investment Archive

Safe Investment Options

By admin | Filed in investment

safe investmentAre there safe investment options when you cannot afford a loss?

Believe it or not, there are some investment options that are safer than others when you cannot afford encountering any financial loss. These provide opportunities for significant growth for those investors who are looking to realize a substantial yield over a shorter period of time, usually less than a 5-year time frame.

These are also viable avenues for investors who want to protect their investments against the loss of that capital as being the primary objective. If you are attempting to fund your children’s educations or secure more retirement earnings, some of these options are an excellent way to achieve your goals.

Risk profile with investing

All investments involve risk, whether it is something as safe as US savings bonds or highly volatile stocks. Typically, risk profiles are established once you set up an investment account whether offline or online, with a regular broker, one of the binary options brokers or others.

This profile enables the investment professional you are dealing with to ascertain the best investments possibilities relative the risk tolerance abilities of the investor concerned. Remember that risk is classified from high to low. The low end involves an investor who is incapable of tolerating risk versus the high end which is associated with aggressive investors.

3 of the most common safe investment options to consider

The following 3 different options should be considered if you need to minimize your risk as well as needing a safer avenue of investment:

Bonds – money market securities typically exhibit lower returns or yields on an investment compared to bonds. Depending on what entity is issuing the bonds, most risk factors are fairly modest where bonds are concerned. The lowest amount of risk you will encounter is with US Treasury bonds followed by municipal and then corporate bonds. The average rate of yield on these different bonds is typically 2.5% to 3%.

Cash and/or money market securities – this category of investment is currently viewed as the safest type of investment and includes financial instruments such as CD’s. The key to these investments is that they offer better liquidity as well as a safer way to protect the investment’s principal. Additionally, you need to be willing to exchange those returns for easier access to your funds.

Penny stocks – despite the volatility that exists in today’s stock market, certain stocks are less risky than others. Penny stocks are considerably less risky where losing money is concerned and could result in tremendous financial gains. So it follows suit that you should also consider this option, provided you have done sufficient research and know what you are doing when “playing the market.”

What are CFDs

By admin | Filed in investment

price chartWhat are CFDs? A CFD is a Contract for Difference, which is a way of making money from the movement of share prices in the stock market without the requirement of owning the share itself. Instead of buying the share, you own a contract instead. It is this contract that you buy at one price and then sell at another, either making money, or potentially losing money.

What are CFDs compared to conventional share dealings?

If you deal in shares, you need to own the full value of the shares you are buying or selling. With CFDs, you only need to own a percentage of the share value up front. This is called the Margin Requirement. With equities it starts at 5% of the full value. So if you invest in a 10,000 position, your initial margin would be 500. When you trade on margins, you are able to earn or pay interest on your position. Another great advantage of trading in CFDs is that there is no minimum on the size of the trades you are allowed to place.

What are CFDs main advantages and disadvantages?

Trading in CFDs sounds almost too good to be true, but naturally there are some disadvantages to be aware of and although there is a huge potential for big returns in trading CFDs, you can potentially lose more money that you initially invested.

There are two types of CFDs and these are known as Long CFDs and Short CFDs.Long CFDs are when you believe that the share price or index will rise. You buy CFDs to make a profit when it goes up, or a loss if it should fall instead. In CFD trading, this is known as a Long Position.

Short CFDs refer to making money on CFDs even when you think that the price of a share or index might be in danger of falling. You sell your CFDs at a high price with the intention of buying them back again when the price falls. This is known as taking a Short position.

With long CFDs, the maximum amount of money you could lose would be the notional value of the CFDs you bought. However, the stock market would need to fall to zero before that could happen. With short CFDs, there is potentially no limit to the amount of money you could lose. If the price of your position continued to rise, you would keep losing money until you closed the position.

One main disadvantage is that you might need to make further deposits at very short notice if your positions move in the wrong direction, so you need to have the funds available at your disposal.

