Investment & Savings
Calculating Your Investment IQ
Calculating Your Investment IQ
by Steve Selengut
Stocks, bonds, index funds; averages, recessions, market rallies and corrections; mutual funds, technical analysis, financial statements; commissions, taxes, and discount brokers. Just how much do you know about investing, or perhaps a better question: is there any "know" in the investment vocabulary? So many terms, ideas, and strategies; so little time and money! Here's a list of thirty mostly-true or mostly-false comments for you to kick around with your friends and fellow investment bloggers:
1. Every Properly Diversified Portfolio will have up to 5% of its market value in each of these areas: miscellaneous speculative opportunities, gold or other commodities, small cap stocks, and global index funds.
2. Financial Professionals are well trained in all aspects of investing, investment portfolio design, and management. Consequently, a significant portion of their compensation is tied directly to how well they help their clients develop high quality, properly diversified, and goal directed portfolios.
3. Buy-and-Hold continues to be the proper investment strategy for most individual investors, especially if automatic reinvestment of income is part of the package.
4. It's a better Investment-Income Strategy to buy shorter duration corporate and municipal bonds (rather than higher yielding long-term debt) because the market value doesn't fluctuate as much with anticipated changes in the direction of interest rates, and that is the most important concern with income investing.
5. If an investor can learn to control his own Greed and Fear, he will have a much better chance of investing successfully.
6. Asset Allocation is a strategy used by investors to move assets from weak market sectors to strong ones in order to improve the growth of the Investment Portfolio's bottom line.
7. No Load Mutual Funds are particularly good for investors because the mutual fund company does not charge anything for its services.
8. In the long run, investing in the stock market will assure you of keeping up with Inflation.
9. The proper gauge of your total Investment Portfolio Performance is the change in market value over the course of a calendar year, compared with the change in one of the more respected stock market averages during the same period of time.
10. Quality, Diversification, and Income are considered by many investors to be the three basic principles of investing.
11. Mutual Funds have always been a safer route to long-term investment success than trying to create your own portfolio of individual securities.
12. The Dow Jones Industrial Average is comprised solely of investment grade companies, and generally gives a clear indication of what is going on in the stock market.
13. Smart Cash is an integral part of any asset allocation formula because it allows investors to time the market successfully. Professional market timers know precisely when to move into or out of cash in anticipation of the next major directional change in the market.
14. It is a well-known fact that there are certain Core Portfolio Securities that belong in all investment portfolios if long-term success is to be expected.
15. There is no such thing as a freebie on Wall Street.
16. Closed End Mutual Funds (CEFs) are not popular with Wall Street professionals because they are inherently more risky than normal mutual funds.
17. Packaged Investment Products are designed with a sincere concern for the financial well being of the average investor, and are good for everyone.
18. Zero Coupon Bonds are an important part of the fixed income portion of the investment portfolio, especially when retirement is contemplated within five years or so.
19. The second step in every stock purchase should be the establishment of a Stop Loss Order. Such an order assures you that your losses will be limited to a specific percentage of your purchase price.
20. The IGVSI tracks the market value of a small but elite group of New York Stock Exchange equities.
21. The Four Most Important Investment Ideas include: buying only high quality securities, diversifying properly, using discount brokers exclusively, and establishing reasonable profit-taking targets.
22. Profit Takers and Traders hurt the average investor.
23. Investment Grade Value Stocks will be the next red-hot market sector.
24. "Sell your losers and let you profits run" is the essence of sound Investment Management thinking.
25. The November Syndrome is the partial result of the interaction of Wall Street institutional window dressing and the Infernal Revenue Code.
26. It is important that you take your Tax Losses regularly, particularly if you have held the losing position for less than one year.
27. Annuities, particularly Variable Annuities, are perfect investments at retirement both for people of limited resources and for the wealthy.
28. Technical Analysts can predict the future movements of the economy, individual securities, and the stock market with a very high degree of accuracy.
29. Index funds will always beat the market, or market sector, that they are designed to track.
30. The keys to successful investing are Asset Allocation using only two investment buckets: Equity and Income, and the development of realistic expectations about their market value performance.
Investing is as fascinating as it is frantic, as scary as it is exciting, and as intimidating as it is satisfying. But perhaps the most interesting thing about it is how educationally unprepared most individual investors are for the adventure! Books have been written, graduate degrees awarded, and doctoral dissertations presented in most of the topical areas touched upon so glibly above. Most of you will give your seal of approval to too many of the statements. Contact the author to determine your IIQ.