Alternative Investment Strategies – 4 Important Factors In Deciding Your Investment

admin — Mon, 08 Mar 2010 15:40:32 +0000

Four factors should be considered when deciding on your alternative investment strategy. Here are a few thoughts on each.

What is your objective?

Consider the importance of stability of principal, predictability of income, and capital growth. These must be considered against the risk and reward potential of the three categories of investment alternatives. To have maximum stability of principal, you could invest in cash equivalents.

However, your income would be unpredictable due to the variation in short-term interest rates, and inflation could erode your purchasing power.

For higher predictability of income, you could invest in bonds. To do so would require you to take on interest rate risk in the event you need to dip into your savings before some bonds reached maturity. There would also be some exposure to loss of purchasing power through inflation although not as severe as with cash equivalent investments.

You could put your savings in stocks or a stock mutual fund. These choices have provided substantial growth of both income and capital over long periods of time. But, with wide, unpredictable price swings you would be exposed to market risk if you needed to draw from savings in excess of current dividends.

How long do you have?

Time gives you two advantages. If you have time, you can wait out swings in the stock market. And, if you have time, you can often settle for a lower rate of return because the effects of compounding will work more to your favor. Therefore, the time you have before you need to spend your savings and the flexibility, if any, you have on withdrawing money will point you toward particular classes of investments.

What is your risk tolerance?

Investors can be labeled as either conservative, moderate, or aggressive depending on the amount of risk they can comfortably handle. The rule: Don’t take on more risk than you can sleep with. Lying awake nights worrying about your savings is no way to either anticipate or enjoy your retirement.

What are your financial circumstances?

If you have ample savings to cover your needs, you may be able to take additional risk and not substantially affect your financial status. However, if you have limited resources, it might be better to concentrate on less risky investments in order to preserve what you have.

Best Bond Fund Investment Strategy

Sun, 07 Feb 2010 21:13:00 +0000

Even the best bond fund involves risk, because bonds fluctuate in value. When interest rates to the north, south bonds. Here is your best strategy bond fund investments to earn higher interest on bonds offer income while reducing the risk of significant loss.

Our investment strategy consists of three different bond funds, and four basic steps. The three are: high quality, short-term, high-quality, intermediate term, and higher performance (but not junk) bond fund through long-term.

The short-term fund is the safest and the least paid dividends or interest. It fluctuates less value than the other two interest rates change. Intermediate bond funds pay more interest, but are subject to greater risk and price fluctuations. As interest rates rise may lose significant value, and should gain in value when rates fall. Bond funds long term magnify this effect and are more risky. That's why we exclude it from our investment strategy.

First, maintaining its low cost of investment by investing in no-load funds. To reduce costs further to go with the variety of indices. For example, if no intermediate load index funds to bonds. Second, invest equal amounts in the three different investments. Third, set them all so that all dividends are automatically reinvested to purchase additional shares.

Fourthly, rebalance at least annually to the value of the three is still almost equal. For this, the movement of money between them. For example, if the higher performance becomes a value lower than short-term funds, money is moving to be the same again.

With this investment strategy in place that you have built in defense working for you because you buy more stocks and bonds fall in the middle sector. First, reinvested dividends (interest) to buy more shares as prices fall. Secondly, you rebalance and move money to fund short term the most volatile, like rising interest rates sent prices to their funds more aggressively.

You will be buying shares increasingly lower prices. This reduces the average cost per share … so when interest rates level off and head down your losses have been minimized. And their bond funds should recover as soon as possible and show a profit before interest rates go back to where you started.

The investment strategy is simple only buy the best bond fund you can find and keep. The problem here is that if interest rates rise significantly and remain indefinitely in the upper levels, investment in bonds could be under water for years.