How to Invest in Bond Funds or Bonds, Why You Should
When You Purchase a Bond or Bond Funds; What Happens
Investing in bond funds or bonds are two different entities. When you purchase a bond, you are loaning your money to a corporation or to the government.
In exchange for loaning your money, you will receive the promise of regular interest payments. The bond will also be given a maturity date.
When the bond matures, you will be given your principal investment back. This will include several years’ worth of interest on that principal.
You can use a bond to live off the interest (although, in such a case, you would need to have invested quite a bit of money).
Alternatively, you could reinvest the interest, or use the bond for the purpose of balancing out a stock portfolio. This would work, because bonds are generally income investments, and stocks are generally growth investments.
Individual Bonds or Bond Funds as Income Investments
Income investments give you interest, and growth (or equity-stock) investments give you capital gains investment returns, if you have chosen your investments wisely. Therefore, usually when stock prices are up, bond prices are down, and vice versa.
This is one reason stock investors add bonds or bond funds to their portfolio. As the stocks go down the bonds go up and can balance out the portfolio’s bottom line.
Many people think that because bonds pay interest, they are 100% safe, because you can never lose your principal investment. This is not true!
The price of a bond (which is separate from the paid interest of a bond) can fluctuate. You can lose your principal if the price of your bond were to fluctuate to nothing (zero).
"There is an Important Difference Between Stocks and Bonds" -Lois
This is where bond ratings come in: there are high-yield bonds, and there are high-quality bonds. You must know the difference between the two, before you start to place your money into bonds.
Bond Ratings – Some Are Called “Junk”
The higher the interest rate of a bond, the lower that bond is rated— this is known as a high yield bond. The lower a bond is rated, the higher the interest will be that is paid on that bond.
This is why some financial advisors recommend that you buy short-term bonds, so that your bond can “mature” before its price decreases.
The highest-yielding bonds are usually the lowest-rated, high-yield bonds are called “junk bonds”. These are rated “C” by ratings services.
On the other hand, the lower the interest rate of a bond, the higher that bond is rated—this is known as a high-quality bond. High-quality bonds, which usually do not have high yields, are generally rated “A” or above by investment rating services, such as “Moodys”. There are several bond
rating services.
RATING DEFINITION’S: S&P MOODY’S
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Highest quality and grade. Prime. Maximum safety. AAA Aaa
Bonds which are judged to be of the best quality. They carry the smallest degree of investment risk. The obligor’s capacity to meet its financial commitment on the obligations is extremely strong.
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High quality. High grade. AA Aa
Bonds which are judged to be of high quality by all standards and only differ in small degree to the highest graded bonds. The obligor’s capacity
to meet its financial commitment on the obligations is very strong.
————————————————————————————————-
Upper medium quality and grade. A A
Bonds which possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. They are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor’s capacity to meet its financial commitment on the obligations
is strong.
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If you are an individual investor who is purchasing a bond, it is usually
best to stick with a bond that has a rating of “A” or better. (see the “Summary,” at the end of this article).
BONDS DIFFER, BASED MOSTLY UPON WHO ISSUES THEM:
- Government-issued bonds are called Treasury Bonds.
- Corporation-issued bonds are called Corporate Bonds.
- State- or Local-issued bonds are called Municipal Bonds, or “Muni’s,” for short; this type of bond is generally exempt from all state and
local taxes.
Individual Bonds Versus Bond Funds
Purchasing an individual bond can be an overly complex endeavor, and generally requires a large sum of money at hand. To fund even a single bond, you will often need at least $10,000 (but sometimes less).
Institutions, such as pension plans and insurance companies, will often purchase bonds. But they also have teams of people who can thoroughly analyze which bonds to buy, along with when it is best to buy—and sell—them.
Some Investors Use Bond Funds to Balance Their Portfolio -Lois
Individuals don’t have this kind of investigative power, and it would require an individual with a lot of individual bonds. Therefore, you need a lot of money—for your individual “bond portfolio” to be considered diversified.
An alternative would be to invest in bond funds, in Treasury Bonds or Muni’s. You can invest in bond funds, which is significantly different from an individual bond.
The obvious difference is that an individual bond is just what its name implies—i.e., one bond—while a bond fund is a collection of individual bonds. Before you invest in bond funds, start a series of simple ways to save money first.
Another big difference is that, while an individual bond will mature, a bond fund never matures. (Remember, you can cash-in on your bond when it matures and get your principal investment back).
If you invest in bond funds, it is best to look for one whose individual bonds have average, short-term maturities. As investors get older the tendency to invest in bonds more than stocks, because the fluctuation in prices tends to be lower. Disclosure: I do invest in bond funds, as well as other investments.
SUMMARY
- There are high-yield bonds and high-quality bonds.
- High-yield bonds pay higher interest rates but are not very stable; the highest yielding bonds are known as “junk bonds.”
- High-quality bonds pay lower interest rates but are usually more stable than high-yield bonds.
- Bond prices fluctuate: a low-quality, high-yield junk bond’s price could even fluctuate to zero; this would cause you to lose your principal, should you have invested in such a bond.
