $1,100. In year two, though, you collect that 10 percent not only on your original principal amount, but also on the interest you’ve already earned – on the whole $1,100. So you earn $110, instead of the $100 that simple interest gave you, bringing your total to $1,210. In year three, you collect $121 instead of $100, for a total of $1,331 instead of $1,300. In year four, you earn $133, bringing your total to $1,464 instead of the $1,400 you’d have earning simple interest.

The key thing to observe in this example is that not only is your overall total investment growing from year to year, but the amount by which it’s growing is also increasing.

Now check out how powerful that 10 percent compound interest rate is over time, because when you combine compounding with years, the magic really happens:

$1,000 grows at 10% annually over… And becomes…
10 years $2,594
20 years $6,728
30 years $17,449
40 years $45,259
50 years $117,391

Compound interest in your life

That kind of growth may seem magical, but it’s not magic — it’s just math.

You don’t need to wait around for an every-so-many-years environment of steep interest rates, either. If you invest in stocks or some other appreciating asset, your investment can compound over time even if it does not deliver the same return every

From: http://www.dailyfinance.com/2013/04/15/compound-interest-definition/

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What Is Asset Allocation?

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By Selena Maranjian

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April is Financial Literacy Month, and our goal is to help you raise your money IQ. In this series, we’ll tackle key economic concepts — ones that affect your everyday finances and investments — to help you make smarter choices with every dollar decision you face.

Today’s term: asset allocation.

In the most basic sense, asset allocation is simply how one’s assets are divided among different asset classes, such as cash, stocks, bonds, real estate, and so on — even insurance investments, commodities, collectibles, and other categories count.

But the term also refers to an investment strategy — one that can reduce risk through diversification.

Clearly, having all your money in any one asset class can be risky. In 2008, the S&P 500 plunged 37 percent. If you’d held all your assets in an S&P 500 index fund, your net worth would have taken a big hit that year. (It’s worth noting, though, that long-term investors who held on regained those losses.) That was also a time of falling real estate values, and had you been a big property owner, especially in some particularly hard-hit regions, you’d have suffered a big blow, with our national housing market only recently starting to pick up again.

Given the harrowing ride we’ve been on in recent years, you might think that holding cash is the best way to protect your assets from outside forces. Think again.

Cash’s buying power tends to shrink every year, due to inflation. Given the inflation we’ve experienced between just 2000 and 2012, something that cost you $100 in 2000 would cost you about $132 today. Dollars stashed in a mattress are shrinking dollars.

Even dollars kept in savings accounts these days are problematic, given our low interest rates. If you’re earning even 1 percent in interest, but the inflation rate is around the long-term average rate of roughly 3 percent, then you’re losing ground by 2 percent annually. Bonds can offer a guaranteed return, but they too sport low interest rates today, and bond prices can fall over time, too.

Allocation in Action

There is no one-size-fits-all perfect asset allocation model. What’s good for you might be less so for someone else, due to the current size of your nest egg, your risk tolerance, your years until retirement, and other considerations.

One thing that everyone should do, though, is rebalance their portfolio, to maintain the desired allocation. That’s because over time, an allocation will likely change.

Imagine this simple example: If your assets are split equally between stocks and bonds, and over three years your bonds hold steady, but your stocks double in value, your allocation will no longer be 50-50. It will be 33-67, with stocks making up much more of the overall portfolio.

Some advisers

From: http://www.dailyfinance.com/2013/04/12/asset-allocation-definition/

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Stocks of Ice and Fire: 'Game of Thrones' Investing Ideas

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By Katrina Chan

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From King’s Landing to Winterfell to Qarth to The Wall to living rooms across the nation — the epic tale of the fight for the Iron Throne of Westeros continued with Sunday’s premiere of Season 3 of HBO‘s popular fantasy series “Game of Thrones.”

For fans of the show (or the George R.R. Martin “A Song of Ice and Fire” suite of novels the series is based on) the Lannister, Stark, Baratheon and Targaryen clans are practically family — dysfunctional, scheming, slaughtering family, but family just the same.

