Ratings agency S&P once again issues warnings on sovereign creditworthiness of many G-20 nations including US, which was deprived of its AAA rating last August. According to S&P, US along with many other G-20 nations will face immense fiscal drags due to rising healthcare costs.

It’s likely that governments of many key economies will find it difficult to manage fiscal burdens and as a result we will witness massive drop in public financing.

Is it Time to Exit Stocks?

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I don’t think that the latest warnings from S&P will have a major impact on global stock markets as these warnings do not point towards anything critical in the near future. Rather, it’s a known reality that with aging population healthcare costs are subject to head higher in most of the developed economies.

So, S&P’s prediction that average healthcare costs among developed nations will get as high as 11 percent of GDP by 2050 from 6.3 percent for 2010 should not surprise anyone. Aging population is not a new concern, but a long term challenge that is building up pressure on governments to increase spending on areas that do not hold prospects for high economic growth.

Recent US downgrade by S&P came as a shocker to investors but markets rose higher after quickly digesting the bad news and on a reassurance from president Obama. So, even if we witness another downgrade the impact could be limited, but for now investors need not get scared as any such downgrade may not be announced in 2012 or even 2013.

Even if global growth falters and worries of worsening debt situation resurface in 2012, another US downgrade won’t change the liquidity situation for US. We should not ignore that US dollar is considered as a safe haven and should remain so as it is the reserve currency. So, in troubled times we should see money flowing to US.

However, aging population and fiscal situation cannot be ignored, but in the short run investors ought to stick their neck out and take exposure in equities, as there aren’t many options where they can mint reasonable returns.

Conclusion

Globally, stocks have gained significant ground at the start of 2012 and there is ample money still waiting on the sidelines. So, any panic selling reaction on news flow from Europe or domestic debt issues in US will get buying support from those who feel left out. What we really need to focus on right now is growth, unemployment situation and consumer spending. The recent rally in stocks was sharp and built on skepticism, but the momentum is strong and its possible that markets continue to shrug-off bad news for most of 2012.

The investment business is made up of building blocks of wise words and phrases, out of which a popular one by Warren Buffett’s is “Be fearful when others are greedy and greedy when others are fearful.” Coming from Mr. Buffett who has made a fortune many times over using that logic it does seem a smart approach. However, when it comes to application of this approach, these wise words become a little difficult to follow. This article will put forward to you an insight into how to do just what is required in 2012.

A recent research paper reported on the cyclical nature of the stock market and it continued to rank various industry groupings on the basis of past performances. This particular report reiterated concerns about the tendency of groups which have performed well over the past couple of years to perform poorly in the coming year, and vice versa.

To elucidate the above concerns we’ll put focus on two groups: one of 2011′s best performers and one of the year’s worst performers. On the basis of their 2011 performance relative to other industry groups, the top five trading companies were ranked. And asset managers were ranked closer towards the bottom for 2011 and also for the past few years.

What made me open an account with Scottrade?

Getting greedy in the business

Currently the trading companies groups are at a comparatively high valuation. The group’s average P/E ratio is comfortably sitting at over 30. On comparing this with the S&P 500 index’s flailing multiple of 14.5, you will realize that these companies have been valued very high by the market over the past year. Many firms who distribute products and provide MRO (Maintenance, Repair & Overhaul) services are a part of this group. Looking at the markets tendency to side with an industry group, and then reject the same group and push it out of favor, it would be a good bet that these stocks have had their few high end years and may be ripe for taking profits.

Tackling fear in the industry

On the other hand, the asset managers group has taken a terrible beating along with the rest of the financial sector over the past few years. The market seems as though any stock in the financial sector is still down with the hangover of the 2008 crisis and the specter of the European crisis to contend with before investors even examine a cash flow statement. However, compared to many of the large banks, or even the mortgage finance side of the industry, these firms still have been comparatively exposed in a limited fashion to the residential real estate markets. They also have a pretty consistent and dependable, if variable, revenue stream. This undercurrent of fear flowing around the sector, and also the performance this industry group showed in 2011, gives a strong hint that this probably could be a place for investors to look more closely. This would essentially be true if the U.S. economy continues to show surprising levels of growth.

