Investing has a purpose – and any investor will tell you it is not only the high of winning; it’s the cash return that makes it all worthwhile. For all of the research, risks and nail biting that goes on in high risk investing, the rewards are priceless.

But how do you get involved in high risk investing, and what makes it worth the risk of possibly losing a good portion of your portfolio in one fail swoop?

The answer to that question, from top investors, is capital. You need to build up capital and have a pretty substantial portfolio before jumping into the high-risk game.

Business Week says it’s “those with stamina and cut-throat attitude risky investments require. It’s where the game gets exciting and where the big plays come from.”

But what are some high-risk investments, you ask? They include real estate, land, mutual funds, EFT, stocks, leveraged funds and more… and the higher the risk the higher the profit.

Real Estate:

Something that is always been a somewhat safe investment is real estate, whether it is raw land, a home or even a building. Even if the so-called ‘real estate’ bubble pops, history proves that it will return to a good market value, at some point. This could take years though, so investing in property is a longer-term investment, however the pay off can be bigger than most investments available.

For example, a friend bought a distressed home in a nice neighborhood that was bank owned. The bank sold it for the amount it was mortgaged for, which in a good market was $150,000 below market value. This friend spent $10 grand in down payment and repairs, and in 2 years made $140,000 by holding onto it until the market values came back up. He rented the home in the interim, and had only the repairs and initial investment – out of pocket. Yes, it took 2 years, but can you imagine if you ‘flipped’ 3 -5 homes a year such as this?

Yes, real estate is always a good bet.

Emerging Markets:

These investments can be quite rewarding, and exciting as well as you are literally investing in companies or developments in foreign markets such as Mexico and other underdeveloped countries, that seek investment money to promote growth and well being of that company, or state.

In order to lure investors to their funds, rates can range up to 52 percent growth for the investment because of the volatile investment. Sometimes unheard of profits, but remember, there are high risks as well.

Emerging funds have become the most popular for investors over the past few years.

Using a highly experienced market strategist or broker can help curb the anxiety in these higher risk investments, as well as heavy research on the previous few years in the market you plan to invest.

Hedge funds:

Hedge funds are simply a mutual fund that isn’t regulated by any governmental agency. It is high stakes, and covers all scopes of investments such as commodities, real estate, and public company buyouts.

Goldman Sachs is one of the biggest investors in hedge funds, and has experienced over 33 percent returns on their investor’s money.

These funds are much riskier than mutual funds, but the returns are enormous, due to quick turn around and the ability to move assets from one fund to another with high-speed. This can really rack up the cash, but it can be just as easily lost should a bad investment happen.

EFT’s:

Exchange traded funds (EFT) is a favorite of high risk investors because of the convenience of index investing, lower costs, individual stock ownership and the diversification of the funds.

They have foreign indexes and allow commitments to foreign companies under an umbrella, which is perfect for the person who believes in biotechnology, but can’t commit to just one company.

They include bonds, REIT’s and represent nearly all segments of the market, in the world, pretty similar to the index mutual fund markets.

FOREX:

Foreign exchange currency markets have increased in the past few years, and if you plan to invest in this higher risk market, you should really understand the market.

This is an investment strategy that is known as ‘high risk’ because it is so volatile. It involves investing in foreign currency, and should be highly researched before investing, however, it is also highly lucrative.

AVAFX has a practice online trading account in which they give a virtual $100,000 to play with. This is only a free practice, but can give you an idea of how quickly this currency investing moves, and how rapid profits and loss can occur.

A link to more detailed information about foreign exchange markets can be found here: Trading Forex: What Investors Need to Know.

The best advice to any investor is to spread out, never invest more than ½ of your capital, and don’t invest anything you aren’t ready to lose. Good luck and please, see the Investor’s clearinghouse message below with regard to the current economic situation.

A message from the Investors Clearinghouse: “With recent market fluctuations and the overall downturn in the economy, it can be tempting to invest in something that offers a high rate of return. But investors need to make sure they are investing in a legitimate financial product and that they understand the level of risk they are undertaking. If they are offered a high return with low or no risk, it’s likely a scam. The Alliance for Investor Education wants to help Americans spot bogus investments and conduct the due diligence required when it comes to legitimate high-risk investments.”

Ally is part of the team that manages personal finance guides in Sydney, Australia, which provide tips about Budgeting Worksheet and How to Save Money Fast. Before joining BS & HSTM, she was a Media Planner in McCann Worldgroup Philippines, Inc., with award-winning executions, including the Levi’s 501 “Live Unbuttoned” global campaign.

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Both here and across the Atlantic, governments and individuals alike are struggling to cope with rising debts. But after years of splurge spending and risky investments, is there a way of encouraging weary individuals to start saving again?

The UK has a well established and unique way of encouraging its nation to invest and save. Introduced and issued by the government over 50 years ago as a saving incentive, ‘premium bonds’ provide an exciting alternative to the beige clad interiors of high street banks.

Premium bonds can be bought from as little as a £1 ($1.6). However, rather than the interest being paid to each bond holder at regular intervals, as an American Treasury bond does, it is instead placed into a safe fund. The bond holders are then placed into a national draw with monetary prizes being taken out of this fund. These draws are made each month and the prizes can range anywhere from £25 ($40) to a single jackpot of £1 million. That’s $1.6 million at today’s exchange rate.

Sales of UK premium bonds have boomed over the last few years in response to languishing low interest rates. It seems that investors prefer the excitement of bagging a hefty lump sum rather than the paltry returns which can be expected from small interest rates on normal saving accounts.

Its success may be in part to the government playing on people’s love of the lottery whilst eliminating the element of loss or risk. Rather than purchasing a weekly lottery ticket, the same premium bond could potentially win on more than one occasion. In addition, unlike other UK Government bonds (gilts) or US Treasury bonds, a premium bond can be cashed in at any time at no extra change. You are guaranteed to get your 100% of original investment amount back as they are backed by the HM Treasury. What’s more, any prizes won are also exempt from tax.

However, it’s important to remember that this zero element of risk may only become worthwhile if you actually win. If your bond fails to win anything your investment may have lost out on potential interest earnings had it been invested into a savings account or different type of bond.

