Money & Investing - Banks.com

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It’s Halloween time, and in honor of Halloween, I thought I’d share 3 scary investment strategies:

1. Following that “hot tip”:  How often do we hear about a “hot tip” from someone that is just solid and will make you a great deal of money? However, just running after something that is “hot” is rather scary. By the time you get the tip, chances are that the things have cooled off. Indeed, in many cases, by the time you get in on the “hot” buy, it’s close to the top, and about to fall. Plus, who’s giving you this tip anyway?
2. Frequent trading: While there are lots of people who make money with day trading, I find the whole thing rather scary. I’m more of a boring buy and hold kind of girl. Frequent trading can have tax implications (short-term gains are charged at a higher rate than most long-term gains), and frequent trading can cut into your gains with transaction fees.
3. Market timing: Accurately predicting the market is impossible, so market timing is a tricky prospect. Waiting until just the right time buy can cost you, since you might miss a low. But what happens if you jump out just before something takes off? While there is no way to completely protect your portfolio, you can protect it to some degree by using a regular investment plan (such as dollar cost averaging to invest each month) and riding through the ups and downs. You may not get the same spectacular gains, but there’s a better chance that you’ll get steady gains over time.

What investment strategies do you find scary? Also, in honor of Halloween, I thought I’d share this video of Disney villains singing about money. Enjoy!

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.

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Investors are enjoying some optimism in early trading today as they greet positive economic data with enthusiasm. The U.S. stock market is moving higher today, across the board, as investors react to reports that the U.S. economy expanded in the third quarter of 2009, signaling the technical end to the recession. Credit is being given to economic stimulus measures that helped start some economic activity.

MarketWatch reports on the enthusiasm some have for the economic stimulus measures:

“While it’s far too early to declare ‘mission accomplished,’ it is crystal clear that the Recovery Act was crucial in pulling the economy out of its tailspin and putting it on the path to growth,” said Josh Bivens, an economist for the Economic Policy Institute.

Clearly, though, there is a long way to go. The economy needs to be able to continue to move forward with recovery without additional stimulus from the government. Also, there are concerns about employment. This is having a somewhat restraining effect on what could have been a runaway rally today. But, since employment is showing a slight improvement this week, and since lack of jobs helps company bottom lines in terms of cost cutting, this is probably not going to have a huge impact — at least for now.

Buying stocks

Obviously, the time to buy stocks was months ago. But with the economy heading higher, there is still time to get some good bargains. It is a good time to look for solid income investing stock opportunities, as well as choosing some good fundamentally sound investments that are likely to grow. Many people are also deciding to get into index funds and ETFs right now.

For those that have increased their contributions to investment accounts during the recession, it might be time to consider backing off a bit now that you can’t get as much for your dollar. Although, if you can afford to keep putting in higher amounts, it’s probably still worth it.

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.

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One of the more heated debates that goes on in the world of income investing is whether stocks should be favored, or whether bonds should be the investment of choice. As always, what you do depends on your personal situation, and what you are comfortable with. A financial professional can also help you chart your course. But it does help to take a look at some of the basics of bonds and stocks when trying to make your decision.

Bonds

Bonds are considered safer than stocks. They are normally fairly reliable, especially U.S. government bonds. Even some corporate and municipal bonds are reasonably reliable (while offering higher returns than Treasuries). Unfortunately, bond returns are relatively low, to go along with this lower risk. In many cases, your income from bonds is eroded by inflation. On top of that, right now bond interest is taxed at your income rate — which means that between taxes and inflation your income could be very low indeed. Investing in TIPS can actually help you combat the effects of inflation, though.

Stocks

The Motley Fool points out that over time, stocks outperform bonds in most cases:

Over long periods, stocks have outperformed bonds. Period. They have done so more than 95% of the time in the 20-year periods between 1871 and 2006.

Another valid point is the fact that there are dividend-paying stocks that provide even more income on top of returns from stock increases. Dividends are also taxed at a lower rate, capping out at 15%. (Buy and hold investors can also enjoy the the tax efficiency of long term capital gains.) And if you use DRIPs, you can reinvest your dividends free of charge — it’s like using free money to buy more shares. You can adjust this down the road as you need the income.

In the end, some diversity in your holdings is a good thing. But don’t be so concerned about the stock market that you overweight your investment portfolio with bonds and neglect the advantages that can come your way through stocks.

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.