tag:blogger.com,1999:blog-63109581033752459292024-03-13T07:50:53.430-07:00Investors Times - How to invest,survive and prosper in the stock market for beginnersThis blog contains financial information and investment strategies to help people start investing to increase their wealth with time
John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.comBlogger83125tag:blogger.com,1999:blog-6310958103375245929.post-27593346935194224452018-09-04T11:25:00.001-07:002018-09-04T11:25:15.998-07:00How to become rich?<div dir="ltr">
Are you deep in debt?<br />
Are you poor?<br />
Do you want to buy your dream house ?</div>
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Look no further. You will find here the information <a href="https://howtobecomeveryveryveryrich.blogspot.com/" target="_blank">here</a>.</div>
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Should you follow the advices in the blog you will certainly be rich.</div>
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Good luck!!!</div>
John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com22tag:blogger.com,1999:blog-6310958103375245929.post-17335247255152495222010-02-18T07:55:00.001-08:002010-02-18T07:55:31.931-08:00What are the advantages of holding bonds?<p>We have seen in <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">this post</a> what <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bonds</a> are. However have you asked yourself what are the advantages of holding bonds. We are going to have a look at the different uses of bonds for the average investor. </p> <p><strong>1. Safety investment</strong></p> <p>One of the most important uses of bonds for the average investor especially in this recession is to secure your portfolio. Investors who anticipates a bear market, turmoil in the <a href="http://investorstimes.blogspot.com/2009/02/what-is-stock.html" target="_blank">stock</a> market or a recession  might not want or have the courage to watch their portfolio’s value fluctuate widely. As a result in anticipation they will want to sell their investment and flee to the safest investment. Some will invest in <a href="http://investorstimes.blogspot.com/2010/01/what-are-treasury-bonds.html" target="_blank">treasury bonds</a>, <a href="http://investorstimes.blogspot.com/2010/01/what-are-treasury-bills.html" target="_blank">treasury bills</a>, high quality corporate <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bond</a> or <a href="http://investorstimes.blogspot.com/2009/11/what-is-money-market.html" target="_blank">money market</a> <a href="http://investorstimes.blogspot.com/2009/07/what-is-mutual-fund.html" target="_blank">mutual funds</a>. After the events the investors can sell these safe assets and then reconstitute their portfolio.  </p> <p><strong>2. To maintain the value of the portfolio</strong></p> <p>The first use of bonds for the average investor is to maintain the value of the portfolio. Most bonds can be said to be quite safe especially if you invest in <a href="http://investorstimes.blogspot.com/2009/07/importance-of-bond-issuer.html" target="_blank">government bonds</a> and investment grade <a href="http://investorstimes.blogspot.com/2009/07/importance-of-bond-issuer.html" target="_blank">corporate bonds</a>. Because bonds are issued at a <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">discount</a> and then redeemed at <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">face value</a> the investor is certain that he will obtain more than he invested initially. Furthermore some bonds will pay <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">coupon</a>s twice a year. So even if the return on bonds are small, the investor is assured to end up with more that he started with. If you invest in <a href="http://investorstimes.blogspot.com/2010/01/what-are-treasury-inflation-protected.html" target="_blank">treasury inflation protected securities</a> then your <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">principal</a> will be adjusted so that you will not be hurt by inflation. thus your return will always be greater than inflation.</p> <p><strong>3. Diversification </strong></p> <p><a href="http://investorstimes.blogspot.com/2009/03/introduction-to-diversification.html" target="_blank">Diversification</a> a strategy whereby you invest in a range of securities and in various sectors so that they will not be affected equally. If your portfolio is equally diversified it is possible that some of them will increase in value while while some of them will decrease in value thereby offsetting each other. Bonds are the best asset to hedge against <a href="http://investorstimes.blogspot.com/2009/02/what-is-stock.html" target="_blank">stocks</a>. As you the value of stocks increases and decreases while that of bonds will remain the same. Hence when the stock market is down the presence of bonds will reduces the loss of value of the portfolio. Now when the stock market is up the percentage of stocks in the portfolio increases as a result to keep the value of bonds in the portfolio constant you will have to <a href="http://investorstimes.blogspot.com/2010/01/strategies-of-successful-investor-part.html" target="_blank">rebalance</a>. You will thus sell stocks to buy bonds. This will ensure that you lock the gain in stock market by buying bonds.</p> <p><strong> 4. Fixed income generation</strong></p> <p>Some people, especially retirees need a regular source of income. Because bonds pay regular coupon every six months a portfolio that has a sufficient number of bonds in it will provide income to the retiree on a regular basis. Stocks on the other hand pay <a href="http://investorstimes.blogspot.com/2009/02/what-is-stock.html" target="_blank">dividend</a>s but it is not compulsory for companies to pay dividends so an investors that have stocks in his portfolio is not certain of receiving dividends on a regular basis. However since on the long run the stock market rises then the investor is sure that <a href="http://investorstimes.blogspot.com/2009/11/strategies-of-successful-investor-part_24.html" target="_blank">the value of his stocks will increase with time</a>.</p> <p>As you can see it is very important to have a certain percentage of you money invested in bonds for the presence of bonds will help to stabilise your portfolio. 20 % for the aggressive investor up to 40 % for the prudent investor is an appropriate allocation. However make sure that your bonds are sufficiently diversified ranging from safe government bonds to slightly yieldy corporate bonds. If you are adventurous you can invest in municipal bonds. </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com2tag:blogger.com,1999:blog-6310958103375245929.post-11552133861649306462010-02-17T10:05:00.001-08:002010-02-17T10:05:14.923-08:00What is a Negotiable Certificate of deposit?<p>A certificate of deposit(cd) is a short-term investment whereby an investor will deposit a sum of money in a bank and at <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">maturity</a> the investor will obtain his money back with <a href="http://investorstimes.blogspot.com/2009/02/simple-and-compound-interest.html" target="_blank">interest</a>. The cd is issued at a <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">discount</a> to the <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">face value</a> and at the maturity date the investor will thus redeem the face value of the CD.  The investor cannot get his money back before the maturity date.</p> <p>The negotiable certificate of deposit (NCD) however can be sold in the secondary market by the initial investor. He can thus get back his money before the maturity date. He will however have to accept a reduce interest. The negotiable certificate of deposit can thus be traded in the secondary market until it reaches maturity. At that point the last person that hold the NCD can redeem the face value of the NCD. </p> <p>Since the NCD is issued by a bank then the return on it must be greater than on the <a href="http://investorstimes.blogspot.com/2010/01/what-are-treasury-bills.html" target="_blank">treasury bill</a>. This is because the treasury bill is a safe investment and has no default risk. The return on the NCD will thus be slightly greater than the return of the treasury bill to compensate the investor for the additional risk However since it is issued for a short period of time the solvency of the bank can be predicted. As a result the extra premium is quite small.  