Their futures may be uncertain, but their fortunes (or whatever they leave to their heirs) needn’t be. Let’s imagine what stocks these characters would invest in if they were building a nest egg while trying to conquer Westeros.

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Although this is probably obvious, none of the characters mentioned above actually own any of the stocks mentioned above because, well, they’re fictional characters. Katrina Chan does own shares of Apple and Berkshire Hathaway. You can follow her on Twitter @katrinachan. The Motley Fool recommends Apple, Berkshire Hathaway, Goldman Sachs, and LinkedIn. The Motley Fool owns shares of Apple, Berkshire Hathaway, and LinkedIn.

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Source: FULL ARTICLE at DailyFinance

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Will a 'Sell in May' Plunge Come Early This Year?

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By Dan Caplinger

Traders work on the floor of the New York Stock Exchange before the opening bell in New York City. (Photo by Mario Tama/Getty Images)

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With the Dow Jones Industrial Average (^DJI) and the S&P 500 (^GSPC) at record highs, even investors who fearfully stayed out of the market for years in the wake of the financial crisis have started inching back in. Flows of money into stock mutual funds and exchange-traded funds have risen sharply.

But the old adage that advises “Sell in May and go away” reflects a widely held view of the stock market — that seasonal factors play a role in whether share prices go up or down. The idea behind the sell in May strategy is to buy stocks in November and hold them through the end of April, and then sell them in May and shift your portfolio into alternative investments through the end of October.

But Does It Work?

Some parts of the sell in May strategy make intuitive sense.

September and October have long been notoriously bad months for stocks, with the big stock market crashes of 1929 and 1987 having happened in October, and the 2008 market meltdown having reached an initial climax in September. Meanwhile, December and January have tended to be fairly strong months, aided by new money coming into the market from work bonuses.

But when you look more closely at the sell in May strategy, its results don’t hold up.

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A 2012 study showed that the strategy returned an average of 8.3 percent annually over an 86-year span, compared to a 9.9 percent average annual return for simply owning a broad-based stock index throughout the entire period.
And then there was last year.

In 2012, stocks actually rose slightly from May 1 to October 31, with the S&P 500 providing a total return of about 1 percent. But that performance hides some important details about what happened last year.

One problem that often happens with seasonal strategies is that as they get popular, investors start anticipating their impact. That seemed to happen last year, when the Dow opened April by plunging nearly 500 points in the first ten days of the month. That was only half of the nearly 1,000 points that the Dow climbed in January through March of last year, though, and so even after a worse decline in May, the Dow never fell more than 200 points below where it started the year.

As a summer rally took hold, sell in May advocates believed that traditional weakness in the fall months might justify the strategy. But the market actually soared in September, and even a poor October showing wasn’t enough to send the Dow lower.

How’s This Year Shaping Up?

Investors must feel a sense of déjà vu this year, as the Dow is up an even more significant 1,450 points in the first three …read more
Source: FULL ARTICLE at DailyFinance

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Investors Still Like Bonds, Even as Stock Market Surges

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By The Associated Press

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By MARK JEWELL and MATTHEW CRAFT

Market pros call it the Great Rotation. That’s the long-awaited scenario when investors take their money out of bonds and sink it into stocks.

It was the buzzword this month when the Dow Jones industrial average (^DJI) reached a record high. The idea was that investors were confident enough in the economy to shed their financial crisis fears and leave the safety of bonds.

But it’s not happening.

Money keeps flowing into bonds. Industry consultant Strategic Insight says U.S. bond mutual funds have attracted $64 billion in cash in the first two months of the year, just below last year’s pace of $68 billion over the same period.

Stock mutual funds had net deposits of $76 billion through February, according to the consultancy. While that is up sharply from $14 billion a year earlier, the cash for stocks is not coming at the expense of bonds, according to more recent snapshots of investment flows.

Instead, investors are withdrawing from money-market funds, which are often used as a parking spot for cash, according to EPFR Global.

“The expectations of a big exodus from bonds are way overblown,” says David Santschi, CEO of TrimTabs Investment Research, a fund-tracking firm.

A stock market crash and recession have made bonds especially appealing since 2008, when the nation was in the throes of the financial crisis. The abundance of buyers has pushed bond prices up and sent yields lower, reducing interest payments to investors.