Simple Strategy for Surviving Current Market Conditions

Market volatility in today’s conditions seems rather hesitant in rebating, as headlines drive traders from “risk-on” to “risk-off” and back again, a vicious cycle if any.  Another very famous market quote states “You’ll never go broke taking profits.” This pretty much sums up what any investor needs to do it in today’s environment and take profits when the investments you’ve done have shown favorable returns. We still however maintain that finding the sectors and groups that have strong fundamental structures and are showing signs of growth, offer the best opportunities.

What is vital is to have the discipline to be selling when the markets seem to be going up and with nothing to hold them back, and buying only when the future looks downcast. Following this adage has a proven record of producing the best investment returns. And the foundation of any successful investment strategy is proven to be formed through careful and detailed planning.

Many money managers toss around an old investment adage “be risk diverse, not risk averse”. This captivating concept is one of the strengths of any good investor. Lets read further to find out why risk isn’t as bad as it sounds. Diversification isn’t as simple as many would wonder, its a complicated strategy and you should be aware of how to do it effectively, otherwise you won’t be limiting your risks.

Why is risk required?

Risk is the first things one would relate to investing as investment returns are directly proportional to the risk taken. Making money is a fallacy without taking some risk; however it’s a two sided weapon, excess of which can be disastrous. Investors and money managers have clearly understood that undiversified or mismanaged risk can be harmful, but maintaining a portfolio that is so risk-free that it is almost return-free is also not wanted.

How to Handle Risk?

Diversifying the risk is the core canon that drives the investment. If you are willing to take risk, do it sensibly and carefully vet your options. Higher risk should not be considered synonymous to putting all your eggs in one basket or gambling. Any good high-risk portfolio will at any time be comprised of a healthy selection of asset classes and be managed cautiously.

Risk Tolerance Factor

The level of risk that you choose should be one that you feel comfortable with in terms of your risk tolerance levels. You should also feel perfectly at ease with a sensibly diversified and well-managed medium or maybe even a high-risk portfolio, rather than letting your money rot in a bank. Find out your risk tolerance, it will help you feel confident with your investments. A well-diversified portfolio in comparison to no-risk portfolio performs surprisingly better with better profits.

However you need to be wary of the extremes of this picture, as on one side you can take risks according to your risk tolerance, and on the other, keep your money safe. What you actually need is something in the middle, or possibly a bit more risky than that, but only if it is well managed. More than that, it is important to evaluate your financial needs in the future. Invest only as much amount as you would be fine losing in adverse conditions. Do not bet everything you have. You probably need to ensure you have a back-up before you lay bets.

How to Diversify the Investments?

A professional would recommend you to aim at having at least three asset classes and probably more. At least, try having equities, bonds and, say, real estate and cash. You can also add to it private equity, foreign funds, hedge funds etc, depending on the markets, your choices and targets.
Try not to act pro and make attempts to “time the market” precisely, but do keep an eye on all your asset classes, the ones you have now and especially those that you might want in future. Keep an open mind, remove holdings that are disappointing and keep a look out for performing holdings.
It is also important to set at least some limits, such as on exposure to U.S. equities, or to particular strategies. For instance, you may want to have some value-based funds and some that are simple trackers. Similarly, some stop-loss procedures are often indispensible, particularly with higher risk assets, so as to avoid disastrous plunges in value.

You will also need to keep tabs on your different strategies too keep track of their performances. This would help you understand how good and bad investments mutate and evolve over time. The end result would be a healthy diversified portfolio which will remain healthy over time.

How Complicated Is Investment Diversification? 

Quite, however it need not be. You could hire a good advisor, or do it on your own, yet you can keep it simple and still manage easily. It’s not necessary to have ample number of assets to diversify. Also active management need not be that frequent.

Smart stock-picking process with frequent buying and selling can be a full-time job; compared to the benefits it deserves the moniker. For many investors, you and your broker should meet as frequently as possible, maybe once a month and also in case of some changes, as and when needed. This would help you keep an eye on what you have, how it is doing and whether there are any upcoming danger signs that could rock your boat. Also, lookout for improving you asset allocation at all times. If you let your money stay safe in a bank or hanging out in the stock market without you keeping the track of market trends you are not going to do well.

