Thursday, July 20, 2006

Investments For Kids

Looking for a good investment to start kids off? Consider buying a dividend stock and starting a DRP in a company whose product your kids know about and use - McDonalds, Wrigley and Coke are the classic ones, but there are many other options too.

You can find a DRP stock that doesn't charge a fee, the minimums are usually small (most in the $5 range), and have them watch how dividends are reinvested. This is a great way to introduce kids to stock investing and to learn first hand how this type of investing works.

First Rule Of Investing

There are a lot of rules when it comes to investing, but probably the first and most important rule to remember is that the higher the returns received from the investment, they are accompanied by higher risks. This is one of the easiest ways to tell if something smells fishy. If someone promises high investment returns with little to no risk, it goes against this rule which means it is likely not what it seems to be. Always remember, if an investment seems too good to be true, it probably is.

Preferred Stock

While preferred stock is a form of stock, in many cases it's listed as a fixed-income investment. The reason is because preferred stock behaves more like a bond, although it doesn't have a fixed maturity date. It is called "preferred stock" because shareholders receive preferential treatment with this type of stock. For example, preferred stock shareholders are paid dividends before common stock shareholders. Another example is that in the event of a corporate liquidation, preferred stock shareholders can claim corporate assets before common stock shareholders (but after bond holders)

Preferred stock typically pays an investor a fixed dividend rate in a similar way that the coupon rate is paid on a bond. Preferred stock share prices fluctuate inversely with changes in interest rates. While the par value on preferred stock can vary, it will usually be about $25 per share. Dividends paid on preferred stocks are a fixed percentage of par value.

Personal Investment Risks

Here are some personal investment risks that all investors should be aware of. There are a number of risks that exist at the personal level of investing. The good point is that an investor is likely to have more control over personal investments risks compared to others.

Timing risk is another risk that a personal investor is likely to face. Investing in a security at the wrong time or selling a security at the wrong time is a risk of investing. There is no surefire way to time the stock market.

Tenure risk is yet another risk that personal investors face. The risk entails losing money while holding onto a security.

Investing & Dollar Cost Averaging

With Dollar Cost Averaging, you want to invest a set amount of money over regular intervals of time so that the average cost of stock shares purchased will even out even through the stock market's peaks and troughs. When you invest with dollar cost averaging, your dollars will purchase fewer stock shares when the market is up and they will buy more stock shares when it's down.

Over the long run, it really doesn't matter when you start, just that you start to invest. Over a long period of time, it will make little difference whether the stock market was up or down when you began to invest. The stock market has averaged almost 10% growth since 1929, even when you include the sustained decline in 2000.

More additions with smaller amounts is a good way to invest with cost dollar averaging. Making monthly investments to your account allows you three times as many opportunities to benefit from favorable market swings as investing on a quarterly basis. It also provides you with three times as many chances to buy in a decreasing market. The more frequently you invest and the longer you keep investing with cost dollar averaging, the smoother the average-share-cost line becomes.

When investing with dollar cost averaging, a market decline can be a good thing because it can mean bargain prices for stocks. Unless you are selling shares, a fund's price quote in the daily paper is not relevant, so don't panic if the stock market is down. In fact, a stock market downturn provides the opportunity to invest in more shares at attractive prices that have the potential to grow in value when the market returns to an upward growth pattern. Remember that in order for dollar-cost averaging to work, you must be prepared to commit the financial resources and have the resolve to make the contributions on each appointed date over a long period of time.

Investors should consider their ability to invest continuously during periods of fluctuating price levels and their tolerance for risk before deciding on an investment strategy, but dollar cost averaging is a quality way to invest for most people.

Tuesday, July 18, 2006

Investing Advice

If you're looking for basic investing advice, the investing page has quality articles for investing beginners. You can also discuss investing in the forums at SavingAdvice along with a wide variety of other personal finance topics.