The Handy Investing Answer Book. Paul A Tucci
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ten years?
• Have I kept the losers?
• Have I created more winning investments?
• What investments am I thinking of acquiring next, when, how much, and why?
• Will I sell something to do this, or will I invest new capital into this idea?
What is “correlation”?
Using historical returns on individual investment choices, you can see if two investments move in the same way, using various statistical analysis methods. If two stocks are 100% correlated over some time period, this means they move exactly the same way, given some event or market condition. If they are 50% correlated, then approximately half the time, over some period of time that is analyzed, the two stocks move in the same way, either up or down or even flat, with no change. If the correlation is –50% between the pair of investments, it means that they are moving in opposite directions, so as one goes up, the other goes down. As you build a diverse portfolio of investments, it is generally accepted that good investors, over time, find and invest in different classes whose returns do not move in the same or similar fashion.
What is “concentration”?
Concentration occurs when you invest your capital in a few investment classes or one class. The thinking behind this approach for certain investors is if one investment or investing idea is outperforming other investments, perhaps it is a good idea to focus or concentrate your investment in this idea, in hopes of making relatively higher returns. Of course, your acceptance of this concept certainly depends on how much risk to your portfolio you are willing to accept, as a more concentrated investment choice may carry more risk than one that is relatively more diverse. Some investors even believe it is better to decide to invest their money based upon fewer choices or less diversity, as the returns are thought to be higher.
How often should I check or analyze my portfolio to make sure it is properly allocated?
You should check your investment portfolio to make certain it is properly balanced at least quarterly—if not monthly—in order to ensure that your investments are not too synchronous or correlated. Of course, this allocation depends on such factors as how much you have to invest, what your financial goals are, how much time you have before you need access to the capital (your time horizon), your tolerance to risk, and whether you are undertaking some sort of big financial challenge (losing a job, changing a job, health issues, etc.).
What is a “cyclical investment”?
A cyclical investment could be any investment that is highly correlated to some chronic economic event, condition, or pattern. People buy fewer cars and travel less if they are not employed. So investments dependent upon demand created by the level of employment of these cohorts may perform less than desirably, as the unemployment rate increases.
Financial challenges, such as whether you are looking for work, are something you should consider when evaluating your stock portfolio for risky versus safer investments.
What are the two major stock exchanges?
Although there are many different stock exchanges in the United States, the two most important ones are the NYSE and the NASDAQ. The NASDAQ is the second largest stock market in the world, behind only the NYSE in terms of market capitalizations.
How old is the New York Stock Exchange?
The New York Stock Exchange is the oldest stock market in the United States. It was founded in 1792 by 24 stockbrokers who met at 68 Wall Street, but it was not officially founded until a constitution was signed in 1817.
What is the first step to accumulate wealth and savings?
Most experts agree that you must first understand your financial picture, to see what areas need to be altered or changed, by identifying your net worth. Others believe you must first change your basic attitudes and beliefs about money and wealth in order to reach your financial goals. And still other experts believe you must first establish financial goals—without them, you have no way to attain success. Perhaps combining the above ideas is a prudent course of action.
What is my “net worth”?
Your net worth is one of the most important measurements of how much you are “worth” financially. Your net worth is the value of all your assets, including cash, stocks and bonds, mutual funds, retirement accounts, including your IRAs and 401(k)s, and equity in your homes, any metals (such as gold or silver), minus all of your liabilities, that may include car loans, mortgages, credit card debts, student loans, significant health-related expenses, and any other obligations you may incur.
What is a “high net worth individual”?
A high net worth individual is someone who has a net worth, excluding the value of his principal residence, in excess of $1 million.
Why is knowing my net worth important to attain my financial goals?
Understanding and computing your net worth provides instant feedback as to your ability to save money, shows you how indebtedness may drain your savings, and fund the costs of your borrowing to cover expenses. Knowing your net worth also provides you with a way to visualize how you, in certain conditions, create wealth through borrowing, especially if you borrow money at interest rates that are low enough, and invest this cash in, for example, a real estate market that has increasing values over time.
What is the midpoint, or median net worth, of families in America?
According to a 2007 report by the U.S. Census Bureau, the median or midpoint of all families reporting shows that their net worth is $221,500, of which nearly 90.3% is in the form of equity in their houses. Of course, since the crash of the real estate markets in the United States in 2008, this number has decreased in some markets rather significantly. But it does demonstrate that many families derive a great percentage of their net worth from home ownership.
What are some of the most interesting books on investing?
Some of the top investing books include: Edwin Lefèvre’s Reminiscences of a Stock Operator (1923), Jack Schwager’s Market Wizards (1988), William Falloon’s Charlie D. (1997), Benjamin Graham’s The Intelligent Investor (1949), Peter Lynch’s One Up on Wall Street (2012) and Beating the Street (1994), Philip Fisher’s Common Stocks and Uncommon Profits (2003), Michael Porter’s Competitive Strategy (1998), Adam Smith’s The Money Game (1976), John Train’s Money Masters of Our Time (2003), Anthony Crescenzi’s The Strategic Bond Investor (2010), Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds (1841), Gerald Loeb’s The Battle for Investment Survival (2007), Benjamin Graham and David Dodd’s Security Analysis (1934), Philip Lord Carret’s The Art of Speculation (1927), Burton Malkiel’s A Random Walk Down Wall Street (1973), and John Rothchild’s A Fool and His Money (1998).
What kinds of information can help me understand and learn more about investing?
There are many sources of information available to help you understand the financial world and the world of personal investing, including online blogs, newsletter feeds, thousands of websites, government websites, non-profit websites, weekly magazines, newspapers, books, and TV and radio programming.
Isn’t it easier for me to just have a financial adviser, so that I don’t have to spend time learning about personal finance?
No. In order to make the best use of anyone’s advice, you must take the time to be well informed so you can understand different options or strategies. Millions of people feel a financial adviser can make decisions for them, or that they can pay someone to “manage” their finances, so they need not learn about it. People often fail to learn enough about personal finance, and cannot tell the difference between bad advice and good advice. If you are not well informed about the myriad choices available to you and your advisers, it is very difficult to know what option is best for you.
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