Friday, October 2, 2009

Save Time, Save Money

Taken from Michael Maiello of Forbes 5 Investments You Don't Need
I think that he has hit the nail on the spot. It is good to know that such alternative investments exist. But remember, even stock picking with a buy and hold mentality is a time consuming task. Monitoring stocks takes up at least 1-2 hours a week, ploughing through the relevant SGX filings (You can cut this time if you have newsletter service).

If you intend to be a full-time trader, these financial instruments are fine. But if you are a normal retail investor, I recommend you read up on these instruments rather than attend a course. A lot of the information is available in books at the library. While the courses do teach you the tools and the basic, the amount you have to pay is sometimes exorbitant.

A lot of people get blinded by the marketing promise that there are loads of money to be made within the shortest time. Scalability is their catch-phrase. It is not impossible. But I rather you go to the library and do some read up before signing up for the course. It is always important to have the right expectations. That way, you won’t end up going to the small claims tribunal.


These are the 5

Options
The right to buy (call) or sell (put) a stock at a given price is nice to have, but it's not free and, for the most part, it's not a right you need. Small investors in liquid stocks can almost always find what they want at the prices they want, and though some options strategies can be effective, it's easy and cheap to manage a portfolio without them.

Shorting
Shorting individual stocks exposes the investors to all manner of hazards including short squeezes initiated by well-connected corporate managers and the cost of covering dividends if the company pays them. For most people, the best thing to do with a dog of a stock is to avoid it.
Penny Stocks

Forbes refrains from recommending stocks below a $400 million market cap because individual investors can quickly run into liquidity issues below that level. Also, there's a dearth of research on these companies, and they are often controlled by a few people. Well-capitalized, widely traded small-caps are one thing, micro-caps that trade over the counter just aren't necessary.

Foreign Currencies
The best and cheapest exposure to foreign currency is to own stock in global companies that export products and then turn higher valued currency back into dollars. Also, own some foreign stocks, especially through index and managed funds, since reliable research into emerging markets can be hard to come by.

Commodities Futures
Commodities exposure is cheaply available through stocks in oil and natural gas companies or through gold and steel companies. Exchange-traded funds also offer exposure to underlying commodities if you want to avoid company risk. Leave the troubles of futures contracts to the futures traders, or let a mutual fund manager handle them for you.

No comments:

Post a Comment