A stock market index is a statistical measure of changes in the securities markets. An index represents a portfolio of securities traded on the market that is considered to be reasonably representative of the market as a whole. Each index has its own method of calculation. It is generally expressed as a change from its base value. For a better understanding of the stock market, an index should be read not at its absolute numerical value but at the percentage change in its numerical value. One cannot invest in an index directly. However, you can invest in index related mutual funds.
Popular indexes in the US
The Standard & Poor’s 500 Index – The S & P 500 index
This index is the most popular index in the world. The S & P 500 index consists of 500 stocks chosen on the basis of industry, market capitalization, liquidity and other factors. It is a leading indicator of US stocks. The index does not include speculative stocks.
The Dow Jones Industrial Average (DJIA) – popularly known as the Dow
This index consists of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. It includes companies such as Microsoft, Exxon Mobil, Disney, and General Electrical. The index does not include speculative stocks.
The Dow Jones Utility Average (DJUA)
The DJUA is more of a sector based index as it is a price-weighted average of 15 utility stocks traded in the US. It is sensitive to interest rate changes as utility companies tend to borrow a great deal of money.
The Russell 2000 Index
This index consists of 2,000 small company stocks that are included in the Russell 3000 index. It serves as a bench mark for small company stocks in the US.
Wilshire 5000 Total Market Index (TMWX)
This index measures the stock performance of all US headquartered equities for which price data is readily available. It is one of the broadest stock market indices. It includes equities of more than 7,000 companies traded on US Stock Exchanges.
The Nasdaq Composite Index
It tracks companies traded on the Nasdaq Stock Exchanges. The index consists of stocks of more than 5,000 companies traded on Nasdaq. Most of these companies are technology companies. However, you will find companies in the financial, industrial, transportation and insurance sectors. It also consists of many speculative companies.
Thursday, March 27, 2008
What are index funds?
Warren Buffett, the greatest investor in the history of the stock market and one of the richest people in America is attributed as saying that “investors should know their limitations.” There is a simple wisdom in that saying that applies to everyday life; know what you are able to do and what you can’t do, then do the things you can. Ask yourself, if you got a chance to fight with a grizzly bear, would you do it? You say that is crazy because the bear is bigger and would kill you? Ok, it’s probably an extreme example but you get the picture; you realize that you don’t have the ability to fight with a bear and you wouldn’t do it. Well, sometimes it is the same in the stock market and yes, there are people on Wall Street that successfully fight bears and bulls everyday with a great equalizer. Index funds give investors the tools they need to exceed their limitations.
What are index funds?
An index fund is a type of mutual fund that keeps a stock portfolio designed to match the performance of a stock market or one of its stock sectors as measured by an index of selected stocks. Index funds are also known as market funds.
Why are index funds better than going alone?
The vast majority of investors on Wall Street really do not know anything about investing. They don’t define their goals, they don’t learn stock charting and they refuse to perform fundamental analysis on companies before they buy. These are the same investors that don’t understand what happened when they lose their money. There are very few investors that, over the long haul, out-perform the results of the major indices like the Dow, the S&P 500 or the Vanguard Total Stock Market Index.
Index funds such as these and others give the average investor the ability to exceed his or her limitations. These funds are diversified portfolios and represent investment options in a portfolio with a size only a few investors could match. Because they have such a large portion of the market represented in their portfolios, it is extremely difficult to outperform index funds over the course of a year, let alone 10 or 20 years.
What if I want to do it on my own?
That’s one of the beauties of the stock market; no one can tell you that you shouldn’t be playing the stock market. But if you hope to have success at it, you have to commit yourself fully to the endeavor. Winning the stock market game requires an understanding of the basics of stock market investing, a clear stock trading plan and the best resources available.
The first thing you need to do is start learning about the stock market. Start with Benjamin Graham’s book on defensive investing, then read anything you can about Warren Buffett. Both of these men are giants in the world of investing and because of their stature, their views demand a certain level of respect. Your learning should also include an ever-increasing understanding of the stock market terms and techniques of Wall Street. You need to understand Wall Street news and how Wall Street talks and acts in order to recognize its characteristics.
Second, you need to develop a plan for your investing. Define your goals and identify a course for getting there. Want to trade stocks? Make your plans accordingly. Prefer the idea of futures markets or options trading? Those are good possibilities as well. What are your stop loss strategies? Knowing these things will help you make a plan that increases your chances for success.
Finally, you need a stock trading system that will help you track your investments as well as your potential purchases. The best system for this is Japanese Candlesticks. This is a stock trading system with over three hundred years of use and it is far and away the best for tracking stocks and commodities as well as understanding the trends and patterns that occur in the market.
Conclusion
For the average investor, nothing beats index funds. Index funds are simple, secure ways to invest and prosper in the stock market. Index funds allow the investor to relax, knowing that he or she is using the most consistently performing method in the stock market for investing. For the more daring investors, index funds might be a part of an investment philosophy that gives the investor complete control over his or her financial future. Whether investing on your own or taking advantage of index funds, you need to know your own limitations.