As a result the return on the NCD is quite small compared to other <a href="http://investorstimes.blogspot.com/2009/11/what-is-money-market.html" target="_blank">money market</a> instrument. Furthermore the NCD is issued at high denomination as a result the retail investor cannot have access to NCDs. Average investor can only access them through a money market  <a href="http://investorstimes.blogspot.com/2009/07/what-is-mutual-fund.html" target="_blank">mutual fund</a> unless he has a lot of money to be able to buy individual NCD from banks or through his broker. </p> <p>However despite these disadvantages there are two advantages that makes the NCD worth while investing in. First of all if you have some money in a bank account the return will mostly be small. Then investing in an NCD will give a slightly higher return than the average savings account. Furthermore if you cannot afford to lose your money but want to obtain higher return then the NCD is the way to go since the chance of the bank defaulting on the NCD is negligible.   </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-87822134788931083572010-02-17T10:03:00.001-08:002010-02-17T10:03:46.659-08:00What are eurodollars?<p>The term eurodollar very often tend to confuse investors into believing that the instrument is related to the dollar or the euro. The eurodollar is a deposit, cd or NCD  that a united states bank will have with a bank outside of the united state. Hence if a European bank has a deposit, cd or NCD at a bank in Australia then it will be called a Euroeuro. And finally if a Japanese bank will have a deposit , cd or NCD with a bank in France it will be called a euroyen</p> <p>The advantage of eurodollars is that because they are less liquid then normal NCDs the return on them is greater. The eurodollar however is only to large institutions so your best et to have exposure to them is through </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-65186996908203589162010-01-21T09:58:00.001-08:002010-01-21T09:58:32.892-08:00Strategies for the successful investor part 7 : Performance obsession<p>Many investors are obsessed by performance in that they are always on the alerts for <a href="http://investorstimes.blogspot.com/2010/01/what-are-treasury-inflation-protected.html" target="_blank">tips</a>, hot <a href="http://investorstimes.blogspot.com/2009/02/what-is-stock.html" target="_blank">stocks</a> or emerging sectors of the economy. These investors always want to be on board of the latest bull market. They always want to buy at the lowest price and sell at the highest price.</p> <p>However what investors need to know is that assets are mostly cyclical and that their ups and down do not takes place at the same time. Hence while one sector of the economy is down another sector will be down. Hence if you invest too heavily in one sector or in one asset then if their is a downturn or a bull market then you will be too exposed to that sector and as a result your portfolio will be adversely affected and you might lose heavily.</p> <p>The way to go is to be exposed be a wide variety of assets such that when one asset lose value the decrease will be offset by an increase in the value of another asset. Hence if you are exposed to a wide variety of asset classes you will have your eggs in the same basket. In case their is a loss in one type of assets then it will only be a small part of your portfolio. </p> <p>Hence the way to go is to through heavy indexing of the market. You will need to be exposed to a wide range of <a href="http://investorstimes.blogspot.com/2009/03/what-is-index-fund.html" target="_blank">index fund</a> and <a href="http://investorstimes.blogspot.com/2009/07/what-is-mutual-fund.html" target="_blank">mutual fund</a>. You will invest in <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bond</a> fund, mutual fund in stocks, etc. </p> <p>Hence when you will invest in index fund and mutual fund you will not have the need to chase performance. You will be exposed to every sectors of the economy and all this will be done passively. Hence  you will not need to chase performance. Your return will be close to that of the overall market. </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-56115627789832054892010-01-20T01:20:00.001-08:002010-01-20T01:20:02.970-08:00Strategies for the successful investor part 6 :Index the market<p>Like i said in my previous post trying to outperform the market is a waste of time. The way to go is through <a href="http://investorstimes.blogspot.com/2009/03/what-is-index-fund.html" target="_blank">index fund</a> or <a href="http://investorstimes.blogspot.com/2009/07/what-is-mutual-fund.html" target="_blank">mutual fund</a> since it is rare that someone can outperform the market consistently.</p> <p>So what would you do if you are investing in traditional assets like <a href="http://investorstimes.blogspot.com/2009/02/what-is-stock.html" target="_blank">stocks</a> and <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bonds</a>. You have to try to index the market. </p> <p>What you should do is to invest in companies that are of different sectors of the economy. You will thus select a number of different companies to invest in. What you would do is to add the <a href="http://investorstimes.blogspot.com/2009/04/what-is-market-capitalisation.html" target="_blank">market capitalisations</a> of all the companies that you want to invest in.</p> <p>Then if you want to invest in a company X you will have to invest  money in company x acording to the equation below</p> <p>Money invested = (<a href="http://investorstimes.blogspot.com/2009/04/what-is-market-capitalisation.html" target="_blank">Market capitalisation</a> of x/total market capitalisation) * money that needs to be invested</p> <p>You might want to create a spreadsheet to help you determine how much to invest in each company.</p> <p>Now the indexing will not be similar to a professional index fund but it will approach it if you </p> <p>1. Choose a large number of sectors of the economy to invest in such the companies you invest in will make your portfolio representative of the economy.</p> <p>2. in each sector of the economy that you invest in you select a few companies that will be representative of that economy. You will thus invest in a series of <a href="http://http://investorstimes.blogspot.com/2009/04/what-is-market-capitalisation.html" target="_blank">mega cap</a>, <a href="http://investorstimes.blogspot.com/2009/04/what-is-market-capitalisation.html" target="_blank">large cap</a> and <a href="http://investorstimes.blogspot.com/2009/04/what-is-market-capitalisation.html" target="_blank">small cap</a> companies. </p> <p>Similarly you will invest in bonds such that you will invest in securities with a wide range of <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">maturities</a> and <a href="http://investorstimes.blogspot.com/2009/07/importance-of-bond-issuer.html" target="_blank">issuers</a>. Hence your <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bond</a> portfolio will be spread across <a href="http://investorstimes.blogspot.com/2009/07/importance-of-bond-issuer.html" target="_blank">municipal bond</a>s, <a href="http://investorstimes.blogspot.com/2009/07/importance-of-bond-issuer.html" target="_blank">corporate bonds</a> and <a href="http://investorstimes.blogspot.com/2009/07/importance-of-bond-issuer.html" target="_blank">government bonds</a>. You will also have to invest in the <a href="http://investorstimes.blogspot.com/2009/11/what-is-money-market.html" target="_blank">money market</a> and capital market bonds so as to spreads your exposure to different maturities of bonds. </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-29960189605639949242010-01-19T09:22:00.001-08:002010-01-20T00:45:01.586-08:00Strategies for the successful investor part 5 :Do not trust experts or fund managers<p>The one thing that most people think is that they can outsmart the market and have a better return than the overall return of the market. What can happen is that a few person can outperform the market for a few years but over the long run they would most likely either underperform the market or come close to it.</p> <p>On the long run the best you can do is to equate the average return of the market. Thus the only investment that would come close to the market average rerun would be the <a href="http://investorstimes.blogspot.com/2009/03/what-is-index-fund.html" target="_blank">index fund</a> or a <a href="http://investorstimes.blogspot.com/2009/07/what-is-mutual-fund.html" target="_blank">mutual fund</a> that is invested in a broad range of <a href="http://investorstimes.blogspot.com/2009/02/what-is-stock.html" target="_blank">stocks</a> and <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bonds</a>.