Why Relative Strength Investing Produces Winners

Why Relative Strength Investing Produces Winners

The differences between relative strength and momentum investing are substantial yet many investors confuse them or even think they are identical. The same can be said for making investment decisions based solely on charts instead of comprehensive technical analysis.

Michael Carr defines his book, “Smarter Investing in Any Economy”, as the definitive guide to relative strength investing. Anyone wishing to learn about relative strength investing in depth and how it can be applied in various ways should read Carr’s book. However, the basic concept of is not simply to buy a stock (or ETF or Mutual Fund) that is moving up in the markets but to buy one whose strength is greater than the others.

Momentum investing is simply buying what is going up and selling when it goes down. This is the basis for most charting software and investment decisions based on looking at charts.

Relative Strength investing involves calculating the difference of the momentum of an ETF versus other ETFs and an index or benchmark like the S&P 500. While a chart can be created for any particular ticker symbol versus the benchmark, the important factor is how does each ETF relate to other ETFs? The answer shows the relative strength of each symbol to others within any particular group or universe of symbols.

In other words it’s like comparing horses at the Kentucky Derby. We know that every horse on the track can probably run faster than any other horse in the world; so each horse’s momentum is greater that my neighbors quarter horse out on the range. But picking the winner is just like buying based on Momentum alone. Yes, they are all winners, but only one is going to be The Winner, and only a few are going to bring home any prize money.

On the other hand, RS investing says that a particular horse’s speed is greater than the average horse and also is greater by a specific amount than every other horse on the track. And if you know the running speeds and durability factors of each horse (or each ticker symbol) you can bet on or buy the most likely winner.

This sounds complicated, but it doesn’t have to be mind boggling. There are formulas for calculating relative strength. In fact there are a variety of relative strength formulas and while you can tediously do this in a spreadsheet the easiest way is to use a software program that performs technical analysis that includes Alpha or simple Relative Strength Momentum.

A great way to use RS analysis is to combine it with momentum and selling rules so that you get the best of these worlds. A software program that offers all three aspects will include:

• Alpha or relative strength analysis

• A variety of charts

• Selling rules

• Ability to adjust the analysis to fit your buying goals and time frame

• A melding capability of the analysis, charts and selling rules

By blending momentum with RS investing you will be more likely to buy the winners and also more likely to sell and preserve profits while minimizing losses.…

Simple Tips For Property Investments

Simple Tips For Property Investments

Property Investment is probably the fastest way to increase your money these days. Instead of keeping your money safely locked up in a bank account, invest it in the real estate and you will be amazed at the returns it reaps for you. Like any other forms of investment, there are risks involved here as well, and you may have to endure a few losses in the beginning to learn the ropes of right investing. All you have to do is to keep certain basic points in your mind, and you will a big time investor soon enough.

Start Small: Until and unless you are absolutely confident regarding the decisions you are taking regarding your investment, it is advisable to start small. Invest in smaller amounts first, and make sure you are bringing in the profits. With the right moves, you may soon get to know the trade, but you should also remember that one wrong move and you may have to endure losses which are enough to set you back for a few years at a time, and it may take a long time to recover.

Market Conditions: Although the market conditions may not play a direct role in property investment, it is still necessary to keep a lookout. An upheaval in the financial world will not be as devastating to property investments as to the stock exchange, but it can cut off people’s income, their spending power decreases and prices start going down. A general overview is a must, whatever may be the amount of your investment.

Location: This is the keyword in property investment. You may have built an accommodation which may seem right out of the dreams, but it will indeed remain only a dream if your intended customers find that it is situated miles away from places like their workplace, their children’s school and the doctor. If that indeed is your intention, then along with the property itself, you will also have to built all the auxiliary units like a general or departmental store, a drugstore, school etc. Again, the requirements for locations of a residential and a commercial property will be complete different from one another.

Tax and Legal Advice: These are to be taken care of right at the initial stages. You have to be fully aware of the tax laws and the property laws of the state in which you are planning to make your investments. Meet with a professional tax consultant and a real estate lawyer for full details, because once you get involved in the red tapes and legal formalities if there is anything amiss about your project, chances are that it may be stalled for an indefinite period of time, and you will have to bar all the extra costs for the delay.…

Basics To Financial Managment – Return On Investment

Basics To Financial Managment – Return On Investment

Due to poor financial management, many people find it hard to improve their chances of getting richer. This brings about the need to change many people’s mindset about finance, like how defects have to be fixed in leaking ships. Because of this,, the article was written to provide more knowledge on the field of managing finances well.

In the area of finance, people ought to know 1 single term very well and that is return on investment (ROI). This is because ROI is income that can be taxed the least but is most beneficial to you. For example, in earned income, you are always taxed at the higher tax brackets in income tax whenever you earn more.

However, if you invest in real estate, there is tax incentive called depreciation which looks like loss on financial statements but actually creates phantom deduction to shelter rental income. Also, investors can offset other income with passive loss from property up to $25,000 if you or your spouse qualifies as a real estate professional.

