Investment Questions and Answers: Investing Safely and Smartly

Q: I recently received a call from an unfamiliar stock brokerage. The guy was offering some unbelievable interest rates I would earn if I were to investment some money there. He wasn’t representing one of the nationally known brokerage firms I’d ever heard of. I told him I’d have to think about it.

Then he said, “Why waste time? Invest your money now so you can start earning immediately!” I was still a little leery and politely declined again, stating I’d call him back in a day or two.

He then said, “You have to act now. The deal won’t be available after today. You’ve got to do it right now.” I eventually had to hang up on the guy because he just wouldn’t quit.

Do you think I missed a golden opportunity to earn big money? Did I make the wrong decision?

A: You did the right thing by declining to give the caller any cash.
I suspect you didn’t miss any “golden opportunity to earn big money.”

Although we don’t know for sure if it was a scam, all the signs are there. You didn’t know the person who called. He made a “cold call,” probably out of the phone book or off of some phone list he obtained.

The caller used high pressure tactics to try to coax you to invest your money. And he promised interest rates that were too good to be true. Then, when you declined more than once, he made one more last ditch effort to pressure you to invest by telling you the deal was now or never.

To avoid financial scams, it’s important to know the person who’s offering you an investment opportunity. Check out his credentials.

It’s wise to go with a well-known investment firm. These firms usually hire educated and experienced financial professionals.

Avoid investing any money with anyone who calls your home or knocks on your door without an invitation from you.

Plus, if someone’s pressuring you to put your money into an investment, that’s another clue it could be a scam. And if the deal sounds too good to be true, it probably is.

Finally, although there are some legitimate investments that are time-limited, if that’s the case in conjunction with these others signs, it’s best to decline the offer. It’s wise to be cautious when considering investments in today’s financial environment to avoid scams.


What’s in Your Investment Portfolio?

April is Tax time, and with it, a great opportunity to think more about your finances, and in particular, your financial goals and investment portfolio.

Here is an example that might help you with planning your own portfolio:


Michael and Janice are a couple in their early thirties. They don’t have any children, nor do they plan on having any. While they’ve started saving and investing for retirement, they haven’t made a lot of progress to date. They currently invest 3% each in their respective 401(k)s. Their employers match contributions at 50 cents on the dollar, up to 6%. The Stuarts also have a few thousand dollars in savings bonds that Michael got from his grandmother. They make over $150,000 a year combined and have minimal debt.

They do, however, have a rather extravagant lifestyle. Janice is a major shopper, and while Michael doesn’t buy things frequently, he likes his expensive toys.

Clearly their priorities are not conducive to having a prosperous retirement. Their 401(k)s offer a great opportunity to amass a lot of wealth over the long haul, but they aren’t taking full advantage of it.

Everyone should make every effort to get the full match from his or her employer. It’s free money; no one in their right mind should leave free money on the table. You might think you are barely able to make it from paycheck to paycheck, but if it is tax free and taken out before you ever get your hands on your money, then you will hardly miss what you never saw, but it can add up to big dividends long term.

While savings bonds are better than nothing, they are a very poor choice for someone with a long-term time frame. This couple would be much better served with more growth-aggressive investments.

Appropriate stocks and some bonds for diversification would be more in line with their goals.

Their combined income is quite high, but it is largely being wasted on non-essentials and luxury items, as it often is when people are young and have no real financial goals yet.

Considering they don’t have children and minimal debt, saving 15+% of every paycheck should be easy for this couple. They would be well served to examine their spending and eliminate the excess.

This couple still has time before they retire; they certainly have every opportunity to turn things around to provide for a wonderful retirement and any other goals they might have, especially if they do not have any children.


Determining Where To Invest Your Money, Part II

(Continued from Determining Where To Invest Your Money, Part 1)



With access to the Internet, you can actually play the stock market with fake money to start with at some sites, in order to get a feel for how it works. Then when you feel confident, you can move on to the real thing.

To start with make-believe investments, do a search with any search engine for Stock Market Games or Stock Market Simulations, and start studying.



Other types of investments outside of the stock market, such as foreign exchange, also known as FOREX, also have make-believe accounts and simulations.

The great thing about FOREX is you don’t have to worry about which stocks to buy. Currency is traded in pairs, and the main pairs you really want to look at all have to do with the American Dollar.

So for example, the  American Dollar trading against the Canadian, or against the Euro, or the British pound. You can look at only 6 pairs every day, day after day, and make money, IF you are patient and learn how to spot and ride a trend.

And unlike the stockmarket, you can also make money in FOREX whether your pairs are going up or down. ll you have to do is predict the trend.

As a potential investor, you should read anything you can get your hands on about investing, but start with the beginning investment websites first, and go through them methodically so you don’t get lost or confused. It can certainly be a maze, so if you want to keep it simple, but have some moderate risk tolerance, go for FOREX.



Finally, you might want to speak with a financial planner. Tell them your goals, and ask them for their suggestions–this is what they get paid for!

A good financial planner can easily help you determine where to invest your money, and help you set up a workable plan to reach all of your financial goals.

Many will even teach you about investing along the way–make sure you pay attention to what they are telling you, rather than thinking you know best. Resist the temptation to try to get rich quick as well.  And always make sure you are not risking more than you can afford.

Knowing your investment goals, and where you want to invest, are two of the cornerstones to successful investing.


Determining Where To Invest Your Money, Part I


There are several different types of investments, and there are many factors in determining where you should invest your money.

Of course, determining where you will invest begins with researching the various available types of investments, determining your risk tolerance, and determining your investment style once you have determined your financial goals.