- The highest-quality bonds are rated “Aaa” and “AAA,” by Moody’s and Standard and Poor’s rating services, respectively; and the lowest-quality bonds are rated “C” (junk), by the same two services
- To decrease your chances of landing a bond with a price that fluctuates too low, it is best to buy short-term bonds.
- There is big difference between individual bonds and bond funds; one important difference is that, while individual bonds mature, bond funds never mature.
Lois Center-Shabazz | Course Delta Agency
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How To Find High Performing Mutual Funds For A High Performance Portfolio
Finding high performing mutual funds investments for a high performing portfolio is simple when you have a little research. Great mutual funds are a result of a stock market that has been going up consistently for the past few years, and is posed to continue on the current positive course. Therefore, now may be the time to research quality mutual funds.
Mutual Funds
1. Definition of High Performing Mutual Funds
There are literally thousands of quality mutual funds to research, the small list below will get you started. First there are a few things you should know. Mutual funds are used for your 401k, regular savings or investing.
You can purchase most high performing mutual funds from an online. Buy from brokers such as Fidelity Investments, Charles Swab, TD Ameritrade.
Or you can go directly to individual mutual fund company websites such as Vanguard Mutual Funds, T. Rowe Price, American Century, Parnassus, Permanent Portfolio and others. These are all low cost mutual funds.
Those I mentioned here happen to be among the largest companies, but there are many others to choose as research candidates. Most of the discount brokers offer free mutual fund research as well as Yahoo Finance, MSN Finance, and Google Finance all under the mutual fund channel.
Understand How to Research Mutual Funds From a Money Strategist
2. Finding High Performing Mutual Funds
To find high performing mutual funds you must look at cost of the fund, returns, tax Rate, and asset allocation are 4 of the major categories I look at when I research a mutual fund.
There are many more you will find when you read mutual fund reports listed on the financial websites, and in the prospectus.
It is imperative that you know what you are buying before you buy it. Re-Read the prospectus of the mutual fund you are interested in several times prior to purchase decisions.
All of the following mutual funds mentioned are no-load funds. The following facts are current as of March
2011, they were taken from several mutual fund rating companies.
3. Cost Or Expense Ratio of Funds
Cost is most important for high performing mutual funds because the performance of mutual funds go up and down over time as do most investments.
The lower the cost, the more money goes to your investment. If your mutual fund goes way down, a high cost may be challenging. A reasonable cost almost goes unnoticed if the fund performs well over time.
Learn All The Details of Mutual Funds, Schedule a Discovery Session
Keep as much of your investment as possible by focusing on low cost mutual funds. If you are a beginner it is good to focus on mutual funds that are listed as low cost and low risk.
Most of these funds do not require a load or upfront cost unless you cancel the fund before 30-90 days. Each fund varies, read the individual fund prospectus.
4. Returns of Mutual Funds
High performing mutual funds have high returns and are calculated after all costs are deducted. A great one year return may be a fluke. I like to look at the longer returns of the mutual fund. After all, an investment is the increase in value of an instrument over time.
I prefer to look at the 5 and 10 year return of mutual funds to get a broader picture. If the 1 and 3 year returns are high also, that may be the sign of a winner.
Bear in mind you must read the recent news and statistics of your mutual fund, because past performance is no guarantee of future performance.
5. Allocation of Mutual Fund Assets
You don’t need a lot of mutual funds if you choose quality, since a mutual fund usually consists of a diverse mix of stocks. There are different types of mutual funds. So if you choose to own some they should be of different asset allocation groups, to avoid overlapping investments.
Some of the different types of asset allocation groups are: Large Growth, Small Growth, Large Value, Short-Term Bond, Mid-Cap Value, Diversified Emerging Markets and many more.
When you go into an online investment area read about each different type of mutual fund available. If you are a beginner it may be a good idea to study the low risk, low cost mutual funds first.
6. Taxes Paid on Mutual Fund Profits
All of the funds listed below have low turnover, and therefore low tax rates. The turnover rate is the rate at which stocks in the fund are bought and sold. If the stocks are kept long term, they will be subject to long term capital gains tax, which is amongst the lowest taxes to be paid.
7. These are current Mutual Funds with Top Standings in the Respective Categories
Portfolio 1
Parnassus Equity Income Portfolio (PRBLX)
Type: Large Blend
Risk: Below Average
Yearly Expense Fee: .99
Return To Date: 3.7%
Return 1 year: 17%
Return 3 year: 5.9%
Return 5 year: 7.3%
Return 10 year: 7.0%
www.parnassus.com
Permanent Portfolio fund (PRPFX)
Type: Conservative Allocation
Risk: Above Average
Yearly Fee: .93
Return To Date: -.07%
Return 1 year: 20.4%
Return 3 year: 8.0%
Return 5 year: 9.5%
Return 10 year: 11.0%
www.permanentportfoliofunds.com
Yacktman Fund (YACKX)
Type: Large Blend
Risk: Average
Yearly Fee: .93%
Return To Date: 1.7%
Return 1 year: 8.47%
Return 3 year: 12.1%
Return 5 year: 9.4%
Return 10 year: 11.82%
www.yacktman.com
These are just a few examples of high performing mutual funds, there are many. You will find the quality mutual funds when you do your research.
