Investments are a way to ensure that you will have money in the future when you need it. Many people depend on their company retirement plans or Social Security benefits as retirement income. Company retirement plans may not be there when you need them and your Social Security benefits may not cover the standard of living you want to maintain.

Putting your money into a savings account is safe but will yield low interest. If you want your money to grow at a faster pace, investing is the way to go. There are several ways to invest your money. You have to determine which is best for you.

Before you start investing, you should take a look at your current financial situation. Get a copy of your credit report and review it. If there are any negative items or errors on it, get them cleared up before you start to invest. Once you start investing your money, you do not want to have to take money to pay off debts or to stop completely.

What are your monthly expenses? You should eliminate expenses that are not necessary. If you have credit cards which currently charge a high rate of interest, you should pay them off and get rid of them. You can exchange your high interest credit cards for ones with a lower interest rate. If you have any high interest loans, you should pay those off, too.

If you are having a problem meeting your necessary monthly expenses, you should wait until you are in good financial shape before you start investing. Enhance your financial situation with good investments.

Educate yourself on investment strategies and the types of investments before you start. You will have decisions to make. You will want to decide between a discount broker and a full-service broker. A discount broker does exactly what you tell them to do. A full-service broker does research and makes recommendations. You may also think about obtaining the services of a financial planner. A financial planner can help you to develop an investment plan based on your goals and the time frame you set.

You have to determine how much you are willing to risk and how you will invest. If you want to make a lot of money fast, you will be interested in high risk investing. If you are investing for your future, you want to make investments that will grow over time. There are basically three types of investors:

  • Conservative
  • Moderate
  • Aggressive

A conservative investor does not want to take very much risk. They want to retain their initial investment. This type of investor usually will invest in common stocks, bonds, and short term money market accounts. They will have at least one interest earning savings account.

If you decide to be a moderate investor, you will invest part of your funds in common stocks, bonds, and short-term money market accounts and the rest in more, higher risk investments.

As an aggressive investor, you will put more money into high risk investments. Most of your investment funds will be in the stock market.

The type of investments you make will be determined by your financial goals and tolerance for risk. Before you make any investment, you should do some careful research. You should never invest unless you know what you are getting into.

The overall purpose of investing is to create wealth and security over a period of time. You want to have money available when you retire.

With the forex markets there’s a variety of opportunities for investors big and small. Moreover, it has opened up avenues of self-employment. Online trading platforms are easy to use. However, developing a few strategies that work is important for any investor venturing into the market. Forex trading requires a great deal of discipline to begin with, and is an art that takes time to nurture. The idea is make use of demo platforms and develop a feel for the market, prior to trading with real money.

One of the most important strategies is to manage your time and money efficiently. Once you are able to master this you will be in a better position to adopt an appropriate trading strategy. Geographical locations of forex markets permit trading 24 hours a day. Being alert and trading during peak hours will help you to develop a trading strategy.

As far as money is concerned, you need to look at reducing your leverage, which permits better risk management. Large investments do not necessarily indicate bigger profits. If you want to earn a certain profit percentage per day based on your account balance, you may not need to use the maximum leverage available.

There are other reasons to have knowledge of foreign exchange markets, maybe you send money exchange worldwide for your business. It pays to have a good understanding of the many factors that can move rates during the time your looking to send money overseas.

For the long and short of it

The forex market typically follows two patterns, tiny fluctuations, and strong oscillations. As an new entrant into the market, your strategy needs to be based on either of the two. If you base your strategy on day trades then you need to ignore strong oscillations that may occur due to strong economic factors. The opposite works for those traders that focus on strong oscillations. Once you are well experienced you can experiment with mixing long and short term strategies. Modifying a strategy will help reduce your win/loss ratio.
Mixing strategies

Trading strategies are useful for traders to develop a better approach for trading on the FX markets. Developing a strategy with the help of tools such as charts and signals, and trading software will help you to minimize losses. However, tools and tactics aren’t the only means to develop a strategy. You need to maintain your composure at all times, and take each trade your stride. Using long-term as well as short-term trading strategies can only result in bigger losses. However, two trading systems can be mixed in order to reduce possible losses, but not as a method of increasing profits.

The idea is to take advantage of all the tools available. However, with time you need to build up a firm foundation and understanding of the fundamental principles of forex trading. Attending an online course and reading up on all the material available will go a long way in helping you perfect trading strategies and develop a firm understanding of how the forex markets operate. Forex trading should be treated as an investment just like a business venture, which comes along with its set of successes and failures, and you will soon become a seasoned trader in the near future.

In my last post I covered the investing strategy of Benjamin Graham, a renowned investor who managed huge success with growth shares. Further to his ideas, let me run through a strategy based on defensive investing.

Graham insisted upon certain criteria for the stock section of the defensive investors portfolio. I have listed them below, adding my own reasoning to why they remain good practice.

