Our Guide to Investing Information

Learning the concept of compound interest is important to achieving financial goals.  Retirement planning, as well as investment scenarios, often depends on calculations involving the compounding of interest.  It's also important to become skilled at this concept while you're still young, because as you'll soon find out, time plays a big factor in these calculations too.

The concept of present value doesn't have to be difficult to understand.  However, it is an important investment theory to know because it's aligned with a second important concept:  the time value of money.  Calculations involving the present value are used when creating business cases, examining annuities, as well as a cash flow that goes on in perpetuity.

While the term opportunity cost has its roots in economics, it's also a very important concept in the investment world.  It's a model that can be applied to our everyday decisions, as we're faced with making a choice between the many options we encounter each day.

In the world of economics, there are two fundamental terms used to describe the prices of goods and services over time:  inflation and deflation.  As investors, it's important to understand the impact inflationary or deflationary times can have on our investments.

Nearly every investor holds a certain amount of cash.  That's because cash can play a vital role in meeting a short-term savings goal or play a larger part in a long-term asset portfolio.  Whether it's to meet a short-term or longer-term need, there is always a good reason for holding cash.

When the banking industry is experiencing turbulent times, it's comforting to know that the Federal Deposit Insurance Corporation, or FDIC, is providing depositors with protection against the loss of their money.  Even more comforting is the fact FDIC insurance coverage is backed by the United States government.

In today's electronic world, online investing is very popular.  It's estimated that over 200 securities firms now offer clients the ability to invest online.  Times are changing, and investing over the Internet represents a dramatic transformation in the relationship between the broker and their clients.

In case you haven't noticed, Money-Zine is really an investing newsletter.  We have taken this website and broken it down into three distinct areas or sections: Investing, Career Development, and Financial Planning.  Each of these sections is further broken down into categories.

If you're one of those individuals that dread the thought of working until their 70 years old, then welcome to the club.  If given the choice between working and retiring early, many of us would pick this second choice.  But what options do we really have?  Planning to invest for an early retirement is certainly one option.

This is going to be the first in a series of investor articles, aimed at helping individuals prepare themselves for a financially-secure retirement.  This particular article will address how the beginner should be investing for retirement.  When we talk about beginners, we're talking about individuals that are just starting their careers, and have time on their side.

At one time, everyone is a beginner.  Even the most skilled investors started out that way.  This article is going to cover the topic of investing for beginners.  This information should provide beginners with a foundation in the fundamental concepts of investing.

Investing for kids is a popular topic for two reasons.  First, there are many parents trying to teach their kids about the value of money.  Second, the children themselves are looking for investing information.  That's good news, because teaching kids how to invest is a lesson that will last them a lifetime.

The concept of investing for dummies is just another way of admitting that we want some topics simplified.  That is probably what made the book series so popular.  If you've ever seen a copy of Windows XP for Dummies, you can understand the concept of simplification.  You may have been an "expert" on personal computers, but if you read the book, it explains things in very simple terms.

If you're a computer geek that thinks a big dollar salary means you're rich, we might have some bad news for you.  You need to recode your brain, because that particular if / then statement has some serious flaws in its logic.

High-growth startup companies are often looking for non-traditional sources of funding.  That's a gap that angel investors are willing to fill.  The risk and reward tradeoff holds true for angel investors too.  The additional risk they're willing to absorb is balanced with expectations of high returns on investments.

High-growth, start-up companies are often looking for money and management experience.  That's a void that venture capital firms are willing to fill.  As is the case with angel investors, venture capital firms are willing to absorb the higher risk associated with start-up companies in return for higher returns on their investments.

Good investors always do their homework, especially when it comes to initial public offerings or IPOs.  It's hard enough to select good stocks when you're evaluating companies with a long history of excellent performance.  But investing in the right IPO not only takes a lot of research, but also an individual willing to take on a good deal of risk too.

Serious investors do their homework before buying a stock.  After all, it's their hard earned money, and they want to make sure they maximize their return on investment.  In this publication, we're going to provide you with insights that will help you read through online stock reports and snapshots more effectively and efficiently.

While stock quotes might seem like a fairly straightforward topic, there is a lot of information that accompanies the current price of a stock.  Many novice investors might overlook some of that information, but it's there for a reason.

If you're new to investing in stocks, then earnings per share is perhaps the single most important topic you should understand before investing money in the market.  Earnings per share are where the financial "rubber" meets the road.  In fact, because of the importance of earnings to shareholders, a great deal of time is spent developing and evaluating earnings per share estimates.