Although there are no exact figures linked to premium bonds, annual results for the last tax year show that National Savings & Investments (NS&I), the government backed organization who issues premium bonds, delivered £827 million of savings to the taxpayer. Or in other words, it is £827 million more cost effective for the government to raise funds via NS&I than via government gilts (bonds).

With the popularity of premium bonds at an all-time high (over 24 million people in the UK have them), coupled with the lucrative income generated for the government, America should be asking itself whether it too could benefit from the adoption of a similar scheme?

As an overseas investor, you may be able to flutter with UK premium bonds through a broker. Remember, if you prefer a guaranteed interest pay out there are various other government bonds available. Additionally, if corporate bonds do not interest you, you may wish to invest other bonds such as the fixed rate bond or investment bond which could provide a higher return. An independent bond broker can work with you and advise on the best bonds for your circumstances.

This guest post was written by John Hughes who is the resident blogger at independentfinancialadvisor.co.uk, a small UK based site that provides access to independent financial advisors as well as to debt advice charities for those struggling with their debts.
 

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Supposedly the stock market has ended its worst quarter in more than 3 years. The Dow Jones lost 12.5%, Standard & Poor’s dropped more than 14%, the European blue-chip stock fell 17%, the Hong Kong market fell 21.5%, and Brazilian shares fell 16%. Even the price of gold, which was being pushed heavily this year as the top dog, lost 15% of its worth in the last month. Oil’s down as well, to its lowest amount in the last year.

by Frank Bonilla via Flickr

Market analysts seem to be everywhere on this topic, which means someone like me can have an opinion and at least one person out there will agree with me. My first thought is the same thought I’ve said at other times here, that being that the market is overinflated to begin with. Overall, trading stocks is a guessing game. The guessing game is supposed to be on how valuable or worthy a particular company is. Instead, I feel that many investors were hedging bets that the economy was going to grow in some fashion.

It has grown; just not at the levels they were all hoping for. In a story last week on CNN, it addressed whether President Obama was responsible for the financial situation we’re in now. The story concluded that the President’s actions actually got this country out of a recession, which of course kept us from moving into a depression, and that officially the economy is actually growing. But because of how bad the financial situation is here and around the world, it’s going to take a lot more effort or a miracle, and at least the second one doesn’t seem to be on the horizon any time soon. And since Republican politicians seem more interested in trying to make sure the President isn’t president anymore rather than trying to do something about the economy it looks like the first isn’t going to happen either.

Is it a good time to invest? I don’t know, and I wouldn’t want anyone basing their beliefs on anything I’d have to say; I’m not Jim Cramer. I’ll say this though; I’m not investing right now and have no immediate plans to do so either. I just feel as though things are going to have to get a little bit worse before they’re ready to turn around for a good reason. Until then, I’ll keep some dollars under the mattress.
 

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When you look around the world right now there aren’t a lot of great investment opportunities. The FTSE 100 was at a 6 month low of 5007 last week as investors panicked over the UK’s increasing budget deficit and the US markets are no better.

by Giorgio Montefiore via Flickr

The past week saw the Dow Jones Industrial Average have 3 top 11 down days (in the space of a week!). Last week’s 5 day price change showed a -9.89% decrease in the Dow Jones. Can you imagine losing up to 10% of your savings in one of the leading investment markets in the Western world within the space of a week?

This is why so many investors have been turning to gold right now. Traditionally gold has been seen as the “all-time” hedge against economic failure, currency devaluation, market collapse and inflation. However, while the above is all true, gold has also showed strong signs of returns for investors and hedge fund managers over the last decade.

If you haven’t been keeping up to date with gold news than you should know that the price of gold has rocketed from $1,600 per troy ounce up to a record high of $1,813.79 in August. The 10% growth of gold prices in a single month is unprecedented and is a reflection of just how poorly the economies are being run.

Although gold has settled at $1,737 and is growing much at a much slower rate (around 0.5% per day) compared to the beginning of the month, the gold price is only expected to increase as fears of QE3 (quantitative easing) in the US, France and the printing of money in the UK will devalue the US Dollar, Euro and British Pound.

You need to understand that the printing of US dollars (Quantitative Easement) by the Federal Reserve is inevitable. The entire US debt is higher than the total GDP and the only way to manage the interest rate payments is to print more money. The printing of US dollars leads to a declining value of the US Dollar which then hikes the gold price up.

What we’re seeing right now in the markets is a prediction of higher gold prices, which leads to higher demand for gold. I don’t think it’s too late to buy into the gold investment scheme and if you buy gold now you can be fairly confident that it won’t lose its value. Analysts at Bank of America Merrill Lynch have already forecast a 12 month price increase up to $2,000 while price targets at the recent GATA (gold anti-trust Conference) last week included $6,000 – $8,500 over the next 3-5 years. Even J.P. Morgan recently said that gold could trade as high as $2,400 – $2,500 per ounce by the end of 2011.

I wrote this article about investing in gold within the current pretense of the economic markets. However, investors have always recommended investing between 5-10% of your total assets in gold. This isn’t my opinion it’s just a well known piece of advice in asset management. Annual gold production is limited nowadays to around 2,000 tonnes (peaked at 2,500 tonnes in 2008) and it doesn’t nearly meet the demand of the emerging Indian/Chinese markets and burgeoning jewelry industry.

In my opinion, you probably should be investing in gold even if just a little bit of your income given the market conditions right now.

Surely there must be a downside to all this gold investment malarkey? Of course there is. Buying gold isn’t without its risks. If investor’s demand for gold decreases (demand from investors has currently hiked up to 40% as opposed to its natural 15% over the last few decades) than it will have a degrading effect on the price.

Gold bullion doesn’t really have much “inherent value”. The huge upswings in gold prices have been driven by speculative demand. And this would massively decrease if the main economic markets and currencies were to improve. In my opinion however, and given the deplorable outlook of major Western economies, this is very unlikely to happen in the near future.

