How Often Should You Rebalance Your Portfolio?

The question of how often an investor should rebalance his or her portfolio is a personal one. On the one hand, rebalancing annually sounds easy and convenient. On the other hand, rebalancing as target percentages become excessively out of line may be more beneficial.

It really depends on how much effort and time you want to put into your portfolio. Investors who tend to do the best are those who leave well enough alone and reduce trading expenses to a minimum. Someone with a 60/40 mix of stocks and bonds who rebalances every January will gain by this annual effort of selling high and buying low. If stocks are now 70% of the portfolio, 10% is sold and moved back into bonds, locking in gains and returning the risk profile to its intended level.

Similarly, if stocks had fallen to 50% of the portfolio, this investor would then sell bonds and buy more stocks while their prices were lower. This is the approach that those investors should take if they only want to spend twenty minutes a year altering their portfolios. For those of us who can handle looking at our investments more than annually, without excessive trading, rebalancing as percentages reach a certain threshold is another option.

What if an investor had a 60/40 blend in January, but by June already had a 70/30 blend? Should he or she wait until next January to sell off the hot performing assets? It depends. When a certain asset class takes off, it tends to continue its trend. If we sell too early we take the risk of leaving too much money on the table. An extreme example of this would be rebalancing into Japanese stocks. Any investor who spent the last twenty years selling off U.S. stocks and moving them into Japanese stocks would have missed out on substantial gains.

The other side of this coin is that you are now taking on far more risk than you intended. Will this cause you stress in your life knowing that you are over exposed to equities? What if the markets suddenly drop and you miss out selling high and locking in some profits?

I believe the best option for those of us who can handle looking at our portfolios often is to rebalance as our percentages stray too far from our targets. For me, the number is 5%. This is a large enough discrepancy which I feel necessitates action on my part. This may occur after 5 months or 24 months, we simply never know. This is why I feel that annual rebalancing may work for a very simple two or three fund portfolio, but for those with ten or more asset classes represented, reallocating assets as necessary may be to our advantage.

Making the decision to start investing at age 18, Karl has learned what works and what doesn't work in the world of investing. Based on his 15 years experience in the field, he has recently started a blog which aims to educate the common investor on how to best reach his or her financial goals. Join him today at http://yourinvestingblueprint.wordpress.com/about/ to begin your journey towards financial independence.

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/

SMSF Strategies: Why Should You Buy Property in an SMSF?

People generally experiment with a wide range of investment options to enjoy high returns on investment. Investments can be in the form of shares, direct property, bonds, assets and insurance schemes. However when you invest money in shares, cash funds or industry operated super funds, you have a fund manager who operates the funds across various sectors depending on the performance of the economic market. SMSF strategies give you the benefit of controlling and managing your own finances invested in the fund without having to depend on others. One big benefit is you get to save on the fund management fees and charges that can be incredibly high on some of the superannuation industry managed funds. If you have adept knowledge about investment options and understand how funds operate then it's a wise decision to invest in an SMSF fund. You will need to devote certain amount of time, money and energy into maintaining and operating this type of SMSF fund. However, the effort is worth it as you get to enjoy higher returns on investment over a long period of time.

The SMSF fund consists of maximum of four-member trust that play a key role in deciding upon the investment strategies that favor the fund. You should be able to identify the most profitable and consistent investment strategy that will yield maximum returns on your self-managed super annuation fund. If well planned and well managed your SMSF strategies can sometimes outperform what the industry standard has been over the past 15 years or so. Sadly that real rate of return is only about 3% according to an ABC TV report conducted in 1010. It does take time and practice to master the art of investing and managing your own SMSF fund. But it is worth the investment, as you tend to save your income to profit from it at the time of your retirement. There are numerous pension schemes that are available in SMSF funds, which help you enjoy high rate of returns on investments at the time of your retirement. Planning for your future is important and the best way to do it is to invest in SMSF funds as you get to save and invest while you work to enjoy the returns during your old age. Another point to note is that self-managed superannuation fund can be paid out at the time of retirement, disability and death and need not necessarily be wound up at the time of retirement.

Using SMSF strategies are also highly portable and transferable. You can continue contributing towards the fund even if you switch jobs and it can be transferred from one generation to another in the even of death etc. If however, in emergency in case you need some amount of the fund there are options for withdrawing and contributing towards the same. We have a team of experts who can counsel and guide you on the pros and cons of investing in SMSF funds. Always talk to a licensed specialist who operates within the law and is an expert in SMSF strategies.

SMSF Strategies: Why Should You Invest in SMSF? The SMSF fund consists of maximum of four-member trust that play a key role in deciding upon the investment strategies that favor the fund. Learn more visit us at: http://propertyinabox.com.au/australianinvestmentproperties/investor_seminar

International Mutual Funds - Few Facts You Should Know

Many say money is not everything, but I guess everyone would agree when I say that money is still something. People do a lot of work in order to gain money. Some get their selves employed while others go into business. But many still ask for the best way to invest money and the best answer, is to invest in funds. The only question left to ask is which funds would give the best return. By far, such funds have proven to provide the best advantage when it comes to low cost and effective long term profits. International mutual fund, contrary to popular belief, does not invest in stocks alone. They include several areas for investments such as money market, stocks and bonds. Money market and stocks are equal in number while bonds get the least percentage.