In addition, property may even be appreciating in value even though the tax man allows investor to claim that it is shrinking in value through depreciation deduction. Thus, for people who do not invest, you are actually getting punished by more taxes than those who invest and if you want to invest, you must know ROI at your fingertips.

To me, there are 2 types of ROI and they are internal rate of return and external rate of return. Basically, internal rate of return (IRR) means ROI without considering macroeconomic factors like taxes and inflation. In financial terms, it would mean a ROI that assumes all the income (passive/cash flow) you receive is immediately reinvested so that you would be getting a return on that money as well.

For example, rental income you receive from a property is immediately used to buy a stock that pays you dividend of 5% per year. Here, as macroeconomic factors like inflation and taxes are not considered, your internal rate of return will be 5% if you perform the above action.

However, while internal rate of return is important, external rate of return is actually a more reliable tool to gauge your total returns from an investment. Simply put, external rate of return (ERR) is ROI gained or lost because of indirect effect product has on taxes, insurance costs, inflation and opportunity costs.

Here, its importance lies in the very fact that it takes into consideration factors that are not immediately quantifiable or cannot be quantified. Thus, it is vital that we include both internal and external rate of return in any financial decision we make as it provides a more holistic approach to managing our finances by considering quantifiable and non-quantifiable factors. Here, always remember that IRR+ERR=ROI.

To make things clearer, here’s an example to illustrate how you can apply IRR and ERR even to your daily life. In many people, hand phones are a high expense and so to increase IRR, you sell it. However, remember that the hand phone also gives you convenience (not quantifiable) and because of your sale of it, ERR becomes negative and as a result, you gain a negative ROI instead of a positive one. Given this example, I hope readers will be able to practice financial prudence using ERR and IRR in your daily lives.

In conclusion, after covering the aspect of return on investment in financial management, I believe readers have gained a very clear understanding of how important it is to invest and also the right approaches to do so. Now, use what you learnt well and take action!…

Fee For Service Advisors – What You Should Pay?

Fee For Service Advisors – What You Should Pay?

How much it is going to cost you? How you will be getting paid? These are some of the best question that you should be asking any planner or adviser that you are interviewing for the job. That is very much right. You should always be interviewing the potential advisor so that you can get to know more about their personality, before you actually make an investment decision or while you are considering taking any investment planner recommendation. You need to make sure if the advisor or planner is fully open and up-front regarding their compensation arrangement. You should be making such question which will be providing you with a rough idea about how much they will be shelling out for the services they are rendering for you.

How to Find Required Fee For Service Advisors?

The question here is that how you are going find Fee for Service Advisors when it comes to financial profession. One of the best means to look out for fee-for-service advisors or planners is via the word of mouth. While you are getting a reference from your colleges or a close friend and this is going to be one of the best means to make sure that you are going to find a credible and highly regarded advisor or planner.

You need to keep this point in your mind that the ‘right’ planner is not something being mentioned. Each and every individuals financial status is different from another person and it certainly requires a different and varying level of financial planning. Such families that are young and when they are not dealing with any sort of estate planning or elder care perhaps would not need all-inclusive kind of financial plans whereas it could have been the choice of their parents as per their requirements. On the other hand, the cost associated with different plans is tough to be justified when it comes particularly to a complete financial plan.

One other helpful yet considerable means of looking for a fee-for-service advisor is via the World Wide Web. It is one of such means that can provide you with a large number of choices along with the convenience of looking out from the comfort of being at home. You will be provided with a long list of web portals while you have input the keyword as ‘Fee For Service Advisors’ with your preferred search engines.

Once you have come across numerous applications people around the globe, you can narrow down your search by opting for the ones that fully meet your needs and requirements along with being without your preferred compensation package.…

NRAS Property in Victoria

NRAS Property in Victoria

The National Rental Affordability Scheme (NRAS) is a long term commitment by the Australian Government to invest in affordable rental housing. The NRAS Victoria seeks to address the shortage of affordable rental housing by offering financial incentives to the business sector and community organizations to build and rent dwellings to low and moderate income households at 20 per cent below-market rates for 10 years. NRAS Victoria aims to increase the supply of new affordable rental housing; reduce rental costs for low and moderate income households; and encourage large scale investment and innovative delivery of affordable housing. The Australian Government has committed $1 billion to the Scheme over four years to stimulate construction of up to 50,000 high quality homes and apartments, providing affordable private rental properties for Australians and their families.

NRAS Victoria is a great opportunity for property investors to have a property investment in Victoria in a high capital growth area but still receive the positive cash flow provided by the generous government grants. I believe this is a small window of opportunity where a property investor can build their asset base with no need to take a hit on their cash flow, in actual fact you will increase your cash flow position. NRAS Victoria offers a substantial annual tax-free incentive, the NRAS Incentive, for every dwelling built under its auspices. Investors making property investment in Victoria need to apply for NRAS Incentives, and if offered, must agree to rent approved dwellings at 20 per cent or more below current market rates, to low and moderate income households.

