What Really Moves Stock Prices Up and Down?

Posted by admin in Stocks on Sep 21st, 2011 | 0 comments

When you start getting into the stock market, it can really seem like a thing of mystery. No one really explains to you why prices move up and down. Well, we should correct ourselves. It’s not that they don’t explain it — it’s just that everyone seems to have their own little conspiracy on why stock prices move up and down. It’s better to actually stop and really look into the best reason why stock prices move up and down. The starting answer that you get in classrooms is that the market is subject to supply and demand. If it were that simple, things would be a lot less complicated. So this guide is all about figuring out what really moves stock prices up and down.

It all starts with how the rise of the Internet has affected the way stocks are traded. Since the rise of the electronic exchange, stock prices can move around multiple times per second. This is all tracked by computer systems, which means that traders have to be a bit more focused on short term as well as long term price changes. There are always going to be swings in the market. It’s just a matter of taking action based on the things that you can control. If you try to react everything the price changes, then you’re definitely not going to keep up with the market.

If you really wanted a straightforward analogy, you could see the trading of stocks like the buying and selling of houses — is that not a trade? Currency in exchange for ownership of a property? Sounds like a trade to us. One thing that people don’t understand about the housing market is that nothing is ever fixed in stone. A seller might want $200,000 for the house, but the price is actually negotiable. This is why it’s called the asking price and not the fixed price. If you really think that you can get a better deal on the house, you will need to negotiate for it.

Stock sellers are the same way — they are offering shares for sell, at a certain asking price.

In both the stock market and the real estate market, buyers want to get what they’re trying to purchase at a price that’s as low as possible.

So in the real estate market, we might have a buyer that places a bid for $150,000. That’s the bid — notice that it’s lower than the “ask”.

That’s a principle that’s related to the stock market as well — there are times where there will be a “bid” of $150,000 for a stock, even though the offer is $200,000. That’s the “bid/ask” spread — the difference between what the seller wants to get and the buyer is willing to pay.

What this means for stock price changes is this: it’s the demand on the market coupled with the inventory available. If there are a lot of shares on the market, then each share isn’t worth as much. However, if there aren’t many shares and an inventor really wants a piece of the company, they’re going to have to offer a better price. This logic plays out multiple times per second and involves a lot of people — it’s no longer a single transaction between a buyer and a seller, but many transactions happening all at once across the globe. A global market gives everyone the theoretical chance to really get deep into the market and make money. Now, in reality, there will be limits — not everyone will be playing with the same starting capital.

This is the most straightforward explanation of stock price changes that we can give. This should give you the appropriate reference that you need when it’s time to look at charts and the like to determine what play to make next.

Open a Brokerage Account Online, Save Money

Posted by admin in Investment on Sep 19th, 2011 | 0 comments

So, you’ve heard about opening a brokerage account online to save money. The truth is that it’s definitely possible, and many people are learning that going online is a great way to get deeper into the investing world. Your computer, combined with the Web, can create a powerful research tool that will let you measure performance with ease. If you were going to a traditional broker offline, you would have to rely on paper charts, which can be too much of a hassle to really embrace. It tends up becoming a question of convenience, and this is where the Web really wins.

So, is it just a matter of running out and picking any online brokerage? No. You will still need to take a few considerations into account if you’re really serious about making the online brokerage experience as strategic as possible for your agenda.

First and foremost, you should understand that there really two types of brokerage firms — the traditional (which some still call “full service”), and discount. As you can imagine from the name, full service brokerages are going to offer more features than their discount counterparts. It’s really all about what type of experience that you want to have. For example, if you really want to be guided by the hand, a full service firm is definitely for you. You’ll have the peace of mind knowing that you don’t have to be a Wall Street wizard yourself — you can have someone put their expertise to the text for you. Now, this also means that you will have to think even harder about the type of service that you want to get, because this “golden gloves’ treatment isn’t cheap. You’ll pay a lot more in commissions going with a full service firm.

Don’t forget that the higher price tag comes with being able to work one-on-one with someone. A good stockbroker will give you ideas on where to go next with respect to your financial goals, as well as send you detailed reports with how your investments are actually faring in the marketplace. You will be able to reach them by phone or email to buy a wide variety of securities, which can be very appealing. In theory, you wouldn’t even have to be at your desk to make market plays. When you’re someone that has a very packed schedule, this is an appealing feature to have on your side.

However, what if you’re looking for a less feature-filled service that still gives you the meat and potatoes — in this case, that means the ability to still buy and sell securities when you need to do so. You might not get the dedicated one-on-one service, but you would be able to still take charge of your financial life.

Discount brokerage services are all about doing things as a do-it-yourself investor, which can be appealing to people that already have a proper financial background. They don’t offer investment advice, but they do offer you the ability to get things done just the same. Most discount shops are online because the overhead is less, which means that your fees are less. However, you can find a discount side to even some full service houses too. If you go with an offline shop (why you would is beyond us — online is far superior), you would be calling in your order to any broker, not just one assigned to you.

