How would you like to find out about an investment vehicle that is not affected by the topsy-turvy nature of the stock market? How would you like to know about a method of investing that locks in your rate of return, regardless of what happens with the so called real estate bubble?

If youve ever put money into the stock market, you know that it can be a frightening roller coaster ride! The market goes up and the market goes down. Often without any rhyme or reason!

Even the expert predictions prove to be wrong time after time! You can lay awake night after night wondering if you will ever see your hard earned investment dollars again.

If you are like most people you are probably asking, When can I have a little predictability?

Well, that is exactly what youll find in the little known world of government issued Tax Lien and Tax Deed Certificates!

What is a Tax Lien Certificate?

A Tax Lien Certificate is a lien on a piece of property for taxes owed.

These Certificates have proven to be Predictable, Certain, and Secure!

Heres why…

PREDICTABLE…because the rates of return are fixed by law! The rates differ by state and local statutes. For example Arizona pays up to 16%, Florida is 18%, and in Texas you get 25%. In states like Michigan you can earn up to 50%. The best part is that your rates of return are locked in and guaranteed.

No matter what happens to the stock market, the economy…your rate of return remains the same. So you know from the beginning what your minimum profit will be! (And in some instances you can earn massive windfall profits up to 500%.)

CERTAIN…because you are actually investing with the government! The government makes the rules, the government sets the interest rate youll receive, and the government enforces the process! (You will either receive your initial investment back…along with the substantial interest rate as your profit. Or you will end up owning the property itself…all according to government regulations.)

SECURE…because your investment is attached to the real estate the taxes are owed on! Your investment is secured by a Government Certificate, which is attached to the real property. The property cannot be sold with clear title until your Certificate is paid off in full. (In other words the Tax Certificate is a priority lien on the property…so nothing can happen with that property until you get paid.)

In fact, a Government Tax Certificate is normally superior to a mortgage lien! So if your investment and profit are not paid within the specified time period, the mortgage company might step in and pay you off in order to protect their interest. If they dont, you own the property for pennies on the dollar.

Any way you cut it, Government Tax Certificates offer a solid investment choice that is Predictable, Certain, and Secure!

Now, some state use a Tax Deed process. And well cover that next time!

The key to success is to arm yourself with the right information and understanding of the rules in your particular locale.

For there is power in knowledge, provided you have the right knowledge…and provided you act upon it!

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Stock option trading enables investors to increase their leverage and thus their rate of return over simple stock trading. If an investor has a solid approach to picking stocks that go up in the short term, the returns can be increased by 10 to 15 times using stock options. The trade off for this increased return is that the investor has to also judge the time period over which the increase will occur.

Being able to pick the stock, direction, and time period are all critical for successful stock option trading. A recent statistical analysis of over 30 years of stock data has revealed certain reoccurring patterns that can yield high returns in stock option trading. The analysis was done with custom developed software and then the strategy was applied to all stocks for the last five years. Stock trading resulted in an average return per trade of 3.2%, but with stock option trading the average return per trade was over 55% for 2005.

Investors have already begun to exploit the patterns found in this research and are reporting highly profitable trades. Whenever investors find inefficiencies in the market, there is a rush to take advantage of those inefficiencies.

Although stock options are not available on all stocks, about half of the stocks found in the analysis did have tradable options. If the trend of increasing use of stock options by investors continues, we should see even more stocks add options for investors. It is easy to see that 60 to 70 percent of actively traded stocks will have option contracts available in the coming year if this trend continues.

Investors are advised to look carefully at the open interest and volume when considering which option contract to buy. A low volume/open interest will generally result in large spreads between the bid/ask prices and thus reduce profits, plus it may make it difficult to sell the option contract.

Another consideration in selecting the option contract is volatility. Stocks with high swings in prices will translate to more expensive options since the options will have a greater likelihood of being in the money. If you have a reliable method of forecasting stock movement, this higher price may not be a consideration.

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One of the most important things to remember about any investment, is that if your capital is borrowed, you take on an even greater risk than the actual investment itself. It is never a good idea to borrow, either from a lending institution or from your credit cards, to come up with the money you need for any particular investment. This maximizes your risk in that, if the investment doesn’t pan out, you will still have to repay the amount you borrowed, and may even have to pay penalties depending on your financial position and ability to repay.