</p> <p>why is it that no one can outperform the market?</p> <p>1. Most fund make use of researches and fund managers that are highly paid so that their salaries have to be deducted from the return of the fund. This would thus reduce the fund’s overall return. </p> <p>2. A lot of these actively managed funds rely on selling and buying of shares so that investors in these funds need to pay capital gains tax. These taxes thus reduce the return of the funds.</p> <p>3. Actively managed funds rely on timing the market. That is selling high and buy low. This is quite difficult to achieve and and as a result the return is less that anticipated.</p> <p>Hence the index fund or the passively managed mutual fund is the best bet to achieve a return that is as close to possible to the average return of the market. The fees of these funds are low because the funds do not need to pay a lot of researches and fund managers. They also mostly rely on the buy and hold strategy thus reducing the need to try to time the market. </p> <p>Although funds that try to actively time the market and employs famous fund managers are quite attractive, history tell us that they always underperform the market so keep away from them.</p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-65691133860309675682010-01-19T07:37:00.001-08:002010-01-20T00:47:33.301-08:00Strategies of the successful investor part 4: Rebalancing<p> One of the most important aspect of your investing life is rebalancing. As you know a portfolio must be <a href="http://investorstimes.blogspot.com/2009/03/introduction-to-diversification.html" target="_blank">diversified</a> in that the portfolio is composed of a wide variety of asset types such as bonds, stocks, etc. Depending on your investment plan and your risk tolerance the different asset classes will be a certain percentage of the portfolio. And in each asset class their would also be some <a href="http://investorstimes.blogspot.com/2009/03/introduction-to-diversification.html" target="_blank">diversification</a>. </p> <p>You would probably have <a href="http://investorstimes.blogspot.com/2009/02/what-is-stock.html" target="_blank">stocks</a> that are in different sectors of the economy or <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bonds</a> that are from different types of issuers such as corporate bonds, municipal bonds or <a href="http://investorstimes.blogspot.com/2009/07/importance-of-bond-issuer.html" target="_blank">government bonds</a>.</p> <p>Hence it is important that your portfolio composition be as close as possible to that that your plan states. However the economy is not static. Depending on the state of the economy some stocks might increase in value while others decrease in value. This will cause your exposure to these sectors to change. The percentage of the stocks of some sectors of the economy will increase or decrease in your portfolio. </p> <p>The change in price might also change your exposure to some asset classes. A bull market might increase the percentage of stocks in your portfolio while reducing the percentage of bonds in your portfolio. If left unchecked the asset allocation of your portfolio will change with time and also the riskiness of your portfolio will change. This might thus reduce your chance of reaching your goals. </p> <p>Thus you need to rebalance regularly. At least once a year is sufficient. Your aim is to reduce your exposure to certain asset classes that have increased in value while increasing your exposure to those that has decreased in value. You will thus return your asset allocation to that that is stated in your investment plan.</p> <p>You will thus have to sell securities and buy others. This is the most difficult part for some investors because of the cost involved in selling and buying securities. Also some investors may not like selling performing stocks and buying poor performing stocks. However history tells us that a portfolio left to fluctuate with the market always perform poorly. </p> <p>So keep rebalancing and your portfolio and you will be on course to riches.   </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-15141283057369324822010-01-12T09:51:00.001-08:002010-01-12T09:51:49.669-08:00What are treasury inflation protected securities(or tips)?<p><b>Treasury Inflation-Protected Securities</b> (or <b>TIPS</b>) are <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bonds</a> that are issued by governments. The advantage that you get with this security is that the principal of the <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bond</a> is adjusted yearly with inflation.Thus the principal increases every year and its real value will remain the same. This is contrary to other bonds whose nominal value remain constant whereas their real value decreases.</p> <p>Since the principal is adjusted yearly with inflation, its value will increase and as a result the <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">coupon</a> payment will increase. This bond is thus a good investment in times of high inflation. The value of your investment will keep its real value with time. This compares to the normal bonds whose principal and the coupon remain the same thus losing its real value with time.</p> <p>However in case of deflation like in Japan, where inflation turns negative, the value of the principal and coupon decrease with time. In this case a normal bond would have maintain its nominal value but would have its real value increasing. </p> <p>So investing in tips is just about deciding whether the future will bring deflation or inflation. </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-21911394690428472462010-01-11T09:24:00.001-08:002010-01-11T09:24:16.057-08:00What are treasury notes?<p>Treasury notes are securities that are issued by governments in order to raise funds to finance deficits. It has a <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">maturity</a> that ranges from 2 to 10 years. Hence it is a security that is traded in the capital market. the capital market is the market in which securities that has a maturity of more than 2 years are traded. treasury <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bonds</a> is also a security that is traded in the capital market.</p> <p>The treasury notes are issued at a <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">discount</a> and at maturity the face value is paid to the holder of the notes. The holder of the notes is also entitles to a <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">coupon</a> which is like an an <a href="http://investorstimes.blogspot.com/2009/02/simple-and-compound-interest.html" target="_blank">interest</a> paid on a certificate of deposit. This coupon is paid according to a <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">coupon rate</a> which  is merely the percentage of the face value of the note that would be paid as the coupon.</p> <p>The 10 year note is often used to have an indication of future inflationary expectation. It is often used in the <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bond</a> spread which is the difference in yield between the 10 year note and the three month treasury bill. The three month maturity date is considered to be so close in the future that the inflation in three month will be close to the actual inflation. The 10 year maturity date however is sufficiently far in the future that the inflation at that time cannot be known. However investors will want to ensure that the yield on the ten year note is adjusted for inflation. Hence the difference between two will be the expected inflation in ten years. The difference in the two yield cannot include a  risk premium like the corporate or <a href="http://investorstimes.blogspot.com/2009/07/importance-of-bond-issuer.html" target="_blank">municipal bond</a> yield because government treasuries are considered to be the safest of securities.</p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-13580243228591537542010-01-11T09:17:00.001-08:002010-01-11T09:17:50.960-08:00What are treasury bonds ?<h1><b></b></h1> <p><b></b></p> <p>A treasury <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bond</a> is a government security that has a <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">maturity</a> that ranges from 10 years to 30 years. It is thus a security that is traded in the capital market. </p> <p>Like the treasury note it is issued at a <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">discount</a>. It also pays a <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">coupon</a> every six months according to a <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">coupon rate</a>. This security is mostly held by institutions that have long term liabilities like pension funds, long term insurers, etc.  </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-81692613877223059282010-01-11T09:15:00.001-08:002010-01-11T09:15:26.168-08:00What is a capital market?<p>The capital market is a market where securities that  that has a long-term <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">maturity</a> are traded. These include treasury notes, treasury <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bonds</a>, normal and preferential <a href="http://investorstimes.blogspot.com/2009/02/what-is-stock.html" target="_blank">stocks</a>. Generally securities with a maturity of greater than 1 years are traded in it. As you can see all securities that are not traded in the <a href="http://investorstimes.blogspot.com/2009/11/what-is-money-market.html" target="_blank">money market</a> are traded in the capital market. The name capital market also indicate that companies and government raise  capital in this market.</p> <p>The capital market is divided into two different markets. Firstly the <a href="http://investorstimes.blogspot.com/2009/02/what-is-stock.html" target="_blank">stock</a> market also known as the equity market where normal and preferential stocks are traded. Secondly the <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bond</a>  market also known as the debt market where notes and bonds are traded. </p> <p>Hence we can see that when companies and government need short term financing they raise funds in the money market whereas if they want to raise fund over the long term they would do so in the capital market.</p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-47776581220447579062010-01-10T23:12:00.001-08:002010-01-14T21:46:24.800-08:00Government securities: Bills, notes and bonds<p><a></a></p> <p>Government securities are debt instruments that are issued by central banks with the aim of raising funds to finance government deficits. They can also be issued as a result of monetary policy where they are used to drain liquid. Although government usually prefer to use longer <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">maturity</a> to finance deficits while central banks usually like short-term maturity securities in monetary policy.</p> <p><strong><u>Types of government securities</u></strong></p> <p>There are four main types of securities that government issues</p> <p>1. <a href="http://investorstimes.blogspot.com/2010/01/what-are-treasury-bills.html" target="_blank">Treasury bills</a> </p> <p>2. <a href="http://investorstimes.blogspot.com/2010/01/what-are-treasury-notes.html" target="_blank">Treasury notes</a></p> <p>3. <a href="http://investorstimes.blogspot.com/2010/01/what-are-treasury-bonds.html" target="_blank">Treasury bonds</a></p> <p>4. <a href="http://investorstimes.blogspot.com/2010/01/what-are-treasury-inflation-protected.html" target="_blank">Treasury inflation protected securities</a> (<a href="http://investorstimes.blogspot.com/2010/01/what-are-treasury-inflation-protected.html" target="_blank">Tips</a>)</p> <p>These securities given the fact that they are issued by the government they are considered to be quite safe. However you should be aware that not all government securities are safe. Investors should remember examples such as Argentina defaulting on its bonds or Dubai trying to dodge  out of its obligations by asserting that legally the bonds are not issued by the government but by a separate entity control by the government.   </p> <p>These government securities are also highly liquid. In fact government securities are  the most traded of all securities. This is because by law banks, insurers and other financial institutions are required to hold a certain percentage of safe assets on their balance sheets. Hence a lot of these institutions hold government securities to reduce risk in their portfolio. </p> <p>The increased liquidity comes from the fact that these institutions needs to have access to their funds at short notice. However when they do not need their money they need to invest it in a safe asset that they can sell easily. Hence this add to the increased liquidity of the government securities. </p> <p>These securities can be obtained from two ways. Either over the counter at central banks and with financial institutions or though a system of auction at which financial institutions bid for them. we have already seen this system in the <a href="http://investorstimes.blogspot.com/2010/01/what-are-treasury-bills.html" target="_blank">post on treasury bills</a>. </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-33630308056786122752010-01-10T04:39:00.001-08:002010-01-10T04:39:43.154-08:00What is a repo/reverse repo?<p>A repo is a repurchase transaction and it is a security that is part of the <a href="http://investorstimes.blogspot.com/2009/11/what-is-money-market.html" target="_blank">money market</a>. </p> <p>So what is a repurchase transaction? A repurchase transaction is similar to a transaction that takes place in a pawn shop. The owner of a property goes to a pawn shop and exchange it for cash but he promises to come back later to buy the property at a higher price. </p> <p>Now the same goes for a repo. </p> <p>1. An institution that needs cash over a short period of time goes to lender with government securities such as <a href="http://investorstimes.blogspot.com/2009/07/importance-of-bond-issuer.html" target="_blank">government bonds</a>, <a href="http://investorstimes.blogspot.com/2010/01/what-are-treasury-bills.html" target="_blank">treasury bills</a> or any other financial instruments that have a high rating as collateral. </p> <p>2. The lender will lend money to the borrower in exchange for the collateral. The borrower also agrees to buy back the security at a higher price at a particular time.  The difference between the two price is the profit of the lender. The time of repurchase can be from one day to a few months.If the repo transaction is greater than a month it is called a term repo. Less than a month it will be a simple repo.</p> <p>3. At the agreed time the borrower buy back the collateral at the agreed higher price. </p> <p>4. In case of default of the borrower the lender keep the collateral.    </p> <p>You can also have what is called a reverse repo. This is the opposite of a repo. In a reverse repo the the institution will buy a security and later agree to sell the security to the seller at a higher price. </p> <p>Technically the two terms are used in different circumstances but put simply if the transactions is viewed from the borrower’s perspective where the borrower will repurchase the security later it is a repo but from the lender’s perspective the lender is forced to sell the security to the borrower then it is a reverse repo. </p> <p>A typical case is when banks obtain funds from the central bank. the bank is considered to be doing a repo while the central bank is considered to be doing a reverse repo.</p> <p>However it is mostly large institutions that deal in repos. </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-30532877604080647432010-01-09T05:27:00.001-08:002010-01-09T05:27:16.765-08:00What is an interest-based security?<p> </p> <p>There are two ways in which securities are issued. They are either issued and interest is earned on the principal, hence the term interest-based securities, or they can be issued at a discount or at a premium, hence the term discount based securities. </p> <p>In this post I am going to talk about those securities that are interest-based. </p> <p>When you talk about such securities the investor, you, will invest a certain amount of money called the principal. This is the amount that you would invest at the beginning of the contract and at maturity you will receive this same amount.  </p> <p>Then the return every year on this amount that is invested is called the interest. The interest earned will be calculated using the interest rate on the investment. The higher the interest rate the higher the interest earned.</p> <p>Hence generally this principal is invested for a length of time ranging from 7 days to five years. The interest rate of the investment also depend on the length of time for which the principal is invested. Generally the longer the time the higher the interest rate. This is because your money is locked in the investment for a longer length of time. You will thus have to be compensated for the decrease liquidity and the greater risk taken.   </p> <p>Now there are two ways in which <a href="http://investorstimes.blogspot.com/2009/02/simple-and-compound-interest.html" target="_blank">interest</a> will be accrued on the principal. It will be either a simple interest  whereby the interest will be calculated every year on the principal alone. Hence you will obtain the same interest every year. </p> <p>You can read a post on <a href="http://investorstimes.blogspot.com/2009/02/simple-and-compound-interest.html" target="_blank">simple interest</a> here.</p> <p>The other type of interest is the compound interest  whereby the interest earned every year is calculated on the principal and the interest earned in previous years. You can read a post on <a href="http://investorstimes.blogspot.com/2009/02/simple-and-compound-interest.html" target="_blank">compound interest</a>  here. </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-18671581702583460002010-01-05T07:01:00.001-08:002010-01-05T07:01:20.919-08:00What is a Banker’s Acceptance?<p>As we have seen in an earlier post, the Banker’s Acceptance is one of the instruments traded in the <a href="http://investorstimes.blogspot.com/2009/11/what-is-money-market.html" target="_blank">money market</a>.</p> <p>It is simply an instruments that are used by companies to obtain funds. It is generally cheaper than loans or overdraft. </p> <p>Let us take the examples below to understand how it works.</p> <p>A company needs money to buy goods for the Christmas season and want to obtain funds from the bank and will pay back the money after Christmas. This company generally needs to pay cash especially if it is buying goods abroad where companies do not want to take the risk to give goods on credit.</p> <p>The company will approach his bank and will enter into an agreement according to the sequence below.</p> <p>1. The company approach the bank to enquire about the discount rate on BAs. </p> <p>2. The BA will have a face value that the company will have to pay after a specific period of time. Likewise any investor that have bought the BA on the secondary market and who will present the BA to the bank at maturity will receive the face value as indicated on the BA.</p> <p>The BA will also contain the commission that the bank will take from the company. Hence the bank will pay the company the face value minus the commission. If the face value is $ 1 million and the commission of the bank is $ 20000 then the company will receive only $ 980 000.  </p> <p>3. If the bank accepts this agreement it will endorse it. Hence the name of Banker’s Acceptance. If the bank has accepted the agreement it would have to pay the face value of the BA to the holder of the BA at maturity.</p> <p>4. The bank will then sell the BA on the secondary market where it will be traded until it reaches maturity. </p> <p>5. At maturity the company will pay back the face value of the BA to the bank. However even if this does not happen, the bank will have to pay the holder the face value. </p> <p>However I would still discourage small investors from investing directly in the money market. It is much better to invest in a  money market <a href="http://investorstimes.blogspot.com/2009/07/what-is-mutual-fund.html" target="_blank">mutual fund</a>. </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-25282555924440360962010-01-05T06:55:00.001-08:002010-01-05T06:55:38.008-08:00What is a commercial paper?<p>The commercial paper is a form of debt securities that is issued by companies. As we have seen in this post on <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bonds</a> government and corporations issue bonds that have maturities of greater than one year on the capital market. With regards to maturities shorter than one year the government will issue treasury bills whereas corporations will issue commercial papers. The commercial paper will thus be, like the treasury bill, a <a href="http://investorstimes.blogspot.com/2009/11/what-is-money-market.html" target="_blank">money market</a> instrument. </p> <p>Hence the commercial paper will be issued at a discount by companies and at maturity the holder of the commercial paper will be paid the face value of the commercial paper. The discount rate will depend on the credit rating of the company and present market conditions. Since it is only companies with good credit rating that can issue commercial papers, the discount rate will slightly higher than government for treasury bills. </p> <p>Companies are constantly in need of funds to settle current liabilities and to buy inventories. This is because there is always a mismatch between income and spending, The companies will thus raise the short term fund needed in the money market because use of banks for such short-term financing is costlier and time consuming. </p> <p>Just like the treasury bills, commercial papers are quite safe. This is because the short-term maturities at which they are issued means that investors can determine whether the firm has a risk of default on the commercial paper. This is because investors would have known from previous financial statements whether the companies is sound and what is the possibility of it going bankrupt. However as you may know banks with their exposure to risky derivatives or bank runs may go bankrupt even if they were sound a few months or weeks before.However given the slight possibility of going bankrupt the return will be slightly higher than on treasury bills. </p> <p>You might thus think that commercial papers will be good to invest in. However these commercial papers are issued at high denominations. As a result the retail investors like you cannot invest directly in them. Thus the only way to get exposure to them is through money market <a href="http://investorstimes.blogspot.com/2009/07/what-is-mutual-fund.html" target="_blank">mutual funds</a>.But like I have said in a previous post it would be better if you invest in <a href="http://investorstimes.blogspot.com/2009/02/what-is-stock.html" target="_blank">stocks</a>, government and corporate bonds and other higher yielding instruments.</p> <p>Happy investing.</p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-58590097253667004272010-01-03T05:46:00.001-08:002010-01-11T09:20:45.061-08:00What are treasury bills?<p>Treasury bills is one type of instruments that is traded in the <a href="http://investorstimes.blogspot.com/2009/11/what-is-money-market.html" target="_blank">money market</a>.  </p> <p>A treasury bill is typically a <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bond</a> that is issued by a central bank or by a government that has a maturity of less that one year. The treasury bill is sold without coupon payment. A coupon is a payment that is made every six month. It is paid as a percentage of the nominal price of the bond.Hence the treasury bill is sold at a discount and then the government will pay the face value at <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">maturity</a>.</p> <p>These treasury bills are issued by governments in order to raise funds from the market. Because these <a href="http://investorstimes.blogspot.com/2009/01/is-it-time-to-buy-bonds.html" target="_blank">bonds</a> are issued by the government of a country it is therefore considered to be the safest asset and as a result would have the lowest return of all. Because of its safety it is used very often to calculate the bond spread of other bonds. The bond spread is simply the difference in return between the other bond and the return on a three month treasury bill. The greater the bond spread the riskier the bonds. </p> <p>Treasury bills are also the most liquid and the most traded of all instruments. This is mainly because banks and other non-bank financial companies are required by law to hold them. For banks they may be used as collaterals in repo transactions with the central banks or in the interbank market to obtain funds. Because they are highly liquid these institutions hold them so that they can be readily converted to cash to settle obligations. Otherwise if they have excess funds they invest them in treasury bill in order to get a decent return. Short term insurers also hold a significant amount of <a href="http://investorstimes.blogspot.com/2010/01/what-are-treasury-bills.html" target="_blank">treasury bills</a> because they also need to have access to their fund on short notice.