This is not a solicitation to buy a mutual fund. These are only mutual fund suggestions for you to research. Read the mutual fund prospectus before you consider purchasing a mutual fund. Most are available online, at each mutual funds website.
These mutual funds were given a top rating by at least 7 different mutual fund research sites.
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MsFinancialSavvy, Lois Center-Shabazz
Lois Center-Shabazz| Money Strategist | Course Delta Agency
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3 Important Facts to Know Before You Invest in Mutual Funds
Here are three facts that are the bare bone necessities to know before you start to invest in mutual funds. In this series, I will give you information little by little about mutual funds until I feel you have a great grasp on the topic, and can choose your own high quality funds.
1. WHAT IS A MUTUAL FUND?
A mutual fund combines money from several investors to invest in different types of investments or investment companies. The investments could be stocks, bonds, money market instruments’ or other types of investments.
Each investor in the mutual fund hold a proportion of the investment in the way of shares. There are low-risk, mid-risk and high risk mutual fund companies, as well as low earning and high earning companies.
One mutual fund company is typically very diversified and can invest in as many as 400 companies or as few as 40 companies. Diversity is what takes much of the risk out of mutual funds.
2. HOW DO I PURCHASE A MUTUAL FUND?
Stocks are purchased from stock exchanges, such as the New York Stock Exchange, usually through a brokerage office or online broker. Mutual funds are baskets of stocks and can be purchased from a variety of places.
Mutual fund shares are purchased from the mutual fund company itself or from a broker. When you are educated in mutual funds, which I intend to do, you can easily purchase your own mutual funds online at any number of investment companies.
3. WHO OVERSEES THE MUTUAL FUNDS I INVEST IN?
Registered and licensed Investment Advisers, in a team or individually, manage investment portfolios of mutual funds.
Investors have an advantage, by using the expertise and experience of the advisers.
You can go to sec.gov or finra.org to verify that your adviser is a registered investment adviser.
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5 Frequently Asked Questions About Mutual Funds For Women
Frequently asked questions about mutual funds
I have given a lot of lectures about mutual funds for women. I like mutual funds because, if you do your research you can purchase low-cost and low-risk mutual funds on your own. Mutual funds are easy to understand and invest in. You can do it yourself once you have done some research. Here are five of about twenty-five of my most frequently asked questions about mutual funds by women I lectured to. After a few decades of successfully investing in mutual funds, I felt it is only fair that I share my expertise with you.
- ARE MY MUTUAL FUND INVESTMENTS GUARANTEED AT ALL?
Insurance is provided by the SIPC, which covers fraud. In other words, if you invest your money in company “C”, a registered investment company (registration with finra should be checked), and it is stolen by the President of Company “C”, you will be covered for up to $500,000 for each account, depending on the circumstances. Example: If a husband and wife have a joint account it is covered up to $500,000, if the each have additional retirement accounts in their separate names, the retirement accounts each are covered up to $500,000. Here is the SIPC insurance breakdown.
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WHAT ARE THE ADVANTAGES OF INVESTING IN A MUTUAL FUND?
With a mutual fund you will get professional management, diversification, an affordable investment, and it is liquid. This is one of the main reasons that I encourage investors to invest in mutual funds, after reading my frequently ask questions about mutual funds. It only takes a little research and study to master mutual funds, but because there is a learning curve I encourage you to master them first.
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WHAT ARE THE DISADVANTAGES OF INVESTING IN A MUTUAL FUND?
You still have costs even when returns are negative, you don’t control the investments totally, you don’t know for sure if the price will go up after you purchase – but after research you can verify that you are getting a quality mutual fund where there is a good chance the price will rise in the future. If you invest on your own you can keep cost low and more money will go to you, but if you go with a broker, you will be required to pay brokers fees which are sometimes hidden and costly.
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YOU CAN EARN MONEY FROM YOUR MUTUAL FUND IN THREE WAYS
Dividend Payments — A fund may earn income in the form of dividends and interest on the securities in its portfolio. The fund then pays its shareholders nearly all of the income (minus disclosed expenses) it has earned in the form of dividends.
Capital Gains Distributions — The price of the securities a fund owns may increase. When a fund sells a security that has increased in price, the fund has a capital gain. At the end of the year, most funds distribute these capital gains (minus any capital losses) to investors. Most mutual funds pay money into your mutual fund account yearly, a few pay on a quarterly basis. This means if you pull your money from your mutual fund that pays out capital gains and dividends at years end, you will lose your profits. So, be patient, and know your payout date.
Compounded Returns – unlike simple interest accounts the interest on top of the dividends and capital gains will compound year after year, giving you compounded interest.
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WHAT IS THE NAV OF MY MUTUAL FUND
Increased NAV (Net Asset Value) — If the market value of a fund’s portfolio increases (from dividends and capital gains), and after deduction of expenses and liabilities, then the value (NAV) of the fund and its shares increases. The higher NAV reflects the higher value of your investment. The more the NAV increases, the more money your investment will be worth. The NAV value can fluctuate from month to month or year to year, the important point to look at is that it has a net increase over time.
You have two choices:
Let someone else manage your money and end up with little or nothing OR learn some simple basic rules that could turn a little into a lot over time. I provide you with all the help you need in my eBook on Mutual Funds. I even give a 30-minute free clarification session after you read this article. The eBook I have written is clear and concise, after you finish it you will understand how to efficiently invest in mutual funds.