In conclusion, I’m not suggesting that you should invest everything you own, sell your house and buy gold right now. But from a purely financial perspective you are better investing in gold as an insurance against any pending economic/sovereign debt rather than tying your money in real estate or stock markets. Some of the best places where you can buy gold online within a few clicks are APMEX (American Precious Metals Exchange) and BullionVault.com.

Commissions for gold are usually pretty cheap nowadays which is great for first time buyers. You can expect to pay a maximum of 0.8% in fees at BullionVault.com or if you’re buying gold bars from APMEX.com you can find prices from just 2-5% above the spot price.

This article was written by Adam Grunwerg, the editor and lead researcher at BuyGold.co.uk. Adam has years of experience buying and trading gold with more than $5,000 in his investment portfolio.
 

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The stock markets of the world are in a strange flux these days. It seems lately like it’s a daily occurrence to have the market, most specifically Dow Jones, either dropping more than 400 points a day or jumping more than 400 points a day. It’s enough to make all of us start questioning whether being in the stock market is a wise move.

To take a snapshot of how things can be, let’s look to two weeks ago. The news for two days was extremely scary. First there was a drop of more than 500 points, followed by a second day drop of around 400 points. One more day dropped 400 points as well. But two of those days increased by more than 400 points, and by the end of a tumultuous week, the Dow has lost only 175 points overall, which isn’t bad.

Almost every analyst I talk to says the same thing; if you’re in it for the long haul leave your money alone because long term you’ll make money. Whereas I believe this “could be” right, I’m not so sure such a blanket statement is correct. I think it depends on whether you have your money in just a few individual stocks or mutual fund accounts, which industries you have stocks in, and how closely either you or your money manager is following everything.

For instance, the housing industry is still in a state of flux, and some predictions are saying the mess could last until 2013. If you had your money in real estate how comfortable are you in saying “I’ll just leave it there another 3 years or so because it’ll bounce back”? By the same token, one of the strongest industries, one that weathered the storm of negative progress, was health care. Do you believe those investors are feeling pretty smug and comfortable right now, even with the markets drastic ups and downs? And I’m not talking pharmaceutical companies either.

This is why you have to stay on top of your investments. You need to look at the mail that comes to you regarding your investment account. You need to talk to your money manager, if it’s not you, at least once every couple of months, just to see where you stand.

That’s where I fell off the table. I had someone I thought was looking out for my interests, so I never opened any of the mail. It wasn’t until I finally opened it one day, saw my investment had fallen around 65%, and then tried to call him when I learned he wasn’t there anymore and no one was managing my money. Major lesson learned.

Do you have the stomach for the stock market, whichever one you’re in? Can you handle the ups and downs of the market? I hope so; I’m not so sure I can just yet.
 

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I am not a stock broker or a financial analyst. I would never expect anyone to take that kind of financial advice from me. I have looked at the stock ticker in the newspaper and online, and I sometimes think I know what’s going on, but I would never tell anyone how they should invest their money.

However, Jim Cramer of Mad Money is. Not only was he a stock investor, but he was also a former hedge fund manager. Those guys make a lot of money by speculating on the market and trying to get the best deals for a select number of well-heeled clientele. And he had a great track record, earning around $10 million a year while managing this fund.

On his show, which is actually more “show” than substance, he gives people a lot of advice as to how they should invest their money and makes some pretty bold predictions. He’s had some successes, but he’s also had some major failures. The most crucial came when recommended that people buy shares in Wachovia Bank that, two weeks later, crashed and burned and was purchased by Wells Fargo, dropping around 88% of its value in that short a period of time.

It begs the question; what do these stock investors know that we don’t know? Often it seems the answer to that one is “nothing”. I know many people who have left their jobs to become stock traders and have done very well for themselves. I know others who have lost all their money. For that matter I know financial investors who said one thing to a client and did another for themselves, and I’ve also known some financial investors whose portfolios flamed out like mine did in 2009.

What do they know that we don’t know? Actually, most of them know a lot. The main thing these folks do on a regular basis is track information. There’s a plethora of information they obtain about the company, the industry, technology, associates, competitors, etc. Most of the day it’s tracking trends and making quick decisions on how to act on those trends. Some of it is information that the rest of us could get, but we have other things to do so we don’t get into it.

Of course something else they have is access to people that we would never get to talk to. Insider trading is illegal, but that doesn’t mean they don’t have contacts that they don’t talk to from time to time just to ask what’s going on or what’s new. And every once in awhile, they find that those contacts lie to them, and sometimes it’s too late; that’s what Cramer stated with his bad call on Wachovia.

Also, a question I’ve had, which I’ve written about in the past, that I’m finding many others are also asking, is how the stock market has grown so high when the economy really hasn’t shown that it deserves it. In the last few days stock prices have tumbled because the price of oil has risen; wasn’t it just 4 years ago that the stock market was rising because oil prices were rising? And, for that matter, shouldn’t the stock market be tumbling even faster than before because of the crisis in Japan, which the country is estimating could impact their economy negatively by around $5 trillion dollars? Can you see trillions?

This is why I’m one of those people that recommends hiring a financial adviser that will diversify your funds so you can’t get hurt too much by one company, even though you might not grow as fast. Safety first; what good does it do to sacrifice your money when even top investors don’t seem to know when the next financial crisis is coming?

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Deciding where to place your hard earned cash to maximize growth potential can be a daunting task. Navigating the murky world of investments requires a combination of knowledge and experience, with inexperienced investors at a greater risk of making costly mistakes. The best way to even the odds and increase the likelihood of making smart investment decisions is to learn as much as possible about the options available to you. Armed with this information you can weigh the pros and cons of different investment strategies to find the one which best reflects your financial situation. Here we look at how you can make smart investment choices in the allocation of assets within your Roth IRA:

Understand the Roth IRA

Before you can truly benefit from your Roth IRA, you must first understand how this individual retirement account works. The Roth IRA is an investment account offering specific tax advantages. Contributions to your Roth IRA are made with after-tax dollars. These contributions are essentially used to purchase other investments as directed by the owner of the IRA. This allows investors to make personalized choices regarding the different types of investment accounts in which they wish to invest.