</p> <p>These treasury bills are issued in two ways. They are either issued through auctions or over the counter. Banks and other institutions participate in weekly auctions. They state the price, the discount rate and the maturity that they want and the central banks will allocate the bills starting from the one offering the highest offered price. After they are issued in the primary market they can then be sold in the secondary market where you can buy them. However you can still buy them directly from the central bank. </p> <p>As an investor you might obtain treasury bills at any institutions that have them in their portfolio and are prepared to sell them or over the counter at the central bank. But I would strongly advise investing in a money market fund if you want to gain exposure to the money market.</p> <p>However since treasury bills are the safest of all investment it makes no sense investing a lot of money in them. At best you can invest 5 to 10 % in them in case you want to <a href="http://investorstimes.blogspot.com/2009/03/introduction-to-diversification.html" target="_blank">diversify</a> your portfolio and decrease the riskiness of your portfolio. I would myself advise about 10% in a money market <a href="http://investorstimes.blogspot.com/2009/07/what-is-mutual-fund.html" target="_blank">mutual fund</a>, 10% in a bond mutual fund and the rest in other instruments such as <a href="http://investorstimes.blogspot.com/2009/02/should-i-buy-gold.html" target="_blank">gold</a>, <a href="http://investorstimes.blogspot.com/2009/02/what-is-stock.html" target="_blank">stocks</a>, and so on.     </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-58202554281477795632009-12-15T04:09:00.001-08:002009-12-31T22:25:03.513-08:00Some Important Factors Related To Debt Consolidation<p><b></b></p> <p><b></b></p> <p>If you wish to lower your debt burden and enjoy a single monthly payment for all your debts at a reasonable interest rate, then <b><a href="http://www.debtconsolidationcare.com/">debt consolidation</a></b> might be a helpful choice for you. It is important for you to know how you can reduce your debt with debt consolidation. The steps given below would help you get a better idea about the procedure. </p> <ul> <li>Debt consolidation is the method of combining your various debts from your different creditors into one debt, usually to one lender. There are plenty of resources where you can search for a trustworthy debt consolidation company. Locating the right debt consolidation program and company is essential to becoming successful in debt consolidation. </li> <li>Prior to researching consolidation companies, you must have a clear idea of what you’re going to do. You must precisely figure out how much you’re obliged to pay your creditors. Establish a goal of becoming debt free. Don’t make decisions in a hurry. If you have fallen into debt and shift to another location, this does not signify you can make a new beginning and resume borrowing once more. You have to change your spending habits and stress on getting out of debt. Remember you can’t become debt free by acquiring further debt. </li> <li>Know that if you go for consolidation, it might ultimately cost you more. For reducing payments, if you go for a more extended repayment term, the outcome would be paying a higher amount of interest. Once more, having the reduced payment might encourage people to assume that they have more money and they again fall into the vicious debt cycle. </li> <li>Perform some cautious research and look for inspiring anecdotes. You would obviously search for a company that provides debt counseling and the most reasonable terms and rates for debt consolidation. </li> </ul> <p>Debt is not a pleasant thing but sometimes, you cannot avoid debt. Debt consolidation can be the way out for your debt problems. However, choose a company carefully and check their background with the BBB (Better Business Bureau). </p> <p></p> <p><a href="http://www.debtincome.com/"></a></p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-8888858646226174322009-12-14T01:16:00.001-08:002009-12-14T01:16:50.258-08:00What is a penny stock?<p>As the name suggest a penny stock that is worth pennies or is quite cheap. The definition varies but any stocks that is very cheap compared to price of solid companies may be considered as a penny stock. That compared to stocks like Microsoft that may worth hundreds of dollars. Since a stock’s price is a reflection of the future earnings of the company then in theory a penny stock is the stock of a company whose earning’s prospect is quite tiny to be respectful. </p> <p>So what is the fuss you may ask. The penny stocks is composed of two types:</p> <p>1. The first group of stocks is made up of the stocks of companies that that are going out of business. Think of a company of  camera with reels, a magnetic tape company, or a company that makes floppy disks, etc. These companies may once have been mighty, but their products are now obsolete or their business model have failed and as a result they will certainly go out of business unless they reform or restructure. So any stocks of these companies is throwing money out of the window.</p> <p> <br />2. The second groups consist of tiny companies that have just started up but do not have the recognition of the bankers. So they are craving for you to give them the chance  that they need. Think of Microsoft or apple in the 70s.However you also know that 90% of small businesses will go out of business in the next 2 years. So it is still quite difficult to spot the company that will make it big. </p> <p>Now that you have understood what penny stock is you can see that it is quite risky to invest in them but if you are able to spot the one then you can multiply you money by a lot.</p> <p> </p> <p>Let us look at the factors that makes these stocks risky.</p> <p>1. These stocks are generally <strong>not listed on an exchange</strong>. This may be because to list on an exchange a company have to abide to some strict conditions such as financial reporting guidelines, directors have to abide to some rules, etc. If these companies cannot abide to these rules that are there to protect shareholders or other stakeholders, then it is not a good idea to invest in them. Financial statements will enable you to analyse the company’s performance other several years and see if they are worthy of your money. The companies may be run by convicted directors. Companies run by convicted companies will not be allowed to list on exchanges and if they are not listed on exchanges they will not provide reports and as a result you will not know about the directors. As you can see there are a lot of risks.</p> <p>2.If you have bought these stocks then someone out there may be thanking all the gods of the earth. You do not get an idiot everyday to buy a stocks that no one want. This is because penny stocks are <strong>illiquid</strong> that is they are difficult to sell. There are a lot of sellers but a few buyers. The only way people can sell their penny stocks is only if someone is foolish enough to buy it.</p> <p>3. These stocks are easily manipulated by fraudsters. Since they are illiquid and hard to sell, some people buy them cheaply and then make a hype about the stock so that unsuspecting buyers will but them at a higher price. <br /><strong></strong></p> <p>As you can see it is quite risky to buy these types of stocks. Although you would make it big if you can buy in the next apple or the next Microsoft it is more likely that you will lose your money. So just like I advise investors to avoid derivatives, I would advise them to avoid penny stocks. Invest in healthy companies. Also if a listed companies is delisted or is about to delisted get out immediately. </p> <p>Good luck to you all in your investing.</p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com1tag:blogger.com,1999:blog-6310958103375245929.post-53641400858105869672009-11-26T07:41:00.001-08:002010-01-20T00:50:05.375-08:00Strategies of the successful investor part 3:Do not follow the herd<p>If there is one thing that I have learned during this 2008-2009 recession is that following the herd is pointless and a waste of time. Hence while everyone was selling in the stock market and buying in the money market, I have been buying stocks on the cheap. the same thing goes for the bond market. </p> <p>The reason for this is an old instinct from when humans were still like animals, the crowd effect or the herd effect. This instinct meant that when you see a whole bunch of people running in a certain direction, then it must mean that they are running away from a danger and as a result you must run with them. </p> <p>So how does this translate in the investing world? If you see a lot of investors buying or selling a particular stocks then it must mean that they are right and as a result you must buy that stock too. The second reason is that as people buy that particular stock its value increases and the gain or return on investment increases. As the gain increases those that have not yet bought the stock would be pressured to buy the stock either by the investors that they work for or by their employers. This is a vicious cycle that few could resist. </p> <p>Guest what I have done it and you can do it also.  