Make sure that before you start trading, you have planned ahead and set aside the capital you will need to invest. This will eliminate that third party, and ensure all of your profits will go in your pocket, and not some bank’s ledger. Keep in mind, though, not only will you need the money for your capital, but also for the most expensive part of the stock market – brokers fees.

While each broker will have different rates, most charge a flat fee per trade. These flat fees make it much easier to see a return on your investment much sooner than you would with a variable rate. This also means that, if you are starting with a fairly large investment of perhaps $10,000, and the brokers trading fee was a $100 flat rate per trade, you would only have to see a one percent return to break even. Of course the reverse is also true, in that if you are starting with a smaller investment of only $1000 or so, you would have to see at least a ten percent return to do the same.

Your rate of return will also depend on whether you are investing in a short term or long term system. In a short term system, you will have many more trading fees, since it is based on the buy low, sell high, do it now philosophy. With a long term system, however, you will incur far fewer trading fees due to the fact that with a long term investment, you are investing in the future viability of a company, rather than in an immediate merger or other change.

Managing your money wisely will help to manage your risk. But it is important to remember that even when your monetary risk has been considered, there is always the market risk. That is to say that there is always the chance that when you invest in the stock market today, there is no guarantee that the market will exist tomorrow. There are no guarantees in stock market trading, and there is no way to eliminate your risks entirely. But with good financial planning, and a little common sense, stock investments can be a wonderful way to provide money for your future.

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Sell in May and Stay Away Words to live and invest by? I dont know who coined the phrase but I did a bit of research and yes this strategy would have worked out for you is you had implemented it over the life of the TSP retirement account. Of course we know past performance does not guarantee future results but there is something here that makes this investor think that just maybe there is something more to the story this time.

There are five funds available in the Thrift Savings Plan.

The C Fund is based on the S&P 500
The F Fund is designed to match the bonds in the Lehman Brothers U.S. Aggregate (LBA) index.
The G Fund invests in short-term U.S. treasuries
The S Fund follows the Wilshire 4500 index
The I Fund follows the EAFE index

From its inception in 1988 through the end of 2005 the C Fund (based on the S&P 500) has averaged 12.61556% per year. In the months October through May it averaged12.87611%. From June through September it averaged -0.26056%. For the same 18 year period, the F Fund averaged 3.356111% for the four months June through September. Had you sold all of your stock C Fund on May 31 and moved all your money into the F Fund and then moved all of your money from the F Fund back to the C Fund on September 30th, you would have realized a 3.616667% per year increase in your rate of return over 18 years. Let me repeat this, a 3.616667% annual increase based on only two trades per year.

From 2001 through 2005 the C Fund (based on the S&P 500) annual average was only 2.22%. Its average gain October through May was 9.24% while its June through September average was an appalling 7.02% loss. Utilizing the same strategy as above, our average rate of return would have jumped from an anemic 2.22% to a healthy 11.38%. That is an amazing increase of over 9% based on just two trades per year.

Since its inception in 2001 the S Fund (based on the Wilshire 4500 index) has averaged 9.314% and the I Fund (based on the EAFE index) averaged 6.56%. They show the same pattern of gains October through May, with gains of 14.05% for the S Fund and 10.368% for the I Fund annually during those eight months. They also continue the S Fund pattern of losses Jun through September, a 4.736% loss for the S Fund and 3.808% loss for the I Fund. Using the same strategy of eight months in the S and I funds and four months in the F Funds, you would have realized additional gains of 6.336% for the S Fund and 5.378% for the I fund brining your rate of return to 15.65% for an S+F strategy and 11.938% for an I+F strategy.

What do you think about this? Join the TSPcenter forum and let me know. My gut tells me we are in for a bad summer. Of course that could be a result of the pepperoni pizza I just ate.

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Although you may already know a little about savings bonds, either owning them yourself or having given one as a gift, you may not know that there are different types. Each type has its own set of rules and also different ways that they can be used.

I Bonds are saving bonds that are low-risk and also a liquid savings product. During the time that you own them they earn interest and also protect you from inflation.

I Bonds can be purchased at just about any local financial institution, or also through payroll deduction.

What are they used for? I Bonds savings bonds can be used to finance education, supplement your retirement income, or also given as a gift.

With I Bonds, you are guaranteed a real rate of return since they are an accrual-type security. Each month interest is added to the savings bond, and that interest is paid to you when you cash in the bond.