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Even with low yields, bonds will continue to attract retiring baby boomers and others who want reliable income for daily expenses. The yield on the 10-year Treasury note — a benchmark — is hovering under 2 percent. Other types offer higher yields. Investment-grade corporate bonds yield 3 percent and riskier “junk” bonds yield just under 6 percent.

Money-market funds, meanwhile, yield 0.02 percent.

Still, the Dow’s record surge is drawing more attention to stocks.

The blue-chip index broke through its all-time high March 5 and kept climbing. It’s up nearly 11 percent this year and 122 percent from its bottom in March 2009. The broader Standard & Poor’s 500 index (^GSPC) is up 9 percent and is close to breaking its own record.

Investors added $8 billion to U.S. stock funds and exchange-traded funds in February. And they’re putting in more cash this month, as $12 billion flowed into stock funds and ETFs through Tuesday, according to EPFR Global.

Bond funds, including ETFs, have pulled in nearly $8 billion this month.

Much of the money flowing into stocks and bonds has come out of money-market funds. About $32 billion has been pulled out of money funds this month, according to EPFR Global.

Withdrawals that didn’t …read more
Source: FULL ARTICLE at DailyFinance

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3 Things Investors Can Learn From March Madness

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By Rick Aristotle Munarriz

during the second round of the 2012 NCAA Men's Basketball Tournament at KFC YUM! Center on March 15, 2012 in Louisville, Kentucky.

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It’s March Madness, that happy time of year when hoops fans are distracted and brackets are falling apart: Do you know where your top seeds are?

In a valiant attempt to stick to advancing the cause of financial education (at a time when my alma mater University of Miami Hurricanes have a chance of actually making some noise this tournament) I figured I would tie the two together by showing how March Madness can enrich you, even if you don’t have any skin in the game.

So, as the NCAA basketball tourney plays on, here are three takeaways for investors.

1. Past performance is no guarantee of future results.

There will always be upsets as the top 64 teams vie to run the table and win the tournament. The first round has already seen 14-seed Harvard upset 3-seed New Mexico, and top seed Gonzaga almost lose to Southern University.

The same thing holds true for investments.

Mutual fund ads always feature the disclaimer that past performance is no guarantee of future results. Believe it. Sure, odds are good that a market-thumping fund manager will continue to beat the market, just as the top seeds will always be the favorites to advance. But there’s a reason the games are played.

Take Apple (AAPL), for example. You won’t find too many companies as dynamic. It breathed new life into portable media players in 2001. It went on to define the smartphone movement with the first iPhone in 2007. Two years later it rolled out the iPad at a time when consumers didn’t think they needed a tablet.

Today? Things haven’t been as rosy for Apple, as margins have shrunk and global market tastes have shifted to cheaper alternatives. The stock has surrendered 35 percent of its value since the iPhone 5 hit the market. After years of growth, analysts see flat earnings at Apple this fiscal year.

Bottom line: There’s no such thing as a sure thing. For years it seemed like Apple could do no wrong. But global market tastes have shifted to cheaper alternatives. Apple’s margins are shrinking and the competition is getting fierce. Remember, when you’re No. 1 the game is always on. It’s never safe to put your guard down and get complacent.

2. Seasoned leadership is a vital asset.

How about those Hurricanes? By the time you read this, “the U” may already be out of the tournament, but it was a pretty remarkable season for the University of Miami.

The team has never been a basketball powerhouse, yet it emerged this year to win the ACC for the first time. It had to defeat Duke and UNC to make it happen — a pretty impressive feat. And there’s one big reason behind that success. Four …read more
Source: FULL ARTICLE at DailyFinance

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3 Ways to Spring Clean Your Portfolio

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By Chuck Saletta

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With the cold winter weather starting to thaw, it’s a great time to tackle those spring cleaning projects — not just at home, but in your portfolio, too.

The market‘s recent rise makes it a little easier to tackle the three tasks below. After all, it’s much more fun to lock in a gain than it is to admit defeat and settle for the consolation prize of a potential tax loss write-off.

Clean-up tip No. 1: “Sell” every investment you own.

