All posts in Investment

Dollar cost averaging is a dead-simple investment technique that may help young investors achieve long-term gains with less risk. Within an hour you can have this stock market investment strategy set up and working for you.

Long-term gains using a dollar cost averaging plan.

Dollar cost averaging allows young investors to purchase stock investments consistently over a longer period of time. This stock market strategy works especially well with broad-based market index investments like the mutual funds and ETF’s that mirror the return of the S&P 500. This powerful and simple investment plan will help lower risk and you have the potential for higher returns.

For young investors looking for consistent gains over time, establishing a dollar cost averaging plan could be a perfect solution. Young investors are able to purchase more shares when the stock market experiences short-term corrections. That way when the index turns around and starts heading up in value young investors are able to profit more because they own more shares.

When the market is rising young investors are able to capitalize on the market trend because they are following a consistent investment plan. As they purchase more and more shares in a bull market that money is going to work for them right away.

Dollar cost averaging spreads the prices that you purchase stock market investments (cost basis) over a longer period. Investors are protected from stock market corrections and benefit from long-term gains in the market.

Steps to creating an effective dollar cost averaging plan.

For young investors creating a successful dollar cost averaging plan is simple. There are two basic steps that will get your money working for you:

1. Decide on the exact amount of money you will invest each and every month. The key to a successful dollar cost averaging plan is consistency. You can increase your investment over time but avoid investing different amounts each month.

2. Set up the exact times you invest. If you decide to invest once per month do so on the same day. For instance, the fifth of every month invest $150. It gets even easier when you put your dollar cost averaging plan on auto pilot. Set this up one time and your investments are made automatically for you each and every month. All you have to do is check your statements to see how your investments are doing.

Improve your dollar cost averaging plan through diversification.

Diversification is a simple spreading out the risk of owning a stock investment by owning many different stocks in a variety of sectors. Instead of owning one individual stock, which is very risky for the inexperienced, you may choose to own a group of stocks. This will reduce the risk of owning any single investment. The investment of choice for many young and beginning investors is broad based indexes.

An example of a broad based market index is the S&P 500. By investing in the S&P 500 index you own a piece of every stock that makes up the S&P 500. Stocks like American Express, Google, Ford, Nordstrom, Home Depot, Staples and Yahoo are a few of the stocks that make up that index. That way you’re protected in case one of the stocks in the S&P 500 drops 70% of its value, you’re only invested 1/500th, and you won’t experience too much loss from that. In comparison, if you just owned that stock by itself you would have lost 70% immediately.

For young investors, keeping your investments diversified and using a dollar cost averaging investing technique – you have effectively reduced risk and are in an excellent position to achieve long-term profits.

If investment is so easy, why isnt everybody rich? Investment involves risk by definition. You invest an amount of money and hope that it earns an extra amount for you, but we must be aware of the risk. Risk is defined by the amount of money you would potentially lose in the worst situation. This is the factor R we see in return to risk ratio. This is a intuitive method to estimate the quality of an investment and chances are you already know how to use it in your daily life.

We make decisions every day, every hour. When options come up, we have to assess each one and go for our final decision. Just like things as little and normal as going home. You have two choices. You get choose to drive on the high way where you could arrive home within 30 minutes. But there is a risk you bear. In case there is a traffic accident, the traffic jam would engage you for another two hours. A safer choice would be to take the street where it is less crowded. But there are many annoying traffic lights and it takes at least 45 minutes to get home no matter how free the road is.

You would begin analyzing the two options and decide whether getting home 15 minutes earlier is worth the risk of being trapped in traffic jam for 2 hours. Similar decision making process can be seen in investment managements. The important reference is the ratio between the expected return and the potential loss you may pay. The ratio must be high enough to justify the actions.

We have worked with top investors and see them use the return to risk ratios in real situations. The best always consider the risk they bear before putting their eye on the potential return. Investment opportunities are ranked with the ratio, denoted in R, the risk factor. If the largest amount of money you may lose in an investment could possibly get you 3 times the amount as return, we label it a 3R investment opportunity. This system is applicable to all kinds of investments, like stock, mutual fund, property or other investment vehicles. And it means the same for a 2R investment in stock market or in the property market. They mean the expected return over the worst loss equals 2. Below is an illustration.

Assume the property market is going up. You notice the chance and are buying a house and selling it immediately to monetize the opportunity. The price of the house is $80,000 and you got a leverage to do the acquisition. The amount you must pay is $5,000. If you couldnt sell the house promptly, you would lose the whole amount of $5,000. Hence, the risk factor R is $5,000. The price you aim to make a profit of $20,000 and sell the house is $100,000. Therefore, this is a 4R investment opportunity because the expected return is 4 times the amount of money you could possibly lose.

Lets say it turned out the market didnt go up as much as you thought and you sold the house with $90,000. You made a profit of $10,000. So, we say the investment becomes a 2R one because the profit is 2 times the risk factor.

You could make lots of money in real estate investment in all sorts of areas. You just need the right support, information, and motivation. You can find these things in a real estate investment club. Across the country investment club participants join to:

meet like-minded people

get information about investment decision methods

acquire advice on obtainable homes

become accustomed to legal guidelines

recognize current market fads and the way to make money from them

exchange information regarding providers of home enhancements and expert services

receive counsel from lawyers and fiscal experts

gain knowledge from visitor lecturers

secure a supporting number of similar-minded people with popular ambitions

Real estate property investment groups have been thriving ever since the 1990s. That’s when The National Real Estate Investors Association was created. In 2002 they reported 44 productive associated groups. By 2008 that number had jumped to over 230 groups.