Understand risk tolerance

When selecting the types of investments held in your Roth IRA, you must understand and consider your personal risk tolerance. Your risk tolerance is basically the amount of risk you are willing to accept in regards to investment returns. High risk investments generally offer a higher return while low risk investments offer lower returns. As a general rule, the older you get the lower your risk tolerance as your investment strategy changes from growth to preserving your capital. Investors usually fall within one of the following four categories: aggressive, moderately aggressive, moderate to moderately conservative and conservative.

Asset allocation

Once you have determined what level of risk you are willing to assume, you can then decide which investments will make up your Roth IRA. There are 22 different types of asset classes, with investors having the choice as to what combination of assets will make up their portfolio. Inexperienced investors are often encouraged to invest in mutual funds. The benefits from mutual funds include increased diversification, professional management and lower initial investment requirements. Once you have decided how much money you are investing in each type of investment you are ready to set up a deposit schedule.

Manage your Roth IRA

The Roth IRA like other long term savings plans is designed to offer maximum growth potential for long term investments. To truly take advantage of the benefits offered by the Roth IRA, you will have to be consistent and disciplined in your management of the account. By contributing the maximum amount allowed each year, you can steadily grow your retirement fund, while at the same time avoiding early withdrawals which reduces the amount of money that could be used for investments. When set up and managed correctly, the Roth IRA is an excellent tool in building your retirement fund.

Trisha Wagner is a writer for RothIRA.com, a site which strives to educate it’s readers on the pros and cons of the Roth IRA.

Indexed annuities, which are also commonly referred to as equity indexed annuities, are popular amongst consumers who want to limit their potential losses in the stock market. The growth and yields of your indexed annuities are linked to the performance of the stock market indexes, like the S&P 500. If the index grows favorably, then you can encounter great profits; however, if the index should decline unfavorably, then you are protected against catastrophic losses. Indexed annuities are attractive to many individuals, because they allow you to play the stock market without losing your principle.

Indexed annuities are referred to as single premium contract, which means that an individual purchases their annuity contract with a single lump sum payment. If you wish to invest further monies, then you will most likely have to purchase an additional contract. This type of investment strategy is considered low risk, since one cannot lose their principle. Although an indexed annuity’s annual return rate will be dependent upon the market’s performance, your indexed annuity is guaranteed to grow at a baseline rate of 1-3%. The only possibility that you will have of losing money is if you become insolvent or if your investments exceed your state’s annuity insurance limit.

In general, indexed annuities tend to perform favorably each year. In a good year, the annuity can grow as much as 10-15%. On average, over a period of 10-20 years, the averaged indexed annuity will yield a return of 7-10% return. When it comes to purchasing a fixed annuity, they are available in several different combination’s of fixed and variable contracts, which can make comparison shopping between the different providers of annuities difficult. When you are choosing an annuity, it is ideal for you to consider four different points before purchasing: participation rate, cap rate, minimum rate, and administration fees.

When you purchase an indexed annuity, you will be able to purchase short, medium, or long term annuity contracts, which can range from one year to ten years. There are some annuity providers who will also allow you to have the option of purchasing additional life insurance policies that will offer benefits to your family members upon your death. Indexed annuities will also allow you to bestow tax free gifts upon others. You will be allowed to gift up to $10,000.00 per individual, per year without paying taxes upon it. Furthermore, you will be allowed to invest as much money as you would like in your indexed annuity without undue pressure from the IRS.

While indexed annuities offer you the ability to obtain fabulous rates of return, there are also some pitfalls and disadvantages associated with these annuities. For example, some of the most common disadvantages associated with indexed annuities include early withdrawal fees, administration fees, vesting schedules, and the single premium contract natures. There are numerous individuals who also encounter difficulties with indexed annuities, because they fail to read the fine print of their contracts. It can be difficult for an individual to navigate the indexed annuity if they do educate themselves regarding its finer points. If by chance, you decide to go with a fixed annuity over an indexed annuity, don’t forget to lock in your fixed annuity rates early, as rates tend to fluctuate often.

The reduced liquidity of indexed annuities makes them particularly ideal for those who will be retiring soon. Those who are seeking to capitalize on market growth without risking their principle will also do well by investing in indexed annuities. If you are looking ahead to your future 5+ years down the road, then these annuities will be the ideal type of investment for you. However, it should be noted that even though your principle is guaranteed, income obtained through indexed annuities is variable, and it can be hard to calculate.

Steven Hart has been a financial insurance and annuity writer for over 5 years and has written on many different finance related topics. He specializes in Life Insurance and Annuities, as he is also a licensed agent to sell these products. He has been featured on many life insurance blogs and websites as well as in many articles. To find out more about annuities, check out his popular website!

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The foreign exchange market is the single largest marketplace in the world. This is quite a surprise to many traders, as many casual stock market investors have never even heard of the forex (for “foreign exchange; also known as “fx”) market. To get an idea of how big the market really is, consider this:

The average daily turnover in the New York Stock Exchange is around $75 billion. The average daily turnover in the forex market is about $4 trillion. In fact, if you were to add the daily volume of every major stock exchange around the world in the United States, Europe, and Asian, the number would still pale in comparison to the $4 trillion traded each day in the fx market.

Perhaps the wildest part of all is that the forex market is still largely in its infancy stage. Every few years, the Bank for International Settlements (BIS) conducts in-depth research regarding trading volumes and activity in the fx market and then releases this information to the public domain. In the spring of 2010, the BIS released its most recent research findings, and the BIS stated that it expects the fx market to double in size in the next 10 years, which means that average daily turnover in the fx market could eclipse $8 trillion per day by 2020!

The Big Boys

The primary reason most causal investors have never heard of the forex market is largely due to the fact that individual traders have only been able to trade in the forex market since the late 1990’s. Before the late 90’s, the only players in the forex market were The Big Boys – hedge funds, large banks, and very wealthy investors. The reason The Big Boys were the only ones in the market was simple—the minimum contract size was usually $1,000,000, which meant that a forex trader had to have a million bucks to buy just one single contract.