If you’ve got a life outside of your investments, you may be waking up this fine spring morning to find that your portfolio has become a collection of stuff you picked up along the way, rather than a concerted investment plan.

By acting like you plan to sell every investment, you’ll best know which are the ones you’re able to part with now, thanks to the market‘s recent generosity.

To get this perspective, put each investment into context and assess which ones are worth holding, take a look at each position you hold and fill in the blanks: “I own _____________ because of __________. I’d be willing to sell if ________________.”

Whatever your reasons for owning each investment, ask yourself if it still makes sense for you to do so. You may find that the market‘s recent rise has generously given you exactly what you need in order to justify moving your capital to a more productive use. And if some haven’t reached your sell criteria yet, you’ve made a list you can refer to later when they do.

Clean-up tip No. 2: Adjust your investments based on your timelines.

Next, you can use the proceeds from any sales to adjust your holdings based on when you’ll need the money. This is important to assure that the cash will be there when it’s needed.

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Money you need in the very near future — in the next year or so — should be either in cash or in something like a CD or a maturing Treasury bond that will automatically turn into cash by the time you need it. At today’s low interest rates, even some bonds can be too risky to own for short term money, especially ones that are years away from maturing.

The longer you have before you need the money, the more risks you can take with it.

Respect the calendar. The market doesn’t care when you’ll need the money or how much of it you’ll ultimately need. It took us more than five years to reset to the market highs from the last time stocks peaked.

Unless you’ve got somewhere in the neighborhood of that kind of time to wait for the next set of market highs before you need to spend the money, take today’s high prices as a gift. As they say, a bird …read more
Source: FULL ARTICLE at DailyFinance

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How Emotional Investing Decisions Are Costing You a Fortune

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By Dan Caplinger

Bull Market

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According to one old adage, making money in stocks is simple: Just buy low and sell high. Unfortunately, most people do the exact opposite — buy high and sell low — and pay dearly for it.

Investment research firm Morningstar has spent the past several years looking at both the reported returns that mutual funds generate and the actual returns that typical investors earn in their accounts. At first glance, you’d think those numbers should be the same. But because investors can add or withdraw money from mutual-fund accounts at any time, their timing on buying or selling fund shares factors heavily into how much total profit they earn.

The results of Morningstar’s research were surprisingly negative for investors. Over the past 10 years, investor returns have lagged behind fund returns for every single one of the asset classes that Morningstar looked at:

  • For U.S. stocks, the difference in average annual return was more than a full percentage point, which equates to a difference of $2,000 in lost returns on an initial investment of $10,000.
  • The disparity for international stocks was much worse, with a 3-percentage-point annual difference resulting in total underperformance of $6,500 on a $10,000 initial investment.

Why Investors Miss Out

These differences reveal just how big a role emotion plays in investing.

When the stock market is in the middle of a big bull-market rally, as it has been for the past four years, investors get increasingly greedy and look jealously at the past returns that stocks have produced recently — perhaps gains that they missed because they sat on the sidelines waiting for the waves to get less choppy.

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As a result, they tend to pile in after those high returns have already happened. We’ve seen that phenomenon again recently; with stocks approaching record highs, purchases of mutual funds in January hit a record of more than $80 billion, with nearly half of that going into stock funds.

Meanwhile, when the stock market falls, Morningstar notes that fear and anger replace greed and jealousy. Those emotions drive investors to sell off their investments even after they’ve already lost huge portions of their value, locking in permanent losses that become next to impossible to recover from.

3 Keys to Rule Your Emotions

It’s tough not to let your emotions influence your investing decisions. But there are some steps you can take to minimize their impact and keep you from losing money in the long run.

1. Make investing a regular habit rather than a knee-jerk response to changing market conditions. If you set up automatic purchases to invest a certain fixed amount of money on a regular basis, regardless of whether the stock market is up or down, then you won’t need to pay as much attention to fluctuations in the markets. Moreover, because of the benefits of dollar-cost averaging, your investment will …read more
Source: FULL ARTICLE at DailyFinance

Science & Technology

5 Ways to Prevent Panic From Plundering Your Portfolio

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By Dan Caplinger

Panic stocks investments

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With the stock market near its all-time high, few investors are terribly worried about their portfolios right now. But that makes now the best time to take steps to panic-proof your portfolio in preparation for the next financial crisis to rear its ugly head — whenever that may happen.