The Bottom Line

For those who are averse to taking risks, and like playing safe, stock market isn’t for them. To actually reap the benefits of the stock market, a smart strategy keeping in mind the risks involved is enough to see a windfall.

Why should you trade with OptionsHouse?

Stock brokers don’t work for free. It’s high time you learn this looking at your own stock trades so far. They might be good, they might be cheap, but they don’t work for free, and you can seldom trust them completely. It is worthwhile to spend some time and keep a check on your stock broker; lest you’ll know only the first five letters of the word ‘broker’. But hey, don’t get scared, we’ve come up with some tips to make the process simple yet efficient.

Beware! Is your broker churning  accounts?

Account churning isn’t something we do in a dairy farm; although it isn’t much different. When your stock broker is unnecessarily, but intentionally trading in excess, he might be violating Financial Industry Regulatory Authority (FINRA) rule against excessive trading. You can sue him and get him pay for all your redundant losses, if any. By and large, account churning is done to boost up the commissions when the broker has the control over your portfolio, be it equities, or mutual funds.

Every trader doesn’t and cannot go for wrap account where only one-time brokerage is paid, irrespective of the number of trades. Usually, full service brokers keep the control with themselves (more often when the traders let them do that); for that matter, Discount Brokers are a safer bet where you are completely responsible of all your investment activities from your account. Many brokerage firms who intend to gather more commissions through account churning have been prosecuted severely in the US so far. You can take legal action against your stock broker who tried to churn your account ever as both present and past churning are prosecutable claims.

Secret Tip- Zecco doesn’t encourage account churning. They have been honored for being one safe brokerage firm that doesn’t manipulate the commissions.  Discount Broker OptionsHouse is another good option for self directed traders and investors, as low commissions can help them make much higher profits from their trades.

Is Zecco’s Free Trading Offer a Fraud?

Evaluating Stock Tips from Your Broker 

Brokers are known to be quite cunning when it comes to stock holdings and managing the portfolio. Even if your broker doesn’t have the access to your account or permission to make transactions on your behalf, he might suggest you to invest in companies that are expected to pay dividends in the very near future. Buying stocks to grab the dividends is first of all, not a right thing to do; secondly, buying a stock just on the dividend news without actually researching on the stock price moving pattern and the company profile and financial numbers isn’t a wise step! Your broker will definitely bag the amount of commission he is supposed to be credited with, but you might end up earning nothing at all (or even booking hefty losses), as the dividend might not be more than the loss you book after the stock price fall.

Lesson we learn- Make sure your broker isn’t following any such practices that make you end up in any sort of risk and monetary loss.

Why choose flat fee discount Brokers?

Many stock brokerage firms, if not all, charge brokerage fee depending upon the dollar value of the investment.  The stock brokers know it quite well that investing a particular amount at one-go would save a lot of brokerage fee to the trader, but they would place their order in a manner that he isn’t able to save on the sales charge. This is how it happens- if a brokerage firm charges 3% brokerage fee on investing less than US$ 10,000 and 1% of the invested amount if the investment is more than US$ 10,000, the broker will smartly break the order into parts and prevent the trader from saving on the brokerage fee. The trader might be completely unaware of the brokerage fee structure and the benefits he could retrieve, only if his stock broker was truthful and trustworthy to him. Never mind, he anyway made good money, although he screwed up your entire investment portfolio for sure.

Moral of the story- Sign up for a trusted stock brokers that charges minimal flat fee which is hard to be fiddled with. We recommend that you compare Zecco, OptionsHouse and Scottrade and opt for the most suitable one as per your investment needs. You can easily make quick comparisions by going through these posts.

What made me open an account with Scottrade?

Why should you trade with OptionsHouse?

Now that you understand what tactics the stock brokers adopt to snatch some extra commission from you, it’s time to act smart and switch to a safer and a more reliable stock broker that isn’t just waiting to bilk you.

With the burst of online discount brokerages, anyone with an internet connection and a bank account can try his hands at trading stocks within a week. With this unprecedented ease of access more and more people are encouraged to explore potential investments for themselves, rather than leaving it for mutual funds or money managers. However this also leads to some common follies which first time investors tend to do while they dream of making it as big as Warren Buffet. Let’s look at disastrous mistakes that new investors make and simply avoid those to ensure a successful start at investing in risky asset classes such as stocks.