Lois Center-Shabazz | Course Delta Agency
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I cover dozens of frequently asked questions about mutual funds in this eBook. Get this eBook and 7 more when you take the “Course for fantastic Finances”
Why Women Need to Understand Investing Now
Investing Money for Beginners
There Are No Guarantees if Women Do Not Understand Investing
Women need to understand investing now because there are no guarantees you will stay married or even get married, women need to know how to take care of their finances. This is the start of investing money for beginners. This includes learning stock mutual funds, bond mutual funds and simple index funds. With these three types of funds you can buy stocks inexpensively, with low risk and learn to read charts that are not difficult.
But understanding investing now means you need to understand sane savings (my mantra), mega-money management (because everything is ultra-expensive), and investing (because you need to stay ahead of inflation to keep your money growing).
Far too many women are still taught to be financially dependent, even when you work, and many don’t get involved in family finances since you feel prince charming will be there to protect them forever. It is important to work together on finances, and staying out of family finances could have dire consequences foreither spouse. Stay involved in your family finances.
Divorce or Death Effecting Your Finances
Because you have at least a 50% chance of divorce and even greater chance of being separated from your spouse, it is imperative that you understand all the nuances of money, including investing. I focus on mutual funds because, 1. That is where my long term expertise and success is, 2. They are easy to understand once you put some “peddle to the metal” and study some of what I call, “mutual fund research”.
If you are not dependent on your husband to take care of all finances during your marriage, or an adviser if you are single, then you will know what to at any time, including with an illness, accident, or death. Dependency is not a good thing.
Many women fall victim to con artist who prey on women with money and no financial skills, because they are not familiar with the ease at which others prey on those without financial experience. Understanding stocks, bonds and mutual funds will create a knowledge bubble around you, that will keep you safe.
There are literally millions who have lost millions due to being trusting and naive. Don’t make yourself a victim by keeping your financial knowledge and skills very low. The potential for divorce or death from a spouse are a major reason why women need to understand investing.
Protect Yourself Now and in The Future and Protect Your Money
There are many women who never write a check or pay a bill, after getting married. That is hard to imagine, but it exists. Writing checks and paying bills are a powerful way to keep yourself aware of family finances and the limitations of money.
Then you monitor investments in mutual funds, or other investments for savings, college, or retirement, this gives you another layer of awareness and will help protect your finances now and in the future. I speak to beginning investors all the time who can’t analyze the simplest investments. This is not acceptable. Teaching investing for beginngers is something I am passionate about so you can protect specialty finances.
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Therefore, women need to understand investing. Social security is meant to be a supplement, that is why the payout is very low for most people. Your 401k can be overrun with success if you know investing money for beginners. If you have a pension or get your husbands pension from death or divorce you can still benefit from know how it invest money.
When you understand investing, the chances are good you will also understand how to grow your investment retirement account and hold on to the accounts build by you or your spouse. Understanding why women need to understand investing will create an entire class of new and capable investors, who can also teach their daughters.
Lois Center-Shabazz | Course Delta Agency
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9 Great Ways to Understand Mutual Funds
How to Understand Mutual Funds
Understand mutual funds by beginning with the definition of a mutual fund, and then going on to understand the different types of mutual funds.
A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt.
The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part
ownership in the fund and the income it generates.
What Are Mutual Funds Used For?
Mutual funds are investments that are generally long-term investments that are used for general savings, retirement savings, and college fund savings.
Mutual funds are purchased because they are professionally managed, diversified investments, an affordable investment, and liquid.
Some have up front fees to purchase and or sell called loads. Some have no-loads, but all have yearly management fees from as low as .2 to 8%.
I prefer fees less than 1% with no-loads. There are good mutual funds that fall into all categories.
Mutual funds make money when dividends are paid, usually every 3 months to every 12 months. Capital gains are usually every 12 months. Mutual funds also make money when the NAV value of the fund increases. The NAV is the Net Asset Value of the mutual fund, similar to the price of a single share of stock.
There are many types of mutual funds within these nine types of mutual funds. Here are the 9 different major types of mutual funds. The risks of mutual fund investing runs the gamut of very low to very high and many levels in between within one type of fund. Do your research thoroughly before investing in order to understand mutual funds.
I have invested in mutual funds for at least 30 years now, and they have served me well.
The 9 Different Types of Mutual Funds:
1. Allocation
Risk: Low to Medium
Allocation funds are a combination of stock and fixed income securities and are subject to the risks involved in each of these security types. Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. In general, the bond market
is volatile and fixed income securities that carry the interest rate, inflation, price volatility and other risks.
2. Alternative
Risk: From Low Risk to High
The fund may invest in securities that may have a leveraging effect (such as derivative and forward-settling securities) which may increase market exposure, magnify investment risks, and cause losses to be realized more quickly.
3. Commodities
Risk: High
The commodities industry can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions.
4. International Equity
Risk: Medium to High
Foreign markets can be more volatile than U.S. markets due to increased risks of adverse issuer, political, market, or economic developments, all of which are magnified in emerging markets. These risks are particularly significant for funds that focus on a single country or region.