How so you would ask. </p> <p>First of all the only way you could make money on such bull market is to buy it first when it is cheap and then selling to the herd followers when has risen to a high enough value. I would say that this is difficult to do. If you have seen it the surely a lot of people would have seen it. However if you have been able to see it early and get on the bandwagon just wait until it is high enough and wait for some time and sell it so someone else. Do not wait for the top of the ride because when people realised it is all bullsh_t then they would be selling and you would not be able to get your money back. <br /></p> <p>Apart from such herd following tactics I have my own way of buying stocks. Research is important and as a result you must educate yourself in economics and some basic accounting. Certainly you can watch TV or read newspapers but only to get information on the economy and on spotting trends in the economy that you can exploit by investing in companies that are in that sector.</p> <p>When you have learned some basic knowledge you can use that knowledge to research companies. You would analyse their financial statements, their future probability and the market they are in. For example you could see that KodaK and their future in the photo reel market is a dead end as they are entering the digital photography market fast enough.</p> <p>If you want to go into mutual funds, index funds and Exchange traded fund then you could use your knowledge to research the different companies that are offering them. You would make research on historical return, management, commissions and fees and so on.</p> <p>Very often you would come across the internet websites that promises to teach you how to invest and as a result you would obtain great return. Most of the time you would have to buy a report or a document that promises to give you tips on how to invest and as a result you will make great return. Most of these are false promises and a complete waste of money. Imagine if you have discovered a stocks that promises great return, would you make it public? Certainly not! you would secretly buy it little by little so as not to arouse suspicion. You would keep it a secret and earn the return alone. That is why you should keep to your plan and not buy all the crap documents that are being sold on the internet. </p> <p>Sure I read on the internet but only information websites like the BBC, Yahoo money or famous economics like Paul Krugman. These website will give analysis on the economy as a whole and will give you indications on what the economy is going to do.</p> <p>The last advise that i would give is to make your own research and follow your investment plan. Never never follow the crowd. Stick to your investment plan and to you asset allocation and you would stay on tract to meet your objectives.</p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-40336798770775315192009-11-24T23:14:00.001-08:002010-01-20T00:59:20.100-08:00strategies of the successful investor part 2 :Time is your best friend<p align="justify">As I have written in an earlier post, time is the best friend of the investor. As we have seen in the first post you will have to draw up a plan. this plan will contain information about for objectives, risk tolerance, risk tolerance and asset allocation. </p> <p align="justify">However the time that you have will impact on these four aspects on you investment life. </p> <p align="justify">I am going to take the examples of a person saving for sending his child to university and for retirement and talk about how the time aspect would affect the achievement of these objectives.   <br /></p> <p align="justify">Suppose that a person who is 20 years old want to retire at the age of 60 years old and also to save money for a child who has just been born. Such a person has 40 years to grow his portfolio for his retirement and 20 to send his child to university. Such a person has time on side. </p> <p align="justify">This person can afford to be risk averse and conservative and invest in a greater amount of safe assets. This person can also invest a smaller amount  of money every month because he has the advantage of compounding. Compounding will ensure that his money will grow with time even with small monthly investment. Such a person would be able to achieve his objectives with no problems.</p> <p align="justify">On the other hand if a person is 35 years old and want to retire at 60 years old and want to send his child to university in 10 years then this person will not have time on his side. This person will have to invest more aggressively and cannot afford to be risk averse and must choose assets with greater riskiness but with greater return. Such a person will not also have the advantage of compounding and as a result will have to invest more every month. This person may have no choice but to delay retirement or the time set to attain the objectives.</p> <p align="justify">The lesson that we can learn today is that if you have time on your side then you are a lucky guy. But if you do not have time on your side then it would be harder. </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-68160723190102334922009-11-24T23:13:00.001-08:002010-01-20T01:01:06.353-08:00Strategies of the successful investor Part 1: Set up a plan<p>This is the first part of a series of post which would be about the strategies of the successful investor. As we have previously discussed the only way to be secured financially is through investing. However there are some very important things the the beginner investor must keep in mind so that his portfolio will grow with time.</p> <p>A plan is the cornerstone of your investing journey. The plan is simply a document that would guide you and make sure that you do not get off-track.</p> <p>It contains firstly your <strong>objectives</strong>.Each person may have different objectives and to state them clearly and the time available is crucial to your plan. You may want to retire in 35 years or to send your child to college. </p> <p>After having written your <strong>objectives</strong> you would thus try to determine the amount of money that would be required to achieve these objectives.</p> <p>After having identified your objectives and the money that would be needed, you would then be able to identify the <strong>return</strong> that would be required to reach that amount of money. Your portfolio will thus have to have a certain annual return so that you will be able to reach that objectives. If you cannot reach that return then you would be unable to achieve your objectives.</p> <p>However the return is also related to another term and that is your <strong>risk tolerance</strong>. This is related to the different component of your portfolio and the return of your portfolio. You have to understand that some investment instruments are risky in that you can lose your money especially if the company go bankrupt but if you can hold on to it and the company stays afloat you would have greater return. The higher the riskiness and the greater the return. Some people have a low tolerance and as a result would want safe assets. However safe assets would result in low return. Hence if you want higher return you would have to invest in riskier assets. </p> <p>After having chosen the return that you want and the risk that you are prepared to tolerate you would thus be able to choose the investment instruments that you need to invest in to achieve the return that you want.  </p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-64000159856763695182009-11-24T23:11:00.001-08:002010-01-03T04:51:09.947-08:00What is a money market?<p>The money market is one of the markets that companies and government used to raise funds. What is special about the money market is that securities with a maturity of less that one year are traded in it. </p> <p>In general all of the money market are debt instruments issued government, banks and companies. These instrument are very liquid and quite safe. As a result because of this safety they have a relatively low return. You would understand that generally instruments that are quite risky have higher yield and vice versa.