Tag Archives: investing

Investment Style

Do You Have An Investment Style?

Many investors rely on their expertise, or their advisors’ expertise, to develop and follow an investment style. These styles are important and can help provide direction and assist in making investment decisions. Investment styles are developed based on many factors, including age, gender, income, family, wealth, tax situation and previous investment experience. These factors play important roles when developing an investment style and should be considered thoroughly.

One of the most important factors to consider when determining an investment style is the investor’s objective. For example, the portfolio of an investor whose main objective is growth (accumulation phase) may differ significantly from the portfolio of any investor whose main objective is capital preservation (income phase).

The majority of investment choices available, be they equities, bonds, or financial derivatives, follow their own particular investment style. It is important for investors to understand each to ensure they fit into their style. A financial professional can help with research and help determine the appropriate style for an investor and his or her needs.

Most money managers typically focus on a few dominant styles, including active vs. passive investing, growth vs. value, bottom-up vs. top-down, and technical vs. fundamental analysis.

An active investor’s primary focus is to outperform the market by picking various individual stocks. On the other hand, passive investors may consider investing in an index fund designed for long-term results. An active strategy consists of timing the buying and selling of different stocks in hopes of beating the ups and downs of the market. The passive approach is very hands-off and relies on market performance alone.

One can also qualify an investor as having a growth or value approach to investing. Typically, growth styles seek investment in companies expected to have a 15 percent to 25 percent increase in earnings. Value investors, on the other hand, tend to lean more toward companies offering bargains or “cheap” shares compared to current earnings.  Growth style investments tend to be more volatile than value investments. Many money managers may combine both styles for diversification.

Bottom-up or top-down approaches are also important to understand and consider in one’s investment style. A bottom-up approach focuses on a particular company’s fundamentals. One example may be the performance of a company’s earnings (price/earnings ratio). A top-down approach will look at the macroeconomic picture, considering inflation and consumer spending, then choosing to invest in a particular industry.

Investors may also decide whether their investment style fits a technical or a fundamental approach. When applying a technical style, money managers will use charts, price and specific economic data to identify patterns related to a particular stock investment. An investor who uses a fundamental approach will analyze actual financial accounting data as well as the profitability of a company to determine what stocks to have in his or her portfolio.

These are important factors to understand and can help investors identify which investment style best suits them. Keep in mind that an investor’s style will most likely change as his or her objectives change. Constant monitoring of investments is critical to success and helps to avoid style drift.

For more information about investing and investment style, visit jacobgold.com.

Securities and investment advisory services offered through ING Financial Partners, Inc. Member SIPC. Jacob Gold & Associates, Inc. is not a subsidiary of nor controlled by ING Financial Partners, Inc. This information was prepared by Michael Cochell of Jacob Gold & Associates, Inc. and is for educational information only. The opinions/views expressed within are that of Michael Cochell of Jacob Gold & Associates Inc. and do not necessarily reflect those of ING Financial Partners or its representatives. In addition, they are not intended to provide specific advice or recommendations for any individual. Neither ING Financial Partners nor its representatives provide tax or legal advice. You should consult with your financial professional, attorney, accountant or tax advisor regarding your individual situation prior to making any investment decisions.
value of money

Time Value Of Money And Planning

Understanding the general concept of the time value of money can help consumers plan appropriately for future needs and today’s wants. This concept applies to how a consumer may save, invest and make decisions on lending needs.

Many of us are familiar with the idea that the earlier one starts saving the more he or she will have in the future. This may be the case, but it’s also important to be familiar with present value of money and debt, future value of money and debt, and the beginning period and ending period of saving.

When a consumer considers how these concepts work together, it can provide the consumer with the valuable information needed to effectively plan for the future. A good example is credit card debt. If one were to calculate the length of time and amount of finance interest paid to credit card companies by only paying the minimum payment, it would shock most of us.

Saving for future needs is important. We must understand that the dollars we save today (present value of money) will most likely be worth less in the future. So how can we make decisions to save and take advantage of time value? Let’s consider a scenario of saving for retirement in an IRA (Individual Retirement Account) annually. Investors have a choice to save at the beginning (beginning period) of each year rather than saving at the end of the year (ending period of investing). Using this strategy, an investor can earn more on his or her money by contributing the same dollar amount annually at the beginning of the year rather than at the end of the year.

Investing consistently and taking advantage of different types of accounts sponsored by employers, deferred-tax saving retirement accounts and after-tax saving accounts can help consumers plan for retirement. Many employers offer match savings, as well as company contribution, just for signing up for the employer retirement plan. It’s important to take full advantage of the match. Also, some plans offer both a Traditional (pre-tax) deferred saving as well as (after-tax) Roth saving plan. Each of them has specific benefits, and if used properly, they can be a valuable piece of a consumer’s planning strategy. Keep in mind that withdraws prior to age 59-1/2 may result in a 10 percent IRS tax penalty, in addition to any ordinary income tax. IRA and Roth IRA accounts can also be used in addition to employer sponsored plans.

The traditional employer plan and individual retirement plans allows consumers to save on a tax deferred basis; however, he or she will need to account for ordinary income taxes during distributions. Where as, Roth contributions allow for after-tax contributions and tax-free growth and withdraws. By combining these options, and starting sooner rather than later, consumers can take advantage of the time value of money as well as using all options available.

As consumers, it’s not only important to take advantage of the time value of money by investing early, but it’s also important to manage debt in a similar way. Present debt and future debt are key ingredients to manage and can make or break consumer’s future plans. By applying the same concepts to debt management, one can see the value of using time as a way to structure debt for the consumer rather than the financing institution. For example, be wary of committing to long-term debt. When committing to long-term debt, consider a plan to payoff the debt early by making additional payments. Applying the time value of money in this case will save consumers a lot of money in the long run and reduce debt sooner. Also, keep in mind that lower interest rates will help save consumers finance cost. A little extra planning can greatly benefit consumers.

These concepts can be very valuable with practice, practice and more practice. Consumers can become experts in controlling their way of using time value of money and planning for future needs. For more information, visit jacobgold.com.

Securities and investment advisory services offered through ING Financial Partners, Inc. Member SIPC. Jacob Gold & Associates, Inc. is not a subsidiary of nor controlled by ING Financial Partners, Inc. This information was prepared by Michael Cochell of Jacob Gold & Associates, Inc. and is for educational information only. The opinions/views expressed within are that of Michael Cochell of Jacob Gold & Associates Inc. and do not necessarily reflect those of ING Financial Partners or its representatives. In addition, they are not intended to provide specific advice or recommendations for any individual. Neither ING Financial Partners nor its representatives provide tax or legal advice. You should consult with your financial professional, attorney, accountant or tax advisor regarding your individual situation prior to making any investment decisions.