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Buying Lower and Selling Higher: That’s simple?

The basics of investing are buy low and sell high, quite easy to quote. However, while trying to implement, you have to be the judge of what is low and what is high. In a market where everything is dependent on different readings of a variety of ratios and metrics and other numeric mumbo jumbo, it’s surely a difficult call. In every deal what a seller considers high is considered low (enough) to the buyer, so you can see how different perceptions of market data leads to different conclusions.

So at the very least, try and learn about some basic metrics such as book value, dividend yield, price-earnings ratio (P/E), and understand their calculations and applications, also their shortcomings. Next, you should test your knowledge using virtual money in a stock simulator.

Buying Penny Stocks: Will they ever Rise?

To a new investor, penny stocks may seem like great buying opportunities. Main reason being – small input of as little as $1000, you can invest in many penny stocks, but a blue chip will probably cost a lot higher. If you bought 10 blue chip shares at $100 each and the share price rose by $1 per share, you’d only make $10, whereas if 1000 shares of a $1 penny stock go up by $1 you could double your money with little effort. However, people don’t see that potential profitability in penny stocks comes with very high volatility that may even push the stock price 90 percent down if not completely wipe out your capital. Penny stocks are known for both, shooting up and crashing down, so you should not ignore any of the two sides. Also, such stocks are vulnerable to manipulation and illiquidity, so you could be headed for trouble.

Betting Big on a Single Investment: Sounds Foolish

Trying to invest 100% of your capital in a single stock or a sole asset class, be it the stock market, or commodity futures, foreign exchange or even bonds is a very risky move. Still, you might decide to throw diversification in the wind and take the risk of putting all your available capital into any one of these markets, once you think you have understood the market well. However it is still better to risk a little bit of capital at a time. This way, if you stumble it probably won’t sting so much.

Leveraging Up: Not a good deal for New Investors

Trying to leverage your money using margin facility is much worse than going all in, s volatility can wipe out most of your capital. When you use leverage, you magnify both the gains and the losses that you would face on any given investment. There are different types of leverages, some like options, have a limited downside. Using them you can control your loss. However learning to limit the capital at risk comes only with practice, and not until an investor learns how to wield that control, leverage is best taken in small doses if you’re too keen to.

Hold On! Thinking of investing all your Cash Reserves?

Recent studies prove that cash put into the market in bulk rather than in increments have a better overall return; however this doesn’t mean you should invest till you have all your capital tied up. Investing is a business played best long term, whether you are a buy-and-hold investor or a trader, and staying in any business requires having cash upfront for emergencies and opportunities. Yes, the cash that you keep sidelined won’t fetch you any returns, but for sure will help you on a rainy day.

So, you can identify the next Apple?

Trying to second guess the next “Google” or the next “Apple,” or trying to find a revolutionary product or a rumor of earth shaking earnings, investing on such news is an awful move that first time investors tend to make. The best case scenario would be that your luck holds you out and you would keep on getting lucky until your luck strikes out. The worst case scenario would be that you get stuck jumping in late and watch the down-tide erode your capital value in a stride.

The Bottom Line

While you are stepping into the wicked world of investing, it is best to invest small and only risk the money that you can afford to lose. As you continue to learn and gain experience, then start taking risks. Stocks have proven to be unforgiving towards mistakes which newbie’s tend to make.

Just as the morning bell rings, a day trader dives into the world of complicated financial instruments with a hope of making it big someday. Well, don’t take me wrong here; I am not advocating that you can get rich in a single session of trade. It’s just like any other profession where how well you manage things matters the most. Professional day trading involves buying and selling of financial instruments during the course of a trading session. Day traders most commonly trade in the foreign-exchange (forex) market, commodity market and the stock market. Many people try their hands at this trade and most get out with shattered hopes as making money isn’t easy in this profession. You need to be well trained, financially sound, and trade responsibly as otherwise you will only lose money no matter how hard you try.

