Financial analysts » Investment

Gifting Phase

admin — Wed, 17 Nov 2010 15:35:41 +0000

The gifting phase is similar to, and may be concurrent with, the spending phase. In this stage, individuals believe they have sufficient income and assets to cover their expenses while maintaining a reserve for uncertainties. Excess assets can be used to provide financial assistance to relatives or friends, to establish charitable trusts, or to fund trusts as an estate planning tool to minimize estate taxes.

Spending Phase

admin — Tue, 16 Nov 2010 15:35:34 +0000

The spending phase typically begins when individuals retire. Living expenses are covered by social security income and income from prior investments, including employer pension plans. Because their earning years have concluded (although some retirees take part-time positions or do consulting work), they seek greater protection of their capital. At the same time, they must balance their desire to preserve the nominal value of their savings with the need to protect themselves against a decline in the real value of their savings due to inflation. The average 65-year-old person in the United States has a life expectancy of about 20 years. Thus, although their overall portfolio may be less risky than in the consolidation phase, they still need some risky growth investments, such as common stocks, for inflation (purchasing power) protection.

Consolidation Phase

admin — Mon, 15 Nov 2010 15:34:06 +0000

Individuals in the consolidation phase are typically past the mid- point of their careers, have paid off much or all of their outstanding debts, and perhaps have paid, or have the assets to pay, their children’s college bills. Earnings exceed expenses, so the excess can be invested to provide for future retirement or estate planning needs. The typical investment horizon for this phase is still long (20 to 30 years), so moderately high risk investments are attractive. At the same time, because individuals in this phase are concerned about capital preservation, they do not want to take very large risks that may put their current nest egg in jeopardy.

Accumulation Phase

admin — Sun, 14 Nov 2010 15:32:57 +0000

Individuals in the early-to-middle years of their working careers are in the accumulation phase. As the name implies, these individuals are attempting to accumulate assets to satisfy fairly immediate needs (for example, a down payment for a house) or longer-term goals (children’s college education, retirement). Typically, their net worth is small, and debt from car loans or their own past college loans may be heavy. As a result of their typically long investment time horizon and their future earning ability, individuals in the accumulation phase are willing to make relatively high-risk investments in the hopes of making above- average nominal returns over time.

Preparing Yourself for the World of Investing

admin — Thu, 10 Jun 2010 14:54:38 +0000

Bulls, bears, stocks and bonds. Many people enjoy the notion of saying that they are investors, but few are actually prepared to invest in the right way. Investing is like a boxing match in that there must be adequate preparation and training before a boxer ever steps into a gym. Like a boxer, an investor has to seek the right investment advice because they have much to lose if they are ill trained before the main event.

Before You Invest

Prior to investing, you should prepare for it by getting your finances in shape. First, you should be aware of your debt levels. There is no such thing as good debt but some types of debt are acceptable such as a mortgage loan. You need to get rid of any extra debt you have before you ever invest.
The reason is simple: if you invest, you may not earn enough to offset the interest being charged on your debt, and even worse you could lose your investment as well. For example, if you’re paying 6% interest on a student loan, you would have to earn over 6 percent on your investment returns in order to justify not concentrating on your debt load first.
After ridding yourself of debt, you need to build an emergency fund. If you lose your job or run into unexpected expenses like medical bills or your old car breaks down, you will be covered. Before trying to make money by investing you should have adequate savings to keep you going when emergencies occur.

Doing Research

There are all kinds of great investments for you to try out, but when starting out you should pick one and dedicate yourself to learning as much as possible about it. For instance, if you choose to invest in the stock market you should be reading as much as possible about it daily. Next, you should try a virtual stock exchange where you’re given fake money to invest. Try out various investment theories and see which one suits your style and risk tolerance most. There is really no right answer, but the wrong answer is to go in without training.
Remember that you can always start out with more simple investments like CDs or bonds before trying your hand at the stock market. Countless investors lose money because they are not ready for the dedication necessary serious investing. Don’t let yourself be unprepared when risking your money.