They are sold at face value. For instance, you pay $50 for a $50 I Bond.

You must own an I Bond for a minimum of one year, its interest-earning period is 30 years, and there are early redemption penalties. Interest earnings are tax-exempt from both State and local taxes, but they are subject to State and local estate, inheritance, gift, and other excise taxes. Interest earnings are subject to Federal income tax, but they may be excluded from Federal income tax when they are used to finance education.

Another type is the EE savings bonds. They are safe and low-risk savings bonds that pay interest based on market rates. As with I Bonds, EE savings bonds can be purchased at just about any financial institution or, if available, through your employers payroll deduction plan.

EE Bonds can be used to finance education, supplement your retirement income, or even given as a gift.

Any EE/E savings bond that were purchased between May 1997 and April 30, 2005 are set to earn a variable market-based rate of return. Those issued May 2005 and after are set to earn a fixed rate of interest.

EE savings bonds are also an accrual-type security, having interest added monthly and paid when it the bond is cashed in. However, unlike I Bonds, EE savings bonds are sold at half of its face value. For example, a $50 bond is purchased for $25.

There is a minimum of one year ownership, a 30-year interest period, and also early redemption penalties. The Tax Considerations for EE savings bonds are the same as those for the I Bonds.

Lastly are HH savings bonds. Unlike both I and EE savings bonds, HH are used only to supplement retirement income. They are available only in exchange for Series EE/E savings bonds or upon reinvestment of any matured Series H bonds.

As with I Bonds, HH savings bonds are sold for its face value. For example, you pay $500 for a $500 bond. HH/H savings bonds pay a fixed interest rate that was set on the day it was purchased. The interest rate will change to the current HH Bond rate on the 10 th anniversary of its issue date.

You must own HH savings bonds for a minimum of 6 months, and the interest-earning period is 20 years.

Interest earnings for HH savings bonds are exempt from State and local income taxes. However, they are subject to Federal, State, and local estate, inheritance, gift, and other excise taxes. Its interest earnings are also subject to Federal income tax.

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The collection of Real Estate property taxes is a major priority in every taxing district in the USA, as all home owners know all to well. If a county were unable to collect those taxes in a timely ashion, it would be unable to provide the public with important services such as the police and fire departments and schools for our children. To avoid this problem, all counties in 26 states across the US will place a Tax Lien on any property with delinquent property taxes and then sells the delinquent tax debt to investors. The county gets their money, the tax delinquent taxpayer gets more time to pay their already past due property taxes and the investor gets a Real Estate secured high yielding investment.

Tax Liens are often called the Fort Knox of investments. Government issued Tax Lien certificates are a safe investment for the following reasons. The constant rise and fall of interest rates do not have any affect whatsoever on Tax Lien Certificates because the interest rates of Tax Lien Certificates are mandated by State law. Basically, you are investing in the Government. When they have collected the past due taxes, you will send them the Tax Lien certificate and in return they will send you a check covering the money you paid for the certificate plus any outstanding interest.

The ups and downs of the stock markets will have no affect whatsoever on the rate of return. Each State has a mandated length of time for the delinquent taxes to be paid. If they are not made current during this time period, the property is sold to pay the debt. The following are examples from three states showing the lucrative business of Tax Liens: 16% per year in all 15 counties in Arizona, 18% per year in all 67 counties in Florida, 50% per year in all 254 counties in Texas.

Most properties will have an outstanding mortgage. Generally, the lender will pay these delinquent taxes before it gets to the foreclosure stage. The certificates can also be sold or transferred at a discount before the due date allowing the investor to make a smaller profit on the certificate should there be a need for cash for whatever reason.

The main advantage to the new or smaller investor is that there are many thousands of Tax Liens/Deeds for sale at every budget level. In the old days, you would have to travel thousands of miles across the country to auctions if you wanted to buy Tax Liens/Deeds. Now you can do it from the comfort of your own home using the internet.

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Timing the market is difficult. To be successful, you have to make two investment decisions correctly: one to sell and one to buy. If you get either wrong in the short term you are out of luck. In addition, investors should realize that:

1. Stock markets go up more often than they go down.

2. When stock markets decline they tend to decline very quickly. That is, short-term losses are more severe than short-term gains.

3. The bulk of the gains posted by the stock market are posted in a very short time. In short, if you miss one or two good days in the stock market you will forgo the bulk of the gains.