Recognize the true aim of any investment group you think about signing up for. Go to several group meetings before you decide to fork out fees. Inquire about the club creators and with their reasons for establishing the club. Do they wish to make investments and discover things collectively, or do they need to promote their goods? Discover who the club members are and how they work. Consider whether or not the things they provide satisfy your objectives.

Networking with other investors is really crucial. Your results in property investing generally is dependent upon the people you draw investment advice from.

Through networking you can arrange your potential buyers, acquire financing for a home sale, as well as get lucrative bargains within your current market. Some club members may be looking to offer homes to buy at low cost. You might find this profitable. Should you have homes on the market, you could discover prospects through your team. The majority of the clubgoers have funds and they are trying to invest in exceptional offers.

You can expand your venture swiftly when you collaborate with investment groups and property investors. You’ll be able to tackle opportunities you might have in any other case struggled to handle by yourself. Work with same-minded women and men to generate much more profit.

Your group ought to offer the right path to many good results. Within your neighborhood investment group you will probably discover people who do whatever you do. These people will reduce your learning curve significantly. They will show you the things that work inside your market as well as the probable stumbling blocks to protect yourself from. They can tell you how to acquire appropriate deals, when to close out when you’ve had a home on the market, and how to have the suitable authorities helping you.

In case you can’t locate a group you desire in the area, you could possibly contemplate starting up a brand new investment club. You’ll be able to determine the main focus in the club and look to appeal to same-minded people. You’ll need to get in touch with those who have skills in various areas. They’d be individuals who could be inspired to get or supply information about real estate investment. You’ll want to figure out which specialists you want to talk at the group meetings. A local investment club that you could look into is the New Orleans Real Estate Investors Association.

If you’re like most people, you want your financial future to be better than your present, or at least not worse. So, you set money aside and think of ways to make it grow. The options seem endless, but you’ve selected real estate as your investment arena, and you’re considering condos.

Condos have several advantages over single family houses or 2-4 unit buildings. And several disadvantages. In my conversations with people who’ve invested in condos, few were aware of all of them. So here they are. (The people I mentioned were interested in condos for sale in Chicago and the surrounding area but I’m betting their typical of new investors everywhere.

The advantages and disadvantages I’m going to talk about apply whether you’re looking at Chicago condos for sale, New York condos for sale, or Sioux Falls condos for sale, assuming you’re looking to buy them as investment vehicles.

Advantages of buying a condo as an investment property

Maintenance

Maintenance needs to be done on all properties. Condos, especially condos that are professionally managed, offer some relief to condo investors.

You don’t have to worry about roof, stairs, landscaping and such. The association takes care of them. For a price, it’s true, but you don’t have to do them.

Some of the problems inside the unit can also be taken care of by the complex maintenance crew. That varies from condo association to condo association. And they charge you for it, but you don’t have to drop everything else and run to your condo because the sink’s leaking.

Price

Some condos are very expensive. However, houses of similar size in the same neighborhood cost more. So, you can buy an investment property in a better neighborhood. Also, in most areas, there’s no such thing as a 1-bedroom house, but there are 1-bedroom, or even no bedroom, condo units. And, usually, there are people willing to rent them.

Amenities

Amenities vary from condo association to condo association. But it’s possible to invest in a condo located in a complex that has swimming pool, 24-hour security, and such things.

The disadvantages of buying a condo as an investment

Rules

You have to follow rules that are not yours. Each association has its own rules. And the rules can change. One of the rules that can change is whether tenants are permitted or not. If you own a condo and the association votes no more tenants, when your lease is up, you either move in or sell. Your association might decide to go with the ‘no more tenants’ rule at a time when selling is not a great option.

Or, worse, they decide to allow too many rentals. Too many tenants can make getting a mortgage difficult (FHA and others do not like condo associations where more than 10% of the units are rented.) which makes reselling your investment difficult, not to mention refinancing it.

Shared decision making

Yes, you could make sure you have something to say about decisions and get yourself elected on the board of directors; still, you are not the only decision maker.

Association fees

You have to pay the same amount whether your unit is rented or vacant. In other words, you get to pay the same amount whether you use or not the services (for instance, the water bill portion of your assessment).

Special assessments

When you bought your condo unit, there were no special assessments and none were being considered. Six months later, the association decides it’s time for a new face and there’s not enough money in the reserves. They decide to go ahead with the face lift and pay it with special assessments. Your share is going to be twice your profits for the next 20 months. Can happen.

Yes, things can go wrong with a single family investment or an apartment building investment. But there you have more control. Because there you can have a home inspector inspect the whole structure. Because there there’s no board of director’s member whose boyfriend owns a construction company that could use a few thousand dollars.

So, overall, buying a condo as an investment is not the way to go. That is, if you can afford a single family house. A single family house is not the best way to go if you can afford a 2-unit building. A 2-unit building is not the best way to go if you can afford a 3-unit building and so on. Because of 2 reasons: when a condo is vacant (or a single family house) the whole income source is gone but the expenses are still there.

In any case, if you’re buying a condo as an investment property, you should know what you’re getting into.