Make absolutely sure your budget is in order before you begin to understand mutual funds and start investing.
5. Money Market Mutual Funds
Risk: Very Low
A money market mutual fund is a type of fixed income mutual fund that invests in debt securities characterized by their short maturities and minimal credit risk. You could lose money by investing in a money market fund. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Before investing always read a money market fund’s prospectus for policies specific to that fund.
6. Municipal Bond Mutual Funds
Risk: Very Low to Low
The municipal market can be affected by adverse tax, legislative or political changes and the financial condition of the issuers of municipal securities. Interest rate increases can cause the price of a municipal bond to decrease.
7. Sector Equity Mutual Funds
Risk: Medium to High
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Sector funds can be more volatile because of their narrow concentration in a specific industry.
8. Taxable Bond Mutual Funds
Risk: Very Low to Medium
In general, the bond market is volatile, and fixed income securities carry interest rate risk. As interest rates rise, bond prices usually fall, and vice versa. Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.
9. U.S. Equity Stock Mutual Funds
Risk: Low to Medium
Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.
You will understand mutual funds when you begin with understanding the different types of mutual funds.
Lois Center-Shabazz | Course Delta Agency
Personal Finance: Author, Blogger, Course Creator, Money Strategist
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Your 3 Investment Stops To Start Investing
Don’t Let Negative Thinking Place You in Investment Stops, Start Investing Now
Here are 3 investment stops to start investing money for retirement, savings, vacation or just a rainy day. It is essential if you want to ever retire, you must know how to invest.
The 3 Major Investment Stops
I don’t have enough money to invest.
I have to pay off my bills first.
I have money to invest, but I am afraid.
What is stopping you from starting to invest? Three of the most common investment stops are listed above. What can you do to start yourself to invest?
There are many inexpensive ways to start investing. You can open an investment account with a broker that sells shares or partial shares of stocks.
You can open a mutual fund account with a mutual fund company that will allow you to start with a small amount of money. And finally, you will have to shed some old baggage about investing, for example, “I will start investing when I get my bills paid off,” or “I am afraid to invest.”
Start With the Right Investment Priorities:
Invest in the right car
Invest in the right home
Learn comprehensive investing in mutual funds, credit scores, budgeting,
saving money, and student loans. Learning low debt strategies is essential.
You don’t have to have a lot of money to start an investment account.
There are mutual fund companies that will allow you to start an investment account for as little as one hundred dollars. You can add as little as twenty-five dollars a month.
The monthly additions work to significantly increase your account due to dollar cost averaging. Low-cost, low-risk mutual funds have a tendency to be less complicated than stocks. But, low-risk dividend paying stocks of stable companies are a good research vehicle as well as mutual funds.
There are companies that will allow you to invest in a few shares or partial shares of stock starting with as little as eight dollars a month. Then, adding eight dollars a month to your account to purchase these shares or partial shares of stocks .
I have to pay off my bills before I start to invest.
It is a good idea to have your debt well under control before you start to invest. The interest rates on outstanding debts sometimes are in excess of the interest rates on investments. Coupled with compounded interest, high debt payments can be excessive.
There is an easy way to invest after you have your bills under control, that is to treat your investment as “just another bill.” Before you know it, you will have a significant investment account.
Do you have plenty of money to invest, but you are simply afraid? I think the term for that is, “fear of the unknown.” That is probably the easiest investment stop we address in this article.
Study the investment tutorials in my eBook and course; Step by Step Car Buying Tips for Women, that can save your financial life. You can download it instantly, and the eBook is practically free, the price is so low.
Then, you can go on to understand high level home buying tips, so you buy the best house for the best prices. Now move on to my free discovery session and enjoy the preponderance of money information there.
Lois Center-Shabazz | Money Strategist | Personal Finance Coach
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Stock Research Tips
Use this stock research information to start your stock research and investment in equities, including mutual funds.
Equity Securities
One of the first stock research tips you should know is; an investment in a stock issued by a company is an equity security. There are individual equities or stocks and you can purchase equities in mutual fund shares when the mutual fund is made up of stocks.
I personally feel beginners, but many seasoned investors are better off investing in mutual funds – mainly because they have expert management. But, you must understand individual equity securities before you start to invest in mutual funds.
Earnings and Profitability
Check to see if your company has earnings. Then check to see if there has been a yearly increase in earnings for the past five years. After earnings verify the company has a profit. To the novice investor, it seems that a company cannot exist without profits.
But, companies can and they do. Some companies get their start with venture capital funding, this funding is paid to companies as high as 5, 10, 50 million dollars and up.
Some companies make good on their venture capital funding, pay the investors, and make a profit, and some don’t. This is what happened with the dot-com bombs of recent years, many of those companies had venture capital funding.
Some of them were given millions of dollars without having a company, earnings, or lest I say, profitability. Only a few of those companies persisted, developed products, and turned a profit. Since this is the highest risk level of a new venture company, it is best to invest in these companies after they have proven products and have turned a profit.
P/E or Price to Earnings Ratio
First look at the company’s earnings as they stand-alone. Does the company even have earnings? How can a company even exist without earnings? During the recent dot-com craze of the late 90’s , many of the companies’ stock prices increased dramatically in just a few hours to a few days, after going public, but yet the companies had no earnings.
