Junk Bond Advantages and Disadvantages

If you intend to minimize the risks that relate to your business, one thing that you can do is to search for a way to diversify your portfolio. If you operate within the investing field, the only way to diversify your portfolio and eliminate different risks is to divide your assets into two categories, which highlight stocks and bonds. By dividing your assets into these two categories, you can also dedicate a part of your stocks to junk bond investing.

It is important to know that most companies which usually deal with this type of investment are not very well established. However, if your business has a very solid financial foundation, you can decide to obtain capital by simply issuing bonds. The money that you are able to obtain this way can be used to get different assets as stocks and bonds.

But, even if your business has a solid financial foundation, you must run a background research prior to issuing or investing in any grade bonds. This research can be easily done online. In order to collect appropriate data, you should check for those blogs and websites, which operate within your niche. Furthermore, you have to make sure that you select only the blogs and websites that are run by experts.

After getting the data that you need, you should also approach a financial professional who is willing to study the details that you provide. In case that you wonder why you should consult an expert, it is important to know that only this person can offer a useful advice with regard to selecting a specific junk bond investing alternative.

Another important thing that you should take into account is to choose a credible fund for your investment. A credible fund actually means that it is managed by a person who knows to administrate different assets. For this, the person must have the right knowledge and experience within this field.

In most cases, the junk bond alternative shows a high yield, which entices different investors. However, you should know that most new businesses might face some unpredictable variables. For this reason, some investors might be reluctant with regard to investing in many junk bond options. However, they are still willing to invest in those companies that show a great potential. The best possible investing niches are those which deal with automobiles, hi-tech electronics, construction and software.

As you might already know, the junk bond options are some profitable affairs. However, if you wish to take the best possible decisions, you have to run a complete research that is able to highlight the real investment exercise. Thus, the research is a very important thing as only with its help, you can locate a good fund alternative that allows you to diversify your portfolio.

In order to get the best out of the junk bond investing, you must know what you can choose one of the two available methods, namely to purchase funds from the company or to invest your money in a mutual fund. However, do not forget that while these types of investments might be very attractive due to their high profit rates, they always include important risks that can easily ruin your business.

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Fixed Rate Bonds

Although investing your money in a particular venture brings about inherent risks, many people still do so for the possibilities of gaining more profit in the long run. However, considering how many people may not be comfortable with the thought of staking their cash away and not getting the necessary results that they have wanted in return, one may consider investing in fixed rate bonds or blue chip stocks instead.

For those individuals who are not very familiar with the way the financial markets operate, staking and investing your funds through bonds is actually the same process as you would have to undergo if you are getting a loan. However, this time, the procedures are reversed. Instead of being the borrower if getting a loan, this time, you become the financial institution and you are the one letting others borrow funds from you.

People who want to make an investment where they get to maximize the worth of the money that they have staked would most find this type of fund management very attractive. In addition, this is also a viable option for people who wish to earn more profits and financial returns within a long term Considering how the profit percentage remains constant regardless of how much time has elapsed.

Many people stake their money for this type of funds management through setting up savings accounts. Considering how the interests and return percentage remains the same, people who are planning on putting their finances into this type of setup already have a clear notion beforehand of how much they will be earning after a particular period of time has passed.

Hence, many people like the feeling of security that they get, especially in assuring the returns they will enjoy with fixed rate bonds. Even when they have not staked in the amount yet, just by knowing the interests that the providers are offering for the amount of money that they possess, they can already calculate beforehand how much is the exact amount that they will be receiving after the account terms are fulfilled.

Considering how the financial market tends to change and swing from times to time, people who engage in this type of investment are properly assured that their money will not be affected regardless of whatever circumstances. Thus, they are given due assurance that the level of return that one is getting will never deteriorate, but will remain constant the whole time that the agreement holds.

One very essential point that will determine how high are the returns that investors will be getting for putting their money in this type of financial setup is time. Considering how the interest costs remain the same regardless of how much time has passed, the more willing a person is in prolonging the stay of the funds within the provider's hands, the more amount he is likely to receive in the process.

However, one very important point that prospective investors have to remember where fixed rate bonds are concerned is that they have to make sure that the amount that they will be staking will not be needed or required for a long time. Providers will not allow their investors to touch the money during the whole duration of the term, thus, one has to make sure that he has enough cash or financial means handy when signing up for such a venture to avoid prematurely withdrawing the funds before the term expires.