Not many investors are good timers. “The Portable Pension Fiduciary,” by John H. Ilkiw, noted the results of a comprehensive study of institutional investors, such as mutual fund and pension fund managers. The study concluded that the median money manager added some value by selecting investments that outperform the market. The best money managers added more than 2 percent per year due to stock selection. However the median money manager lost value by timing the market. Thus, investors should realize that marketing timing can add value but that there are better strategies that increase returns over the long term, incur less risk, and have a higher probability of success.

One of the reasons why it is so difficult to time correctly is due to the difficulty of removing emotion from your investment decision. Investors who invest on emotion tend to overreact: they invest when prices are high and sell when prices are low. Professional money managers, who can remove emotion from their investment decisions, can add value by timing their investments correctly, but the bulk of their excess rates of return are still generated through security selection and other investment strategies. Investors who want to increase their rate of return through market timing should consider a good Tactical Asset Allocation fund. These funds aim to add value by changing the investment mix between cash, bonds, and stocks following strict protocols and models, rather than emotion-based market timing.

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Most people ask us when we feel is the right time for them to stop compounding/reinvesting and take their money out of a program. This is a tough answer to give. It all depends on the program that is invested in and the rate of return. Usually we recommend the following for the below 3 categories:

Type #1 HYIP – Low stable payers (Pays between 2-7% per week, 8-28% per month). This type of program is probably one of the safer types around. More likely than types 2 and 3, these are actually investing funds in Stocks, Forex, or other stable programs. This means that they will most likely be around for quite some time. Even if they do end up as a ponzi, their lifespan will be much longer then types 2 and 3. We recommend that you Invest a sum of money and then compound half of your returns until you get back your principle. Once you have recovered your principle continue to compound/reinvest but this time at a rate of 60-70% of your returns. If the program sticks around, you should be able to profit quite a bit. Once you receive 250% return we recommend that you stop compounding and look for another program.

Type #2 HYIP – Mid range paying moderately secure program (Pays 8-16% per week, 32-64% per month). This type of program is probably the most popular among investors. They feel secure since the payouts are not too high, but also feel like they are going to quickly make a return on their investments. Many of these programs actually invest in other programs, forex, stocks, etc, however many are just ponzi’s. We have found that most of Type 2 HYIP’s are a mixture of both ponzi and investment program. They more then likely invest members funds in a variety of ways, but most of the time find it impossible to pay out such high returns with the revenue they are making. This forces them to become part ponzi and use some of the new members funds to pay off old members. In the case of the Type 2 HYIPs, we recommend you compound/reinvest only 20% of your returns until you get your principle back, then once you get your principle back you simply stop reinvesting and just let the program run it’s course.

Type #3 HYIP – High paying, relatively insecure programs (Pays Over 17% per week and over 65% per month). These are usually the programs which are more then likely daily payers. For example 3%, 5%, 10% per day or even more are offered. 99.9% of the time these are atleast part ponzi, and will most likely end within 3 months. These programs begin with the admin knowing that he will have to run a part ponzi program to succeed. It is nearly impossible to earn such high returns in a short period of time like most of these programs claim. The higher the daily return the less likely the program will last. If you dare to gamble your money in such programs, we recommend that you only invest one time and do not reinvest or compound your earnings. The lifespans of Type 3 programs are usually extremely short and those who invest right when the program opens are the ones who will walk away happy.

All in all these are just some of our opinions. Performance may vary. Stick to these guidelines and investigate HYIP’s before investing in them.

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Fair value is relative and it depends on other factors beyond the investors’ control. In here, we will discuss on calculating fair value within our own boundary of control. In short, calculating fair value of an investment depends on the rate of return expected and the risk taken to achieve that return. Higher risk needs higher reward. It is quite simple.

So, what asset constitute lower risk investments? We can only compare. First thing that comes out of my mind is Certificate of Deposit (CD). You are guaranteed certain return (interest rate), if you can hold for a certain pre-determined time frame. You would never lose your principal at the end of the time frame.

The next low risk investment is Treasury Bond. This is the bond issued by the United States government, which is deemed to be safest in the world. There are certain risks associated with the small fluctuation in the bond price. However, if you held the bond until maturity, you are guaranteed certain rate of return. Your rate of return depends to certain extent on the price that you bought the bond at.

