For majority of Americans their retirement will depend largely on their stock investments. Many shy away from learning about the stock Market  because it is “too scary and complicated”. In this age of information there are plenty of opportunities to learn what you need to know in order to be an effective investor. There are websites that will help you with definitions and websites that will teach you investment basics. The last thing that we want for any of our students to do is blindly follow the advice of a financial professional. I believe that having the advice of competent professionals is important but at the end of the day it is your money and you have the final decision on what happens. Your investments are YOUR responsibility! Never fall into the trap of following the advice that I have heard from some advisers and that is “just trust me” I know what I am doing. That is great that they know what they are doing, but their job is to explain to you what they are doing so you too can participate in the decision making process. It is time to take a more active approach to investing.

There is a way to simplify your investment strategy and that is to invest in the whole market. Getting into something like an Index Fund can greatly reduce your expenses.

What is the big deal about expenses when it comes to investing? In a recent article, I was amazed to see that a two percent savings on investing expenses increased an investor’s return by about 60 percent over the life of the investment.

Investing like paying down your debts takes a consistent mindset. Slow and steady wins the race! Make sure you are well informed so you can make the calls with the help of professionals and not blindly follow what they recommend! Listen to this weeks call on the stock market to get started on learning the basics of stock market investing!

ETFs—An Investment Option
Some students have had interest in Exchange-Traded Funds. It for this purpose I am writing to those students today. Many recognize my view on mutual funds. I feel strongly that are one of the greatest investment options available because of the diversification aspect within them. However, they can be expensive including fund fees, potential load fees, 12b-1 fees, and other fees. To remedy this I have proposed Index Funds because they can accomplish the objective of diversification and fulfill the concept of Modern Portfolio Theory, while reducing the cost of investing. Well, another option also exists; it is an Exchange-Traded Fund. The fund is cheaper than an Index Fund and still can satisfy all the required the objectives described.
An Exchange-Traded Funds are holdings of securities mirroring a market index, i.e., S&P 500. They are classified more like an open-end company or Unit Investment Trust (UIT) with a few exceptions:

• They trade exactly like a regular stock.
• They are sold in large blocks know as “Creation Units.”
• The Creation Units are generally purchased by instructional investors.
• The Creation Units are bought with baskets of securities that generally mirror the ETFs portfolio.
• After purchasing a Creation Unit, the investor has the option of splitting it up and selling the individual shares (i.e., equity or bond shares) on the secondary market.
• Investors have two options when selling the ETF: 1) Selling the individual shares to other investors on the secondary market, or 2) Retain the structure of the Creation Units and sell it back to the ETF.
• The redemption of Creation Units is generally provided with securities comprised within the portfolio.
• Because of the limited redeemability of ETFs, they are not considered to be a mutual fund.
Again an ETF can mirror an index, like the Dow Jones Industrial Average or the S&P 500. As a result they are powerful investment securities because they contain the elements of modern portfolio theory and diversification. ETFs may also be attractive because of their low costs, tax efficiency, and stock-like features.
Some popular ETF options include:
• S&P Depositary Receipts “Spiders,” which track the S&P 500 (Ticker Symbol SPY)
• “Cubes,” which tracks the Nasdq 100 (Ticker Symbol QQQ)
• Vanguard Index Participation Equity Receipts “VIPERs,” including Vanguard Energy VIPERs, Vanguard Financials VIPERs and Vanguard Mid-Cap VIPERs.
• Vanguard Total Market Index Fund (Ticker Symbol VTI)
For further information, please contact me at Prosper 800 748-5199 x6048.

THE EIGHT GREAT MISTAKES THAT INVESTORS MAKE

1. Over Diversifying - Yes, you do want to diversity so your “eggs aren’t all in one basket.” But you do not want to spread your money so wide that it is difficult to monitor

2. Under Diversifying - Just the opposite, if you put all of your money in three funds, and one does poorly, the other two will not have enough spectacular returns to make up for the difference

3. Euphoria- Some investors have their head up in the clouds much of the time and think nothing can go wrong. They may need a dose of Murphy’s medicine. If something can go wrong it will!

4. Panic- Many investors are in this mode right now. All you have to do is take a look at your 401K statement and it can set you to panic mode. You must ignore that negative return and look at the big picture. Dollar Cost Averaging in equities always will win in the long run. Just keep putting in your $50 or $100 or whatever you can afford each month regardless of the price, and over the long run your average investing will win. If you panic and pull your money out at the worst time, you may indeed have a real loss, not a paper one. A heart attack may not be far behind.

5. Speculation - Many investors want to build new streams of income but they may jump at very risky online advertisements. Ecommerce can be a good opportunity to build future income, but you must carefully research the background to see if it’s worth even considering. Most online ads are not worth your time

6. Investing for Yield (dividends) instead of total long term return - In the short run yield returns will be moderate, taken over a long term horizon with a carefully planned strategy will bring about the result you are seeking

7. Letting the cost basis dictate your investment decisions - the cost basis is typically the upfront money you put into an investment. It is on the back end where appreciation is realized, and that takes time and prudent watchcare

8. Leverage-this is a huge word and can be your friend. We are all familiar with the example of investing $10,000 to buy an investment property worth $100,000. You might clear $500/mo from the rent it produces, after paying all of your expenses. That would be $6,000/yr which is a 6% return. As that investment appreciates you will realize a potential large profit. If you use leverage you would pay $10,000 to buy the same $100,000 building. Your annual rent profit may only be $100 per month. But that $1,200 annual rent profit represents a 12% return on your smaller $10,000 investment, twice as much! Then suppose you sell the property a yr. later for $110,000. That $10,000 increase represents a 100% return on your investment. You double your money in a year! Now suppose you invest $10,000 in 10 properties that are worth $100,000 each. Now you control $1,000,000 worth of Real Estate Investment and as it appreciates it can build you wealth in a hurry. However leverage can be a two edged sword if the property significantly drops in value, and increases your leverage losses. The point of course is to find the right balance and use leverage in a smart way!

This week's tip is brought to us by Ray Wright.