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10 Ways to Look After Your Money

Some lottery winner or celebrity who came into a large amount of money yet who still manages to end up broke. We see and hear about their stories all the time in the newspapers or on TV.

The secret to real financial security isn't in how much money you make but rather how you manage it. So then what are the top 10 tips that those who successfully manage their money have to pass on?

#1 You need to draw up a budget and live by it. Now this doesn't mean that you necessarily have to go without just because something doesn't fit into your budget plan. Rather it's a plan that you try to stick with, a plan to track and manage your money more efficiently.

#2 Learn to use credit cards to your benefit. They're a great tool for building credit but are one of the worst ways for actually using it. They have high interest rates, penalty fees and are a great way to mess up your credit if you run into financial difficulties.

#3 Never obtain a cash advance by way of a credit card unless it's an absolute emergency. As stated above you'll always find your worse terms with them, and besides if you stick to a budget you should have a debit card that allows you to withdraw your own money interest free.

#4 No credit card is better than a bad credit card, so if you do end up with one or more of them take the time to shop around for the best terms first. If you can't get optimal terms then only keep a card with less than optimal terms as long as it takes you to use it to build your credit rating.

#5 Don't make personal loans because once friends and family members come to realize that you are building wealth you'll become target for a personal loan when they find themselves in need. What they really need in most cases is some sound financial advice so give them that instead and they'll be better off in the long run.

#6 Do as much of your shopping as you can with cash. Every time you shop with a credit you have to pay interest and over the course of time even interest at a lower rate adds up. Then if you're paying interest on multiple purchases they can really add up over time.

#7 Make saving a policy and stick with it. This would be a certain percentage that you take out of each paycheck to stow away. Don't think of the extra money left over after your bills are paid as money to be spent, think of it as money to be saved instead.

#8 Don't be overly generous. Something that almost all people who have managed to build substantial wealth from scratch tend to have in common is they're tightwads, and while people around you can be frustrated by your stinginess they will come to respect you for it.

#9 Work to set new priorities with regards to your personal acquisitions. What this means is that you need to re-examine what you really need and want out of life. People who have found real happiness will often tell you that the best things in life money can't buy, so think before you buy. Are you buying it because you need it? Or are you buying it because you want it?

#10 Seek out a partner who shares your same goals with regards to money management and wealth building. If your partner is intent on spending everything that you acquire then even your best efforts will be like trying to fill a barrel with a hole in. End up with a partner who shares your goal of financial security though, and both of you will achieve it just that much quicker.

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Algorithmic Trading Forex Market

Highly specialized computer systems monitor financial data, analyze and act faster than humanly possible. Decisions are made based on the programming. Timing, trade sizes, price and volatility are all possible triggers and, in most cases, initiate without trader intervention. A 2006 survey showed 25 percent of forex volume to be algorithmic with increases predicted into the future.

Algorithmic trading began in the early 70s. As the NYSE began to computerize, trading opportunities emerged. When the stock and futures' markets developed their computer systems, derivative markets emerged and also began using algorithmic trading. Over time, computers and systems became more developed and algorithms followed lock step.

Who's Using Algorithmic Trading?

Algorithmic trading is widely used by institutional investors such as pension, mutual funds and large investment banks. It's also used by market makers and hedge funds to provide liquidity to the market. Algorithmic trading can be used in any electronic financial market and with any strategy. The speed at which trades execute makes it possible to profit from minute movements and spreads.

Strategies

Most algorithms are based on modern computer languages, but a few still exist that are based on spreadsheets. There are two basic strategies: cost reducing and gaming. Cost reducing strategies strive to lower trading cost. The simplest strategy, "iceberging," involves multiple orders. Instead of buying all at once, an algorithm can break an order down into numerous smaller orders once the trigger is met. By doing this, price doesn't run up and the trader is left with a lower average cost than otherwise. Almost all other strategies are "gaming" strategies. These are intended to sniff out traders who are "iceberging" to profit. These strategies are mainly used by market sharks, seeking to take unfair advantages.

Pros and Cons

Major advantages include speed and liquidity. Algorithmic trades execute at the speed of light because the most advanced computer networks are built on fiber optic cables. Any drag on the signal (latency) comes from routing and signal enhancers along the fiber optic cables. It's possible for an algorithmic trade to open and close before the information is relayed through more conventional sources. The use of automatic trading also adds liquidity to financial markets. When buyers reach a threshold, if sellers are waiting, selling begins automatically.

