Janet Schlarbaum, Working Capital Info

Submitted by: Janet Schlarbaum

Author: Jim Pretin

In recent years, there has been a massive proliferation of investment scams circulating the internet. I receive up to 5 emails every day containing these scams. The internet is a fantastic resource for investors, providing real-time stock quotes and access to current research and analysis. However, the lack of regulation in cyberspace enables financial gurus and hucksters to perpetrate their money-making flimflam on a daily basis.

Pyramid schemes are one of the most common forms of investment fraud pervading the net. With these, you are asked to contribute a certain amount of money, and then you are promised a return when new investors make their contribution. Eventually, the pyramid collapses when money owed to the previous investors is more than what can be raised.

Next on the list is an outright illegal practice called the pump and dump. This is when a small group of investors who hold a large number of shares in a company go around hyping the stock to the uninformed public. The resulting frenzy drives up the price of the stock, at which point the aforementioned small group of shareholders dump their shares at a high price before the general public knows that the stock is worthless. Sometimes, pump and dumpers will engage in short selling (short selling is a perfectly legal and legitimate practice, whereby you borrow stock from someone else and immediately sell it, hoping that the price of the stock will go down in the near future so that you can buy it back at a lower price and return it to the person who loaned it to you at a profit). With pump and dump short selling, the borrower sells the stock that was loaned to him and then goes around spreading bad rumors about the company to drive the stock price down so he or she can buy it back at a low price before returning the shares to the original owner.

You should also steer clear of any emails you receive about offshore investing or prime banks. Offshore companies, thanks to the internet, are no longer faced with obstacles such as direct mail or long distance telemarketing. Promises of huge returns from offshore investments are usually totally bogus. Another scam you need to be wary of involves prime banks. Prime banks are the top 50 banks in the world. Internet hucksters will ask for your money so that they can invest it in risk-free, high yield prime bank financial instruments. However, they will likely invest your money in high risk, speculative investment vehicles that have absolutely nothing to do with prime banks. Avoid prime bank solicitations like the plague.

I hope this information will help you avoid falling prey to investment scams. However, do not be afraid to invest in companies just because there is some pumping and dumping. Just because a few shareholders decide to pump up a stock for their own selfish gain, does not mean that the company is not a good investment. People have made fortunes on the stock market by investing in relatively new companies before anyone else knew about them. Those who did not invest in these companies because they thought they were pure hype lost out on a chance to make millions. Use your common sense when deciding whether or not you want to invest in a relatively unknown company. Do some research before you invest in and you should do fine.

Article Selected By: Janet Schlarbaum

Author: Joe Kenny

When it comes to making investments, most people know that there is always room for a possible loss. Stock market investments in particular are rather notorious for taking a rather well funded portfolio and emptying it rather quickly. Of course, that does not happen all the time, otherwise no one would do it. If, on the other hand, you do not want to take what many consider to be an unnecessary risk, there are a number of other investments that are reasonably safer, can still bring a good return, and are definitely worthwhile. Here are a couple of them.

A common phrase that is often used these days to refer to the making of your investments safer is having a balanced portfolio. This means that you are not putting all of your eggs into one basket. You know that some markets are a much greater risk than others, such as trading on the stock market, and so you put some of your investment capital into some that are much safer and less likely to be lost. This “balance,” created by placing some of your investment into a variety of potential interest bearing accounts, should result in an overall gain.

Investments Depend On The Person

If you are a young person, then it should mean that you would be willing to take a higher risk (assuming you have some capital that may be lost). The possibility of the highest gains, unfortunately, also come from the markets with the potential for the highest change. This means that there is a much greater likelihood of a real loss - especially if you do not know what you are doing. By using the services of an experienced trader however, a stockbroker that has been doing it for years, you minimize the possibility of loss. But you should only invest a portion of your finances into the stock market.

If, on the other hand, you are much closer to retirement age, then you do not want to take such a risk with your funds. Instead, you would want to place your soon to be needed funds into a much more stable growth account, where the loss can be minimized and yet still bring a return in interest.

Stable Investing In Trust Funds

If you are looking to stabilize your investments in the stock market with something that is relatively sure, then you need to consider mutual funds. This form of investing places your investment into the hands of investors that basically do the investing for you. They watch the market, manage the funds, and make the changes necessary in order to keep your account growing. After you inform them of what level of risk you are willing to take, then the rest is done for you. They take your funds and spread them over a diverse sort of investments, and it gives you a much more stable package.

The Most Stable Investment - Bonds

Probably the most stable investment you can make is to buy bonds. The safest, of course, are the US Savings Bonds. These are purchased at a set price and guarantee a set interest amount in a specified time period. You cannot get much safer than that - and probably not much is safer than the US Government - investment wise. If you are looking for the highest stability available, then you need to take some of your investment portfolio and add some bonds to it. Bonds are also available from other corporations, cities, etc., but their strength is limited to the financial strength of the company. The longer the time period of your investment - the greater the risk that the company may not be around.

Author: Ray Prince

The activities undertaken by an active fund manager normally result in higher annual management charges. This is what you would expect as they must carry out more research and analysis than a passive “manager”. However, what few clients fail to appreciate is, the buying and selling of shares within a fund also incurs costs and these subsequently impact detrimentally on performance.

This is known as the “performance drag”.

A Financial Services Authority (FSA) report* authored by Kevin James undertook to quantify the costs of trading to determine the performance drag. He concluded that the cost of a “round trip” trade in the UK was 1.8%. A “round trip” is the selling of one company’s shares and replacing them with another for the same value. For example selling £10,000 worth of Barclays’ shares and replacing them by buying £10,000 worth of HSBC shares.

Let’s look at a breakdown of the costs:

- Commission 0.3%

- Bid/Offer Spread 0.75%

- Price Impact 0.25%

- Stamp Duty 0.5%

Major studies elsewhere in the world have concluded similar results**. The headline figures were lower but they did not include Stamp Duty as Stamp Duty is only payable on UK shares.

A Government commissioned report into retail investments by Paul Myners estimates that portfolio turnover costs UK investors £2.5 billion each year. The UK has only recently fallen into step with the rest of the world in making it compulsory for fund managers to disclose their portfolio turnover. This revealed that many of the best selling UK funds have portfolio turnover rates of between 100% and 200%.

If the portfolio turnover rate of a UK fund was 100% this would “cost” the client 1.8% in Performance Drag.

The impact of charges has never been more important in arranging an investment portfolio. If the explicit annual fund management charges are 2% and the implicit costs of portfolio turnover is a further 2% then this means 4% is being wasted in charges. Charges of this level were masked by the double digit returns of the eighties and nineties but as the stockmarket returns to its long term average, losing 4% per annum will have a significant impact on the actual returns clients receive.

In addition, studies in the US*** concluded that the higher charges associated with portfolio turnover were not recovered by better performance.

*Financial Services Authority (FSA) Occasional Paper 6
**Wilcox (1993) 1.2%, Carhart (1997) 0.95%, Orton (1999) 1%, James (2000) 1.3%
***Performance of Mutual Funds, J Chalmers, R Edelen & G Kadlec Nov 1999

The Financial Tips Bottom Line

As you are probably not aware what the turnover rate is on your investment funds, the easy reaction could be to simply ignore it.