Some say that investing on funds is risky but if one gets to think of it, when it comes to money, what isn't? When one invests in an international mutual fund, for example, he or she then becomes one of the many hundreds of investors who pool money. Afterwards, professional fund managers, who have access to real market information, work full time to use the pooled money to invest. They were trained to make trades on large security packages.

It is a win-win situation for the investors and the fund managers. Their professionalism and experience in investments will give you the best return for the long term financial investment. Investors get the benefit of leveraging the money. Such fund is considered as a gem in today's world of investment. Mutual funds are more advisable for people who are busier with their day to day jobs. They are more popular because of even investors with small capitals are able to diverse stock groups that are managed by professionals and invest at reasonable cost. There are several similar funds for aggressive financial growth; growth and income, income equity, international balance and index mutual funds. Professional advice is sometimes needed in order to arrive at the right choice and decision. Mutual funds have compulsory read for its prospective. This must be done in order to understand the stocks that will be invested in. investing on funds create a safer and more stable place for money. This enables investors to have future financial sources. Even those who are already employed and those who have businesses are into investment of such type of funds.

If you have spare cash lying around for investment purposes, you will not regret visiting this site at http://www.mutualfundsgenie.com/ where you will find useful information on how to get the best mutual funds that suits your need.

Should I Invest in Mutual Funds or ETF's?

A mutual fund is an investment vehicle that invests in securities and assets in order to achieve a return roughly the same as that of the underlying stock index or target asset class. Unlike an Exchange-traded fund that trades throughout the day, a mutual fund trades at the net asset value (NAV) determined at the end of each trading day. While ETFs provide certain advantages, mutual funds do serve purposes that ETFs do not. Investors must decide depending on their financial and investment goals which types of funds work best for their portfolio.

ETFs Vs. MUTUAL FUNDS
One of the principal reasons that some investors will prefer an ETF to other funds and an index fund is because of tax advantages and cost savings. A mutual fund marks all of its positions to market at the end of each year, while an ETF, because it trades like a stock, does not. In essence, an ETF is treated like a stock and a mutual fund is treated like a fund. Because of this feature, it is impossible to avoid short-term capital gains inside a mutual fund. Holding an ETF for an extended period can avoid these gains and be treated as long-term gains instead.

On the other hand, an actively managed mutual fund is overseen by a professional money manager and will avoid some of the shortcoming on an ETF. In extreme markets, ETFs may begin to trade at a premium to their underlying index. For the investor who simply wishes to track the index, this premium represents an additional and unwanted cost. This problem is avoided with the other.

Trading
In the current environment, the most common place where a typical investor will purchase a fund is in a retirement account like a 401(k) or an IRA. Many 401(k) accounts allow participants to select between various fund options. Because tax consequences are not a primary concern in a retirement account, the different treatment that an index fund gets should not matter. At this point, the primary concern in selecting a mutual fund should be the strategy and the expense ratio. The advantages of an index fund are that they will have low expense ratios and will not rely on the skill of a particular individual to achieve returns. If the underlying market goes up, as most tend to do over the long-term, the investor in an index fund will get a pure return with low costs.

ETFs, however, are more readily available in brokerage accounts because they trade like common stock. This allows traders and investors to use ETFs for more short-term strategies. Depending on the fund, ETFs also can help to lower expense ratio as well.

What You Should Know About Mid Cap Mutual Funds?

We spend most of our lifetime working in order to have the sufficient financial sources to pay for our daily expenses. We work in order to get paid and buy what we need; food, shelter, etc. Some are lucky enough to have more than they need while others, work to their bones, with blood sweat and tears but still earn less. Sad to say but reality shows that we were educated not to learn but to be employed. Given this, we have to keep in mind that we work not just for today but also for the incoming future. This is where mid cap mutual funds become very beneficial. These funds will help us with our expenses when the right time comes.

Before deciding to invest in mid cap mutual funds, one must first review the requirements for the investment. If one has the capacity to fulfill the requirements, one then has the opportunity to diversify bonds and stocks. Increasing the value of investment from time to time is the best approach that can be done. There are several mid cap funds that will be offered by several companies. One must be able to carefully compare what the varying funds have to offer. It is not advisable to easily give in to offers. For parents applying for their students, it is best to seek for professional advice for there is a lot of thinking to be made for it is not just money that is at stake here but also the future of the children. With careful comparison, one will eventually see the right mutual fund to be chosen.

If the investment for the mid cap mutual fund is done at an early age, it is very likely that bigger funds will be generated. It is also important to check the expense ratio and see to it that this is lesser than the asset allocation. At first, the value of the investment is still not realized but when the right time comes, the value of everything that was paid for will surface. Asset allocations and expense rations will determine the value of the mutual funds. These will dictate how much one will get to enjoy when the right time comes. This is why performance must be kept at high every month until the time of claiming the invested money. In all aspect, investing for mid cap funds, is advantageous and very helpful for everyone; working or non-working.

If you have spare cash lying around for investment purposes, you will not regret visiting this site at http://www.mutualfundsgenie.com/ where you will find useful information on how to get the best mutual funds that suits your need.