The major con is a fear of market crashes. Crashes such as Black Monday are blamed on automated trading. Critics say that a volatile market can bring prices to points where massive computerized trading kicks in, further weakening an already fragile system.

How can the average trader utilize Algorithmic Trading?

The cost of developing and maintaining an algorithmic trading system can be quite large. You need access to bandwidth and high speeds, the kind you can only get from a fiber optic cable with nearly direct access to trading centers and prime brokers. You also need a highly advanced computer programmer. With these limitations, it's easy to see why algorithmic trading is mainly used by big money investors.

To help the average Forex trader fully understand the scope of algorithmic trading in the Forex markets, we will start a "Forex algorithmic trader" program. This trader is using a strategy based on our proprietary trading tools, the Price Analysis Tool (PAT) and Temperature Charting.

PAT uses linear regression to predict general price direction and gives upper and lower limits. The Temperature Chart uses theories based on Random Walk Theory and Brownian Motion to measure market volatility. The trader uses the information to determine when the market is too hot or too cold.

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Top Benefits Of Forex Trading vs. Stock Trading

Costs associated with the stock market include (but are not limited to) dealing fees, performance fees, annual management fees, etc. On the other hand, the Forex market involves some of the lowest costs associated with financial services. Transaction costs are reduced to the bid/ask spread and sometimes a withdrawal fee.

Stock traders are able to perform transactions over a short time frame. On the other hand the Forex market operates non-stop Sunday (5 p.m. EST) through Friday (5 p.m. EST) while customer support for various Forex brokerages is often available 24/7. In terms of convenience the Forex market reigns supreme.

The maximum leverage allowed for stock trading is 2:1. In other words, a $100 investment in stocks may buy up to $200 worth of shares. With Forex, leverage can go as high as 200:1. On the Forex market a leverage ratio of 200:1 applied to $100 means that the trader controls $20.000 in funds. It is important to note that leverage can work both ways i.e. to the benefit of the trader, or against him. While some traders prefer to constantly deal in moderation, others prefer to risk more, but at least the Forex market offers either option.

Each market product sells for a certain amount. The goal of most (if not all) businesses is to convert a final product into cash or other liquidities. Stocks convert into cash over a certain period of time, depending on the nature of the stock. On the other hand the Forex market requires no conversion considering that the trader is already dealing in cash.

The Forex market is the largest, most liquid and dynamic market in the world, with a daily turnover hovering around $4 trillion per day. As such, it is largely protected from fluctuations resulting from decisions of single individuals or governments. The stock market stands at the opposite end: positive or negative appraisals of a single company s stock often result in dramatic movements on the entire market.

Trading stocks is not a direct operation between the trader and the buyer or seller of the security or instrument traded. Instead, it requires a middleman that intermediates the transaction. The associated costs involves fees and waiting times or, as many businessmen prefer to say, time and money”. On the other hand, currency trading is decentralized, which means that traders are able to interact directly with the currency market, and can buy and sell currency with the click of a mouse.

There are seven major currency pairs associated with Forex trading, as opposed to the stock market which trades thousands of stocks. No stock trader is able to follow all of the stocks on the market, which means that often potential profit is lost.

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Asset Allocation vs Diversification

Asset Allocation is the process of dividing investments among different kinds of asset classes (such as stocks, bonds, cash, real estate, commodities, etc.) to try to meet specific financial goals. Traditional asset allocation models do not work for real people because their portfolios are much different from institutional portfolios. The portfolios of most people do not have enough zeros (000,000,000).

Over 80% of all American households have a net worth that is less than $250,000 which includes the value of their home. Some of the big differences between institutional portfolios and those of most individuals include single vs. multiple goals, single vs. multiple time horizons, simple vs. complex tax treatment, professional vs. amateur investment management.

These differences led the founder of the Cambridge system to create a Functional Asset Allocation (FAA) model for individuals. FAA illustrates how individuals build wealth as measured by Net Worth.

For example, while Real Estate is recognized as a separate asset class by most money managers, the value of your personal residence is more than a financial calculation. A great deal of your home's value is in your own enjoyment. Likewise, Functional Asset Allocation takes into account the reality that taxes are a driving force in Middle America.

While Modern Portfolio Theory seeks to optimize statistical returns on a passive, static investment portfolio relative to risk based on historical performance, Functional Asset Allocation uses a different paradigm. It is based on optimizing value in the utilization of assets in a household, and on the psychological needs and life goals of real people in a dynamic society.

