Posts Tagged ‘diversification’

Conquer Your Financial Fears

Posted on: June 9th, 2010 by

Financial Planning - Rockville, MDAn unusually helpful bit of pop psychology holds that we should worry only about things we can control or effect and put aside the anxieties we cannot.  That advice holds true for worrying about money and investing.  Although  some fears cannot be controlled by the individual or have little likelihood of happening, addressing a related fear that can be controlled may help alleviate some of the anxiety.

Fear: Stock Market Crash

While visions of the NASDAQ tech crash still haunt many, the reality is, your biggest worry should be getting mediocre returns from your investments.  We often abandon the buy low, sell high principle when it is most needed.  God markets make many investors feel invincible, so they don’t sell or re-balance.  When markets decrease and prices are low, investors get scared that they will lose out on potential gains; they jump ship figuring a small return is better than none, but ignoring the potential upside if the stock price rises again.  Diversification and dollar-cost averaging may help you avoid mediocre returns.  By making sure your portfolio is invested for the long haul across a variety of markets, countries, and investment vehicles, you may reduce your risk exposure and potentially open yourself up to more than mediocre returns.

Fear: Identity Theft

We, as a country, have a great deal of fear about identity theft; and for very good reason.  It can wreak havoc on your personal finances.  Mistakes on your credit report, however, are far more likely and can severely damage credit ratings.  Consumers find more than 13 million inaccuracies on their credit reports each year, according to Consumer Reports.  Those mistakes can range from minor to inaccurate, or false delinquencies that can ruin your credit.  Be cautious about giving out your social security number and check you credit report once a year for inaccuracies.

Fear: Failing Economy

High energy prices, terrorism, and natural disasters are all enough to make Chicken Little look rational.  With our penchant to view the future as a continuation of the past, it’s no surprise that many Americans fear another 1920a-style depression, or worse.  By investing in a wide variety of investment vehicles, you can help increase the chances that if one major world economy starts to fail, you’re gaining in another that is booming.  For those in retirement, where income distribution is so important, having a strategy that generates income in good times and bad is critical.

Many of us fear the worse on a consistent basis, and we all face risks everyday.  The real task is rooting out which financial fears can be controlled and then working with your financial professional to minimize your risk.

Mutual Funds and Hedge Funds: What’s the Deal?

Posted on: April 28th, 2010 by

Investment Management - Financial Planning - Rockville, MDBoth mutual funds and hedge funds are managed portfolios, meaning that an investment manager picks the securities he or she thinks will perform well and groups them into a single portfolio.   Portions of the fund are then sold to investors who can participate in the gains/losses of the holdings.  The main advantage to investors is that they get instant diversification and professional financial management of their money.

Hedge funds, however, are managed much more aggressively than mutual funds.  They are able to take speculative positions in derivative securities such as options and have the ability to short sell stocks.  This will typically increase the leverage, therefor increasing the risk.  This also means that hedge funds have the ability to continue to make money when the market is failing.  Mutual funds, on the other hand, are not permitted to take these highly leveraged positions and are typically safer as a result.

Another big difference between these two funds is their availability.  Hedge funds are only available to a specific group of sophisticated investors with high net worth.  The government deems this group as “accredited investors”, and the criteria for becoming an accredited investor are quite lengthy and restrictive.  Mutual funds are very easy to purchase with any amount of money though.