Money & Investing - Banks.com

Right now, many people are nervous about the stock market. This is due in large part to the big losses sustained in the last eight months. Additionally, the volatility that the stock market has been experiencing (including the recent response to swine flu) has been adding to the concerns of an unsettled stock market in unsettled times. And there are good points here. One way to win in the long-term, however, is to consider passive funds.

Many people choose actively managed funds, thinking that “expert” managers will pick the right stocks that result in huge returns. Unfortunately, this is not often actually the case. Indeed, Talk Strock Trading reports on a recent study by Standard & Poor showing that actively managed funds aren’t the best idea:

Large-cap funds - The S&P 500 lost about 19 percent, but the loss was good enough to beat 71.9 percent of the actively managed funds.

Small-cap funds - The S&P SmallCap 600 fell 0.6 percent and outperformed 85.5 percent of managed funds in its category.

Another issue with actively managed funds is the fees. There are rather high fees attached to actively managed funds. Instead of throwing away a portion of your returns in high fees while rarely beating the market, consider passive funds.

Passive funds to earn over the long term

Now is a good time to consider your investing strategy. Are you planning for the long-term? Because if you are, now is a good time to buy — all the stocks are on sale. One of the best ways to do it is with passive funds that you intend to hold on to for 15-25 years. This long-term strategy provides a good chance that you will beat inflation, and have plenty to live on.

Passive funds include such investments as low-fee mutual funds that are not actively managed by an “expert”. They also include index funds and some ETFs. When you choose passive funds, you pay fewer fees, and your performance often matches (and can even exceed) the market. And, since the market generally goes up over the long-term, smoothing out these little downcycles and hiccups, you are more likely to make gains if you adopt an investing strategy that includes passive funds.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

For six weeks, the stock market has been posting gains. The Dow, S&P 500 and Nasdaq (the main stock indexes) have all been rallying. However, the weekly rally has come to an end. This week has seen a loss.

The stock market closed higher today, for the second day. However, large losses earlier this week were not overcome, and the weekly tally shows a loss. MarketWatch reports on the major U.S. stock indexes:

The Dow Jones Industrial Average climbed 119.23 points, or 1.5%, to 8,076.29, leaving it down 0.7% from a week ago. The S&P 500 Index rose 14.29 points, or 1.7%, to 866.22, a weekly slip of 0.4%. The Nasdaq Composite  added 42.08 points, or 2.6%, to end at 1,694.29, up 1.3% for the week.

The Nasdaq was the only U.S. index to gain overall on the week, thanks mainly to a tech sector rally.

Factors that influence the stock market

There are a number of factors that influence the stock market’s direction. Most of it, though, is based on perception and investor confidence. When investors feel good about what is going on in the financial world, they feel more confidence, and are more willing to brave the risks inherent in stock market investing. Here are some of the recent events that have had an effect on the stock market:

• Announcement that bank stress test results will be released.
• Unemployment data.
• Manufacturing data.
• Housing market data.
• Earnings reports from companies.
• Government statements on the health of the economy.

Because the stock market is so volatile short-term, there are investors that employ a long-term buy and hold strategy to smooth out their earnings and make a good amount of money over time.

And now, enjoy this end of the week investing clip from The Daily Show. It’s hilarious.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Image by cobalt123 via Flickr

Many people enjoy trading penny stocks. This is because these stocks — which can be followed on OTCBB — often make large changes in short periods of time. Because these stocks are available for a very little, it is possible to buy up large amounts of shares, and then wait for a change. And because changes of 10% to 30% are common intraday, if penny stock traders hit it right, it is possible to make a lot of money in a very short amount of time. The flip side, of course, is that it is also possible to lose a lot of money in a short amount of time.

Penny stocks aren’t really my preference; I’m a long-term, boring investor. I don’t crave immediate returns. However, for day traders who like a spicy investing life, penny stocks can be a fun way to trade. But there are definite pitfalls. Stock Trading To Go offers some points of caution when trading penny stocks:

1. Manipulation of Prices - Penny stocks are extremely easy to manipulate the price in due to the low average volume of shares traded per day (see #4) and low prices. This makes penny stocks prime candidates for a pump and dump type of scheme. Very often on message boards, in emails, newsletters, etc. pumping (or promotion) of a penny stock can be seen to attract investor capital. Once the stock jumps in price the pumper sells out completely leaving the rest of the investors on their own.
2. Unregulated exchanges - Penny stocks that trade over the counter on the OTCBB or as pink sheets are not regulated and thus are not forced to meet any specific compliance rules or requirements. This adds unseen risks for any penny stock trader buying a long term position as these securities are exposed to more and different types of manipulation and scams.
3. Lack of financial statements - When you hear of a hot stock the first thing a wise investor will normally do is to go and check out the financial statements of the company. Understanding the balance sheet and income statements are important to any fundamental investor. Unfortunately with most penny stocks there are absolutely no financials to observe which means there is no hard data to analyze beyond what is offered by other investors.
4. Lack of liquidity - While not the case with all penny stocks, many aren’t very liquid. Some companies may only see $10,000 - $50,000 in stock exchanged per day. This makes attaining competitive prices very difficult and for larger investors selling positions even more difficult.

Again, remember that penny stocks are very risky: You could easily lose quite a lot of you are not careful — and lucky.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.