Interestingly, our experience and comparative analysis have demonstrated that Functional Asset Allocation not only provides most of the diversification benefits of Modern Portfolio Theory, but also yields a better after-tax return with less risk for Middle America.

1) Functional Asset Allocation - all your assets, including your home and personal belongings.

2) Traditional (institutional) Asset Allocation - only financial assets, including checking accounts, savings, emergency funds, etc.

Using Functional Asset Allocation, your assets should be distributed across three asset categories: Interest Earning, Equities, and Real Estate

Generally, you want to have 1/3 (range of 25-40%) of your net worth in each of the three major asset classes. Each of the major asset classes serves practical functions in wealth accumulation and risk management.

The analogy of the farmer is useful for understanding the separate functions of the three major asset classes. The interest earning asset class is what the farmer puts in the root cellar to feed the family during a bad winter or reseed his fields after a drought.

The real estate asset class which is primarily your home is the equivalent of the farmer s garden. The garden provides food to eat and flowers for enjoyment. The equity asset class is the equivalent of the farmer s fields. The fields are the farmer s engine for growing wealth. The larger the fields and the more productive the crops, the faster his wealth grows.

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Yen Currency Exchange Rate Analysis

Global events are impacting Forex trading on a daily basis. Just this month the Japanese Yen retreated from 15 year highs against the dollar and 9 year highs versus the Euro. The recent strength in the Yen has been cited as unwarranted by current economic fundamentals. Now, amid fears and speculation, the Yen is pulling back.

Fears that the global market is slowing again are driving central banks around the world to new measures. The Forex markets are scared of possible Japanese actions. An intervention by Japan's central bank, the first in more than six years, would aim to curb the rise in the Yen's valuation. Japanese lawmakers feel a stronger yen will hurt Japanese stimulation efforts. A rise in prices could curb exports. Japanese Finance Minister Yoshida Noda has repeatedly told the markets he would "respond" to yen gains when necessary.

Weak U.S. data is also hurting the global economy, to which Japan is not immune. Global markets are slowing down again. Federal Reserve Chairman, Ben Bernanke, recently said that the Federal Reserve would reinvest monies from housing bonds into more long-term Treasuries. This is the latest move to prop up the fragile U.S. economy. Policy in the U.S. is so vital to the health of the global economy that the Bank of Japan's Governor Masaaki Shirakawa attended the annual U.S. Federal Reserve Convention in Jackson Hole, Wyoming.

Why is the Yen important to Forex?

The Yen (JPY) is the official currency of Japan. It's the third most heavily traded currency on the Foreign Exchange, after the U.S. dollar and the Euro. The strength and stability of the Japanese economy make the Yen attractive as a reserve currency, falling in right behind US$ and Pounds Sterling. Reserve currencies are monies held in significant quantity by governments and institutions as part of their foreign exchange reserves. This money is used as a base for trading in international markets, maintaining common rates for goods.

What are Yen?

Yen are the common currency of the country of Japan. The root of the word is the same as the Chinese Yuan. Yen literally means, "small round object." Originally, silver and gold were traded much like the Chinese, in ingots. During the Spanish occupation of the Philippines many Spanish and Mexican coins were incorporated into the local Asian economies. These were the first yen and yuan. Eventually, the coins were so abundant that local governments began to mint their own "yen." The first officially minted Japanese Yen were adopted by the Meji government on May 10, 1871. It was based on the standard dollar unit of the time, descended from Spanish pieces of eight. According to the Currency Act of 1871 a decimal counting system for yen was adopted along with a standard of value. Yen were to be round coins of silver weighing .78 troy ounces or gold coins weighing 1.5 grams. Because of its peg to silver, when the metal was devalued in the 1880s, the yen declined versus US dollars to a value of roughly fifty cents.

Yen in Modern times

After WWII, the Japanese yen was pegged to the US dollar through the Breton-Woods act. The Breton-Woods Act maintained currency exchange rates for several decades before being mothballed. This peg was intended to stabilize the Japanese economy and worked until 1971 when the U.S. abandoned the gold standard. Soon, a new agreement - the Smithsonian Agreement - re-pegged the yen to the US$ but that too fell to the wayside. Supply and demand pressures for international currencies soon led the world's leaders to allow their currencies to float freely on the open market.

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