The reason they were able to debut on the stock market, was in part, as I mentioned above, because of funding from private sources or venture capital companies. After going public, their stock prices dramatically increased because of speculation that they would have future earnings.
The Internet was and still is relatively new. Some companies have made a lot of money and real earnings on the Internet in a relatively short time, or it seemed relatively short compared to the standard brick-and-mortar companies, as they are called.
Actually, many of the Internet companies that are making a lot of money with real earnings had been in existence for a few years, some developing for quite a few years behind the scenes, before they went public.
What was the clue that investors had that the dot-bombs (as I call them) had no earnings. Inexperienced investors could have looked at their P/E or price to earnings ratios. It was not uncommon to see a price to earnings ratio of 300 or 350 for some of these companies! Now that is high! In contrast many value companies have price to earnings ratios of 15, 20, or 30.
P/E or price to earnings ratio: Calculations
To calculate the price to earnings ratio, divide the stocks latest price by the earnings for the past four quarters.
Example:
$20 current stock price = $10
$2 past earnings per share
This is called the trailing PE because it is based on the companies past earnings. You can also figure out the companies projected earnings with the same formula, just substitute the projected earnings figure with the past earnings figure.
Price to Book Ratio
The price to book ratio compares the companies price to its assets.
Example:
$20 current stock price = 100% price-book ratio
$2 book value per share
If the company sells for more than its book value, investors think highly of the company. If it sells for less, investors don’t think much of the assets. Some people buy undervalued stocks, that is, stocks selling below book value because they feel they are getting a bargain.
Sometimes when you hear media reports about a stock you will hear them mention that the current stock is “selling below book value.” Some people use that as a clue to start research on that stock.
Debt Ratio
Since the Enron stock scandal, other companies have been audited by the Securities and Exchange Commission, and had to restate their earnings or have voluntarily restated their earnings. Another fundamental they have had to restate is debt. Low debt is a fundamental that many investors use to purchase a stock.
In light of the Enron scandal, some companies have admitted to hiding debt in various ways. In order to understand most of the fundamentals of a company, you will need to read the annual report, and the quarterly reports. Look for things that don’t add up, that don’t make sense or just seem “padded.”
The debt ratio; is the liabilities of the company minus the total shareholders equity. 30% debt-equity ratio is considered low debt.
Example:
10 million total liabilities = 20% debt-equity ratio
50 million???
Compare debt to your house mortgage, if you have no mortgage, and therefore no debt on your home, the less you depend on your income to sustain it. You primarily have maintenance cost and taxes. Debt is a good measure of a company’s stability because the less debt a company has the less it has to depend on financing to sustain itself.
If debt is used wisely and the company can handle the payments easily, debt is not a problem. There is always the potential for problems if the company has high debt and their core products stop selling or have to be recalled for some reason, and they can’t make their debt payments. Conservative investors usually opt for low-debt companies.
Dividend Payout Ratios in Equity Investments
Tells how much of a companies profits are paid out in dividends. Older more established companies pay high dividends, where newer growth companies invest back into the company for growth and development of new products.
Example:
$2 dividends per share = 50% dividend payout
$3 earnings per share
Dividend payouts more than 50% means the company is not reinvesting much back into the company.
Industry Leader/Company Leader
Check to see if the company is in a leading industry, and that the company is a leading company in its industry. You wouldn’t want to invest in an industry that is going out of business, or a company that is doing the least business out of all companies in its industry.
You can find leading industries and leading companies categorized in major financial newspapers. Leading companies are also mentioned on televised financial news reports.
Stock Investment Management
Analyzing the company management is not a quantitative measure, but it is an indicator. Research the company management to see if they have been successful developing products for their company in the past, or if they have successfully developed other companies or products.
Read about them in online proprietary stock reports, read their history in sec (securities and exchange commission) reports, read about them in your brokers online reports. Some financial newspapers and magazines will also feature reports on company management. Jack Walsh, the former CEO of General Electric is an example of great company management, as touted by the press.
Read Annual Reports for Stocks
There are several places to study the companies you are interested in researching. First, start with the company annual report. You can call the investor relations of the company and order a report. Also, some financial newspapers provide a place where you can order annual reports.
Just check the stock section of major financial newspapers. Some annual reports are available online. Check with your online service or your online broker service to see if you can get annual reports online. You can also use “Edgar” online. Use “Edgar” at: www.sec.gov/edgar/quickedgar.htm
The Securities and Exchange Commission provides Edgar. Using “Edgar,” you can do company research. You can read annual reports, quarterly reports, mutual fund annual reports and mutual fund prospectuses. There is even a tutorial to teach you to use Edgar, at the Edgar website.
Long-Term Hold
Why do stocks work best when held long term? It takes time for a company to develop a product, it takes time for a company to market and sell a product, and so it takes time for a stock to move up in price. With that said, even though you research investments before buying them, buy and hold does not mean, buy and ignore.
You should periodically evaluate the companies you hold to verify that it has not taken a bad turn, and stands to go bankrupt. You can also monitor your investments with company news using financial newspapers, financial news on television, and online financial news. There are companies that go bankrupt periodically.