If you're trying to learn how to invest in the stock market, then you've probably seen terms like P/E ratio and Leverage.  These are financial ratios, and understanding what these financial ratios are telling you about a company can make a difference between picking a winning stock or a dog.

One of the more useful measures of the financial performance of a company is the DuPont Equation.  This model allows the stock analyst, as well as the investor, to examine the profitability of a company using information from both the income statement as well as the balance sheet.

It's unfortunate, but the publicity around the Martha Stewart insider trading scandal has resulted in a real misunderstanding of insider trading.  In fact, not all insider trading information is bad, and it can even be useful when researching stocks.

One of the more important facts you should understand when researching stocks is the reporting of stock ownership figures.  Stock ownership provides us not only with a glimpse into the major shareholders of a company, but also the recent changes in shares held by those same institutions or individuals.

If you own shares of stock in a company that's involved with a proxy contest, then it's important to understand how that contest can affect the price of that stock.  In recent years, there have been notable proxy contests such as Carl Icahn's attempt to replace Yahoo Inc.'s board of directors. 

The economic recession that began in late 2007 brought about an end to the boom of leveraged buyouts (LBO).  The same problems that plagued the mortgage market, slowly made their way to private equity firms operating in the financial leverage markets.  As the economy began to lift in 2009, the return of the LBO would not be far away.

As investors, we're faced with the choice to buy and hold the stocks we've selected, or actively trade these securities.   The buy and hold strategy is a passive investment technique in which investors continue to hold onto their stocks, regardless of market conditions.  It's an interesting approach, with some market theory to back it up; but the effectiveness of the strategy is worth exploring too.  

There are many ways the average investor can participate in the real estate market.  Participation can range from the purchase of commercial office space to purchasing shares in real estate investment trusts (REITs).  In this article, we're first going to discuss three specific ways to invest in real estate.  Later on, we're going to provide some tips for those that are new to this area.

The concept of investing in real estate is appealing to many individuals. Unfortunately, investors that are new to the real estate market are not always sure of their options when it comes to financing a real estate purchase.

Current estimates indicate there are between 150 and 200 real estate investment clubs across the United States, representing somewhere in the neighborhood of 30,000 individual investors.  The real estate market is a thriving environment, where the new and the old come together to share ideas and discuss investment opportunities.

A real estate investment trust, or REIT, is a company or entity that invests in different forms of real estate.  These investments can include shopping malls, commercial office buildings, as well as hotels.  These trusts can also invest in real estate related assets such as mortgages.

The limited return on investment in the stock market has many individuals looking at alternatives such as investing in real estate.  There are at least three ways investors can get into the real estate market:  purchasing a home or apartment as a primary residence, owning investment properties, and buying into a real estate mutual fund or investment trust.

There are many ways to invest in real estate, but one of the more interesting ways is through tax lien certificates.  To be more accurate, you're not directly investing in real estate, but you might wind up with a new home if the existing homeowner does not pay their taxes.

Tax lien investing is the practice of paying delinquent property taxes for another party.  When an investor purchases a tax lien certificate, they become a lien holder on the property itself.  This gives the investor a legal right to foreclose on the property under certain conditions.  In fact, the property cannot even be sold, or refinanced, until the lien is satisfied.

Investing in bonds doesn't have to be a complicated process for the average investor.  Many investors easily make the transition from mutual funds to common stocks.  That's a great start, because finding high quality bonds requires the same rigorous process as stocks.

In our first article in this investing in bonds series, we described how companies used bonds to fund their growth.  We also described the four basic types of bonds that are issued by companies or government agencies to the public.  In this next installment, we will review some bond terminology, as well as the process for calculating bond yields.

This is the final article in this investing in bonds series.  To date, we've discussed the reasons companies or government agencies issue bonds, and the different types of bonds issued.  We also covered some of the more common bond terms, and how to calculate bond yields.  In this publication, we are going to finish up by discussing bond redemption features and bond quality ratings.

Some investors mistakenly believe that all bonds are the same.  That is simply not true, and bond ratings were specifically developed to help investors understand the relative risk involved with the purchase of various bonds.  Except for federally-issued bonds, all bonds carry a potential risk of default.  Bond ratings enable the investor to evaluate, and balance, the risk of default with the interest payments paid on the bond.

Investors in bonds, have a large selection of issues to choose from in the market.  One of those options includes high yield debt, more commonly referred to as junk bonds.  But as we'll see, the greater returns of these bonds are a direct result of their greater risk of default.

There are two ways that individuals can invest in fixed-income securities:  bond funds or individual bonds.  The vast majority of bonds are held by large institutions such as banks, pension plans, and insurance companies.  Roughly 10% of all bonds are held directly by individuals.

