4 Reasons Why You Should Not Worry About Market Declines And 2 Reasons Why You Should

The stock and bond markets always change in value. If you are invested in the markets, you are going to experience the financial effects of fluctuation. Should you worry or not? Here are four reasons why you should not worry and two reasons why you should.

You should not worry about downward moves in the market for these reasons:

1. If you primarily invest for dividends, the dividend income is your focus not the value of the shares. Dividend investing has some similarity to the real estate owner who rents his or her property. The monthly rent helps determine the return on investment. The market value of the property is not of great concern since the owner does not intend to sell. The current purpose of ownership is the receipt of income. If you are content with the dividend income from your mutual fund or stocks, the market value is a secondary concern.

2. If you are purchasing shares on a regular basis, a downward move in the market is not a problem--it is an opportunity to accumulate more shares at a lower price. The downturn can be a welcome event. The renowned investor, Warren Buffet, seems to find good values during periods of market declines. A lowering of prices does not necessarily mean a scarcity of good value. Sometimes prices are lower because the demand for ownership has fallen--and not because a business or a property suddenly has less value. If you believe that a decline will not be permanent and that demand for ownership will increase in the future, the current market price is not that important.

3. If you are a long-term investor, current prices should not cause worry. A long term may be five years or more. The question is what will prices be in five years? The answer should be based on the investment's future prospects. As an example, the price of real estate may be calculated by using rental income return as a determining factor for investment value. This return on investment reasoning can apply to dividend-paying stocks as well. If rents will go up in the future, or if business profits will increase in the future, so will the price that someone has to pay to assume ownership of the asset. As a bonus, you have had the benefit of the dividends, or return on your investment, throughout the entire term of your ownership.

4. If you understand that there is a relationship between risk and reward, you should not be upset as the investment process unfolds. Informed risk-taking uses information and reason in an effort to offset risk. Risk is never eliminated. For you to claim the fruits of excellent investment results, you must also be willing to bear the negative possibilities that accompany risk-taking.

Here are two reasons why you should worry about downward market moves:

1. You are an equity investor. You do not invest for income. The market price of your assets must move higher from the price you paid in order for you to make a profit. When you are not looking for income to provide a return on investment, you have no other choice than to rely on the increase in market price. Why does market price go higher? Because there is a demand to own the asset or because there is a belief that the asset's value will increase. An income investor has a real indication of an asset's productive value, the anticipated dividend, while an equity investor relies on less concrete indicators. Therefore, a downward price move is of greater consequence.

2. You plan to sell your investment soon. Obviously you want the highest price you can get. Will the price go higher or lower from where it now sits? The need for cash and a pessimistic view of near-term market direction are both strongly tied to the current price.

Whether your interest is in participating in dividend-paying stocks or in buying low and selling higher, your temperament and tolerance for various levels of risk are factors to consider when choosing your investment strategies.

Howard Feigenbaum is Registered Principal and Owner of Sharemaster, a Broker-Dealer firm that specializes in monthly dividend income funds.

"Do you know the only thing that gives me pleasure? It's to see my dividends coming in." - John D. Rockefeller

This article is a general discussion of the subject and is not intended as a solicitation or specific investment advice.

Copyright 2011 Sharemaster

http://www.monthlydividendcheck.com/

How To Invest In The Stock Market Without Losing Money

Do you wish you could capture the future growth of the major world markets with zero risk of losing money?

Well, this article reveals how to do exactly that.

The stock market has been one wild ride since 2008. After a 20-year bull run, a huge 50% drop in 2007/2008 wiped out trillions of dollars of wealth in just over a year's time. It was gut-wrenching to say the least. A few people even committed suicide over it. Then in just a few months, the markets grew by more than 20%.

Now, three years later, we're getting close to where the market was at the beginning of 2008... but we're still seeing way too many days where the Dow Jones Industrial Average (DJIA or the "Dow") rises and falls by more than 300 points in a single day.

It's enough to make you want to just "get out"... park your money in a CD, and move on. But when you are only getting maybe a half a percent from savings and money market accounts, it just seems like there has to be a better alternative... and there is... using what I call "Zero Loss" investing.

There are several "Zero Loss" investment alternatives available and each type is a little bit different; in this article, I will focus on the advantages, disadvantages, and how they work in general.

How Zero Loss Investments Work

In most cases, these types of investments are contracts or certificates of deposit (CD's) offered by banks where you invest your money for a period of months or years. When the contract or CD matures, you get back your original investment plus a percentage (which can be more than 100%) of the growth of the market index or indices. If the index (or indices) have a net loss, you simply get back your original investment... guaranteed.

For example, if you paid $10 per share or unit and the index goes down relevant to the index on the date the certificate was created (or stays flat), you lose nothing; you simply get your $10 per share back. Assuming the "participation rate" is 100% and the index goes up 50% over the 2-year life of the certificate (for example), you would get 100% of the growth. Since 50% of the $10 investment is $5... and since your participation rate is 100%, you get 100% of that $5. Thus, you would get back $15 for your "zero loss" investment.

Advantages of Zero Loss Investing

The advantages of zero loss investing is pretty obvious... you get 80% to 125% of the growth of the index (or multiple indices) with zero risk of loss of principle. This means you can invest your "sensitive" money such as savings for college, retirement, etc.

Since in most cases you can buy these certificates on the market just like an exchange traded fund (ETF), you can structure your investments to mature just before you need it. For example, if your son or daughter is going to start college in 24 months and you will need $15,000 at that time, you could simply invest $15,000 in a Zero Loss investment that matures in 22 months. This way you will receive your original investment plus any growth a couple months before you need it (don't forget to account for the bills coming due a couple months before the semester starts).

Disadvantages of Zero Loss Investing

The only real disadvantage is you really must plan to hold the investment until it matures to ensure you don't lose any money. These certificates will float in value based on their underlying index (or indices). If they are up relative to what you paid, you can sell them and take your profits. However, if you need the money and they are currently down, you will only get whatever the current market value is... which can be less than the face value of the shares. On the other hand, if you hold them until they mature, you will at least get back the face value.

"Zero Loss" Investments Are Not Really "Zero Risk"... Although They Are Close!

Generally speaking, "Zero Loss investments" are considered zero risk, but they do have two types of risk which I will discuss in a moment. First of all, if you invest properly, there is virtually zero risk of losing your principle (i.e., the money you invested). Your principle is guaranteed against loss.

The first type of risk, however, is the risk of Guarantor Default... in other words, if the organization guaranteeing your investment goes bankrupt, you could lose money... but in general this risk is very low. In fact, some of these investments are actually guaranteed by the FDIC (the same group that guarantees your bank accounts).

The second type of risk, which is always present in all investments, is called "opportunity risk". Opportunity risk is the risk you incur because you could have invested your money elsewhere and made more money than with the investment you selected.

As you might suspect, there's a lot more to know about Zero Loss Investing. If you would like a Free Special Report click here: http://investonlineinfo.com/. Then click on the "Zero Loss Investing" link in the right margin (just under the "Free Newsletter" button).

This special report (1) identifies specific zero loss investments, (2) explains how to invest with immediate guaranteed profits as well as zero losses, (3) discusses important facts regarding the guarantee, (4) explains how to locate new zero loss investments, and more.

Written by Dr. Bryan Stoker