Power of the Internet

We all know that the internet has changed the way we live forever, and it has largely transformed the financial services industry. The forex market, however, was literally revolutionized by the advance of technology and the internet. In the forex market, large banking institutions such as Goldman Sachs, Morgan Stanley, and HSBC are the ones offering bid and ask quotes for currencies, and these large banking institutions did not want to deal with Joe’s $1,000 account. It was literally not worth their time.

However, in the late 90’s, online forex brokers began opening up shop and they would take Joe plus 100 other traders like Joe, and all of a sudden that small $1,000 account was transformed into a $100,000 account very quickly, and then with a few more trader deposits, these online brokers were now able to pass through millions of dollars per day in trading volume to these large banking institutions.

The banking institutions were happy. They don’t care how the money gets to them—they just want large order flow. And Joe is happy because now he can trade in the forex market. And the online forex broker is happy because he can now make a little bit of money off every trade that Joe and these other traders execute.

The State of Today’s Online Trading World

The days of minimum account sizes being $1,000,000 are now history. Today, a trader can open a forex account with an online broker for as little as a $100 deposit, and some brokers will even allow smaller initial account balances.
The forex market has literally been revolutionized by the advance of technology, much to the joy of traders, brokers, and dealing institutions.

This article was provided by Chris Marchalleck of Forex Traders.

When the stock market was falling throughout 2008 and 2009, the one industry that kept growing was the healthcare market. Health care increased at least 2% while other industries were showing drastic losses. Why did health care do so well?

1. People continue getting sick.

It doesn’t matter whether the economy is going good or bad, people need health care services. Hospitals may not always be profitable, but those companies that supply hospitals usually continue doing well.

2. Pharmaceuticals are in constant demand.

The fastest rising maladies of many people in the United States are diabetes and high blood pressure. Many of these people need medications to help them gain control over these and other diseases. The demand doesn’t go down, and neither does the price.

3. Supplies are still needed to take care of patients.

Companies that make hospital supplies will continue making money because the demand for most supplies never goes down. And even if the best that happens is that the requests stay even, the price of supplies goes up, which means supply companies will usually continue making profits.

4. Hospitals are mandated to have continuing education for many of their technical and professional services.

Companies that offer training in those areas are consistently busy because of those regulations, as health care is one of the few industries that require constant training. Training can range from hundreds to thousands of dollars depending on how many hours a particular career deems necessary to maintain certification.

I’m not the best investor in the world; we’ll get that out of the way now. And when you look at what’s been happening to the market lately, where the smallest bit of bad news seems to send the markets tumbling, it doesn’t give you the warm and fuzzy feeling of confidence.

And yet, according to financial experts, investing over the long haul is one of the safest ways for you to not only make money but to help save your money. How is this possible, you may ask? Here’s the quick down and dirty of it all.

First, you get into a money market type of account, where your investments are spread out among a lot of companies. What this does is protect your investment if one company starts to tank, and gives the person handling your account time to switch you to someone else more stable.

Second, say you started out with $500 in your account, and for the next 35 months you put $100 a month into your account. And then say that ever other month the market increased 1%, and on the opposite months the market fell 1%. At the end of 3 years you’d have made $18 and change; that’s not very good, but at least you made money.

Then say that you started out with the same money and added the same amount monthly. Investors say the market makes money at a 10 year rate of around 2.5%; I don’t know if they all agree to this but an investment guru gave me this one so I’m using it for now. Then say I do the exact same thing as I did above, only instead of the 1% increase every other month it’s 2.5%, and yet I still have that 1% decrease. At the end of 3 years you’d have made $565 and change; that’s a little better.

But the market doesn’t really work like that, up and down from month to month. It works in stages. For every six months up you’ll have six months down, yet you’ll still come out to that 2.5% gain after 10 years. We’ll do it a little worse than that. We’ll increase 2.5% for six months, then decrease 1% for six, just to be below that figure. You’ll still have made $447 and change.

The thing is, these are low figures overall. Your money market is probably going to return a higher amount than that 2.5% over time, even with the down times because they’ll drop the bad stocks and move to better ones. What happened in 2009 is more of a fluke than the norm, as it usually doesn’t drop almost 50% of its worth in a year. So, with more stability in the stock market, your money will normally increase faster than it will lose money.

However, it takes a lot of courage to invest long term and not touch any of the money until you absolutely have to. And you also have to be smart when you do decide to invest, making sure you’re not hearing about things such as what happened last year and not getting your money out or moved around in some fashion. I heard the news, wasn’t paying attention, and lost more than 60% of my portfolio at around the same time the company my broker was working for changed how my account would be handled, and he was suddenly not there, which I didn’t know. I removed my funds, but I was a little late on it all.

So, if you have the courage and confidence to leave your money alone for the long haul, and can continue popping at least something into it, you could turn out all right, as long as you pay attention to what’s going on in the world.

For now, it seems that the freefall that was known as Citigroup has slowed down and actually stabilized for awhile. The company whose stock price used to be around $55 a share back in 2006 is now hovering around $3.50 a share, but it’s been hovering around there for a few weeks now, even slightly improving over that period of time.

Of course we all know what brought Citigroup to this point, and we’ve seen how they’ve reacted to some of these things. Suffice it to say that Citi hasn’t inspired the most confidence in its consumers, let alone its stock holders. And yet, we just learned that Bruce Berkowitz, who manages the $11 billion Fairholme fund and was recently named Morningstar’s U.S. stock manager of the past decade, bought more than $700 million worth of Citi shares.

What’s he thinking? He says that the company is showing signs of a turnaround, even in those areas where they’d been losing a lot of money. He also said that the shares are cheap right now, and it’s a good investment in a company that seems to be on the upswing, saying that, in his opinion, right now it has the “government’s Good Housekeeping seal.”

I don’t know about this, although I did write earlier this year about how it seemed to be a good thing some days to be Citigroup because of how the government seems to be giving them all sorts of breaks as they try to recover. So maybe Berkowitz has something here.