First authorized in 1997, Treasury-Inflation Protected Securities, or TIPS, are securities issued by the U.S. Treasury whose principal is linked to the Consumer Price Index.  TIPS offer investors the opportunity to buy bonds, while at the same time protect themselves against inflation.

One of the niche offerings in the bond market is the zero coupon bond. Using the strict definition of a zero coupon bond, it's possible to find these securities issued by the U.S. Department of the Treasury, corporations, as well as municipalities.

When a government or corporation, needs to raise money, they have the option of issuing bonds. As the need for flexibility has increased over the years, so has the variety of bonds found in the marketplace. They can vary in length of issue, payment terms, tax implications, as well as risk.

A bond is a debt security, which is commonly issued by government agencies as well as companies. Regardless of the issuing entity, all of these securities fall into two overarching categories: secured and unsecured bonds. If you're thinking about investing in a bond, it's important to understand the risks, rewards, advantages, and disadvantages of both secured and unsecured bonds.

Inflation has the subtle ability to erode what are otherwise reliable sources of income.  That's certainly been the case with corporate bonds.  As interest rates rise, the value of a bond will fall; unless you're holding inflation-linked bonds.  With these investments, the coupon rises with inflation, as does the payment provided to the bondholder.

One of the more interesting developments in the world of credit derivatives is the credit default swap, or CDS.  First used by bond investors as protection against default by the issuer of a bond; today these instruments are used by investors to fine tune their overall exposure to corporate credit, as well as for speculation.

A collateralized mortgage obligation, or CMO, is a type of bond that is structured using mortgage-backed securities.  The performance of these investments depends on the quality of the home mortgages on which they're based.  Traditional lenders package these loans, and pass them on to an intermediary company.  Principal and interest payments from homeowners are eventually passed on to investors in the CMO.

News hasn't been good for auction-rate securities, and brokerage houses agreed to refund billions of dollars to clients.  This happened back in February 2008, when the $330 billion market for auction-rate securities (ARS) collapsed and millions of investors found themselves with securities they could not sell.

Comparing a bond's yield to other investment options only requires four pieces of information:  the bond's par value, its market price, its maturity date, and the bond's coupon rate.  That's all the information needed to calculate the return from a bond.  But as we'll discuss later on, really understanding bond yields is more complex than just calculating a yield to maturity.

The price of high quality bonds is directly related to interest rates.  Investors that are looking to expand their portfolio of stocks to include bonds need to understand the relationship between bond prices and interest rates.

According to the Securities and Exchange Commission, international investing continues to be a popular, and expanding, area for American investors.  As early as 1985, the total capitalization, or market value, of foreign stocks surpassed the value of U.S. stocks for the first time.  Add to this the tripling of the number of foreign companies that have registered with the SEC over the last 15 years, and we see an interesting trend emerging.

With the decline in the dollar's value relative to other currencies, there has been a surge of interest in investing in euros.  Before we lose all credibility in the financial community, we want to make it perfectly clear that we understand the title of this publication should be Investing in Euro.

If you've been thinking about investment opportunities such as offshore investing, then you need to have the information necessary to make the right decision.  Many countries do not offer investors the same protections as those available in the United States through agencies such as the Securities and Exchange Commission.

If you live in the United States, then an offshore bank account would be defined as any account held outside of America.  Opening an offshore account has some immediate advantages to the investor in terms of personal finance, privacy, and taxes.

Most investors trade commodities for either speculative purposes or as a hedge against a future price change.  If you've ever traded stocks, then it's fairly common to be curious about commodity trading too.  But as we'll explain later on, the strategies and risks associated with commodities are quite different than common stocks.

When an investor buys common stock, you're taking an equity stake in the company.  Common stocks are usually purchased and held for a relatively long time.  Trading in futures contracts is quite different than trading in stocks.  With futures, you are buying a contract that has a finite lifespan.

Every day the world is becoming a little bit smaller.  Because of the requirements of a global marketplace, the need for currency trading is growing.  In fact, even consumers traveling to other countries need to have a fundamental understanding of foreign currency exchange, or forex rates.

A hobbyist that collects gold coins is known as a numismatist.  While some of these numismatists might realize that gold coins can be a very good investment, they're not really investing in gold coins.  They are collectors.

Ever since its discovery, people have been investing in gold due to its beauty and scarcity.  In fact, according to the U.S. Mint, gold is so rare on Earth that all of the gold ever mined could fit into a cube that is just 60 feet on each side.  These are just a few of the reasons that gold continues to enjoy widespread interest as an investment opportunity.

