Archive for category Investing

Steps for Making a Good First Investment

I have been asked many times “What’s a good first investment?” It would be easy to say that stocks, mutual funds, or some other asset would be a good first investment, but most people don’t even understand the question they are asking in the first place. Most people asking that question don’t realize that they have already made many investments in their lives – only they don’t know it. The question they should be asking is, “What is the right next investment for me?” That question is usually a little easier to answer depending on how well I know the person. What’s the next right investment for you? Read on and try to see where your life experiences fall in the selections below.

A Right Next Investment for Me Is: Better Tools

Someone aiming to put money to work for them via investing would be well advised to have the resources to track and manage any investments made before making them. What is the bare minimum amount of tools needed to make investments? Howabout a computer? Internet access? Do you have a basic home finance software package? Are you capable of using tax software or are you willing to use a tax preparation service to assist you? Are you willing to keep good records using your financial software?

If you answered yes to all these questions then you should read on. If not, your decision is already made for you: you need all of the tools above to make a good first investment, so the next right investment for you is more tools. Once you have all the things listed above, it’s time to expand your horizons.

A Good First Investment for Me Is: My First Online Account(s)

So you have a computer, finance software, internet access, and a tax accountant or software or service. At this point you have all the tools you need to make your first investments without getting tripped up by them later on. At this point it’s time to bite the bullet and commit some money to an online account. How much money do you have to commit? Are you sure you can live without this money for an extended period of time – because that is what you are committing yourself to doing.

Many would think I am utterly boring for suggesting this – but your first online account should almost certainly be an online high yield savings account. With all the fancy investments in the world out there, why on earth would I suggest a boring, dingy old savings account as a good first investment? Simple. You need to find out if you really can live without the money you are committing to invest. If you find out a month from now you desperately need that money, you can get it back quickly from a savings account. You likely won’t be able to get your money back without a significant penalty from almost any other kind of investment account. An online savings account is a highly liquid (easily available) investment which (by being online) is not available to you for immediate withdrawal. It is a good test of whether you really can live without the money you want to invest. If you’re short on funds to invest, here are some ideas for how to start investing with little money.

At this point you have the tools you need to successfully manage an investment, and if you have created a savings account and lived without the money for a while odds are you don’t and won’t have an immediate need for the funds. Now is the point where you can think about making riskier investments.

A Good First Investment for Me Is: More Self Knowledge

Here you have arrived at a major fork in the road. You need to ask yourself, “What am I trying to accomplish with my investment and how long a time commitment am I willing to make with this money?” The answers to these questions are critical in making a decision about what is the next right investment for you. A good investment might be opening an investment account. It might mean converting some of your online savings account funds into a high return CD. There are so many different types of investments out there it makes the odds of finding a choice that suits your goals and commitment level very good. Just how wide a variety of choices are there? Here’s a short list – in increasing amounts of time commitment:

Hourly / Daily Options / Weekly Options / Monthly / Quarterly Options – pay high yields but come with high risk (enroll in a free options trading tutorial)
High Rate CDs – Safe low yields but usually have penalties for early withdrawal
Leveraged ETFs – Offer high returns and diversity in a simple, single investment
Mutual funds – Similar to ETFs but have annual tax complications
Savings Bonds – Can be bought directly from the Government but have multi-year time commitment (or penalties) – also pay very low yield (right now).

Investments to Avoid Initially:
Stocks – Require a great deal of research and large capital commitment
Bonds – See stocks, but think even bigger capital and time commitment
Real Estate – Much like stocks and bonds – lots of money and knowledge needed – with great risks today

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No Comments updated August 20, 2014

Debt Ceiling Haiku

Today a haiku poem on the United States Debt Ceiling Debate:

Bush Tax Cuts and Earmarks
Cheney Makes War in Afganistan and Iraq
United States Debt Crushes Hope

I’ve never written a haiku before… how did I do?

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2 Comments updated July 26, 2011

Why Options Trading Is the MO of the Black Swan Trader

I have loved options trading from the very first time I tried it. While I didn’t exactly know why I liked it so much, I knew there was something particularly special about it but I couldn’t quite put my finger on it. That changed last week when I read a book called The Black Swan by Nassim Taleb.

Exposure to Serendipity – a Television Interview that Became a Black Swan for Me

I had never heard of Nassim prior to this past month when he appeared on television and gave a short interview about the Greek debt crisis and how it related to his description of Black Swan phenomena. I did not catch all of the interview, but I did catch one extremely important comment by him – a comment that resolutely cemented in my mind the investment strategy I had been tinkering with lately. What he said that there was unknown uncertainty in the world, and in particular the stock market – and while that may not seem like the boldest statement ever made what he next said forever changed the way I think about investing. What he said next was that what made those unknowns particularly important was that the returns (positive or negative) on those unknowns were large enough to impact the overall performance of an asset portfolio. In other words, sudden events can produce such large (usually unfavorable) swings in the market that single market or asset events can obliterate decades of returns in a matter of hours. I am sure that if he ever has the mis-fortune of reading this post that he will be horrified that I have referred to watching the television (and in particular a financial news channel) a “black swan” event.

For those of you not familiar with modern portfolio theory, this is equivalent to standing the classic investment portfolio theory (and all of its academics) on its collective ignorant head.

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An Options Trading Strategy Suddenly Makes Sense

As I had mentioned before, I had been tinkering with my own investment strategy, attempting to maximize my exposure to positive returns using the minimal amount of capital, all the while keeping the remaining cash in highly liquid/low risk assets. Oddly enough my options trading strategy was working quite well before I read the Black Swan… and now I have some appreciation for why.

If you have read The Black Swan already and haven’t given options trading a try, I highly recommend learning more about it. If capital is a problem, then perhaps binary options are for you.

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1 Comment updated August 8, 2011