Free Stock Market Investing Tips

Almost all stock brokers offer margin trading, which is essentially borrowing money from them to purchase more stocks. Many investors do not understand margin trading or whether or not it is good for them.
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In order to understand the meaning of “asset allocation”, one should pay in mind that even the best performing asset differs from one year to the other and cannot be predicted easily. Thus, a safe mood is to invest in more than one asset class. Thus, by diversifying the overall risk (for you will be waiting for a variety of returns), you will have a more justified, fundamental asset allocation. Some critics describe this diversification as the “only free lunch found in the investment game”. Moreover, because of the problems associated with “active management” that have been discovered by academic research, many investors are drawn to the increasingly popular passive investment style.

Thus, to financially plan you asset allocation, you should start searching for the appropriate asset that reflects your abilities and the risks you expect.

Asset Classes Include:

- Bonds

- Cash

- Stocks

- Foreign currency

- Real estate

- Natural resources

- Luxury collectables (wine, cars, art, … etc)

- Precious metals

“Red Flags” are often used to refer to a stock with potential problems. It, therefore, draws analysts’ attention. However, there is not a fixed standard for its identification, for that depends on the methodology of investment used. Thus, the same investment can be positive and negative at the same time, depending on the investor interested in it; for example, if you are looking for an undiscovered company, you will look for low institutional ownership, but the same type of ownership is considered negative to a pension fund that is looking for blue chips.

There are usually some important red flags that you, as an investor, should look for. Major among these is the “Material Adverse Effect” (MAE). This flag indicates that something is extremely wrong, such as a decline in profitability or even the bankruptcy of the firm/business.

Thus, although the SEC (Securities and Exchange Commission) and the legal boilerplates prefer to disclose as many problems as they can, red flags, especially the MAE, will provide investors with crucial information, helping him/her to avoid mistakes of investment.

Index funds aim to construct investments that mimic the movements of an index of a particular financial market. The fund manager can accomplished this by setting up a mutual fund composed of stocks in the S&P 500, and by keeping the stocks in amounts equal to the proportions they represent as members of the index. The idea here is not to beat the S&P 500 but to match its performance with a mutual fund. Not a bad goal considering the S&P 500 averaged returns of 17.3% in the 1990s while mutual funds could only manage 13.9% during that same time period. Another advantage with these funds is the low expense ratios, which are the costs charged to shareholders. The Vanguard S&P 500 expense ratio, 0.18% in 2006, is less than one fifth the expense ratios of the average mutual fund.

Fixed income funds are mutual funds that seek to preserve a set income stream by investing in very secure investments like highly rated corporate bonds and government bonds. They can provide monthly income, diversify a portfolio, or a higher level of liquidity for the investor. These are generally lower risk investments with a lower return, but a return that can be counted on to remain, thus the term “fixed income fund.” Many of these funds also have expense ratios below 1%.

Asset manager funds seek to match investment with the lifestyle or risk-tolerance of the investor. For example, the more risk-tolerant the investor, the longer the investor has until retirement so that fund would be composed more of equity (stocks) and less of bonds that have a slower rate of return. As the investor becomes less risk-tolerant, that fund will become more composed of bonds and less of equity. These types of funds are usually more actively managed than, say, the index funds and can have higher expense ratios. This is true with Fidelity’s Asset Manager 85% (85% equity) at 0.87% in 2006 and Asset Manager 20% (20% equity) at 0.58% in 2006, respectively. Still, these ratios are lower than other types of mutual funds.