If you research your company well and make an informed decision to purchase your company stock, invest in companies with high value, and monitor your company periodically, your chances of losing money with a bankrupt company should be slim.
Summary: What factors should you consider in your investment research?
Long term investing
Low taxes on investments
Strong quality companies
Great company management
Get The “All Inclusive” Course for Fantastic Finances” Which Includes Stock and Mutual Fund Research, Guerrilla Budgeting, Sane Savings, Improve Your Credit Score Like a Pro, Group Coaching and More.
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Lois Center-Shabazz | Course Delta Agency
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3 factors that make mutual funds special
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Longevity
Mutual funds last and last and increase in value over time.
Many mutual funds display tried and true value. They have been around for decades and some of them are managed by people who have their own money in the fund. This is a plus because, “who wants to lose their own money”?
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The Research Reports
You know what you are getting with mutual funds because research reports are abundant and easy to read and clear.
There are many research reports where you can see how the mutual fund you are interested in has performed in 3 years, 5 years, 10 years and for life. To me, this is considered a wealth of information, and no one should ever purchase a mutual fund without reading the research reports for the fund. I can show you how to read these reports.
- Ease of Understanding
They are easy to understand with just a little bit of effort.
If you are willing to do a little work and learn where to get mutual fund reports and how to read the mutual fund reports, you will greatly increase your chances of making money on your mutual funds. Will this happen quickly, in a few cases yes, but in most cases like any other “investment” it takes time to make money. But, within that time you will make money if you put the effort into it.
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3 Ways Mutual Funds Are Cost Effective
Mutual Funds Are Cost-Effective
You Can Choose No-Load
Mutual funds are cost-effective mainly because you don’t have to pay to buy a mutual fund. Some investments including annuities and high-cost mutual funds decrease your profits as time goes on.
You can pay $0 per purchase, for a mutual fund bought directly from an investment company, or you can pay $8 for a mutual fund purchase through a broker.
This means every time you purchase shares in a mutual fund you must pay a load. In no-load mutual funds, there are still other charges that will affect your profits such as yearly fees. You can choose quality mutual funds with low yearly fees. I can demonstrate how to find mutual funds that have low yearly fees for you.
You Can Choose Low Cost When It Comes to Yearly Fees
There are many high-cost mutual funds, but you can choose low-cost mutual funds that will significantly increase your returns over time since yearly fees are charged every single year.
As stated above there are many factors to look at. I can show you all the fees involved to maximize your mutual fund returns and show you that mutual funds are cost-effective.
You Can Choose Low-Risk
There are many types of mutual funds, just because a mutual fund is medium or high risk does not mean it is not a good fund.
I have made money on many medium and high-risk mutual funds over the years.
It only means that the ups and downs are less, and the risk of temporary decreases in value is much less. I can show you how to determine if you are a low, mid, or high-risk person. And I how to create a great mutual fund portfolio no matter what you are using it for.
When you consider the load, the fees, and a few other factors, you will find mutual funds are cost-effective ways to build your money.
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15 Golden Rules of Personal Finance Security
Secure Your Personal Finance Security With These 15 Golden Rules
1. Your employment provides your wealth
Your personal finance security starts with getting the best job possible, and keeping that job is your primary path to wealth. Consistent paychecks over time will fund your savings, retirement, emergency and college accounts. Taking courses and jobs that train you to move upward are the best ways to consistently increase your salary over time.
2. Don’t assume you can replace your wealth
If you understand that every single dollar you accumulate, whether it is from employment, inheritance or any other windfall is precious and you manage it as though it were your last. People who don’t understand this, acquire money, sometimes large sums and spend it foolishly because they feel there is always more where that came from. This is not necessarily true, many don’t find this out until they want to retire and realize spending retirement money before they retire or simply not saving enough, is a major source of elderly poverty.
3. Create a bulletproof portfolio for security
Learn the basics of investing. Here you can choose low cost, low risk investments for your retirement and other investments. There are many investments that are easy to understand and easy to monitor. Monitoring your own investments gives you peace of mind.
4. Recognize the difference between investing and speculating
Investing is placing money in a vehicle that will grow over time — provided you choose wisely. Speculating is more like gambling, or placing money in investments you don’t have a clear understanding of, and hoping they make money over time.
5. Speculate with money you can afford to lose
When you go to a gambling casino, you would not gamble with money you need, like your house note. The same is true with speculating, since it has a tendency to be high risk investing, make sure it is small enough so a loss will not impact your finances.
6. Don’t depend on any one investment, institution, or person for your financial advice
The more you research, the more you learn, the least likely you are to be cheated by an adviser or institution. Remember Bernie Madoff, when questioned, all of his clients said they used him because they trusted him. They did not do their homework on his company and hence, he stole their personal finance security. A check at finra.org, would have shown he was not a registered investment adviser.
7. No one can predict the future
If anyone tells you that an investment will go up with 100% certainty be very suspicious of this person. If anyone gives you a definite percentage the investment will go up, be suspicious. Many investments have past histories, but even those cannot tell you with certainty what the future will be.
8. Whenever you are in doubt about a course of action, error on the side of caution
After doing a lot of research and you still have doubts about a person or institution to invest with, you may want to consider other options.