The next higher risk investment is buying common stock. This is what we are going to focus more here. It is considered higher risk than the two types of investments mentioned previously because you have a higher chance of losing money on your investments. Earlier, we established that higher risk needs higher reward. Therefore, stock investing requires a higher reward.

So, what does this have anything to do with fair value? Quite simply, the price of a common stock that we buy must gives us a higher annual return than bonds or CD. For example if a CD gives you a 3% return, treasury bonds give you a 4% return, then you would want your stock gives you a higher return of perhaps 6%.

What does it means for a stock to give investor a return of 6%? It never really say it, doesn’t it? You are partly right. While it is not explicitly shown, you can do a little digging and find out how much the return of your stock investment would be. For example, if your Certificate of Deposit (CD) gives you a 2% annual return, for $ 100 of investment, you would earn $ 2 every year. Let’s assume that you want your stock to give you a return of 6%, which is higher than CD or treasury bond. This implies for every $ 100 invested in common stock, it needs to give us a return of $ 6 annually.

Where can we get this information? You can get it on Yahoo! Finance or other financial publications. All we need to do is find the share price of a common stock and the profit per share (also known as earning per share) of that particular stock. Let’s use an example to illustrate my point. Magna International Inc. (MGA) is expected to post a profit of $ 6.95 per share for fiscal year 2005. Recently, the share is trading at $ 73.00. The annual return of buying Magna stock is therefore $6.95 divided by its share price $ 73.00. This gives us a return of 9.5%.

Will Magna continue to give investors a 9.5 % return year after year? It depends. If the stock price rises, Magna will return less than 9.5 % annually. What else? Well, Magna might not constantly produce the same amount of profit year after year. It might even produce a loss! So, you see, stock investing is inherently risky because there are two moving part in the equation. Price of the common stock and the profits produced by the company itself. That is the reason why investor need to aim for higher return when choosing their stock investment.

All right. So, let’s move on to the crucial thing in investing in common stock. What is the fair value of Magna stock assuming a constant profit of $ 6.95 per share? Personally, I assign fair value of a common stock to be at least 2% above the rate of Treasury bond. Please note that I am using the 10 year bond here. Recently, treasury bond can give us a 4 % return. Therefore, the fair value of Magna common stock is when it can give me a return of 6%

So, what is the fair value of Magna common stock in this case? For a profit of $ 6.95 per share, the fair value of Magna common stock is $115.80 per share. That’s right. At $ 115.80 per share, Magna common stock will return investors 6% annually. Having said that, we should never buy a common stock at fair value. Why? Because our investing purpose is to make money. If we buy stocks at fair value, then when do we profit from it? Do we expect to sell it when it is overvalued? Sure, it would be nice if we can do that all the time. But to be conservative, let’s not bank on our stocks reaching overvalued level.

There you go. I have explained how to calculate fair value in a common stock. Of course, the $ 6.95 per share profit figure is the expectation of profit compiled by Yahoo! Finance. It is not in any way an endorsement to buy Magna common stock. You should do your own calculation to verify that number.

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Day trading is not investing. The day trader’s time frame of analysis is rather short: one day. Their only intent is to exploit the stock’s intra-day price swings or daily price volatility. Unlike stock investors, day traders do not seek long-term value appreciation.

Stock volatility is generally a rule of the market rather than an exception. Most stock prices move up or down in any given day due to a variety of external factors. Even if the market is relatively calm, there are always stocks that are volatile. Day traders seek to identify a stock that has a trend and then go with that trend. “Trend is a friend” is a common motto among day traders. Day traders seek to pick up a relatively small stock movement, 1/8 or more on that stock. If day traders are trading a large block of shares (that is, 1,000 shares per trade), then day traders will profit $125 from a 1/8 price movement. Conversely, if a day trader acquired 1,000 shares and the trader was wrong, which also happens, then the day trader will lose $125 from a 1/8 price movement. Volatility is a double-edged sword.

For expensive stocks that trade for $100 or more, a 1/8 or 12.5 cents movement is such a small relative price change that it happens all the time. Consequently there are plenty of day trading opportunities. It is not common to see a day trader executing many, sometimes as many as 100, trades in a single day. On the other hand, an investor’s time frame is much longer. Investors seek a much larger price movement than 1/8 to earn the desired rate of return. That takes time.

In short, day traders seek to extract an income from intra-day price volatility by trading the stock frequently, while the investors seek a long-term capital appreciation.

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