What are index funds?
An index fund is a type of mutual fund that keeps a stock portfolio designed to match the performance of a stock market or one of its stock sectors as measured by an index of selected stocks. Index funds are also known as market funds.
Why are index funds better than going alone?
The vast majority of investors on Wall Street really do not know anything about investing. They don’t define their goals, they don’t learn stock charting and they refuse to perform fundamental analysis on companies before they buy. These are the same investors that don’t understand what happened when they lose their money. There are very few investors that, over the long haul, out-perform the results of the major indices like the Dow, the S&P 500 or the Vanguard Total Stock Market Index.
Index funds such as these and others give the average investor the ability to exceed his or her limitations. These funds are diversified portfolios and represent investment options in a portfolio with a size only a few investors could match. Because they have such a large portion of the market represented in their portfolios, it is extremely difficult to outperform index funds over the course of a year, let alone 10 or 20 years.
What if I want to do it on my own?
That’s one of the beauties of the stock market; no one can tell you that you shouldn’t be playing the stock market. But if you hope to have success at it, you have to commit yourself fully to the endeavor. Winning the stock market game requires an understanding of the basics of stock market investing, a clear stock trading plan and the best resources available.
The first thing you need to do is start learning about the stock market. Start with Benjamin Graham’s book on defensive investing, then read anything you can about Warren Buffett. Both of these men are giants in the world of investing and because of their stature, their views demand a certain level of respect. Your learning should also include an ever-increasing understanding of the stock market terms and techniques of Wall Street. You need to understand Wall Street news and how Wall Street talks and acts in order to recognize its characteristics.
Second, you need to develop a plan for your investing. Define your goals and identify a course for getting there. Want to trade stocks? Make your plans accordingly. Prefer the idea of futures markets or options trading? Those are good possibilities as well. What are your stop loss strategies? Knowing these things will help you make a plan that increases your chances for success.
Finally, you need a stock trading system that will help you track your investments as well as your potential purchases. The best system for this is Japanese Candlesticks. This is a stock trading system with over three hundred years of use and it is far and away the best for tracking stocks and commodities as well as understanding the trends and patterns that occur in the market.
Conclusion
For the average investor, nothing beats index funds. Index funds are simple, secure ways to invest and prosper in the stock market. Index funds allow the investor to relax, knowing that he or she is using the most consistently performing method in the stock market for investing. For the more daring investors, index funds might be a part of an investment philosophy that gives the investor complete control over his or her financial future. Whether investing on your own or taking advantage of index funds, you need to know your own limitations.
Wednesday, March 12, 2008
Bank Savings And Money Market Account
If you are looking for a higher interest rate than a traditional bank savings account offers, a money market account (MMA) may be a good investment for you. Like savings accounts, money market accounts are liquid savings accounts. They usually offer you the ability to write a certain number of checks from the account each month. Most banks and credit unions offer money market accounts that are insured up to $100,000 by the FDIC of the NCUSIF.
Money market accounts usually earn about twice as much interest as a regular savings account. However, many MMAs require a higher starting balance than savings accounts.
High-yield MMAs are money market accounts that offer double or triple the standard bank MMA rates. These high-yield accounts are usually found through online banks. There is a lot of competition for you deposits and online financial institutes usually have lower expenses resulting in better rates for you.
There are several large corporations, including General Electric and Ford, which offer high-yield MMAs to the general public. While the yields are very competitive, there is no FDIC guarantee on the account. You will be taking a little more risk in return for a higher-yield account. If the corporation goes bankrupt, you will lose your money.
Most MMAs offer check writing and money transfers only over a minimum amount. You are limited by federal regulations to only six electronic, telephone or preauthorized transactions every month, with no more than three check, draft or debit transactions. There may be certain fees charged if you make too many withdrawals or if your balance falls below a certain level. Make sure you read and understand all terms before you open any account.
Money market accounts usually earn about twice as much interest as a regular savings account. However, many MMAs require a higher starting balance than savings accounts.
High-yield MMAs are money market accounts that offer double or triple the standard bank MMA rates. These high-yield accounts are usually found through online banks. There is a lot of competition for you deposits and online financial institutes usually have lower expenses resulting in better rates for you.
There are several large corporations, including General Electric and Ford, which offer high-yield MMAs to the general public. While the yields are very competitive, there is no FDIC guarantee on the account. You will be taking a little more risk in return for a higher-yield account. If the corporation goes bankrupt, you will lose your money.
Most MMAs offer check writing and money transfers only over a minimum amount. You are limited by federal regulations to only six electronic, telephone or preauthorized transactions every month, with no more than three check, draft or debit transactions. There may be certain fees charged if you make too many withdrawals or if your balance falls below a certain level. Make sure you read and understand all terms before you open any account.
Traditional Money And Market Techniques
Short selling is a technique that many stock brokerages allow. It allows you to Sell High then Buy Low, which is the opposite order of the traditional Buy Low, Sell High technique.
