Showing posts with label investments. Show all posts
Showing posts with label investments. Show all posts

Thursday, September 26, 2019

Let’s break down investing by Katherine Wiles Sep 26, 2019 (Investing 101)

(The article below was published on Marketplace. We have edited the piece to reflect our comments.)

"Buy low, sell high.” We’ve all heard the adage before. But investing in the stock market can be a big step. It can be confusing — even daunting — and the terms can make it feel like inside baseball. So here are some basics to know about investing in the stock market before jumping in feet first.

You don’t need a lot of money to invest in the stock market. While you should make sure your finances are healthy before investing, William Michael Cunningham, an investment adviser and CEO of Creative Investment Research, said directly purchasing stock from a company can be done with as little as $25 by buying a fractional share. (For more, https://www.moneycrashers.com/buy-stocks-without-broker/).

..Investing in funds, as opposed to individual stocks, is a good way for beginners to get started.

A mutual fund is a collection of investments in one portfolio account. The mutual fund takes investors’ money and places it in different types of securities. There are different types of mutual funds. A stock fund is a mutual fund that invests primarily in corporate stock. Index funds invest in company stocks that match those in a particular stock index, like the S&P 500.

Money market funds invest in short-term debt and usually provide a modest return. A bond fund invests in bonds and typically aims to produce greater returns than a money market fund.

Mutual funds have a few advantages over individual stock for new investors. First, they tend to be more liquid.

“You should be able to come in and out of those funds easier than you can come into and out of an individual stock or an individual bond,” Cunningham said.

They are also thought to be more secure because they are inherently diverse investments. Diversification is the idea that you’re not putting all your eggs into one basket.

“If you invest in one company, then your investment is wholly dependent on the performance of that single entity,” Cunningham said.

If you are going to buy stock in an individual company, Cunningham said to invest in what you know. For example, if you fly a lot and know about the types of planes that are being ordered, it might be good to invest in that company. It’s important to be familiar with the company and its goals, and reading its prospectus is a good way to do that.

It’s important to think long term when investing in the stock market. A common pitfall, Cunninham said, is chasing returns, which is switching investments based solely on earning the highest return.

“The reason why this is so bad is — in addition to not being diversified — you’re going to pay these fees that the brokers charge, and you’re going to pay them repeatedly,” he said. “Your gains are going to the brokers as opposed to going into your pocket.”

Let’s break down the numbers

Dividends are company earnings that are given back to the shareholders. They are classified as qualified or nonqualified, depending on how they are taxed. Nonqualified dividends are typically taxed as income. Qualified dividends are ones that meet certain criteria, including owning them for a length of time known as a holding period. Qualified dividends are taxed at the capital gains rate, which is typically lower than income tax. Cunningham noted that these laws can change frequently, so be sure to check with your tax adviser.

It’s important to be prudent when investing in the stock market, especially when you’re starting out. Saving money in the bank typically yields less profit than investments, but it’s also more secure.

Important terms

Beta - Measures the relationship between the stock price and movement in the whole stock market; basically, a measure of volatility.

Bear market - When share prices decline on the stock market for a sustained time.

Bull market - When share prices rise on the stock market for a sustained time.

Blue chip - Large, industry-leading companies that are financially sound.

Bonds - A loan to a company, country or local government that pays a stated interest rate.

Capital appreciation/capital gain - How much an investment has increased in value.

Diversification - The strategy of having a mix of different types of investments to reduce the risk of any one holding.

Dividends - Payments made to shareholders from company earnings.

Earnings per share - A company’s profit divided by the number of common outstanding shares; an indicator of a company’s profitability.

Liquidity - How fast or easily securities can be converted into cash.

Margin - The money borrowed from a broker to buy an investment.

Money market fund - By law, funds that can only invest in certain “high-quality, short-term investments issued by U.S. corporations, and federal, state and local governments.”

Mutual fund - When a company pools investors and invests their money in securities like stocks, bonds or short-term debt.

Net asset value - The total value of a fund or company’s assets minus the total value of its liabilities.

Penny stocks - Stocks traded at under $5, typically traded over the counter and not on a stock exchange.

Portfolio - The collection of securities that a mutual fund is invested in.

Prospectus - A legal document required by the Securities and Exchange Commission that provides details of an investment.

Risk appetite - How much risk you’re willing to take in order to achieve a goal — in this case, making money.

Securities and Exchange Commission - A government body that was created to protect investors and maintain fair markets.

Volume - The number of shares traded over a certain period of time, typically measured over the course of a day.

Sunday, February 28, 2010

Thursday, August 27, 2009

SEC issues investor warning

According to the Chicago Sun Times, "Exchange-traded funds that leverage their holdings could lead to outsized losses, the Securities and Exchange Commission said. It said brokers and financial advisers should warn people away from them unless they plan to hold them for just a day. The problem with leveraged ETFs comes down to the magic and mystery of compounded returns. If you leave your money in a leveraged ETF over time, your return can differ drastically from the fund's stated goal, especially in volatile markets. "

Monday, July 23, 2007

The SEC backs off

On July 20, 2007, "SEC Chairman Christopher Cox issued the following statement concerning disclosures filed with the Commission concerning public company activities in countries that the U.S. Secretary of State has determined to have repeatedly supported terrorism:


Since the SEC added to our Internet site a web tool that permits investors to obtain information directly from company disclosure documents about their business interests in countries the U.S. Secretary of State has designated 'State Sponsors of Terrorism,' the site has experienced exceptional traffic. Between June 25, when the web tool was unveiled, through July 16, visitors have 'hit' material posted on the site well over 150,000 times. Iran was the country most frequently clicked on, followed by Cuba, Sudan, North Korea, and Syria. Those who went to a country list most often clicked through to the text of companies' own disclosure (in the case of Iran, they did so overwhelmingly), indicating that the disclosures were allowed to speak for themselves."

The Chairman went on to add that, despite the unqualified success of the effort, the SEC is

"temporarily suspending the availability of the web tool while it undergoes reconstruction." Further SEC staff is "considering whether the use of interactive data tags applied by companies themselves could permit investors, analysts and others to easily discover this disclosure without need of an SEC-provided web tool at all. In the interim, the companies' disclosure regarding their business contacts in the five nations will continue to be available through the SEC's EDGAR database, and findable using our new full-text search capability."


We fully supported the SEC's efforts, have called for the use of interactive data tags in exactly this way (page 17), and are disappointed to see the site go down. As the Chairman noted,

"The exceptional public interest that has been demonstrated in reading company disclosures on this topic indicates that it is an important subject for investors. Federal law and SEC regulations will continue to require public companies to report on their activities, if material, in a country the Secretary of State has formally determined to be a State Sponsor of Terrorism. Our role is to make that information readily accessible to the investing public, and we will continue to work to find better ways to accomplish that objective."

The effort reinforces our view that by showing a willingness to address, in a timely and creative manner, critical issues affecting his Agency, Chairman Cox is the single most competent appointment made by the Bush Administration. The Terrorism disclosure effort was incredibly entrepreneurial and successful, both highly unusual for this Administration. We can only surmise that business interests on both sides of the issue (those doing business in States designated as sponsors of terrorism, and those selling information about those doing business in States designated as sponsors of terrorism) combined to get the pages taken down. This does not bode well for efforts to enhance shareholder democracy.

Lets hope this service comes back on-line soon.