9. Don’t ever do anything you do not understand
Some brokers will tell you, I know you don’t understand this investment, but just take my word, it will work out. If you don’t clearly understand what they are clearly selling you, wait until you can. You cannot buy personal finance security, but you can use your common sense to keep yourself safe.
10. No one can move you in out of investments consistently with precise and profitable timing
Moving in and out of investments is expensive. Every time you buy and sell an investment, there are cost. Anywhere from home sales to buying stocks or mutual funds. Some cost are far greater than the gains on the product. Investment growth happens over time, the longer you wait the more you make, and the less cost you will pay, due to long term capital gains.
11. Use leverage with caution
When someone goes completely broke, sometimes it is because they used borrowed money. The more money you have to borrow to invest, the more likely you are to get higher interest rates or low quality investment products. The lower your debt, the better chance you have to save money for investing.
12. Beware of tax-avoidance schemes
Every so many years companies come up with financial products that help you to avoid taxes. If it seems too good to be true, it probably is, so be cautious. Sometimes these products are disallowed years after they are put in place, and you will lose your deductions.
13. Enjoy yourself with a budget for pleasure
While it is important to save and invest for general purposes and retirement, it is also important to budget in fun. Fun as in vacation fun or weekend fun, of course within the confines of your budget.
14. Live within your means
My motto is, “Live Within Your Means, and Your Life Will Mean Something”. This will save you money, pain and heartache in the future. The more you place limits on spending within your budget, the better you will feel all around; financial, emotional and mental stability. This is the summation of personal finance security.
15. Protecting your assets with insurance and estate planning is essential
After saving, investing, and having a fun vacation, it is absolutely necessary to protect all you work for or it can evaporate with one bad event. A car accident or home disaster can loose everything if you are not properly insured. Your estate plan will protect your loved ones.
Lois Center-Shabazz | Course Delta Agency
Personal Finance: Author, Blogger, Course Creator, Money Strategist
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An Excerpt From My Mutual Funds eBook
Introduction to Basic Investing
Would you give your baby to a stranger and tell them, I will be back to pick up my baby in 21 years? Make sure you take good care of him or her. Your answer should be an emphatic “no”, if you care about yourself, your baby, or your lives.
The same should hold with your financial future. Your saving and retirement investments. If you want to be successful accumulating money for future use, either the near future or the far future. Just like your children, you must know who is managing your money and what they are doing with your money, what the risk are and what the investment costs; rather stocks, mutual funds, CD’s, money markets, real estate or annuities. It all cost money to invest money, in terms of fees.
Online Investment Portals
Because of online investment portals, it is relatively easy to research and learn about investing well enough to analyze investments that your broker recommends. You can also monitor your investments at online portals and study the latest information about investments and investing.
Why I Wrote My Mutual Funds eBook
Some folks think you have to be rich to invest money. That is not true, and why I wrote the mutual funds eBook. You have choices of investing in your employee retirement account. You can save for college in an investment account, you can save for an individual retirement account, and save for general savings. All of these require basic investing knowledge by first reading this eBook and then going online to study investing in the online portals, then you can set up an account and monitor the progress.
I started investing a long time ago. First, I used brokers at brick and mortar companies. But, quickly became discouraged because I didn’t know what they were doing with my money. I worked hard for that money. I never had the fear that I was involved in a Madoff type investment firm (as you recall Bernie Madoff stole billions of dollars from investors in an illegal firm), because I used major investment companies.
But, you can still lose your principle with major firms, if you use investment advisers who invest your money in high risk investments that go under. First of all, there are low risk investments that pay good returns over time, and very low cost investments, where the cost don’t eat up your returns.
After I used brick and mortar companies that didn’t tell me what they were doing with money, I started using online companies. I took classes, I read quality investment magazines, I read books, and then I talked to online investment advisers associated with my online investment company.
Investment Research
I also read a lot of investment research in my online investment portal. Knowing my investments, monitoring my investments, and getting top notch advice when I need it made all the difference in my bottom line.
By the time you finish this eBook you should know the difference between a high risk and low risk investment, a bond, mutual fund and money market account, and money market investment, and a stock. By the way, most investments and most areas of life are based on stocks. Stocks are the basic investment. Pretty much everything you use is derived from a company that invests your goods or services in “stocks”.
Mutual Funds Origin
Mutual funds are based on stocks, annuities are based on stocks. The other vehicle is bonds, the opposite of stocks. With both stocks and bonds — you have high risk and low risk in each category and you have high cost and low cost in each category.
There are other types of investments as well. The main caveat I always used is, “I don’t ever invest in anything I don’t fully understand”. I don’t care what ANYONE says, “if I can’t research it and understand it, I don’t invest in it”. I also make sure that any company I use is a registered investment company with a verifiable good reputation.
My Primary Investments
My primary investments are in mutual funds. They are especially good for beginners and busy people since they are professionally managed, you can find low risk funds, and low cost funds to invest in.
Do you want to be a vulnerable and confused person? or a Knowledgeable, happy and self-assured investor? You can start with my complete, easy to read and understand mutual funds eBook. Contact me with questions when you are done. Learn investing; From Stocks to Mutual Funds in 47 Ways.
Since mutual funds consist of a basket of stocks, I start the conversation with beginner stock knowledge.
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