mightymikerichards.com

In developing an investment strategy, the most important thing is setting specific goals. Because of the specific goals you will get the right information from the period of time and its value in the future. Then, from the side of ourselves, we also must examine our risk tolerance for investment. Do not get disturbed sleep due to the risk of selecting investments that are too high.

And after the two main points above, you are doing, then you need to develop alternative strategies for a variety of investment options. Strategies need to be supported by accurate calculations. From these calculations, you will get the value of funds that you need to invest to achieve financial goals that you have set begins with your financial situation today.

In the process of development of investment strategies, there are several steps we can do to achieve its intended purpose. First, understand and examine the transaction costs. Second, know the pluses and minuses of alternative strategies. Third, make a wise placement in the choice of existing assets (asset allocation) based on measurable objectives.

Looking at the impact of transaction costs
There are two major factors that can reduce the yields on investment transaction costs and taxes. Financial institutions such as securities firms or banks always charge a fee for every transaction that we do. For example, every month we will be burdened by administrative costs when placing money in the bank. Transaction costs also applies when we want to pay the bills through the bank. Investing in any mutual fund will have costs, such as the burden of costs for each purchase of mutual fund units. All this must be understood and examined so that we can make informed decisions regarding investments.

Tax is another cut in investment. For example, interest on bank deposits will be cut off by taxes by 20 percent. For example, if the deposit interest rate currently is 6 percent of the actual net results (after tax) earned less than that, which is only 4.8 percent (= 0.8 x 6 percent). When we transact shares (buy and sell), then we will be burdened by taxes and transaction costs. In a stock transaction, the tax charged is based on the percentage of the final value of transactions performed. This means that the tax payment does not depend on the profit or loss on the transaction. So, although we are experiencing a loss (the difference between selling and buying negative) in stock, we’ll still burdened by taxes.

In summary, before investing in an investment instrument, we need to know and understand the transaction costs, including tax we need to pay. Calculation of the yield to achieve the desired objectives are based on net yield after costs and taxes.

Know alternative strategies plus minus
With the availability of alternative investment strategies, we should carefully consider the pros and cons before the decision is taken. There are two issues we should consider in selecting or implementing an investment strategy. Both issues will be discussed below.

Time versus money
Are we going to pay someone to be able to monitor the progress of our investments or we’ll do it myself? Here the trade-off it is time and money. With your busy every day, often a family’s financial planning business to be neglected. Both in the early planning process or during implementation, they require sufficient attention so that we can achieve what the objectives of the family. When our time is limited then the alternative solution is to delegate the task to the handling of a professional person. This option should be considered carefully so that financial goals are not to be abandoned due to lack of time problem.

Recordkeeping
Do we want all of our investment data is bundled in a single report or feel quite comfortable with many different reports for each type of investment that we do? All this is related to the investment options. When we carry out investment transactions with many companies, then each period (eg every month or six months) we will always be busy with various reports of our investment growth. Monitoring many of these separate reports can be quite time-consuming and inconvenient. This inconvenience can be reduced by placing the funds only on an investment management company. Allocation of funds to the different instruments can be made through an investment management company if the company provides a variety of investment options. The problem is, not all investments offered by one company is the best. Typically, a company only has one advantage compared to other companies. Thus, these factors should be considered in determining the investment option.

Buy-and-hold versus market timing
In general we know two ways to invest, ie buy-and-hold and market timing. The first way is to buy some alternative investment vehicles, and still hold it for long periods of time. The hope is the magic of compound interest to (the magic of compound interest), as highlighted in the discussion once before, realized that providing opportunities for large profits in the long run. So the perspective of long-term consistency and becomes the key. In other camps, the believers in market timing (MT) did not agree with the argument buy-and-hold (BAH). According faction MT, investors could suffer if they do not take advantage of price fluctuations (volatility). Supporting MT recommend to take advantage of changes in market prices. For example, when prices were declining then you buy it and when prices go up you sell. In short buy low sell high, buy low or sell high. That way investors will get the maximum benefit from the investment.

Market strategy of accurate timing is promising extraordinary profits. Professor Robert Merton, Nobel Economics Prize winner in 1997, examined three investment strategies using stock market data of New York in the period January 1, 1927 – December 31, 1978. The third strategy starts with initial capital of U.S. $ 1000. The first strategy, call it strategy deposits, is an investment in short-term securities 1 month (eg commercial paper or T-Bill) and the principal and interest on the early-rollover each month. The second strategy, called the buy and hold strategy (buy-and-hold) is investing in the stock market (represented by the stock market index of New York) continuously (capital gains and dividends reinvested earned the beginning of each month) during the 52 years.

For the first strategy, the investor money was only growing to U.S. $ 3600. For the second strategy, the investor money to grow more than 60-fold to U.S. $ 67,500. What is interesting is the third strategy. In a seminar attended by finance professor Robert Merton gave a short quiz to survey estimates these professors about the results of the third strategy.

Well, if you are asked to guess, how you estimate the results of this third strategy? Most likely, your estimates will not be much different from the estimate of this financial professors. The result was the same. Estimated finance professors at the seminar was Professor Merton was not accurate. Generally, estimates range from hundreds of thousands of dollars to tens of millions of dollars. We’re sure you guess around that figure too. The appropriate response is, do not be surprised, five point three six billion dollars. Incredibly, starting from a thousand dollars, in 52 years you can earn money several times the IMF funding of much-needed period of the Indonesian government during the crisis.

So, the logic of buy low sell high is absurd. Investors would be lucky to buy at the lowest price and sell at the highest price. The problem is, whether to buy a specified time will always be right when prices are at the lowest level and the time to sell when prices are at the highest level? The possibility exists, but the chances are very small. There will be no one who had always been right in predicting or estimating the change in market prices. In practice, many predicted lack of precision so that ultimately an adverse impact on investment that you place.

In determining the time to buy is not there any one investment manager who dared to say with certainty that the price of a share in the capital market is the lowest price, they do all of these estimates is also a calculation that probably some mistake or inaccuracy. Although prices have been low, there is no guarantee that prices will not fall further. In contrast, although the price has been high, there is no certainty that prices will not rise higher. If too many errors prediction, rather than actually benefit investors against losses.

Asset allocation
Before we determine the investment choice, we should know that there are a variety of purposes and adapted for the period of achievement. Preparing the children’s education fund is also one of the family’s financial goals. This goal is long-term financial goals. Suppose we want to prepare for college funds for our children 2 years old. We still have at least 16 years before our kids go to college. Investment options that provide a large yield expectations in the long term with measurable risk can be an option. Mutual fund mix or a combination of stock mutual funds and fixed income mutual funds is a potential candidate for this situation. In the planning of educational funds, we recommend that the fund placement options are not too aggressive. We do not want to speculate with a high risk that can result when the funds were needed was not available or not sufficient.

From these examples, it shows that the allocation of funds for various purposes which have to be adjusted to the needs and goals. Should we begin to see the various options available investment alternatives that can be adjusted to the level of our tolerance for risk and investment time period required.

Hopefully this review useful and add to our insight in building a telling investment strategy.

Happy investing and good luck !!!!