My Personal Finance Blog

In this article I am going to teach you an investment strategy that will pay high dividends if you learn to apply it. I learned some of the concepts herein through interaction with one of my personal mentors, John Childers.

What is the ideal investment for your money this year?

Consider an investment that has all five legs of the ideal investment-

1) I – Income – Look for an investment that produces ongoing income.
2) D – Depreciation – Look for an investment that allows you to depreciate losses or perceived losses on your taxes.
3) E – Equity – Look for an investment that allows you to have equity build-up or ownership percentage.
4) A – Appreciation – Look for an investment that goes up in value over time and that allows you to see a return for your time and money.
5) L – Leverage – Look for an investment that allows you to borrow against it to get much higher returns than if you had to come up with all of the money yourself.

What investment can be classified as an ideal investment? Stocks? Vacant land? Tax liens? Fix and Flip Real Estate?

Simply put, there are only two investments that meet this criteria – a business and buy and hold rental real estate.

Create a business that earns you money to purchase buy and hold real estate. This is what people have been doing for centuries to create massive wealth. Don’t get caught up in the hype of every new idea that comes your way. Create a plan and stick with it to your eventual destination – Destination Wealth.

The best investment and the best mutual funds will again be on the mind of average investors as 2011 unravels. For most folks the best investment strategy centers around investment packages called funds. In case you’ve been confused or mislead in the past, here’s an investment guide written in plain simple English that spells out your basic options.

The only real difference for 2011 and beyond in the world of mutual funds is that there will likely be more variations of the same old basic investment options. Don’t stress over finding the best investment from a list of hundreds or thousands of fund options. Let me make things simple for you by taking you back to the basics, because there are still only 3 basic types of funds you really need to understand; and your best investment strategy should revolve around owning some of each. In this investment guide we start with the most popular funds that have been around the longest – stock funds and bond funds. And we keep it simple.

Stock funds are also called equity funds because they invest your money in stocks, which are also called equities in the investment world. Equity implies ownership, complete with the potential of higher returns as well as higher risk. Even the best stock funds are risky compared to the other two investment options. But over the long term stocks have rewarded investors with higher returns, along with greater volatility in price.

Your best investment in stock funds for 2011 and beyond in simplest terms boils down to your feelings about risk. The best stock funds for conservative folks are those that invest in large, well-known companies that pay good dividends. The best stock investment strategy for the more aggressive types: include growth funds and smaller-company funds as well in your portfolio. They don’t pay much in dividends, but they can fly when the economy hits on all cylinders.

Bond funds hold long-term interest-paying debt (bonds) issued by government entities and/or corporations in their investment portfolio. These funds have usually been viewed as the average person’s best investment for earning relatively high interest income with only moderate risk. In 2011 be careful because you CAN lose money in even the best bond fund if interest rates go north. Your best investment here if conservative: short-term bond funds. If more aggressive your best investment strategy would include intermediate-term bond funds as well. Avoid long-term funds unless you want to gamble that interest rates won’t go up in 2011 and beyond. If rates go up big time, long-term funds will go down in value likewise. That’s the way bonds work.

Money market funds are the last of your three basic fund investment options, and were the last of the three to be offered to average investors. In the early 1970s they began their climb in popularity as interest rates soared. Money funds are safe and pay dividends (interest income) earned from safe short-term money market debt securities. These are your best safe investment when interest rates go up because the interest income they pay automatically follows the trend in interest rates. Today’s rates are super low, but don’t ignore these funds because the interest rate trend could change. The best investment here for average-income folks are general taxable money funds. For high income people tax-exempt money funds are the best investment choice.

A fourth type of mutual funds is gaining in popularity. They have been around for a long time under the label of balanced or hybrid funds. Today there are simply more variations including asset allocation, lifestyle, and target retirement funds. Basically these funds are a package deal consisting of some combination of the above investment options: stocks, bonds and money market securities. Often they are simply funds that hold the 3 types of funds we just covered. Their best investment feature is that they come in conservative, moderate, and aggressive risk versions. The problem is that their definition of risk might vary from yours.

For 2011 and beyond I suggest that you stick with the 3 basic investment options in the mutual fund universe and put together your own best investment portfolio. Be less concerned about finding the very best mutual funds in each category within the 3 basic fund types. Pay more attention to how you divide your money across the 3 types of funds. Your best investment strategy for 2011 is one that makes you comfortable in the risk department.

The best stock funds when the economy is robust and growing are usually growth stock funds. In 2011 and beyond this scenario appears unlikely. Since stock (equity) funds belong in the average investor’s portfolio, what are the best stock funds if 2011 fails to produce good economic growth?

Even the best growth funds rarely pay a significant dividend – that’s not the nature of growth funds. These funds focus on price appreciation or rapidly rising stock prices as an objective by investing in companies with higher than average prospects for growth in sales and earning or profits. The stocks they invest in plow their money back into the company instead of paying it out to investors in the form of dividends. Without a significant dividend as a cushion, growth funds generally experience greater share price fluctuation, which means greater risk.

If uncertainty remains high and the economy remains sluggish in 2011 and beyond, growth funds are not your safest bet. When it’s time to be defensive, it’s nice to own equity funds that have a good track record for paying dividend yields of 2%, 3% or more. A dividend of 3% might not sound like much but it does provide a cushion under stock prices. With today’s interest rates 3% looks rather attractive, and many major corporations have a surplus of cash available to increase dividends.

As a conservative play the best stock funds for 2011 to stay invested in equities and decrease the risk of big losses: equity-income or “value” funds that invest in major (large) dividend-paying companies. Don’t worry so much about the name of a fund because names can be misleading to the average investor. Instead start by looking for equity funds that have dividend income as a primary objective. Such a fund would fall under the general category of DOMESTIC (U.S.), GENERAL DIVERSIFIED equity funds.