</p> <p>The following are the different money market instruments that you can invest in:</p> <ol> <li>Treasury bills </li> <li>Banker’s acceptance  </li> <li>Negotiable certificate of deposits </li> <li>repos and reverse repos </li> <li>Commercial papers </li> <li>Eurodollars</li> </ol> <p>However compared to the stock market whereby individual investors can buy individual stocks, money market instruments are issued in high denominations and as a result it is quite difficult for individual investors to but them. The only way for investors to invest in them is through mutual funds and exchange traded funds. However if you have a lot of money you can buy treasury bills from the reserve bank offices. </p> <p>These money market instruments are like instruments in the bond market in that they are not traded in a stock exchange like shares but are traded over the counter.</p> <p>There are various reasons for an investor, a bank or an institution to buy securities in the money market and they are as follows:</p> <ol> <li>The securities in the money market are very secure and as a result investors that have some money for a short period that they cannot lose prefer to invest in the money market and get a small return until they need the money. They can when needed sell the securities easily to get their money back since money market securities are highly liquid. </li> <li>Some banks are obliged by law to hold a certain amount of money market securities to use as collateral in repo transaction with the central bank. These banks must also have assets that they can easily convert to cash in case money is needed to satisfy liabilities. Since these money market securities are highly liquid they are easily sold in the secondary market. </li> <li>Some type of financial market institutions like short term insurer need by law to hold a certain amount of highly liquid money market instrument so that they can   meet their liabilities. </li> <li>Some investors are risk averse and as a result they have a low risk tolerance. These investors prefer to forgo the high return associated with stocks and prefer to hold safe money market securities that however have low return. </li> <li>Investors and financial institutions that have excess cash, for example after selling stocks and bonds that are falling in value or are about to default and are waiting to invest in other securities, can invest in money market securities and have a small return instead of holding cash with no return. </li> </ol> <p>There are also many other reasons for investing in the money market and as time go by I would increase and refine the list above. So if any of the reasons is appropriate to you then go ahead.</p> <p>However keep in mind that in the long run investing in the money market is not advised as the return is low. However there is a type of investing strategies called the permanent portfolio that relies on investing in the money market. I would write on it in another post.</p> John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0tag:blogger.com,1999:blog-6310958103375245929.post-21011446012040564472009-08-06T06:11:00.000-07:002009-08-13T00:13:52.770-07:00How to borrow from prosper?I must say that ever since <a href="http://www.grameen-info.org/">Grameen</a> started giving small loans to people, no other organisation has been able to replicate that except may be <a href="http://www.prosper.com/">prosper</a>.<br /><span style="font-size:130%;"><span style="font-weight: bold;"><br />What is prosper?</span> <span style="font-weight: bold;"><br /><br /></span></span>Proper is an organisation that link those that have money to those that needs money. In a way it is a financial intermediary but with one difference. It is not like one of those greedy banks that give loans at high interest rates and give small interest to savers. It gives the person with money control over who receives his money and at what interest rate. It also allows borrowers with good credit rating, but who have not been getting loans from banks recently, to get some decent loans at reasonable interest rate.<br /><br /><span style="font-size:130%;"><span style="font-weight: bold;">How to borrow from prosper?</span></span><br /><br />In order to borrow from prosper i must be clear from the beginning that not everyone that are not receiving loans from the traditional banks will get it from prosper. If no body is giving you a loans it may be because you have not been paying your loans properly in the past and have a low credit rating. Prosper lends to people with credit rating 520 and above. If you have a lower credit rating you might want to improve it until you are above 520. I will write about credit rating and improving it in future post. If you qualify for prosper read on.<i>Step 2.</i> <b>Complete a loan application.</b><span class="bodysmar"><p>You will start by filling out a form at <a href="http://www.prosper.com">prosper.com</a>. You will give all your details and prosper will use these details to check your credit rating. Based on your credit rating prosper will classify you from AA - the best through E and HR (high risk). If you have a rating below 520 your application will be rejected. </p><p>Once you have been approved and registered you can now apply for loans. You will fill a form telling lenders how much you want, at what interest rate you are prepared to borrow and what you will do with the money. It is appropriate not to lie and to tell. Since many people lend after having read the application, the better your story the better your chance of getting the loan. Remember that depending on your credit rating, the interest rate at which people are prepared to lend to you will vary. So follow the table provided by prosper. If you deviate too far from the suggested rate, lenders will not lend to you.<br /></p><p> </p><p>Once you have filled your loan application, it will be listed. People will bid on portions of the loans. This is better because if you default then the loss will be shared by many lenders. This s called <a href="http://investorstimes.blogspot.com/2009/03/introduction-to-diversification.html">diversification</a>. After 10 days if the loans have been fully funded then your loan will be approved. The interest rate will be the average of the interest rate that the lenders are offering.<br /></p><p>After the loan has been approved the money will be credited to your account and prosper will charge a fee ranging from 1% to 2% of the loan.</p>After the loan has been granted you will have to pay every month the same amount for three years. If you default then it means that the last company that was prepared to lend to you is closed to you now. So be careful. Be on time.<br /><br />If you have any experience to share with us or a question leave a comment below.<br /><br /></span><a href="http://investorstimes.blogspot.com/2009/01/stay-away-from-credit-cards.html">Stay away from credit card?</a><br /><a href="http://investorstimes.blogspot.com/2009/02/snow-ball-effect-better-way-of-reducing.html">The snow ball. A better way of reducing your debt.</a><br /><a href="http://investorstimes.blogspot.com/2009/01/lend-lend-lend-borrow-borrow-borrow.html"></a><a href="http://investorstimes.blogspot.com/2009/02/how-to-live-within-your-means.html">How to live within your means </a><br /><a href="http://investorstimes.blogspot.com/2009/02/good-debt-and-bad-debt-can-you-make.html">Good debt or bad debt. Can you make the difference?</a><br /><a href="http://investorstimes.blogspot.com/2009/03/what-is-compounding.html"></a><a href="http://investorstimes.blogspot.com/2009/05/invest-or-debt-reduction.html">Invest or debt reduction</a><br /><a href="http://investorstimes.blogspot.com/2009/06/credit-card-debt-investors-worst.html">Credit card debt - The investors worst nightmare</a><br /><a href="http://investorstimes.blogspot.com/2009/06/what-is-debt-consolidation_25.html">What is debt consolidation?</a><br /><a href="http://investorstimes.blogspot.com/2009/06/how-to-consolidate-debt.html">How to consolidate a debt?</a><a href="http://investorstimes.blogspot.com/2009/07/how-to-calculate-simple-interest-on.html">?</a><a href="http://investorstimes.blogspot.com/2009/06/what-is-amortisation-schedule_29.html"><br /></a><br /><span class="bodysmar"><br /></span>John Tanhttp://www.blogger.com/profile/00706551494379271443noreply@blogger.com0