(1) Adequate though not excessive diversification- 10-30 companies. Diversification is very important- simply not putting all of your eggs into one basket. No matter how stable the company selected is, there is always an inherent risk of a highly negative unforeseeable future development, hence buying 10-30 of these companies means that you can afford for one or two to drop. BP is a fantastic case in point- the company looked in great shape, yet had you invested exclusively in it, your portfolio would have lost around half of its value. Yet had you owned a portfolio of 20 large companies, one of which was BP the half drop in share price would mean a loss of 2.5%- far more manageable.

(2) Companies should be of sufficient size. Graham suggests $1 billion – £1billion would probably be a reasonable marker for UK stocks.

(3) Earnings Stability. Graham suggests all suitable companies should have delivered some profit for each of the last ten years. Of Grahams criteria, arguably this one of the most important- if a company is not consistently profitable it is likely a very poor investment, and certainly one that is not suitable for the defensive investor.

(4) Record of continuous dividend payments. Record should extend for at least ten years. It is very important for the defensive investor that they can reasonably expect dividend payments to continue- large companies that claim it is in the shareholders interests for the profits to stay entirely within the business are often in serious trouble.

(5) Some growth in earnings. Graham insists upon a minimum increase of 1/3 in earnings per share over the last ten years, calculate using 3 yer averages at the beginning an end of the ten year period.Such growth earnings is actually very modest- an annual return of just under 3%. We should probably insist upon a 50% increase over the last decade- still only 4.1% average annual growth.

(6) Moderate Price to Earnings ratio. Graham recommended that the defensive investor should not pay more than 25 x average earnings over the last seven years for growth shares- the “last seven years” bit is very important as it would exclude most highly speculative growth shares, as it insists on at least a moderate track record.

(7) Moderate ratio of price to assets.

(a) Current price not more than 1.5 x Net tangible assets per share

The first of Grahams “price to assets” criteria ensures a defensive investor does not purchase shares that do not hold significant underlying value. This criteria was designed for traditional investing activities, and it may be hard to find growth shares priced so moderately in comparison to their assets. However, I will include it, as it still certainly a good sign if a share meets this criteria, as it offers something of Graham’s margin of safety.

These criteria are in no way guaranteed to be the most successful- do not simply go out an buy all of the stocks meeting this criteria. Graham designed it to protect defensive investors from severely overvalued shares, and to provide a list of stocks from which investors could select.

Benjamin Graham defined a growth share as a share in a company “that has done better than average in the past, and is expected to do so in the future.”

The basic attraction of growth shares is as such: if you invest in a rapidly growing company, its earnings will increase, thereby increasing the values of your shares and the amount you receive in dividends.

The Problems With Trying To Predict The Growth Shares Of The Future.

We all know about the incredible growth stories behind some of the worlds biggest companies- if only we had bought a few shares in google or dell and we would be millionaires. The success of past growth stocks is still a significant pull to investors, luring them into hopelessly trying to predict the stocks and areas of the future.

Of course the principle of trying to invest in companies with good futures sounds very logical, yet it is actually very difficult- and if you get it wrong you might lose big time.

To illustrate the difficulties of picking the growth areas of the future, let us take the current energy debate. A “smart” guy might think there’s money to be made- now lets look at his options:

This simplistic diagram does at least indicate how difficult it would be to even pick a growth sector of the future. More bad news for the speculator- picking the right company is even harder. In terms of our energy example, there might be hundreds of companies in each sector- very tough to pick the eventual winner. Remember that Microsoft was essentially a garage based operation up against the mighty IBM and hundreds of other competitors. Unless you are prepared to lose all of your money, guessing which stocks will make it is not advisable. It is not investment, it is speculation.

Another problem of buying stocks with a good track record of growth is that they are very often expensive- after all if they are growing quickly, there are a lot of people willing to buy them. This presents another risk for the investor- He may pick shares in a fantastic company that grows its business at a fantastic over the next five years, but still not make much money.

Example

Company XYZ has a fantastic growth rate, priced at $3 per share, but has an EPS (Earnings per Share) of only 11p, giving it a P/E ratio of 27. This high P/E ratio is largely due to this companies past growth record, and its positive outlook for the future. Lets imagine XYZ’s earnings grow at 12% per year for the next five years- a fantastic growth rate. Now EPS would be about 19.4 pence per share. If the market still valued the share at 27 times earnings then your shares might be worth $5.23- not bad at all.

However it is probably very unlikely the market will value it at 27 times earnings, as the high multipier was largely due to the expected period of long growth. Lets say that after this period the company is finding expansion harder (As companies get larger high growth rates are far more difficult to obtain), and therefore the market values it at 17 times earnings- still a fairly high ratio, then your shares might be worth $3.30- a ten percent return over five years would seen pathetic considering you had invested in company that had performed brilliantly.