First, you will need to apply for a margin account with your trading brokerage. Having margin gives you the ability to buy more stock than the cash you have available by borrowing money from your brokerage. This is also called leverage because it allows you to do more with the money you have. All brokerages require a margin account to do short selling.
Second, you need to find a stock that you believe will be dropping in price soon. However, not all stocks are available for shorting due to supply limitations or other restrictions. When you go to short sell this company, your brokerage will let you know if it is available to short on their system. The brokerage needs to have those shares available to lend to you before you can sell them.
This concept may sound strange, but after you read more about it and try it on your own it will start to make sense. It is used successfully every day by thousands of traders. It is somewhat controversial, however. In fact, the SEC considered banning it for a while. But after they made better regulations on it, they decided to continue allowing it because it is a healthy part of the market. When prices are dropping, who is going to buy the shares from people needing to get rid of them? Short sellers, along with traders looking for bargain prices.
Caution: Before you try it this technique, keep in mind that you will be "swimming against the current," so to speak. The market in general has a tendency to go up about ten percent every year. You will be betting that the company is going down in value, which is the opposite intent of most companies! The owners and managers will be trying to turn the company around every day, so do not hold your shorted position for long! You should also practice this technique with an online stock market game to get the hang of it.
First, you will need to apply for a margin account with your trading brokerage. Having margin gives you the ability to buy more stock than the cash you have available by borrowing money from your brokerage. This is also called leverage because it allows you to do more with the money you have. All brokerages require a margin account to do short selling.
Second, you need to find a stock that you believe will be dropping in price soon. However, not all stocks are available for shorting due to supply limitations or other restrictions. When you go to short sell this company, your brokerage will let you know if it is available to short on their system. The brokerage needs to have those shares available to lend to you before you can sell them.
This concept may sound strange, but after you read more about it and try it on your own it will start to make sense. It is used successfully every day by thousands of traders. It is somewhat controversial, however. In fact, the SEC considered banning it for a while. But after they made better regulations on it, they decided to continue allowing it because it is a healthy part of the market. When prices are dropping, who is going to buy the shares from people needing to get rid of them? Short sellers, along with traders looking for bargain prices.
Caution: Before you try it this technique, keep in mind that you will be "swimming against the current," so to speak. The market in general has a tendency to go up about ten percent every year. You will be betting that the company is going down in value, which is the opposite intent of most companies! The owners and managers will be trying to turn the company around every day, so do not hold your shorted position for long! You should also practice this technique with an online stock market game to get the hang of it.
Friday, February 22, 2008
Make Money The Best Way In Markets
Simple is good and easy is good too. If there is a way to make money in the stock market that is easy and a way that is hard, which is better? The easy way. Right? So what is the easiest way to make money in the stock market?
Well, I have my personal opinion, and I'd be happy to share that with you.
The easiest way to make money is to sell calls against solid stable companies. Covered calls are the easiest way to make money in the stock market. Now that said, there is a lot of misinformation about covered calls trading out there. I've heard people like Wade Cook saying that you can make 20% per month trading covered calls. Well, good luck at that. It's really hard to do that. You have to only trade really dangerous stocks to do that.
Also there is misinformation that that they only work in a bull market. Again not true. At least not if you do covered calls right.
So, let me tell you about the right way to trade covered calls. Here's how. First ignore the stocks that give you the high premium. The premium is high for a reason. The stock is very volatile. You don't want that. You want the stock to be quiet.
So stick with companies that are large and are profitable themselves.
That's the key to make money. Sure with those kinds of companies, the option premium will be much smaller. You won't be able to make 20% per month. You might only make 3%, but annualized that's still 36%. That's good.
Do you want to learn more about how I do it? I have just recorded a 25 minute CD called "How To Pick Winning Stocks - The Secret Formula"
Risks In The Financial Market
The money market is one of the safest financial markets available. It is commonly used by large corporations, financial institutions and governments to secure their money resources for a short period of time. They are often compared to the bond. They are secure investments that are specialized. The main difference, though, in a bond and a money market is that the money market is usually for a very short period of time, usually under a year. You may hear them referred to as cash investments because of this short turn around.
In the most basic of form, the money market is a borrowing of money by a government institution or other large corporation. They are very liquid and are very safe. In fact, when your next bull market falls off, this may be where you plan to put your money. But, with this safety also comes a lower return, as it rightly should.
You can also compare the money market to the stock market. Because the process if virtually the same, you can see how these two elements can be compared. But, the largest difference in them is that the money market is dealing with much larger funds. While in the stock market the individual investor is able to get into the game rather easily, the money market is dealing with such a large amount of money that it is much too high for most. Also, it is a dealer marketing in which companies and governments buy and sell within their own accounts and at their own risk.
If this all sounds too good to not get into, the best way for the individual to get into the money market is to look into money market mutual funds. These funds pool together money from several sources so that they can compete for the money market shares. You can also look into treasury bills as a way of getting into it. The money market is a complex place and you can learn quite a bit more about it, how it works and why it works and see how well you can get into it!
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