Every once in a while, marketing folks come up with a great name, and Drip Investing is certainly one of those situations.  The term Drip is really an abbreviation for dividend reinvestment plans, which offer investors the opportunity to reinvest all, or a portion, of their dividend payments right back into the company's stock.

The exchange traded note, or ETN, was introduced to the investment community back in mid-2006 by Barclays Bank; the largest provider of exchanged traded funds, or ETFs.  These two fund types have a lot in common.  If you want to understand the difference between an ETN and an EFT, then just keep on reading.

Socially responsible investing is a phrase used to describe several types of investment strategies:  Ethical Investing, Green Investing, and even Faith-Based Investing.  This type of investment strategy is usually limited to individual stocks or mutual funds.

While some investors are inclined to take more risk than others, there is always a place for low risk investments as part of a properly-balanced portfolio.  This need is particularly evident when the stock market turns volatile.

Investors have an important choice to make when deciding on the size and number of investments to hold in their portfolio. On the one hand, investors can lower the risk of their portfolio through diversification. Unfortunately, transaction costs increase with the number of stocks held in a portfolio.

One often-misunderstood investment strategy is dollar cost averaging.  While some financial planners insist the approach is a great way to save for the future, others say there is no advantage to using this technique.  We've examined both sides of this story, and have concluded that advocates, as well as opponents, are correct in their thinking.

Cash flow is an important concept to understand when evaluating a company's overall financial health.  It's also useful when trying to understand the impact of a new investment or project on a company's finances.  The reason so many investors are interested in cash flow is that it removes all of the accounting allocations, and delivers a clearer picture of the inflows and outflows of money.

We've already explained how to put a business case together based on a cash flow analysis.  In this article, we're going to be focusing on how to interpret the results of a business case by examining some of the more common financial measures associated with cash flow analysis.

This is the last, and final, publication in our series dealing with cash flow concepts.  This article is going to explain how to go about building a cash flow statement.  While you may never be asked to create a cash flow statement, understanding the concepts behind cash flow will give you a much greater appreciation for its value in evaluating the financial health of a company.

Net Income is arguably the single most important measure of a company's profitability.  That's because generating profits is perhaps the most important responsibility that for-profit companies have to their shareholders.  In fact, it's the very reason that many companies exist.

The income statement is the financial statement that allows a business, as well as investors, to understand if a company is operating successfully.  The income statement is often used to help value a company's stock, and it's also used by credit rating agencies to determine the creditworthiness of a company.

This is the final publication in our series covering the topic of income statements.  This article is going to explain how to go about building an income statement.  While you may never be asked to create an income statement, understanding the concepts behind net income, profitability, or corporate earnings will help you to better understand the financial health of a company.

One of the key measures of the financial stability of a company is its profit margin.  This measure is useful because it gives investors a good feel for the ability of a company to control its costs.  It's also a concept that is often confused with mark-up.  But as we'll soon see, while the calculation of each measure is different, the two formulas are very much related.

While the income statement helps us to understand the profitability of a company, the balance sheet helps us to understand how much a company is worth.  The balance sheet does this by allowing us to see how much a company owes (liabilities), how much it owns (assets) and to keep things in balance between assets and liabilities, we have retained earnings (equity).

In financial as well as accounting terms, the balance sheet provides the investor with a summary of a company's financial position at a point in time.  The balance sheet contains a listing of assets owned and debts owed, thereby allowing the reader to understand the company's ability to repay its debts. 

Investing is often a complex topic. Thankfully, there are shortcuts like the rule of 72, which can help with high-level guesstimates. In case you're not familiar with this concept, the rule of 72 is an approach for estimating the time it takes to double an investment.

To many of us, investing is all about the numbers.  We rely on data, and trends in that data, to give us insights into what's happening with our investments.  For example, we know it's not a good practice to take an average-of-an-average, so we look at weighted averages, which brings us to Simpson's Paradox.

Investors often quote their returns in absolute terms. For example, they might say they earned an 8% return on their portfolio. But if we’re really trying to measure the performance of an investment, then we need to understand absolute versus relative returns too. 

While managers are responsible for the efficient operation of a business, accountants are responsible for reporting the results of that effort to the investment community. If you keep those two key points in mind, then the difference between financial and managerial accounting is much easier to understand. 

As investors, we have a wealth of financial ratios we can examine to better understand the economic health of a company. One of the measures of management efficiency is the cash conversion cycle, which tells us how much cash the company has tied up in inventory, its ability to collect money owed from customers, as well as the time it takes to pay certain creditors.