Trading in CFDs is not for everyone and before you consider getting involved you should give a great deal of thought to how much you are willing to lose should things go awry. However, CFDs are open ended, so as long as you can continue to keep financing your position, you can keep the contract open for an unlimited period if you are hopeful the position will recover sufficiently.

munisMunicipal bond funds are defined as any mutual funds that are invested in municipal bonds, also referred to as “munis” and are debt securities which are issued by counties, municipalities, special purpose districts, and states.  In this manner, capital expenditures can be financed and are federal income tax exempt financial instruments.  Additionally, they may sometimes be state tax exempt as well for the residents of those states which have issued them.

Due to their favorable tax characteristics and the fact that they are a fixed-income type of investment, this is a popular financial instrument to purchase.  They typically provide tax relief for those individuals who fall into higher income brackets.  Like other types of bonds, munis are subject to the credit, duration, quality, and yield considerations of the investor.

A WORD ABOUT OPPENHEIMER ROCHESTER MUNICIPAL BOND FUNDS

According to Lawrence Jones, senior mutual fund analyst of Morningstar Inc., an investment research firm, the Oppenheimer Rochester Municipal Bond funds have always been characterized as high flying and high risk funds.  So if you are a novice investor, you need to be aware of this.  Remember the cardinal rule of investing when you are first starting out.  Never invest more than you can safely afford to lose.

Oppenheimer Rochester Municipal Bonds are available as 8 different state bond funds with 3 variations of each.  There is also a National Muni available in three varieties as well.  The following is a list of these:

  • Arizona Municipal A, B, and C
  • Massachusetts Municipal A, B, and C
  • Maryland Municipal A, B, and C
  • Michigan Municipal A, B, and C
  • Minnesota Municipal A, B, and C
  • North Carolina Municipal A, B, and C
  • Ohio Municipal A, B, and C
  • Virginia Municipal A, B, and C

SIGNIFICANTLY HIGHER DIVIDENDS

The key characteristic of most municipal bond funds, as well as Oppenheimer Rochester Municipal Bond funds, is that the dividends they pay are considerably higher than with other financial instruments such as CD’s and Money Market accounts.  Additionally, there are four major categories of municipal bonds with the Government or US Treasury bonds being the lowest risk investment of the group.

On the other hand, municipal bond funds are issued by local entities and governments are come with considerably higher risk.  The bottom line is that if you are a novice investor, you want to make sure that you plenty of research about the particular funds you are considering investing in.

 

hedgingWHAT IS HEDGING?

In the financial and investment industry, hedging is the practice or lowering the risks that are inherent with a particular investment by using a variety of methods. 

You establish a position in one market to offset the price fluctuations occurring in an opposite market in order to minimize your exposure to risk.  There are certain financial vehicles that you can employ to accomplish this such as forward contracts, insurance policies, and options to name just a few.

PORTFOLIO HEDGING STRATEGIES

It’s unfortunate but hedge funds have been put in a bad light and have been associated with continually taking undue risks when investing.  In so many words, many individuals view this as blatant greed.  The practice of hedging is appropriate for reducing the downside in your portfolio while at the same time preserving any growth prospects.  Here are a few suggestions for how to hedge an investment portfolio.

Purchasing put options – this is a way to sell your options or stocks for an agreed upon price at a later date.  Should the market fall, you are able to sell them at a profit and offset your losses.  For downside protection, you can use a put option against:

  • your individual stocks
  • an index that your portfolio has been modelled after
  • a major index such as the S&P 500

Real assets – commodities, real estate, and REIT’s offer diversification as well as effective hedging.  Where commodities are concerned, you can invest in ETF’s (exchange-traded funds) or trade commodity futures.  You need to be careful when playing the commodities market as futures typically correlate with the broader economy.

Shorting stocks – this is the opposite of purchasing stocks.  The concept involves borrowing a stock and selling your right to acquire it at a later date for the current price.  You are gambling that the price of the stock is going to fall in the future.  This enables you to purchase the stock at a cheaper price in the future and then pay back your obligation while pocketing your profits from the short sale of it.  Despite the fact that there is limited profit potential, the potential for loss is unlimited.

Finally, other hedge options that you should consider are cash, bonds, and/or gold.  Gold has been bought, sold, and traded for centuries, but it is still one of the most effective ways to hedge your investment portfolio.