My Personal Finance Blog

If you don’t know how to invest money or where to invest for 2011 and beyond and you’re on a tight budget, this article is written for you. Some of the biggest and best fund companies in the world got that way by working with small investors directly. That’s not likely to change in 2011 and going into the future. Today the internet makes it easier to invest money than ever before.

Later I’ll name names and tell you exactly where to invest money for 2011 and going forward. When you’re done reading this article I suggest you go to your favorite search engine and enter keyword phrases like: “how to invest 2011, or where to invest 2011, or best funds 2011, or no-load funds”. Look at the companies who pay for top billing, the sponsor sites. They want you to invest with them and some of these are the best mutual fund companies in existence.

Now, here’s how to invest $200 or more once you’ve checked the best fund companies out on the internet. Call their toll free number and tell them you want to invest money each month in an automatic investment plan and would like a starter kit and other info sent to you. There will be no charge (with the best fund companies) and you’ll be able to talk with a representative any time you need help in the future. Here’s how to pick funds to invest in based on your objectives.

HOW TO INVEST FOR SAFETY: Money market funds are safe and pay interest in the form of dividends. In 2011 interest rates in general will likely still be low in these funds and at your local bank as well. The advantage with money funds is that when rates go up in the future the interest you earn will automatically follow current trends. Invest money in these funds for safety and flexibility. You can always move some of this money to other funds at no charge if you’re with one of the best fund companies, to be named later.

HOW TO INVEST TO EARN MORE INTEREST: Bond funds offer higher interest income or dividends at a moderate level of risk, GENERALLY. Today’s low interest rates make the risk here greater than usual. Unlike money funds where the share price is always pegged at $1, the price or value of bond fund shares WILL FLUCUATE. When interest rates go up, their price will fall. There are two ways to deal with this risk in 2011 and beyond.

First, make sure you continue to invest the same dollar amount each month. This way when you invest money each month you will automatically buy more shares when the share price gets cheaper and fewer at high prices. This is called “dollar cost averaging”, which is a powerful tool for long-term investors. Second, pick intermediate-term bond funds or short-term funds vs. long-term ones. The shorter the term (average maturity) of a bond fund the lower the risk.

HOW TO INVEST FOR MORE PROFIT POTENTIAL: Equity funds invest in stocks and offer the prospect of higher returns over the long term as well as more risk. Expect the fund share price to fluctuate as the stock market does when you invest money here. There are two ways to reign in risk here as well. Go with DIVERSIFIED EQUITY-INCOME funds that invest in major corporations that pay dividends consistently. They are less volatile (risky) than growth funds that pay very little in dividends. Second, use dollar cost averaging to lower your average cost per share, just like you’re doing in your bond fund(s).

HOW TO INVEST IN ALL THREE OF THE ABOVE: Make sure that all of your dividends and other income earned (and capital gains) are automatically reinvested to buy more shares in the funds, and not sent to you. This is normal procedure in mutual funds for long term investors, and puts dollar cost averaging to work for you every time you earn income in a fund. With the best fund companies you can invest in an individual account if single or married, a joint account with your spouse, and/or an IRA if you want tax advantages and qualify.

Now, back to where to invest money in 2011 and beyond… the best fund companies. You could also call this list “where to invest money to save big money in sales charges and fund expenses”, because these fund companies offer funds with NO sales charges and with some of the lowest expenses in the business (especially the first one named). My long-time favorite fund companies are (and I have no affiliation with any of them): Vanguard, Fidelity, T Rowe Price, and American Century.

Go to your search engine and enter “no-load funds, or top fund companies, or best funds 2011″. You’ll likely see the above names; and you’re headed in the right direction for where to invest money in 2011 and beyond. You may also find another of my hundreds of articles if you search “best funds 2011″. Read on, and invest with the best.

In order to be a successful investor and/or trader, one must define beforehand where how much and when one should invest according to its own age and financial status. Compound interest plays a big role here, so it will be way different (and harder) for a person that is almost retiring to become a millionaire than for a person that is at a young age. The young one, will have to same way less money in order to fulfill his own dreams.

Start young and finish earlier

At an old age, it will be way harder to accumulate all the wealth that you intend it to. It is still possible, but it will take way more work in order to do it so. You will have to have better investments and will have to save more money month after month. I believe the biggest drawback is that if something happen and you end up losing a big chunk of your equity, then you might not have sufficient time to recover. Plus, with that, the emotional stress that you will have to sustain will be greater than one for a young person.

