Kuala Lumpur Stock Index


What are You Investing For?

Much like an exercise program, you'll want to determine your goals before you begin to invest. Your goal might be retiring in 20-30 years, kids college funding or, if you got started a bit late, retirement in the next 5 to 10 years.

It's very important to think through what your goals are and then determine your investment style. I should make it very clear that when I talk about investing, I'm not simply talking about taking chances with your money and hoping for a big return. I'm much more subdued, but at the same time aggressive in obtaining the biggest return for the least amount of risk.

Before we actually talk about that however, I should point out what your situation should look like before you begin doing any kind of investment.

If you've met with us in the past, you'll be familiar with the Financial Freedom Steps. These steps are helpful to anyone who desires to get their life on the right track. The first step is to develop and actually use a spending plan or budget. You should keep track of all of your income (paycheck) as well as all of your outgo (monthly expenses). It's been said that budgeting is telling your money where to go, rather than asking where it went. If you do not have a plan for your income before you receive it, then it will go places where you simply can't even track it down.

Most of the people and businesses we help get set up on a budget tell us that they feel like they've gotten a raise when they start living on a budget. I bet that if you haven't ever done a budget, you can't tell me off hand where all of your money is going. Try it and find out.

While you are developing a spending plan, you should also be striving to save $1,000 for a 'beginner' emergency fund. Once that is complete, Step 2 is to aggressively pay off all of your debt (except for your house) as quickly as possible. Step 3 is to finish your emergency fund with between 3 and 6 months living expenses. Then and only then do we recommend beginning any investment program. The reason is simple... the biggest wealth building tool each of us has is our income. Once your income is freed-up, you can focus more of your time and energy in earning back the money you were formerly paying in interest. After all, if you're paying a credit card 17% in interest and pay that card off, you are now receiving a 17% return for yourself by not paying it to the bank. If you can then earn 10% on your money, that is a 27% spread!

Justin Lukasavige is a Personal & Business Coach and owner of Lukas Coaching. Visit www.lukascoaching.com/resources.htm for a ton of free tools to help you improve your health, finances, business, career & life! For more free columns and articles, visit www.lukascoaching.com/articles.htm

1 Month - Bullion Vault Gold Prices - Multiple Currencies

Monday, April 13, 2009

Dollar Cost Averaging Vs Value Averaging

Both dollar cost averaging (DCA) and value averaging are two popular investing strategies to profit from long-term performance of stocks or similar financial instruments. Both are good ways of systematically building an investment portfolio by adding capital to existing portfolio monthly (or try-monthly or annually).

Dollar cost averaging, also known as Pound Cost Averaging and Constant Dollar Plan, is a simple systematic investment method, in which the investor continuously buys stocks, or mutual fund units or other instruments, of a fixed amount. Thus the portfolio investment is increased with a certain amount every month and the trader profits, buy selling off the instruments he holding at a desired time.

The basic idea of Dollar cost averaging is to profit from long-term performances of stocks and markets (around 11% per year for US markets) irrespective of short-term market ups and downs. DCA investors easily overcome market up and downs. When markets are down, investors can buy more number of stocks/units for a certain amount and when markets are up they can buy lesser number of stocks/unit for the same amount.

Value averaging is a more evolved investing strategy with an added value factor. Investors following value average buy stocks each month to attain a targeted portfolio value. For example if the target portfolio growth rate is $500 per month and the investor buys stocks of value $500 for the first month. In the second month if the original value has increased from $500 to $600, he invests less ($400) for current month to achieve the portfolio value target of $1000 for the second month. Likely if the portfolio value has dropped from $1000 to $900 in third month, he invests more ($600) to achieve the portfolio value of $1,500 for third month.

Advantages of Dollar cost averaging are (1) it is independent of market timings other than the selling time, (2) steady growth of portfolio, (3) minimum need of trading/investing experience and education, and (4) best for persons with steady monthly income. But this strategy does not ensure good profits.

Advantages of value averaging are (1) generally better profits than DCA, (2) active management of portfolio investments, and (3) best for persons with investing experiences, (4) good when investors want to take short-term profits. But the strategy may become difficult to follow in long-term. For example the above mentioned portfolio value target after 2 years will be $12,000. But because of a bullish trend it can decrease to $8,000; then one must need to invest $4500 ($12,000 – $8000 + $500 of monthly target) for the next month. Similarly there may be months in which no investments are needed.

Author By: NobleTrading




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