The NRAS Incentive is a funding stream not available to standard residential property investors. Each approved dwelling attracts the NRAS Incentive for 10 years, so long as investors continue to comply with conditions around tenant eligibility and rent discounts. NRAS investors can expect to benefit from the annual NRAS Incentive, rental yields and capital gain. NRAS is intended to be a commercial, profitable property investment in Victoria for participants, while also assisting Australia to increase the supply of affordable housing. It is important to understand that an NRAS approved property is physically no different to any other property in a new development – it simply has been granted the NRAS status. Taxation or any government incentive should never entirely drive a property investment Victoria decision – sure – take them into consideration, but the underlying qualities of the investment are always the most important drivers.

The same applies for NRAS property investments in Victoria – if the NRAS scheme was not there tomorrow, would the investment still make sense? The real benefit of investing in an NRAS Victoria property compared to a normal property investment in Victoria comes down to maths. The $9,524 government incentives are a flat annual amount – regardless of the property type, value and rental income. This means the incentives have a larger positive cash flow impact on properties with a lower market rent. NRAS property investments in Victoria can boost the amount of cash flow generated from a property – which is fantastic.…

Reporting Stock Shares on Schedule D

Reporting Stock Shares on Schedule D

Schedule is a tax form that you attach to your 1040 income tax return; it is used to report capital gains. The form itself is easy to understand, but the filing can become complicated when multiple transactions occur with a single equity.

Stock sales can be reported based on the actual value of specific shares or on a first in, first out (FIFO) basis. Investors can report capital gains in such a manner as to offset other gains or losses. Schedule D reports on stock sales, not current holdings.

The description of stock shares is entered on Line 1 (a) of Schedule D. List the number of shares and then, the name of the company.

The purchase and sale dates of the shares are entered on Line 1 (b) and 1 (c). If you do not have this information on hand, it can be obtained from the 1099 provided from your broker or by your broker upon request.

Enter the sale price of the stock shares on Line 1 (d). This amount is either the cost per share or the gross proceeds from the sale.

The cost basis of the stock is entered on Line 1 (e). This is the most complicated calculation of the process. You can get detailed information on calculating cost basis from the IRS at their website.

Subtract the figure on Line 1 (e) from the figure on Line 1 (d) to determine your capital gain. If you end up with a negative number, it is a loss as opposed to a gain. Losses are reported in (parenthesis). This amount, gain or loss, is to be entered on Line 1 (f).

Repeat the process for each stock sold. While sales in a single company can be aggregated onto a single entry, you must list every company in which you have sold stock during the year on Schedule D.

The example given above is for reporting on short-term assets. To report on long-term assets, follow the same process, but enter the numbers in the fields on Line 8 rather than Line 1.

If you sold shares in a single company, some of which were short-term assets and some of which were long-term, it will be necessary to separate and report these assets based upon duration.…

Integrating Financial Education Into The Education System – Part 2

Integrating Financial Education Into The Education System – Part 2

Given the various flaws in the education system, many people become more vulnerable to bad financial advice. As a result, financial problems occur and this causes them to gain financial wisdom the hard way. Since prevention is better than cure, it is definitely better if we wire in sound financial concepts into students before they step into the outside world. The following single lesson below is one I deem extremely important for students to know, adding on to the 3 addressed in Part 1.

One vital lesson the education system ought to have is the difference between capital gains and cash flow. Capital gains allow you to make money from a difference in buying and selling price. Basically, you must liquidate a certain asset in order to gain money. For cash flow, investors basically receive money every month from an investment without working for it. One example would be cash flow.

As capital gains investments are affected by wild market swings, they are more of a gamble despite the fact that they can rake in more money in the short term. In contrast, cash flow investments provide steady and stable passive income over a long period of time and you can easily reinvest the money elsewhere to gain more cash flow.

Given the rapid pace of change today, investors must invest for both cash flow and capital gains, with greater emphasis however placed on cash flow investments. This is because money today is a currency and must move to an asset that increases cash flow to prevent losing value to inflation.

Also, investing for cash flow takes most risk out of investments because even if asset prices fall, the investor still receives his passive income monthly. However, if the price of asset increases, you get a bonus! This is much safer than capital gains investments.

In stocks, the cash flow investments available would be dividend stocks. A rule of thumb to remember is that a dividend yield exceeding 5% would be a good stock while that below 3% would mean that the stock is over-priced, suggesting an eventual dip in prices.

If many people knew this general rule, they would not have fallen prey to traps in the market during October 2007 and March 2009. In October 2007, the stock market hit a high of 14,564 with only 1.8% dividend yield. Using the rule, it would have meant that stocks are too expensive and investors shouldn’t enter. Nonetheless, many did not know this and entered the market during this time, causing heavy losses.

To make things worse, history simply repeated in March 2009 when the stock market hit a low of 6,547 with 1.9% dividend yield. This also meant that prices were too high but nevertheless, many people thought prices were low and entered the market. Here, they lost money once again.

In conclusion, given the repetition of such gaffes, it is definitely vital that schools guide their students well on knowing cash flow and capital gains investing well. This would definitely groom them into more financially literate individuals with more means of contributing back to society.…