Mortgage Market News By Ron Granado
As markets continue to go up and down, people who were out of the market now see the correction as a chance to purchase things at a discount. Investors generally fit into a couple categories: Income investors, who are those who buy real estate, bonds that pay interest, annuities, and covered calls for the advanced, which is a long option designed to generate income. Bonds are purchased by older investors who want a guarantee against failure of the underlying issuer(lower interest rate of return than stock). These types also have tax benefits, and for nations and corporations who have billions to invest, the low rate of return is still millions. To them, capital preservation is key. Insurance vehicles like indexed and universal life now have a play in the guaranteed market. Although not income based, they do involve capital preservation and tax benefits. Annuities do not have tax benefits, but pay out solid income depending on the investment.
Investment Vehicles For Investors: Types Of Investments
The second is the most common, which is the diversified speculator who invest the same amount and use time as their greatest strength. These type of investments are called 401k’s, which is a employee matched self directed pension tied to the market which incorporates tons of different companies in a few different risk models and industries. The time and diversified approach has risk, but utilizes a small portion of the investors total income, which many would spend otherwise or let sit in the third type which is the saver:
Investing In Banks
This type of investor doesn’t really invest in companies, they invest in banks, without knowing it. They typically fall into the most risk averse of all because of age or outright distrust and fear of market risks. They will either put all their money into banks through savings, checking, money markets, and CD’s, or they will keep it in their household(i.e. bed). They also spend much less, because they prefer not to leverage, so their debt accumulation is below the national average. They are more likely to budget monthly actual costs rather than speculate on potential pitfalls.
High Risk Investments
The fourth type is the true speculator, the one that tries and time the market. This investor may buy individual stocks, short term options, futures, and will hedge through vehicles like calls and puts, which allow them to sell or buy at a predetermined price of up or down, provided the market moves, which it is right now. They take a high amount of risk, but they make a huge reward. Due to a general access of technology, and high frequency trading, it has become harder for these investors to get a ahead of the game since we all see what they see. Having said that, if they use the right models, and see where the big trends are, they can score big. The good ones invest in industries they understand. They buy either large cap(S and P 500, Wilshire 5000) companies that have a proven track record, or they buy extremely small penny stocks. These have little risk since the cost is small, and the timeline is short. Time is not on their side since they want movement quickly so volatility is key. From June 2009 till now, these types of investors have lost a lot of money since the market has generally gone in one direction: up This makes it harder to get in cheap.
The last type of investor will invest directly into companies, be it start ups or buy outs of companies looking to merge or are in a downturn. These people have the most money of all I described, and usually either started in one of the other arenas, or they owned a company themselves. They, unlike the other types, not only want to see the companies PE expense ratio, they want to know cash flow, net profit, and true valuation. IS the business sustainable? Too competitive? Marketing plan? What is the underlying margin? Someone investing in a sector like a long investor(mutual fund, 401k, 403 B) will not care as much about the margins of 500 companies. Someone who is a cash flow investor may want a hedge against market risk(bonds, government and municipal), and inflation(real estate), but they will not look at the valuation of smaller things, they look at the overall health of the economy like the long speculator.
Figure out what type of investor you are, or want to become. Now your strengths, and know your limits. Consult a financial professional as always, but don’t hide or be afraid, your only here once, make the most out of it.
About Ron Granado Of Mortgage Market News
Mortgage Market News was written by Ron Granado of Plymouth Guaranty Corporation. Mr.Ron Granado is a guest financial writer for Gustan Cho Associates and a veteran real estate and mortgage market expert. Ron Granado is sought by many real estate professionals such as real estate attorneys, real estate agents, mortgage professionals, consumers, and bankers for his extensive knowledge in compliance and industry regulations in the real estate and financial markets.
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