If you are young, you are able to risk more and to try more because you have enough time to recover from a potential loss if that happens. Do not expect to always win. That is the market: sometimes you lose, sometimes you win. Just try to win BIGGER that you lose. You may have noticed that I did not say more, I said bigger. It is like that because, if you take your time, study and fully understand what you are doing, it is possible to lose more times than you win and still come out with a profit. That happens all the time with many investors. You just have to know what you are doing.

Proper research

When investing, a proper research and due diligence will pay big dividends. Most neophytes start out in the market hoping and expecting to duplicate their money in their first year. When that does not happen, they go out crying blaming everyone but themselves for their losses. You have to take your time in the market and study it carefully before acting upon it. Start light, do not try to make a stand where you can’t fall. Start light and as you go along and gain experience, then you slowly starting increasing your trades to have a better chance at the market.

The average family budget is nothing more then a tool that benefits the financial future of the entire household. While many people feel that a household budget is a waste of time until you know exactly what your money is doing and where it is going you will never have true control of your family’s finances. Once you have control of your money doing this you’ll be surprised at how easy the whole process actually is.

The beauty of making a budget is that it doesn’t matter how much money you have you will still benefit from its use. The point is to first find out where your money is going and then once you take back control you can tell it what to do for you and your family. This is the biggest problem most people have with their money. Sure, it seems like there is money to spend but before the next paycheck hits the bank it’s already gone and you’re not really sure where it all went.

This is where the family budget helps. The first thing it does is tell you exactly how much money you have to spend each month. By planning a month ahead you can tell each dollar where it is going before it hits your bank account. It is really nothing more then a road map for your money. In fact many people simply call it a “cash flow plan”, which sounds better then calling it a budget.

Another area of financial trouble many families experience is the inability to save money for any number of things including retirement, a down payment on a new home, or even paying cash for a car. A household budget can help anyone who has trouble saving set savings goals and meet them. A “cash flow plan” has a way of freeing up money that can be put to better long term family financial goals.

If you take your cash flow plan seriously and use it to give your money a plan you will soon see the positive dividends it can bring. It will be hard at first to stick to your plan but as you work your average family budget it will soon become a necessary habit that you can’t live without.

What is all this CFD HYPE:  CFDs Explained



Contracts for Difference (CFDs) are contracts between a trader and a CFD provider, who will at the close of the contract, exchange the difference between the opening price and the closing price of the underlying index, share, commodity, per the number of specified CFD contracts. 

 

A CFD differs from the traditional trading methods as it is not a purchase of the nominated investment, but trading on its speculated price movement. The main idea of CFDs is the ability to be able to trade higher volumes than traditional trading while using less initial capital.  

 

The buyer of the contracts is required to pay commission to enter the contract, plus fixed interest on the remaining value of the borrowed amount, until they decide to end the contract, at which time they are paid the price difference. The buyer may opt on either side – high (buy) or the low (sell), which means that if the contract was a low trade the buyer could still turn a profit it that was the initial investment. 

 

Advantages of CFDs versus traditional share buying 

 

The key distinction between traditional share buying and CFD buying is that buying a CFD is done on leverage (typically between 5% to 35% for actively traded stocks), both shares and CFDs participate in all corporate actions, both buyers receive dividends but only the buyer of the share is able to vote and receive the franking credits.   To select a great broker if you are trading in Asia, Australia, or UK vist and CFD FX REPORT look at choosing a broker or simply email  as we have researched them all.

 

With CFDs one is not entitled to these rights, which enables CFD sellers to sell with ease. This makes CFDs an excellent trading product. The leverage and ability to short sell gives power and flexibility. 

 

Unlike futures, CFDs do not have an expiry date, so one can hold on to them for as long as they desire. CFDs open up a whole new trading world, with the ability to trade shares, indices, foreign exchange, and commodities.  

 

CFDs are the flexible new way to trade. One can trade Singapore Stock Exchange (SGX) listed shares but you have access to worldwide markets, such as the United States (DOW, NASDAQ, S&P), United Kingdom (FTSE), Japan (NEIKKI), Hong Kong (Hang Seng) and many other countries.  

