Investment Tips for 2007

As we roll into 2007, a lot of us will start the new year off with goals and resolutions. Some of those will involve our investment portfolios. Whether you do your own research, or work with a financial professional, all investors have one thing in common. Their all trying to pick the big winner! We all want to get the biggest possible return on our investment. Obviously, the majority of all investments do involve some level of risk. Those other than CD's or Money Market Accounts (a checking acct. that draws interest), etc.. Whether you are a seasoned investor, or just a beginner looking to get a return on your money, before putting your hard earned dollars on the line, you must be comfortable with the risk level on that particular investment. So make sure, you do your homework! You can't always go by past history or performance either. In 2006, the stock market broke records. Will that continue in 2007? What about the trade deficit? Even though energy prices leveled off in the second half of the year, there is no guarantee in such a volatile market, that prices won't surge in a short period of time. The economy scored fairly well in 2006, at least the FED stopped the .25% rate hikes. No matter what investment you choose, it will be affected by these factors. Also, the war in Iraq (the war on terror worldwide) is constantly a concern for all the markets. When you factor all this in, it can seem rather complicated. However that being said, if you consider the basics first, it will seem a whole lot more simplified.

First off, the most complicated issue (sure seems that way), is what do I invest in? Investors in todays world, have a huge variety of places to put their funds. Stocks, Bonds, Mutual Funds, Treasury Securities, Commodities, Commodity Futures, Options, Variable Annuities, Real Estate Investment Trusts and many more. Now, because each one has some element of risk, you must do that homework. Securities are not always insured by the Federal Government, so if they fail, you can be left out in the cold, even if they were purchased through a bank. Don't be afraid to ask a ton of questions! Some questions, you might want to ask:

How Much Can I Expect to Earn on my Money? Most securities are like a stock, they will go up and down. Most bonds will offer a fixed rate. Obviously a CD (certificate of deposit), a savings or money market account will offer a fixed rate, though will also be guaranteed by the bank through the FDIC. Unfortunately cd's, savings and money market accounts won't pay much of a return. If you want a fixed rate, bonds might be worth a look.

How Liquid is my Money? How fast can I get my money out? Many investments will not allow, or will penalize you severely to take your money out. If you want to have access to your funds at any time, stocks, bonds and mutual funds can usually be sold at any time. Keep in mind, because prices will fluctuate on these, you may get less than you paid for them. The fees to sell stocks and bonds (without a broker) are minimal, however some mutual funds will have more fees to sell.

What is the Risk Level? Other than savings accounts, treasury securities and savings bonds (all protected by the US Gov.), you can expect to have the potential to lose money. The general rule of thumb is, the greater the risk, the greater the reward. An investment with little to no risk, will not tend to pay off big in the short run.

What is my Earning Potential? Unless your investment pays a fixed rate of return or a dividend, your return will be based on the growth of that individual investment. Stocks and mutual funds for instance, will earn you money when their value appreciates or grows. The lower the risk, generally the longer it will take to grow in value. Remember, past performance is not an solid indicator of future results.

Are All My Eggs In One Basket?- Certain investments will thrive at times when others don't. A rise in interest rates will cause some investments to go down, and others to go up. If the price for a barrel of oil is high, then oil company stocks will go up and pay higher dividends. Rule of thumb, do not put all your money in one single investment.

Will I Pay Taxes on my Earnings? Some investments are federal and state tax free. Savings bonds, municipal bonds are tax exempt. Still other funds are tax deferred. These will allow you to pay the taxes later, which can result in paying a lot less tax. Stocks for example are taxed based on how long you hold them. It's better to hold them for the long term.

Wherever you choose to put your money, take the time to aquire all the information possible. For stocks, obtain the prospectus from the company. This will tell you all the history and important details about that company. All public companies are required by the Securities and Exchange Commision to disclose their financial details. Mutual funds, municipal bonds etc. all have ratings which are available on-line. Unlike in the past (prior to the internet), when people looking to invest were forced to use a full service brokerage, investors in today's world have a multitude of options. Options from a full service broker, all the way to trading on-line where you do all your own research and make all the decisions . Today you have the choice of only paying for the advice you need without being charged the full fees of the traditional broker who would tell you anything to make a commision.

Remember, nobody knows what the big winner is going to be in 2007. Do your homework first. Make a plan, and who knows, it might be you who hit's the big one in 2007.