They can be further classified as value funds, equity-income funds, or maybe DIVIDEND growth funds. The latter tend to invest in large companies with a history of paying stable and/or INCREASING dividends over the years. Make sure that the fund you pick invests in high quality major corporations. Some value funds invest in smaller less-stable companies that “appear” to be cheap, and these funds can be quite volatile (risky). Every fund gives investors a general description of its objectives and what kind of investments it intends to make. It’s often in the fund’s introduction or summary, so look before you leap!

In my opinion, the very best stock funds for 2011 and going forward would also be classified as NO-LOAD and INDEX equity funds. You can cut your cost of buying an equity fund by 5% by avoiding sales charges or “loads”, by simply buying no-load funds. You can save 1% to 2% on YEARLY fund expenses by going with INDEX funds that simply track a sector of the market instead of trying to outperform. Few funds outperform their benchmark (index) on a consistent basis and many under perform it. Why pay to take this added risk?

In summary, to avoid high risk and stay invested in the stock market in 2011 and into the future, here’s how to find the best stock funds. Get info from the major no-load fund companies like Vanguard, Fidelity, T Rowe Price, and Century Funds. Look under the category of EQUITY INDEX funds. Make sure that there are NO sales charges. Look for a DIVIDEND YIELD of 2% or higher, and make sure the fund tracks an index of large-company or large-cap (capitalization) stocks, like the S&P 500 Index.

Over the long-term the best stock funds reward investors with higher fund prices (values) and dividends. The very best funds for most investors also offer a bit less risk than their competition and a lower cost of investing.

CFD trading is simple. Two parties agree to exchange whatever difference comes between the closing price and the opening price of some underlying share after the contract gets void. The value of the difference is multiplied by share numbers in the contract. cfd trade, in the current market, makes use of this fundamental to create leveraged profits.

According to an estimate, about 20 percent of the turnover in the UK equity market is on the basis of CFD paper contracts, rather than the real share ownership transfer. When a trade opens, traders can either open a long position (buying) or a short position (selling).

What Is Contract Value In CFD Trading?

You, as the CFD trader, assign a specific share number. You multiply this by the underlying share price. From this, you get the contract value. When the price of the share goes up, you would profit if you had gone long.

When you choose a long contract, you lose the right to take the underlying share and shareholder right. However, you can obtain the capital returns and dividends. When you choose a short contract, you get a chance to profit from the falling shares. However, you need not deliver the shares in any phase of the trade.

Basics of Cfds

One of the facts of CFD trading is that when you open a position, along with your CFD provider, you, in no case, are compelled to pay the complete underlying value of your contract. This can, perhaps, be one of the biggest benefits of Contracts for Difference.

You can easily open a cfd trade along with the deposit fund. It is also called collateral or margin. The collateral you utilize for opening a contract depends on your CFD provider and the underlying share liquidity. The collateral level is in percentage, normally.

One thing you must remember in CFD trading is that CFDs are, generally, marked for daily marketing. This means, you need to make sure that your collateral level in your account is at par with the everyday price fluctuations in the underlying share.

Because of the fact that your CFD provider has financed the trade value, you need to pay daily interest on the complete value of the long trade. On the contrary, you would receive interest on short trade. The interest also includes a fee for the provider. So, if you are in long position, you must be ready to add around two to three percent on the interest value. If you are in short position, be ready to get an interest after deducting the margin for the provider.

In CFD trading, it’s all about getting the right values. It’s also about deciding whether to go for long or short. However, don’t expect to always be right about your moves. There can be better traders than you and there can be worse ones. The ultimate aim is to make profit through the difference that comes between the contracts’ closing and opening. That’s it.

There are many wealth creation strategies and investment techniques available to those who are looking to create a passive income. These fall into three main categories. Running a business, investing in property and investing in the share market. Although there are many options in each of these areas, finding the right wealth creation strategy for you is not that hard.

The formula for Wealth Creation is relatively simple. In order to increase your wealth, you need to increase your wealth generating activities. Most of us start out trading our time, for money. We get paid an hourly rate for doing a certain job. The problem with this is that in order to increase your income, you usually need to increase the amount of hours you sell to your employer or clients. Which in turn reduces the amount of time you have to spend on yourself, your family and doing the things you enjoy.

In order to increase your quality of life, the only realistic strategy is to increase your income, and reduce the amount of hours you work. How do you do this you might ask? By using time tested wealth creation strategies and investment techniques to create and then increase your passive income.

Creating a Passive Income gives you more time and money to spend on living your life.

Passive income is generated when you are making an income without having to work for it. For example if you own a business, that you have setup to run completely on its own, or if you own shares in a company that pays you annual dividends, or perhaps a piece of real estate that generates capital or rental returns.

All these investment techniques earn you passive income. because you are not limited by the amount of hours you can spend per day working on them. Instead of working for money, you now have money working for you. This is the true essence of any effective wealth creation strategy. Maximum return for minimum effort.

Another great way to leverage your investment capital is to use stock options. There are literally thousands of ways to use options, both as a speculation tool and but as a way to hedge your other investments. But options can also be used to create passive income through becoming an option ‘writer’ instead of a ‘taker’.

Writing options is a lot more like holding stock and making yearly dividends but instead by writing options you can actually make a passive monthly income and still be protected against any large market moves.

There are also hundreds of ways to setup these option strategies, and of course these is always some risk involved in any investment. But with a proper understanding of the strategies you are using and with vigilant risk management, the end results can be nothing less than spectacular.