So why would you even go in this direction? Well, it’s a good way to make sure that you keep your commission costs low. However, some of the discount shops offer another bonus: lower opening balance minimums.

Indeed, when you open up an online brokerage account, you’re going to be asked to deposit a certain amount of money into the account to start out with. You want to make sure that you maintain that starting balance, because there could be some fees if you let your account sink below this mark. Those fees can really add up — sometimes to the equivalent of 6-8% or better!

Don’t forget that there will always be some tools and research gear that will be offered to you as a customer. After all, they have to make sure that you actually have the tools you need to track how your investments are actually doing. There are some premium services that might be available to you, so you’ll need to make sure that you have money set aside to take advantage of them.

You shouldn’t forget about the tax implications — since this is a taxable account, you will be getting a statement at the end of the year — the same statement will be reported to the IRS. This means that if you have capital gains, you will have to declare them on your tax return and pay taxes on the amount. You can deduct capital losses against what you made on the account, and you can also place them against $3,000 in earned income. So that’s also a tax shelter in of itself, to a point.

Overall, getting your way into an online brokerage really isn’t difficult. We avoided naming names for a reason, of course — we’d rather you research the companies that interest you and then see if they’re going to be a good place to put your money. That’s all there is to it!

ETFs Give You Diversification Without Complications!

Posted by admin in Investment on Sep 19th, 2011 | 0 comments

Let’s get risky! One of the prevailing beliefs about the investing world is that it’s something where people cannot make money. And when we say people, we mean regular people. Warren Buffett can probably make money with his eyes closed, but they don’t call him the Oracle of Omaha for nothing. It’s all about being at the right place at the right time — or is it?

The truth is that if you really try hard to time the market, you’re going to end up unsatisfied. That’s because the market as a whole is volatile, and market timing just doesn’t work. You have to look at things from a more strategic standpoint.

The cornerstone of strategy in this case is definitely diversification. However, when you’re starting out it can take a while before you can sit back and really say that you’re truly diversified? What does it really take in order to get the experience that you’re looking for? Well, it involves picking the right investing tools from the beginning.

If you’re looking for diversification without complications, one of the first things that you need to look at are ETFs. Now, we did cover ETFs on the surface a little while back, but we wanted to cover ETFs again so that you really appreciate the value of these securities.

On the surface, ETFs (Exchange Traded Funds), are simply a group of stocks. They offer diversification in a big way, and they also offer convenience. Instead of trying to run around researching stocks all day, you can just tag along with an ETF that includes the category of stocks that you really want to pursue. If you’re an oil and energy fan, you can find EFTs for that. If you would prefer to dabble with commodities…there are ETFs that can satisfy your needs. OK, that sounds dirty — let’s move on.

Now, you might be wondering why ETFs sound so good and they aren’t expensive on their own. This is because they aren’t actively managed — investors don’t hold shares directly. What really happens is that when you own an ETF, you have ownership in the shares of the fund. In turn, that fund has a portfolio of common stocks in a certain part of the market. This can even be an international thing — there’s nothing that says that you have to only deal with domestic securities. When you turn to ETFs, the entire world becomes your investment playground, and many investors like that.

The trouble with ETFs — and why so many people don’t like them — is because you have to make sure that you still follow classic allocation strategy. You don’t just want to go with ETFs at random. You will still need to think about degrees of risk. You will still need to read the proper financial disclosures in order to decide whether the ETF is right for you. Don’t just let people push you into an ETF — you need to make the decision for yourself.

Keep in mind that you don’t want to trade too much within the ETF system — you have to go through a broker to make all of your trades, and that means that you’re going to have commissions. Since you can trade ETFs intraday (throughout the day), it means that you can make many trades during the day. You can even place stop or limit orders, which can help you make things more automated.

At the same time, you don’t want to go too automated. If you just think that you’re going to set and forget about your money, you’re in for a rude awakening. Fundamental and technical analysis is still the name of the game, which means that you need to watch performance and be ready to bail if things start making a trend south rather than north.

Does the rise of ETFs mean that you can forget all about mutual funds? Definitely not. You will still need to make sure that you look at your value goals and push forward carefully.

Overall, ETFs are still appealing enough in terms of diversification without complications. Start checking it out today!

What is a Self-Directed IRA?

Posted by admin in Investment on Sep 19th, 2011 | 0 comments

If you hate the restrictions of a typical IRA set up, you might want to see your money explore new ground without fear of punishment from government bodies. That’s where a self-directed IRA can really come in handy.

A lot of people are turning to the self-directed IRA because it can actually give you the ability to put your money into higher yield vehicles than what a regular setup would allow for. If you got a hot tip about a private-equity deal, that’s something that you can actually use a self-directed IRA account for. It still gives you the ability to shield your money from tax liability in the short term, which is always a good thing.

There are still some restrictions — you can’t do life insurance inside an IRA, nor can you do collectibles. However, if you wanted to actually invest in a startup using IRA funds, then you aren’t barred from doing so. Yet the question remains: is this really a good idea? Some investment advisors say that it’s not, because the results can backfire and destroy the capital that you’ve put in.