Once panic sets in, it’s incredibly difficult to make smart investment decisions — and that’s when people make costly mistakes with their portfolios. Here are five things you can start doing now that should help keep the panic at bay the next time stocks take a stomach-churning plunge.

1. Make Sure You Have Cash for a Rainy Day — and a Fire Sale

In tough times, having an emergency fund to help you meet unexpected financial challenges is essential. The usual target is a cushion large enough to cover living expenses for three to six months. But having more cash on hand not only gives you more peace of mind, it also gives you a chance to take advantage of investment opportunities if more attractive conditions arise.

2. Rebalance Your Portfolio

The key to matching up your investments with your appetite for risk is to use an asset allocation strategy that guides you on how much of your money you should have in different types of stocks, bonds, funds, and other investments. Over time, as different investments earn different returns, the actual percentages of each you have in your portfolio can change dramatically. Rebalancing takes some of the profits on from past winners and reallocates them, pulling your portfolio proportions back into line and keeping your risk level where you want it. That will help you to take any future declines in stride.

3. Lighten Up on Big Bets

Making a smart call on a particular sector can earn you huge profits. For instance, after struggling for years, U.S. solar stocks First Solar (FSLR) and SunPower (SPWR) hit bottom last year, and lately, they’ve both made big runs higher as solar power gets cheaper and more widespread as an alternative energy source. But if you’ve managed to double or triple your money in these stocks, trimming back on your positions will ensure that you hang on to at least some of those profits. Moreover, in a pullback, you may well end up being able to buy back those shares more cheaply. And either way, the move will free up cash that you can use to invest in new stock prospects either now or down the road.

4. Find Safer Stocks

Getting out of the stock market entirely at the first whiff of danger isn’t a viable long-term investing strategy. But what you can do is look at stocks that tend to behave better during downturns. For instance, during the 2008 stock–market crash, fast-food stalwart McDonald’s (MCD) actually saw …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

5 Obscure Investments to Boost Your Income

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By Dan Caplinger

Enterprise Products

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Millions of Americans rely on income-producing investments to make ends meet. But with interest rates at historic lows and traditional low-risk vehicles paying rock-bottom returns, more and more investors are turning to obscure investments that promise much more income than you’ll get from a bank CD right now.

But these vehicles come with their own particular quirks, and all are riskier than an FDIC-insured bank account.

Let’s take a look at five investments you ought to know more about….

5 Obscure Investments to Boost Your Income originally appeared on DailyFinance.com on 2013-02-20T12:40:00Z.

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Target-Date Funds: Same Dates Can Earn Wildly Different Returns

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By Dan Caplinger

Target mutual funds

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In recent years, target-date mutual funds have grown substantially, with savers investing $55 billion into the funds last year in the hopes of getting easy exposure to every asset class you need for a diversified portfolio.

Their popularity is understandable: Different funds focus on different target dates, the idea being that you pick whichever date is closest to when you’ll need your money back. When that date is far away, the fund invests aggressively, with most of its money going to…

Target-Date Funds: Same Dates Can Earn Wildly Different Returns originally appeared on DailyFinance.com on 2013-02-11T13:20:00Z.

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Trading Stocks Based on Tweets: Clever Crowdsourcing or Silly Fad?

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By Caroline Bennett, The Motley Fool

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TwitterCan tweets and status updates predict changes in stock prices? Paul Hawtin, CEO of Derwent Capital Management, certainly believed in the predictive power of social media tools when he created the first-ever “Twitter hedge fund,” which we reported on a few months ago.

In its one month of existence, the fund’s overall 1.86 percent return outpaced both the market at large as well as the average hedge fund’s performance.

Then Hawtin shut it down so that he could turn his “sentiment analysis”…

Trading Stocks Based on Tweets: Clever Crowdsourcing or Silly Fad? originally appeared on DailyFinance.com on 2013-02-01T06:00:00Z.

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Source: FULL ARTICLE at DailyFinance