Financial instruments are so well designed that a professional day trader with less capital at hand can capitalize on high amounts of leverage by employing short-term trading strategies and rake profits even on small price movements. But, those who get in to gamble with leverage eventually bite their nails when the bets go off.

Day trading has its own importance in ensuring efficient functioning of the financial markets as it helps in enhancing liquidity. This further keeps a check on irregular pricing and ensures that buying and selling goes on uninterrupted.

Day Trading: A Profession or just another way to go Bankrupt?

Professional day traders can be divided into two sets, who work alone, and who work for larger institutions. A majority of the professional day traders who trade for a living fall in the latter. These people have the advantage of a direct line to a dealing desk, immense amounts of capital and leverage, good research back up, advanced analytical software and much more. Things which “on his own” day trader can only envy.

Institutional day traders are the ones who make easy and quick profits from arbitrage opportunities and news events. The resources which they are given access to insure that they can jump in on an emerging opportunity before individual traders can even understand what’s happening. Individual traders work with their capital on the line. They don’t have access to a dealing desk; however they have strong ties with brokerages due to heavy commission spending. Their limited resources restrict them from being strong competition to institutional day traders; instead, they have to take more risks.

Day trading remains surrounded with a lot of controversy. Its profit making potential is commonly misunderstood and remains a fanatically debated topic among retail fraternity. Many internet scams have fed on this confusion to create massive profit for themselves by promising “get rich quick”. Financial Media is always seen promoting day trading among the retail crowd for obvious reasons. However, there is a middle ground to all this, and that’s where the truth lies. Some day traders engage in day trading activities with a gambler’s attitude, while there are others, few in numbers but rake in high profits as they have learned how to survive in the markets.

Many big shot money managers and professional financial advisers keep distance from this line of work, they state that the degree of profits do not justify the risk involved. They cite examples of successful investors such as Warren Buffet, who have attained enormous success by traditional ways of investing, and claim no day trader has reached such peaks of success yet.

Wall Street remains divided on this issue, however one thing they all agree to is that day trading involves risks. Also, the understanding required for this line of work is immense and obviously not as easy as making a cup of tea, as it appears to people gazing from the sidelines.

All that a Day Trader Needs

The unmatched keys to be successful at day trading are acquiring knowledge and experience at the marketplace. All attempts to do without these two end up losing big. If you think you understand how trade works and how extreme situations you will have to face then let me introduce you everything else you would require.

Sufficient Capital to Start

In order to avoid losing too much of money you should only use limited risk capital on any day. This will help you survive in the market and safeguard from financial bankruptcy, at the same time help in keeping emotion separate from work. Sizable capital amount is often required to capitalize effectively on intra-day price movements.

Personalized Trading Strategies

A day trader needs an extra advantage over the rest of the crowd, and that’s where a carefully thought of strategy comes in handy. Some smart strategy examples are swing trading, arbitrage as well as trading news, among others. Day traders work upon these strategies and keep on tailoring them until they result in consistent profits and effectively limit losses.

A Set Discipline to Follow

Any smart strategy is worthless unless it’s used alongside set discipline. Day traders lose a lot of money when they don’t make trades that match their own criteria.

A Trading Desk/Terminal and Research Tools

Day trading requires access to some high end financial instruments and research tools which enable fast decision making and implementation.

Having a well equipped trading desk insures instantaneous order executions in case of sharp price movements. Traders working with institutions have access to high end technology, so to compete with them you would require sophisticated tools.

Access to multiple News Sources

Fastest access to latest and correct information is the most crucial resource for minting the most out of a trade. Financial news provides ample opportunities which day traders can capitalize on. A normal trading desk should have access to reliable Newswires, TV channels such as CNBC or some other news agencies.

Advance Charting Software

Advance charting software may be an expensive buy, but most professional traders need such resources to identify correct patterns. You can find charting software that come with automatic pattern recognition and provide buy and sell signals.

Conclusion

To sum up, I must warn all newbie’s that day trading involves considerable risks, not just that of losing all your capital, but you can get graved under enormous debt as well. Professionals with institutions have access to very expensive and sophisticated tools that give them a head-start over individual traders, so trade cautiously and be ready to learn as everyday it’s a different day of trade.

Is Zecco’s Free Trading Offer a Fraud?