The IRS also is watching these accounts carefully to make sure that you’re doing what they call “self-dealing”, which is where there’s a benefit to you using the money for things other than retirement. Since it’s tax-deferred, that means the IRS is willing to wait until you reach 59 1/2 before you have to pay taxes on the account. That can be quite a few years away — the IRS is very patient in this case. If you’re caught doing things that benefit you now instead of later, they can consider the entire account distributed, which means that you will have to pay income tax on the money right now, as well as be hit with a penalty — not cool at all!

If you know the risks and you still want to open up this type of account, you aren’t going to have to try very hard. You can do it at a bank, where they can get you set up right away. Or you can go to a custodial firm, which is a better choice as they will handle the accounting rules and records — something the IRS will feel a lot more comfortable with as well. Hiring someone to handle the account is always a good idea, because it protects you from tax problems as well as any other issues that might come up.

You will also need to make sure that you research every opportunity before you go into it, since this is your retirement money that’s at stake. If you were to lose the capital, would you have another backup plan? You might not like the more stable returns that you’ve been enjoying, but stability of income is better than losing capital. If you want the best of both worlds, you can still leave some money in your original account, so that you aren’t risking the entire IRA account on this new adventure of yours.

Overall, it’s definitely something that you will want to make sure that you give it some thought before you push forward.

What You Need to Grow As an Investor – A Newbie’s Point of View

Posted by admin in Investment on Sep 12th, 2011 | 0 comments

We touched on this during the whole series, but you might still be wondering what it actually takes to be a good investor in the beginning, and what it takes to grow. Does it take software? Well, we’ll get to that in a few moments.

In a nutshell, growing as an investor requires being ready to actually grow. For example, we always recommend that you start by demo trading before you put real money into the game. That’s not trying to insult your intelligence — for all we know you could be a natural to the investing game and actually do quite well for yourself. On the other hand, you might need a lot more than what you can do in a handful of months. That’s why we tell people that they need to demo for at least six months. It’s not to be insulting, it’s just to encourage you to be as cautious as possible. We know that money doesn’t grow on trees, and that every bit of money that you make is actually precious to you. That means that we can’t just assume that you’re going to automatically get things off the ground. These things take time and you shouldn’t rush them at all.

So, what else do you need? Well, you will need to make sure that you actually take the time to learn more about investing. This might mean that you have to visit your local library and read up on the foundations of investing, or it might mean that you join a free investment club in your hometown. Whatever you do, you need to make sure that you’re doing it consistently. You don’t want to start going to meetings and getting to know people and just suddenly drop out. You don’t want to suddenly be immersed in reading about investing and then suddenly back down all of a sudden. Yes, you’re going to have people in your life that don’t understand why you would want to invest your money in something “dangerous’, but you have to cornier the source. Most people will tell you this because all they have to go on is the nightly news. The news is designed to scare people so that they’ll come back listening time and time again. You don’t have to put yourself in that position.

You can rise up and take matters into your own hands. That’s the whole point of building a financial blueprint, and investing is just one facet of that blueprint.

Stay tuned — we are definitely here to help you grow as an investor!

The Social Side of Investing – A Newbie’s Point of View

Posted by admin in Investment on Sep 12th, 2011 | 0 comments

One of the biggest misconceptions about the world of investing is that everyone is an island unto themselves — and heaven help you if the islands ever touch. It’ll be straight or war…but is that really the case? The reality of the matter is that if you’re really keen on growing as an investor, you’re going to need people. You’re going to need people because let’s face it — learning anything new for the first item is stressful. As we age, we’re going to want more and more opportunities to be right, and that’s hard when you’re learning something new. You’re going to fall on your face sometimes. You’re going to want to give up. You’re going to want to go right back to wishing you could let your money grow in more ways than just throwing it into the savings account at your local bank, the same way your parents and grandparents did. It’s okay to be an investor, even when you make ten thousand mistakes. It’s just not okay to give up and call it a day.

There are actually numerous forms that are devoted to investing. Of course, not every forum is going to be friendly, but there are places where newbies aren’t just tolerated — they’re truly welcome. The reality is that you should never let anyone make you feel bad because you are a newcomer to the world of investing. Nobody was born with an automatic investing gene — you’re going to have to want to grow in your investing skills. You’re going to have to actually want to do better, and that’s part of what slows a lot of people down. They see people on forums that are doing very well in the world of investing, and they actually compare themselves to these people. That’s a losing battle automatically, so why play it at all? Why play as if you have to compare yourself to anyone, when you’re automatically good as is?

The social side is investing is absolutely necessary if you want to thrive as an investor. Don’t skip over it, and don’t assume that you can’t be taught anything. It’s going to take a lot of knowledge over time to be a good investor, and there’s just no getting around that!

Next up, we’ll cover a little more of what you’ll need to grow as an investor, so make sure that you stay tuned — we’re far from finished!