Or maybe not. Personally, I agree that the stock price is very low, and if someone were interested in owning a piece of a bank just to see what it’s like this would be a good time to buy. But $700 million worth? Well, this guy’s done it before and survived it, so maybe he’ll do it again. If it’s me, though, I might spend my couple of hundred, then wait and see. I might, by the way, means if I were in the buying mood, which I’m not.

Copyright secured by Digiprove © 2011 Mitch Mitchell

At the beginning of the week, I proclaimed that the stock market, most specifically the Dow Jones, was going to go down based on how things had closed on the previous Friday. Therefore, imagine my surprise when the Dow ended the week up close to 400 points.

It’s a funny game, this Dow, and it proves why most of us shouldn’t be in it. The news was so bad leading into the week that I figured there was no way it was going to go up. Even during the week, there was the bad news about Walmart and the negative prognosis about jobs over the next five years. Still, the Dow went up, the price of oil went up, and frankly I don’t get any of it.

Maybe it was the news that health care showed a profit of 56% for 2009 that did it. If that’s the case, then things are much worse off than I could have imagined. I still tend to think it’s a lot of speculation and faith that we’re ready to rebound, and there’s nothing in reality telling me that’s going to occur, but hey, the market went up, people made money, and I guess we’ll just have to accept that as reality.

But I’m still confused as sin.

Would you trust this guy? Seems a lot of people did, to the tune of more than $1.2 billion dollars that are now gone. And this guy, Scott Rothstein, is heading to jail for probably the rest of his life, or at least 25 years of it, giving up all his assets of $300 million, putting his wife and children out on the street, and singing like a canary as to how he did it all, pulled off his own version of a Ponzi scheme.

Talk about a Bernard Madoff wannabe. This guy was big; he’s got pictures with celebrities and politicians. He was truly living the high life, and he wasn’t hiding himself like Madoff kind of did. He was giving all sorts of money away, as well as helping to raise other money. Of course, it turns out none of the money was his to give away, and many of those charities are having to give it back.

Of all things, he wasn’t even a financial guy like Madoff was; he was a lawyer. He didn’t tell people he was investing money that he was never going to invest. Instead, he told people that he had clients waiting for settlement money who were willing to accept less of it if they could get a lump sum payment now. As in, tell someone that a client was waiting for a $500,000 payment to come in, but would accept $250,000 and when the lawsuit was settled the donor would get the $500,000, making money on the deal. Those are my figures, but that’s how the scam was run. Of course, the more investors he got into it, the more he could pay certain people off.

Of course, it didn’t stop there. He then told these guys that instead of just taking the money, to let him invest their money in a hedge fund, where they could make even more money. You guessed it; no hedge fund. All money again came from new investors.

So, they’re now selling off his stuff, knowing that there’s no way they’ll ever come close to the amount of money he got from all these other people. However, unlike the investors in Madoff, this time I believe the people were stupid and greedy. I can’t imagine giving someone money for anything like this unless I got to meet the clients and saw the paperwork for the lawsuit, which they didn’t get to do. So trusting and naive; who said rich people were intelligent?

If you’re older than 21, you probably remember Super Bowl XXXIV in 2000, when no less than 14 internet companies had commercials during the game. Some people thought that was the peak of the Dot Com Era; instead, it was actually the end, or drastic demise, of the dot com era. By the end of that year, only a couple of the website that had commercial were still in existence, the others having gone bankrupt.

Since that time, there hasn’t been a lot of interest in most internet stocks. Sure, Google has jumped way up there, but most of the rest haven’t done much, and they’re almost seen as an afterthought.

Until now. Suddenly, internet stocks are on the rise again. What’s going on? Check this information out:

* Google’s revenue was up 27% in the third quarter;

* Amazon and Netflix both hit their highest stock price ever on Friday;

* Priceline stocks are now trading at their highest level, surging 140% in 2009;

* Blue Nile stocks are up 165% in 2009;

* Even Yahoo showed an increase of $180 million after all their problems, though their stock price hasn’t escalated as much as the other internet companies.

Internet companies are starting to flex a bit of muscle again. Powerhouse Facebook is suddenly worth $10 billion, and no one is sure what Twitter is estimated to be, since they refuse to disclose any financial information about their company.

More and more companies are starting to understand the power of the internet, and are starting to get into the game. Last year, one blogger was able to sell his site for around $15 million; that’s a fantastic amount for a blog that wasn’t even ranked all that high, a finance and banking blog that, counter to public beliefs, was not the motivation for creating this blog (although, if anyone is reading this who has big dollars, more than the $300 I was offered two weeks ago, I’d be willing to entertain any 6-figure offers). It’s a new world, and it seems that maybe not everyone has learned the lessons from almost 10 years ago just yet.

Still, it’s probably a good time to start looking into some of these stocks. Some analysts are saying they believe some of these companies might be overvalued, so be cautious.

I thought I’d written on this one before, but I don’t see it so I’ll write about it now. I’ve heard people ask this question over and over; where did all the money go that was lost in the stock market and in real estate?

The answer is nowhere. The truth is that most of that money never existed. It’s all about speculation and belief. People invest in a company like Microsoft because they believe the company is one that will make a lot of money from selling their products. As more people buy into Microsoft, their stock price goes up, and people who want to buy afterwards have to pay a higher price to get a piece of the pie.

However, the true wealth of a company is what they report as their profit and sales every quarter. When they report good news, people want to buy and the stock price goes up. When they report bad news, people want to sell and the price goes down.

Over the last 18 months, as news kept getting worse and worse, more people were selling than buying. Suddenly, many people were finding that they were having problems getting their money because it just didn’t exist. As much as the media really worked hard to find scapegoats like Bernard Madoff, Sam Israel, and Robert Allen Stanford, the truth is that they just found the loopholes in the system and made themselves rich because of it.

Investing has always been a game to most people. In reality, companies issue stocks because they need continuing capital to help sustain themselves without spending their own money. If they make profits, investors are happy, the board of directors are happy, and money keeps flowing in. But the only real money is what you pay up front.

