Novel Investor • Page 8 of 13 • Compounding investing wisdom...

Stock Split, Reverse Split, & Your Shares

May 2, 2013

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Jon

Often times you’ll here a company announce a stock split. If you invest in stocks long enough, you’ll eventually experience it yourself.

It’s not limited to stocks either. This can happen to ETF and mutual fund shares too. But how does it affect your shares?

What Is A Stock Split?

When a company announces a split it’s changing the number of outstanding shares and adjusting the stock price accordingly. In a normal stock split the number of shares increases while the stock price decreases. The price change is equal to the market value divided by the new number of shares. Continue Reading…
The Importance of Diversification

April 30, 2013

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Jon

If you’ve ever heard “don’t put all your eggs in one basket”, it’s used to describe a simple investing principle known as diversification.

What Is Diversification?

Diversification is a way to lower risk by allocating your portfolio across various investments and asset classes. In doing so, it should limit your losses and lower volatility while still providing the best possible return for your money.

Diversification is the heart of many asset allocation models. When used correctly, it will help you reach your financial goals without taking on undo risk.

Why You Diversify

The purpose of all this is to reduce investment risk and prevent losses. You do this by dividing your portfolio among different assets classes – stocks, bonds, real estate, cash, and other investments. Continue Reading…
Happy Hour: Twitter Crash And Technical Difficulties

April 26, 2013

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Jon

Welcome to the end of the week and another edition of Happy Hour! Just sit back, relax, and enjoy your end of the week roundup of all things interesting in the land of money.

Twitter Crash

There was a lot of drama this week thanks to a fake Associated Press tweet claimed $200 billion in market cap in a matter of minutes. A well-respected news organization getting hacked is big news. A bigger concern is the how the market reacted to a fake story in large part due to computerized trading.

High Frequency Trading (HFT) involves computers that use algorithms to place thousands of orders in milliseconds based on specific parameters. The argument HFT firms use is that it provides liquidity to the markets. Which is arguable, based on what we saw this week after the AP hacked tweet.

To be clear, a coding error didn’t cause this weeks flash crash. But it’s the biggest concern going forward, having already been a cause of most minor crashes so far. Continue Reading…
TD Ameritrade Review: Why I Use It

April 25, 2013

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Jon

TD Ameritrade is one of the biggest online brokers. It’s won many awards and receives high ratings from the financial press. That all sounds great, but it’s not why I use it.

The broker you use is just as important as how you invest your money. While there are a lot of good online brokers to choose from, it makes sense to choose the broker that best fits your investment needs.

If I started from scratch and had to find a new broker today, these would be the key requirements I’d look for: Continue Reading…
Happy Hour: Bad Behavior And Tax Dollars

April 19, 2013

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Jon

Welcome to the end of the week and another edition of Happy Hour! Just sit back, relax, and enjoy your end of the week roundup of all things interesting in the land of money.

Bad Behavior

Not everyone is cut out to invest like the pros. Some people aren’t cut out to invest at all. Our behavior only allows us so much room to work. Which is why Carl Richard’s recent blog post is so appropriate. It’s a response to a prominent business news channel that now offers its own ETFs. Something I’ll never endorse.

While ETFs may be a great fit for your portfolio, that doesn’t mean it has to be. ETFs are just one possibility of many for your investment strategy. A strategy that needs to take your behavior, intelligence, time, and goals into consideration. Your portfolio is built to protect your money. And sometimes it’s being protected from you. Continue Reading…
The Two Sides Of Investment Risk

April 18, 2013

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Jon

There are many different types of investment risk. Most of the time the market does a good job interpreting those risks.

But not always.

As an investor, its your job to keep those investment risks low and decide when the market is right or if it’s wrong.

What is Investment Risk?

Investment risk in the simplest of terms can be defined as a permanent loss or a lower than expected return.

The permanent loss is easy enough. You invest in a stock. That stock drops in price and stays down indefinitely. Or until you sell, making the risk of loss permanent. Continue Reading…