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FAMILY TOPICS
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Investing
Many families want to begin the process of getting their
investments to work for them, but are unsure where to start. Their capital may be in low-yielding savings accounts
(or worse, in no-yield checking accounts) where they are not keeping pace even with inflation, let alone gaining
asset value. Comparing some of the most popular investment strategies and sources is the first step in taking control
of your investments.
Insured Savings and Money Market
Accounts. Although their return may be more modest
than other investment strategies, insured savings accounts and money market accounts offer the most secure home
for your money since your investment (up to $100,000) is insured by the Federal Deposit Insurance Corporation (FDIC).
In addition, these accounts offer flexibility in that you can deposit and withdraw money on your personal schedule.
Certificate of Deposit (CD) accounts offer a bit more yield, but are "locked-in" for periods of 1-10
years. For money market accounts and interest checking accounts, see the sections devoted to money markets
and interest
checking at BankBranchOnline.com.
For savings accounts, we've found a great source at ING Direct. You can link directly
to an existing checking account and get great rates on your savings with NO minimum balances and no fees. More information.
Stocks and Bonds. For many families, just getting started in stock ownership is the
biggest hurdle. With many stocks still trading in the $50+ per share range, investing in even a single
share in a single company can be difficult. Dollar-based investing has changed the picture, though. Dollar-based
investing lets you buy shares of stock in dollar amounts. This allows you to invest according to your budget by
purchasing partial shares. You can make a recurring investment every month, or make one-time transactions when
they are convenient.
Mutual Funds. One of the most popular investment strategies is mutual fund ownership,
with thousands of different funds and "fund families" available. Mutual funds allow an investor to "spread
out" their exposure over a portfolio of individual stocks held by the mutual fund. If you own, for example,
1 share of XYZ Corporation and the stock value falls by $2, your investment has lost $2 in value. If, however,
you have invested in a mutual fund that has shares in XYZ Corporation as 1% of its total portfolio, the $2 loss
on XYZ corporation is considerably less.
If you want to invest in mutual funds, you will either need to find a full-service broker who can handle your investment
(and you can allow a hands-off approach) or you need to get educated. With so many choices available, it just makes
sense to be market wise.
Real Estate Investment. For those looking for a bit more active strategy of investment,
real estate can be an excellent avenue. When it comes to investment, though, buying and managing real estate is
quite a bit different than purchasing your personal home. Low 3-5% downpayments are common in personal home ownership
but are virtually non-existent in investment real estate, where downpayments of 20% or more are fairly standard.
In addition, you will need to qualify for both your current home mortgage and the investment mortgage largely on
the basis of your personal income until you have a track record of managing properties.
As a long-term investment, though, real estate can be an excellent source of both income and equity growth. For
more information on real estate investment, see the Investing Section of HouseClicks.com.
Strategies
The following is an excerpt from the book Fast Profits in Hard Times: 10 Secret Strategies to Make You Rich in an Up or
Down Economy
by Jordan E. Goodman
Copyright © 2008 Jordan E. Goodman
10 Strategies: An Overview
Fast Profits in Hard Times will teach you everything you need to know and give you specific resources (websites,
toll-free numbers, etc) to implement the following 10 strategies:
1. Invest in Tax Liens
Buy liens placed on properties by municipalities because owners have fallen behind in paying their property taxes.
Then, when the property owners pay what they owe to the municipalities, receive not only a return of your principal
but also a penalty interest rate set by the municipality, typically in the range of 8% to 25%. If the property
owner defaults altogether, take possession of the property for a fraction of its real value: the sum of the back
taxes you've already advanced. You can then sell the property, even a bit below its market value, for a huge profit.
2. Buy Real Estate Below Market Value
Identify real estate sellers who are willing to accept less than their property's full market value for a variety
of reasons. Then resell the property immediately at a profit, rehab it, rent it out, or even live in it yourself,
all with the built-in financial cushion of having purchased the property for far less than it is truly worth.
3. Invest in Income Trusts and Master Limited Partnerships
Earn high yields of 8% to 13% by investing in trusts that extract or transport natural resources such as oil, gas,
coal, or timber. Such trusts pass a large amount of their earnings directly to investors through monthly dividends.
Depending on the trust or MLP, some of the distributions may be considered a tax-free return of capital, boosting
your after-tax return even more.
4. Invest in High-Yield Stocks
Invest in stocks with stable businesses that pay dividend yields of 5% to 15% or more. Some industries offering
such high yields include electric utilities, oil tankers, and real estate investment trusts, and several broad-based
closed-end mutual funds. This is a way to make your capital compound with very little risk when you reinvest the
dividends or to boost the income you live on if you take the dividends in cash.
5. Enroll in Dividend Reinvestment Plans
Invest in companies that offer Dividend Reinvestment Plans, known as DRIPS, which allow you to use dividends to
purchase shares directly and thus bypass brokerage fees. Automatically reinvest dividends back into further stock
purchases, thereby compounding your portfolio's assets over time. Several companies offer discount DRIPS, meaning
that you get an additional 2% to 5% bonus every time you reinvest dividends, compounding your return even more
at no additional cost to you. So if you get $100 in dividends, you receive $105 worth of stock when you enroll
in a 5% discount DRIP.
6. Buy High-Yielding Bonds
Buy bonds of companies, municipalities, or foreign governments, either individually or through open and closed-end
funds, which pay yields of 5% to 12%. In addition to the high rate of interest, you will receive the return of
your principal when the bond matures. There are many types of hybrid bonds available in today’s market with catchy
names like STRIDES, ELKS, MITTS and HITS which offer guaranteed return of principal, high yields and potential
bonuses based on how the underlying instruments perform.
7. Use Put and Call Options
Rather than buying and selling actual stocks or stock indexes, you can, for a fraction of the cost, trade rights
to buy and sell those stocks or stock indexes at specific prices within a specified period of time up to two years
into the future. This form of leveraged trading allows for far greater gains but also runs the risk of far greater
losses than normal stock investing. It is therefore imperative to follow careful strategies that limit risk while
optimizing profits.
8. Profit from Foreign Exchange Trading
Trade one currency against another currency, on the expectation that the currency you've bought will gain in value
relative to the one you sold. This provides a convenient way to profit from the decline of the US dollar against
most major foreign currencies.
9. Invest in and Broker Cash Flow Opportunities
Identify people and/or businesses willing to sell future receivables at a significant discount in exchange for
ready cash. Then either buy the payments yourself or serve as a broker for a third party, typically a large financial
company, which provides the funds. For example, you can broker or buy cash flows from lottery winners, lawsuit
winners, mortgage notes or reimbursements due to a doctor’s office from insurance companies or Medicare.
10. Set Up Passive Income Strategies
Set up some kind of system that needs minimal ongoing management but continues to produce significant cash flow
far into the future. A few examples include:
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