Remember, without a financial goal, you will lack the clear vision to know what you want to achieve by investing. It would be a bit like starting to run a race, but not having any idea where the finish line was supposed to be.



So, what is your financial goal? Do you have a list of short-, medium-, and long-term ones? A new house will probably be more short to medium term than say, a college fund if your children are in diapers, or a retirement fund if you’ve just got your first job.

If you were going to purchase a new car, you would do quite a bit of research before making a final decision and a purchase. You would never consider purchasing a car that you had not fully researched, examined, determined if it was suitable for your overall lifestyle (eg, a two-seater sports car is not practical if you have 4 children and a Great Dane. Or even just the Great Dane!)

You will examine the details, look at the performance history of the car, and take for a test drive. You might even get recommendations from friends and review sites online.

The good news is, investing works much the same way.



You will of course want to learn as much about the investment as possible before plunking down your hard-earned cash, and you would want to see how past investors have done as well.



Learning about the stock market and investments can take a fair amount of time  depending on the kinds of investments you are interested in, and there can be all sorts of applicable fees, or even hidden fees you might not be aware of until you are actually investing online.

So any research you do before you risk one penny will be time well spent. There are numerous websites to help first-time investors, and you can even take courses online or at your local college.

Continued in:  Determining Where To Invest Your Money Part II


Different Types of Investments: An Overview Part II

(Continued from Part I)


If you are  not a conservative or moderate investor, then you are an aggressive one.


Aggressive investors commonly do most of their investing in the stock market, which is higher risk, especially in a volatile economic climate. As we write this, for example the Dow went up 400 points on Tuesday and has pretty much last all those gains when it plunged about 175 points again on Thursday and on Friday.

Aggressive investors also tend to invest in business ventures as well as higher-risk real estate. For instance, if an aggressive investor puts his or her money into an older apartment building, then invests more money renovating the property, they are running a risk.

They expect to be able to rent the apartments out for more money than the apartments are currently worth, or to sell the entire property for a profit on their initial investments.



In some cases, this is a worthwhile gamble, but given the current property market, especially in certain areas, it might not be the most sensible place to put your money at the moment.



Before you start investing, it is very important that you learn about the different types of investments, and what those investments can do for you. Understand the risks involved, and pay attention to past trends as well. History does indeed repeat itself, and investors know this first hand.



All of the funds you have the chance to invest in for your 401k retirement fund, for example, should have a full record of past history, both recently, in the past year, the past 5 years, and even the past 10.



For those of us interested in saving for college, a 529 also offers similar investment choices, with different portfolios. Since we are based in New York State, we have certain options administered by Vanguard Funds.



We could have opted for their choice, but with a little more time, effort, and research at the Vanguard site we are making that much more money, and with a credit card from Upromise which gives you money on all the purchases you use on the card, plus extra percentages for things you buy regularly, like household products, it makes it easy to save money and invest it even if you don’t think you can afford it with your present budget.



As we said in a previous article, make sure that you stabilize your current financial situation before you start thinking of investing, and remember how credit card companies make their money.

But investing in a 401k if the money is taken out as pre-tax dollars, and especially if your company gives you a match, is very worthwhile and easy. So is a 529, and you can get started with as little as $25.



Educating yourself by looking at these options is the best way of dipping your toe in the water, and if you start making money, well, stick to your formula and do a bit more.

Above all, though, know your investing style and how much you can afford to invest, because it really means, how much time can you spend building your  portfolio, and how much can you afford to risk on different types of investments.


Different Types of Investments: An Overview, Part I

There are three different main kinds of investments, stocks, bonds, and cash. Sounds simple, right?

Well, unfortunately, it can get very complicated from there. You see, each type of investment has numerous types of investments that fall under those three categories.

There is quite a bit to learn about each different investment type. The stock market can be a big scary place for those who know little or nothing about investing, and often the first time investor is disappointed, and perhaps even so badly burnt that they never have the confidence to try again.

In the same way that you have to practice in order to learn how to swim,  and swim well on your own, you can easily learn the basics of investing and then decide to dip your toe in to test the water. Jumping in without checking, diving, or doing a belly flop, is not recommended.

Fortunately, the amount you have to learn is usually in proportion to the type of investor that you are.



There are also three types of investors: conservative, moderate, and aggressive.

The different types of investments also cater to the two levels of risk tolerance: high risk and low risk.



Conservative investors often invest in cash. This means that they put their money in interest-bearing savings accounts, money market accounts, mutual funds, US Treasury bills (T-Bills), and Certificates of Deposit.

These are very safe investments that grow over varying periods of time, usually a longer period of time. These are also low-risk investments, and don’t require a great deal of time each week in follow-up and decision-making.

For example, if you go to the government website to buy T-Bills, you can set up your account in minutes, buy one for the sum you want, and the duration of time before it accrues its value.

So as an example, for a $1000 T-bill, you would pay $970, and in 4 weeks time, it would be worth  $1000. This is a simple but fool-proof strategy, and while the returns might not seem that high, in a volatile economy, it is an investment with no risk. Plus, this is just one example. There are t- bills and t-notes, and auctions online that might secure you that same $1000 T-bill for, say, $930 or even less.



Moderate investors often invest in cash and bonds, and may dabble in the stock market. Moderate investing may be low or moderate risk investment. Moderate investors often also invest in real estate, providing that it is low-risk real estate.

For example, in your 401k portfolio, you may see a US Property Fund account, with a 6 to 8% return.  Again, it may not be a huge return, but there is not much risk.


Continued in Part II.