Ten Spider Investment Center

Invest for Your Future.

Investment was once something thought of as what rich people do. Today, investing plays a key role in the financial well-being of millions of Americans. The Securities Industry Association (now the Securities Industry and Financial Markets Association - SIFMA) has stated, “the growth in individual investor participation has risen from 30.2 million U.S. shareowners in 1980 to 84.3 million in 2002.” According to a survey published by the Investment Company Institute and the Securities Industry Association, the latter figure encompasses 49.5 percent of U.S. households. Yet, how many of these investors really know the ropes when it comes to making the right investment decisions? Woefully few, laments the Oregon Department of Consumer & Business Services’ Division of Finance & Corporate Securities, noting that, “Less than one-fifth of those [Americans, who may or may not have been investors] polled passed a simple test asking whether stocks, bonds, savings accounts or certificates of deposit offered the best return over the last 20 years.”

So what can you do to avoid becoming financial fodder when it comes to investing your money? Our Investment Center showcases a variety of products and information sources designed to assist you if you are, or would like to become, an investor or trader in the stock, bond, futures or real estate markets.

To start you off, we have provided some investment advice in the form of some simple investment tips. Following the investment tips below can help you become a savvy investor in a hurry. Failing to heed them could prove costly.

Investment Tips

ESTABLISH YOUR FINANCIAL “COMFORT ZONE”

Determine your financial “comfort zone” and invest accordingly. Different people have different investment expectations and varying thresholds of risk they are willing or able to tolerate. If you lose sleep worrying over your investments, reallocate those investments until you become comfortable. A nervous investor is an investor prone to making serious investment mistakes.

ACTIVELY SUPERVISE YOUR INVESTMENTS

Actively supervise your investments! This may seem like a trivial suggestion, but I cannot begin to tell you how many people I heard say during the last bear market, “I’m so disgusted with the performance of my portfolio that I don’t even open my brokerage statements any more.” Such a psychological malaise always sets in during exactly the period (a down market cycle) when even greater diligence is called for. Training yourself to properly monitor your investments during prosperous market periods will help you to maintain that discipline during those critical periods when markets sour.

KNOW WHEN TO EXIT AN INVESTMENT

Know when to say, “Good-bye,” to an investment position. “Nothing remains the same but change.” “All good things come to an end.” Both of these quotes, while corny, are especially germane to investing. Investment requires skill because market environments are constantly changing. Another widely-circulated quote in the investment arena is, “Cut your losses but let your profits run.” This is only partially sound advice; there is a flaw in the “logic”. Can you guess what it is? Just how far should you let your profit run — until the markets turn down and your profit turns into a loss? Before you enter into an investment position, determine both upside and downside exit points. (This often becomes too difficult a decision once your money is in play.)

A good way to determine a downside exit point is to determine what percentage of principal you are willing to sacrifice; once this percentage is reached, the position is assumed to be a failed one and is immediately closed. Always set a target for your upside exit point (usually a percentage gain or a “resistance level”); if your target is reached and conditions are such that you believe your investment may continue to appreciate in value, sell half of your position, set the target price as a new baseline and repeat the process, again setting both upside and downside targets.

DON’T PUT ALL YOUR EGGS IN ONE BASKET — DIVERSIFY!

Diversify your portfolio by allocating percentages of your investment funds to multiple investment vehicles and to various groups within each vehicle. You may, for example, split your money between equities, mutual funds, bonds and CDs. If you are familiar with real estate investing and have sufficient capital, you may wish to include real estate holdings in the mix, or you can invest in a Real Estate Investment Trust (REIT).

When diversifying, be sure not to invest in vehicles or groups that are closely related. Your portfolio should be structured such that, when the economic environment changes, sectors which may perform poorly will be offset by others which perform better in the new environment. Jim Cramer, notable host of CNBC’s Mad Money, suggests that if you invest in stocks, you should be in at least five different market groups. Just one example of such a protective strategy might involve investing in aerospace, consumer staples, energy, gaming and telecommunications.

Never invest a large percentage of your portfolio in a single stock or stock group because you are familiar with it or because it is hot or a flier. The employees of Enron who invested their entire savings in the company because they were familiar with it and trusted Management learned this lesson the hard way; many have had their lives ruined and their retirement dreams shattered as a result of Enron’s infamous collapse.

KNOW YOUR LIMITS

Different investing and trading vehicles demand different levels of expertise. If you are unfamiliar with an investment or trading concept or instrument, become thoroughly familiar with it before you attempt to apply it in shaping your financial future. A great deal of money can be lost very quickly in the financial markets with very little recourse for recovery. Preservation of capital should be paramount in any financial decision.

AVOID SHORT TERM TRADING

Short-term trading should be left to the pros. Do not believe that you can gain the knowledge overnight that is necessary to win in a short term trading environment. Such knowledge generally takes years and a great deal of hard work (and lost money) to acquire. Most short term traders simply lose their shirts and are washed out of the markets because they are ill-prepared for the experience. Don’t be one of them!

STAY TUNED TO LONG TERM MARKET TRENDS

Market timing, taken from a longer-term perspective, can be a prized tool in your arsenal of investment techniques. The philosophy of “buy and hold” has worked extremely well over the last 30 years, but may not continue to do so in the future. The notion that the market will always come back is specious, as those who suffered through the recent crash following the tech bubble now know all too well. When investing, attention must always be paid to macro-economic trends that can influence markets in general and fundamental information that can affect your particular investments.

Authored by Kenneth L. Anderson. Original article published prior to 13 April 2003, updated 21 December 2006.

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