 

1) Leverage

 

If you do not have the money needed to trade shares directly on the Singapore Stock Exchange (SGX) trading CFDs can offer you the exposure required to make a profit from small percentage moves on the underlying share price. The leverage level offered by the CFD provider magnifies the underlying movement of the stock. Most providers set differing leverage levels and you can find the best level that suits you trading style. Certain CFD providers offer, at a cost, a Guaranteed Stop Loss (GSL) that can effectively increase leverage levels further by capping the margin requirement held against you.

2) Controlled Risk

 

If you have ever traded, you know how important it is to use stop losses for capital preservation, especially when using a leveraged product.

 



CFDs allow you to cut your losses quickly and leave your profits to run. This ability to quickly exit at the prevailing market price allows for greater risk control.

CFDs reflect the price of the underlying equity. Therefore, you will always know what the market price is of your shares and know what you can sell out for, provided you choose a CFD Provider who uses “at market” prices. Some CFD providers (market makers) may only give spreads, which have the potential to force you in at higher prices and out and lower prices.



 

Placing automated Stop Loss orders can exit you out of suggestions that go against you while you are busy in your day-to-day activities. 

 

Example: 

 

XYZ Ltd is currently trading at $9.95 bid and a $10.00 ask price. You want to buy 1000 shares of XYZ Ltd share CFDs at the offer price of $10.00, with your view that the stock will rise in price. 

 

We are working on the leverage margin of 1:10. Therefore every dollar of capital you invest the CFD provider will provide you with $10 of leverage. 

 

CFD Trading                                                     Traditional Shares 

 

Buy Price                                  $10.00              Buy Price          $10.00 

 

Initial Margin (10%)                    $1,000              Initial Outlay      $10,000 

 

Brokerage                                 $17                   Brokerage         $30 

 

GST 5%                                    $0                     GST                  $1.50 

 

Total Outlay                               $1,017              Total Outlay       $10,031.50 

 



Traditional brokers require that you have 100% of capital required for the trade upfront.



 

 The difference in funds required between the CFD provider and the traditional way of trading is $9,014.50. 

 

Closing the trade 

 

CFD Trading                                                    Traditional Shares 

 

Sell Price                                  $10.25              Sell Price                      $10.25 

 

Gross Profit                               $250                 Gross Profit                   $250 

 

Brokerage                                 $34                   Brokerage                     $60 

 

GST 5%                                    $0                     GST                             $3 

 

Finance Charge                         $1.45                 Finance Charge             $0 

 

Net profit/loss                          $218.55             Net profit/loss               $187  

 

In this example the trade was positive for the trader. 

 

If the stock had of fallen by $0.25, you would have realized a gross loss of $250 with both the CFD provider and the traditional broker. 

 

The net loss would have been $285.45 with the CFD provider and $313 with the traditional broker. 

 



 

 

As a trader, your choices of taking part in trading instruments about the stock market is dependent on the funds your can spare towards this activity. For those who have enough cash to get, then you can do conventional share trading within the cash or physical market. However, if you are constrained for cash or desire to stretch your owndollar towards the maximum, you’ll be able to trade Cfds or contracts for difference as they are known. You may also look at futures trading. The last two trading instruments differ from cash trading within the kind of leverage they permit traders to profit from and therefore are therefore extra speculative anyway than traditional share trading.

As stated, the advantage of CFD trading is based on the manner you can use your capital to create significant profits. However, you have to remember that you may have the ability to trade only some of the stocks within the overall basket of stocks traded on the exchange. You may not be able to trade certain low cap stocks. Conventional share trading however allows you to trade any stock.

About the dividend front, whenever you trade CFDs you still get dividends except that you would not get franking credits or imputation credits. This is because to get these credits, you are expected to hold on to your shares or position not less than 45 days which may not be possible with Cfd trading. Hence there’s some advantage when you share trade as far as dividends are worried.

On the short selling front, CFD trading comes with an obvious edge on share trading. The margins less difficult lower and the restrictions are fewer. In regular share trading, the broker would need to find a counter party and also the costs of trading would be also high. CFD traders also have the opportunity to hedge positions by trading within the physical market.

When you trade CFDs, you may also place guaranteed stops which might not always be possible when you trade in the physical market.

The advantages of CFD trading over share trading can thus be summed up as under:

* Lower costs of trading

* Possibility of overnight financing for your Cfd positions less than 90 days

* The leveraging benefit

* Short selling isn’t a problem

* Possible to get dividends

* Place the guaranteed stops

Overall it does appear that Cfd trading scores over share trading due to the above advantages.