Incorporating Diversification Into Your Investment Strategies

The economy in general stinks and no matter what the news channels say people are still worried about whether they will have a job in the next six months. Some people have some funds saved up and want to create some more income but how do you wade through all of the get rich while sitting in your underwear job scams on the internet? All of them require some sort of up front fee to get the “exclusive” information and usually have some sort of monthly fee to keep getting the necessary info to keep making any kind of money.

Smart investment advice has always been to put some money into the stock market and let it grow. Most people are now afraid of what they stock market can do to your retirement, but if you did not have money invested in those companies that collapsed you should see your accounts getting back to where they were a couple of years ago. You can find any number of systems available online that will enable you to make successful trades without a huger investment so that even the beginning investor can try the market without risking his entire investment.

Most stock trading systems will tell you that anyone can use their system with ease. You should always educate yourself on the workings of the stock market before making any kind of investment in a fund or particular stock. At one of the stock trading systems I reviewed they let you know that they have a timing system that analyzes the trend of the market and lets you know when to get in and when to get out. They say that if you miss a trend by more than a day it is best to wait until the next cycle.

They have a stock chart that is updated daily that gives you the top 100 performing stocks from which you should pick the top 5 or 10 that have activity over 100,000 shares to work with. Their best recommendation is to not diversify your self to oblivion. Many “stock experts” recommend you invest in as many as forty stocks. What will happen is that your portfolio will resemble an index fund and you will have too much to keep track of on a daily basis. Pick no more than eight stocks and follow the charts to determine when to get in and out of a particular stock.

Ideally you only want to concentrate on the three or four stocks that are poised to make big gains in the next cycle. If you have more than eight stay out of individual investing and go to any sort of stock fund in the stocks you like to follow. One system, Ultimate Trading System, warns that it is only for experienced investors. They offer daily updates before the market opens of stocks that are poised to make one to five day moves. They will give you the sell signal so that you will get out with the optimal profit.

Is Your Investment Strategy Personalised?

Knowledge of investments isn’t everything

The availability of investment news and information has been increasing over time. This has led to an improvement in most people’s understanding of general investment concepts. It has created the opportunity for many to choose to manage their own financial affairs.

Knowing “where” to invest your money is an important part of the financial management equation. However, by itself, it’s far from comprehensive in terms of an investment strategy.

Consider the Storm Financial model of advice.

They used an eminently sensible and highly diversified investment approach for managing the underlying investments for their clients. Their investment strategy at this level was not the cause of the problems their clients would eventually experience. Simply knowing “where” to invest their clients’ funds was not enough to save their clients from financial disaster.

They failed to adequately address:

The size of the investment exposure relative to their client’s lifetime capital accumulation amount (i.e. the question of “how much” to invest), and
How to manage the entry risk for their clients (i.e. the question of “when” to invest).

This part of their investment strategy was not only grossly naïve, it failed to adequately address the personal circumstances of each investor.

The strategic decisions they applied seemed to be based on:

“how much?” = as much you can borrow, and
“when?” = as soon as possible.

Apparently, this strategy was applied regardless of whether the client was a young accumulator or an elderly retiree.

How personalised is your investment strategy?

Many investors confuse personalisation of an investment strategy with choices at the specific investment level (e.g. I prefer BHP over Rio Tinto, or Australian Shares over International Shares). While this is a form of personalisation, it generally doesn’t add any long term (risk adjusted) value. In fact, personalisation at this level generally has a long term cost.

It may help to retain a client though, or convince a DIY investor to continue with their approach over other (more generic) alternatives.

True personalisation of an investment strategy is at the broader level of managing investment risk exposure over time. Arguably, this will have a much greater impact on your long term wealth than a strategy that focuses purely on your specific investments.

The “default” investment strategy

The natural investment strategy for most households is driven by the availability and timing of surplus cash.

Generally, households tend to generate more savings in the latter years of their working lives than the earlier years. It is not uncommon for households to invest over ¾ of their lifetime capital accumulation within 10 years of retirement. In the years prior to this, surpluses are used to reduce mortgages, fund school fees and buy lifestyle assets such as cars, boats, renovations, etc.

The dilemma for many who unwittingly apply this “default” strategy is that they acquire most of their investment exposure over a relatively short investment horizon. If these acquisitions happened to be at the end of a cyclical bull market, it could have quite catastrophic implications.

On the other hand, if you were lucky enough for your pre-retirement years to coincide with a cyclical bear market, you could end up acquiring a lot more market exposure than you would have under more optimistic conditions. The challenge for these investors is to recognise their good fortune. Many fail to do this and shy away from investing during declining markets.

Your investment strategy shouldn’t rely on luck

An investment strategy that may not differentiate at the specific investment level but sets a clear and personalised strategy for managing your investment exposure over time is much better than one that differentiates at the specific investment level but ignores the bigger picture.

A smart investment strategy considers much more than the investment of your current capital. It takes into account your projected savings capacity, the timing of these savings and your risk parameters to build a strategy that reduces the element of luck and focuses on giving you the best chance of achieving your objectives.

Pay Back Tax on Houses As Your Investment Strategy – Skip Mortgage Foreclosures

Property will always be a rock-solid investment – if you play your cards right. If you want to be successful at property investing, you’ll need to do your homework first, and learn which type of property is the most profitable. Lots of rookies go straight for mortgage foreclosure property – and overlook tax foreclosure property, the big winner. If you pay back tax on houses as your investment strategy, you’ll come out ahead of mortgage foreclosure investors every time.

There is one huge, massive, overarching reason: when you pay back tax on houses in order to buy them, they usually don’t have a mortgage. Since they will lose their interest in a house lost to tax sale, mortgage companies keep taxes up to date. So most tax properties will be free from liens, leaving the equity up for grabs. These will be your best opportunity to make a lot on a small investment.

And the other reason why tax property is the smart investment? Use this big insider tip, and you’ll get it for next to nothing – often $200 or less. (You’ll still have to pay back tax on houses you buy this way, but you won’t have to pay much more!) You’ll need a lot more cash if you want to buy a rehabber, or a mortgage foreclosure (again, because of the mortgage payments.)

So how to get these properties, as for as little as $200? A clue: there’s no bidding involved.

You’ll get this property after the auction. Towards the end of the year after tax sale – when owners can still redeem – you’ll find a type of owner that you’ll want to buy from. These owners don’t want the burden of property ownership, and are avoiding dealing with it by just giving it to the government for taxes. (Heirs, landlords, absentee owners, etc.) These owners are often willing to sign the deed over for whatever money you offer them – they just want it gone. Once you’ve gotten their deeds, just pay back tax on the houses, and they’re yours!

If you want to start profiting off of property, this is, far and away, the best way to go about doing it. Learn to pay back tax on houses, and skip mortgage foreclosures, and you’ve taken a few years off your “learning curve” to real estate success. You’ve got nothing to lose by giving this method a shot! Want foreclosures? There’s a ton of them out there, right now especially. Don’t miss the opportunity!