Real estate is the same thing. Many people buy up real estate with this expectation of its gaining equity the longer they have it. The truth about real estate is that it’s only worth what someone else decides to pay for it. In a buyer’s market, you will get more money for your property than in a seller’s market. That’s why so many homeowners in southern and western states have found themselves in so much difficulty. They paid for homes in areas where the prices were inflated, signed bad deals, and when banks started taking homes in foreclosures and property values fell, folks found themselves paying more than their homes were worth because there were no buyers around to bring the prices back up.

I know someone locally who many years ago was able to sell this little tiny property with this little house to a company for around $150,000 because they wanted to put a strip mall in. The house is still there because one person refused to sell, and the company hadn’t made contingencies if one homeowner decided not to sell. She made out like a bandit; they,… well, that home and all the others are still there, still small, some look rundown, but all are occupied. None of those homes are worth what she, and some others, got paid, and someone lost a lot of money speculating.

Anyway, that’s how it is; all that excess money doesn’t exist. By the way, this big deficit our country owes,… the real money doesn’t exist. Governments are the only entities that can make money when they need it, but the more money they make, the less it’s worth elsewhere. Another lesson for another day.

In a bit of irony, just days after a Times Magazine story titled Top 10 Worst Business Deals listed Yahoo’s rejection of Microsoft’s bid for their search engine as the number one worst business deal, Microsoft and Yahoo finally came together on a deal to join forces with each other.

In general, the 10-year deal will unite some search engine functions, and Yahoo will be the sales force for both companies that will compete against Google’s Adsense programs. Microsoft is paying big money into this, which Yahoo needs. Microsoft is giving up 88% of whatever revenue is generated from searches through Yahoo. What they’re getting back is the right to integrate Yahoo’s technology into their search program, which presently is known as Bing. This could mean as much as $500 million to Yahoo on an annual basis.

It’s about time this deal was made, but it had to be made by removing former Yahoo CEO Jerry Yang from the mix. Yang is the guy who made a serious miscalculation as to how much Yahoo was worth last year when Microsoft CEO Steve Ballmer first made Microsoft’s original bid, which was worth more than the Yahoo stock price at the time. Once Microsoft pulled the deal off the table, Yahoo’s stock dropped drastically, board member Carl Icahn went on the offensive and tried to takeover Yahoo, and Jerry Yang was soon gone.

None of this is meant as a “yahoo”, so to speak, in a crusade against Google. What it finally means, though, is that there will be an opportunity for true competition, and possibly bringing the prices down for some things and increasing how much one or the other decides to pay its publishers, of which I’m one, for placing its ads on our sites. What it will mean to us long term remains to be seen. For now, though, stock prices went up, and analysts seem generally happy about it.

And happy financial analysts are always good for the economy.

Yesterday it was reported that the Nasdaq Composite Index rose 10.18 points, or 0.5%, to 1926.38, its 11th straight rise, a streak not seen since September 1996. The Dow lost 34.68 points, or 0.4%, and the S&P 500 index lost 0.51 points, or 0.1%.

That all sounds good for NASDAQ, right? Except for one thing; what’s NASDAQ?

NASDAQ stands for National Association of Securities Dealers Automated Quotations. According to Wikipedia, it’s the most active stock exchange in the world, even more than the Dow. It’s a computerized data system to provide brokers with price quotations for securities traded over the counter, whatever that means. There are approximately 3,200 companies traded on the NASDAQ; many are technology and Internet related, although financial, consumer and industrial companies are represented as well.

Since that doesn’t totally help, it means we need to know what the New York Stock Exchange, or NYSE, is. It’s another stock exchange, of course, that lists 2,500 or so companies. However, instead of using a computerized system, per se, it uses the Dow Jones averages to determine the prices the stocks these companies have put out are worth.

There’s also the way each conducts business. The NYSE is considered as more face to face, even though some trading can be done by computer. NASDAQ is totally computerized and electronic, so there’s no overt negotiating, even though they were once part of a price fixing scheme conducted by a number of brokerage houses (I’m sure they just paid up the settlement without admitting guilt; that’s how they roll).

Overall, then, both of these exchanges are pretty much the same, along with S&P (Standard & Poor) only they represent different businesses. Most companies that dole out stocks will be on one or the other, and right now, NASDAQ seems to be more stable. I guess Touche Turtle was right when he said “You can’t tell the two-headed dragon from the turtle without a program.”

Many financial experts are strongly against tapping into your 401K except as a last resort. Their reasoning and logic is sound, as the vast majority of investors do not have the appropriate mindset to get their retirement investments back on track. Personally, I don’t have such a huge opposition to using 401K loans and early withdrawals to help you through tough times, but it is important to understand the real costs involved. I could write many pages on all of the issues and costs that need to be considered, but many others have covered this topic quite well in the past. A simple Google search on “costs of 401K loans” or something similar will get you the information that you need.

The topic that I actually wanted to touch on today is a new issue that has not really been seen since the rise of the 401K, that is, investors not being allow to get their money out when they need it. To the average employee who has been diligently putting money away in his or her 401K for the past 10-12 years, the thought that you might not be able to access your own money is probably difficult to understand and even more difficult to accept. Unfortunately, in these confusing times that we are in, more and more 401K plans and participants are being locked out from making withdrawals from their investments.

Over the past 8 months or so, you have probably heard about some of the widely publicized investment funds crashes like those at Bear Sterns that helped set off the inferno. Typically, before a fund completely tanks, the fund management has the ability to prohibit investors from taking money out of the plan for a certain period of time. This time period may be only a few months or the funds could be locked up for years. Up until recently, we were only seeing this “capital locks” being used only with hedge funds and other huge funds made up of large, institutional investors. Your average Joe and Jane Smith really weren’t being directly affected. That is now beginning to change.

One important thing to keep in mind is that this is not an issue of 401K plans locking up your money, it is the individual investments within those plans that can cause the trouble. If your 401K investments are diversified in several different investment funds, you are unlikely to have any major issues. Unfortunately, many 401K plans only offer a handful of investment options and plan participants sometimes choose to invest in mutual funds that diversify your investments for you. In those situations, it is not unusual to see 50% or more of an individual’s 401K balance invested in a single fund. If an investor is in this situation and that fund locks withdrawals for some reason, you could have a serious problem getting your money out, should you need it.

If there is anything that this market crisis has taught us, it is the importance of liquidity. Investment funds that put their money into less liquid assets (i.e. real estate) are more likely to run into issues that require the control of withdrawals. As crazy as it sounds for someone to be able to keep YOUR hard-earned money away from you, there is a reason that managers are allowed to freeze cash withdrawals. Real estate funds are an easy example to use to show this. When a fund has its capital tied up in say, high-rise office buildings, it cannot easily tap into that money on short notice. So, if 20% of the investors decided to pull their money from the fund, the cash would not be there. The only option would be for the fund to sell assets, which for a high-rise office building worth a couple hundred million dollars, is not a quick task. If the fund were forced to sell that asset as quickly as possible, it would result in significantly lower sales proceeds than if more time is allowed to market the property and go through the standard sales process. If the fund is indeed forced to sell assets below their market value, this impacts everyone invested in the fund, not just those trying to get out. Therefore, it is deemed to be in the best interest of fund investors “as a whole” to freeze withdrawals.

Does this power get abused? Absolutely! Fund managers get paid based on assets in the fund, so allowing withdrawals that will lower the total value of the fund as a whole, lowers their fees. It is one of those dis-alignment of interests between managers and investors. I just wanted to explain the thought process behind the decision to allow for managers to freeze withdrawals.

There is one other category of funds that is especially at risk for an asset freeze, those that participate in securities lending. The issues and technicalities behind securities lending and the freezing of investment funds is much more complex and more difficult to understand than my previous real estate example. I’m sure most of you don’t care about all of the minute details here, so I’ll try to hit the “big-picture” issue.

Many 401K plans invest in funds that “lend” their portfolio holdings to other investors in exchange for collateral (typically valued at around 102% of what is being lent) that the funds invest in normally safe, liquid holdings. The reason that funds do this is that the exchange can result in small, yet (relatively) reliable returns that can be used to offset fund expenses. In the past, this practice has worked fine because of the safe, liquid nature of the assets being invested in. As we all know by now, what was once thought to be a very safe, liquid investment may not be either in today’s market. Many of these investments were made in assets like Lehman Brothers (we know how that worked out) and other investments that have quickly tanked. This has thrown the entire lending practice out of whack and has forced some managers to freeze withdrawals to be able to maintain the fund’s obligations in the lending exchanges.

I realize that the last paragraph was probably a little confusing for most readers, but hopefully you get the general idea. I’m not advocating that you pull all of your 401K money out of real estate or out of any fund that practices portfolio lending, but I do think it is very important to be aware of the risks that are developing today. I know a handful of people who are out of work and are counting on access to their 401K to survive if they do not find work soon. If you haven’t looked at your 401K investments recently, now might be a good time to make sure you are properly diversified. If you have a large percentage of investments tied up in one or two funds, be sure to take a closer look at their practices and be sure that you know if you could run into a similar issue down the road.

I realize that I got a little complex with this article, so please feel free to comment and ask any questions that you have or let me know if there is anything that I can clear up for you. Also, if you would be interested in a future post on the considerations and costs of tapping into your 401K plan, let me know that also and I’ll be happy to write something up on that topic also.

Copyright secured by Digiprove © 2011 Mitch Mitchell

By now, everyone has heard of Bernard Madoff’s Ponzi scheme, but few people really understand just what it was he did.

To begin with, few people know just what a Ponzi scheme is. I found a great article on a news site, but I knew it would be gone pretty quickly. So, I created a pdf, which you can access by clicking on Ponzi, to read more about the original Ponzi and what he did. However, the essence of what he did was get people to invest in a business that didn’t really exist, and he got them to believe it by paying new investors out of money that he’d gotten from other people, rather than the business itself.

In essence, this is what Bernard Madoff, a former chairman of NASDAQ, did, only with larger dollars. Under his business name, Bernard L. Madoff Investment Securities LLC, which was founded in 1960, what he claimed his company did was bypass traditional investment strategies and concentrated on 30 to 35 of the S&P’s (Standard and Poor) top 100 stocks, and by doing that was able to generate profits averaging around 10.5% a year for close to 17 years in a row. Oddly enough, since other fraudulent companies that had tried to do similar things in the past, doling out returns of around 20%, he was able to stay under the radar all these years.

Still, the problem was that the math didn’t quite work out. There were some companies that complained to the SEC that something wasn’t quite right, yet they didn’t do anything to investigate any of the claims at the time. It only came to pass, finally, when the stock market started to crash, falling around 38%, and yet his company was claiming that they were up 5.6% at the time. Supposedly, there was no way it could be done, and finally investigators started looking into the business.

And it couldn’t be done, but Madoff didn’t have to worry about it because, just like Ponzi, more and more businesses and people were ready to give him more money because of his name and reputation. Greed can put blinders on everyone, and in this case, it certainly did. So, he just paid people extraordinary amounts of money out of what he was taking in, then put everything else on paper, where no one asked questions because they figured they were being taken care of pretty well. Even one of the banks where I have a savings account, HSBC, gave him $1 billion dollars; seems no one was immune to the greed factor.

Of course, there were other signs that were totally ignored. His company regularly wouldn’t file yearly disclosures of its holdings, getting around it by supposedly selling all of its holdings at the end of every year, which just doesn’t happen. They also used an accounting firm whose only client was Madoff. Also, Madoff helped to pioneer electronic online trading, yet he wouldn’t allow any of his clients to access their accounts online, always sending everything by traditional mail.

When he was finally arrested and admitted to running this big Ponzi scheme, everything came crashing down. Right now they’re saying that close to $50 billion dollars may have been lost by investors who just gave this man their money without thoroughly checking him out. True, it happens, but when the numbers are this high it’s just staggering. Multiple charities that depended on Madoff money have had to close, and today, it was reported that one of his investors had possibly committed suicide after losing around $1.8 billion dollars.

Yet, Madoff’s punishment right now is to restrict him to his own place of residence, under house arrest; even as an apparent criminal, Madoff lives better than almost everyone else. There’s something inherently wrong with that.