Letting Go of Emotional Investing Patterns

When the Fed raised short-term interest rates in December, did you feel obligated to buy, sell or change your investing strategy solely on that knowledge? The urge to make an investment decision is often influenced by media reports and the sentimental value you apply to those investments. This frame of thinking may lead you to make investment decisions based on your emotions, and in the long-term, emotional investing may prevent your portfolio from reaching its true potential.

Focus on the long-term. Check yourself for news-driven fear or euphoria before you call your financial professional. Remind yourself of what your long-term financial goals are, and ask yourself if making a change would help you reach them. If you still feel you need to make a change, ask your professional for their perspective.

Root out unfitting investments. Do you still have your first stock certificate from mom and dad? Shares inherited from a favorite aunt? Stock from an early employer? There are all kinds of ways to acquire stocks over the years, and over time, some investments may not “fit” with your overall investment goals. It can be hard to detach from stocks with an emotional connection, but like unruly branches in your backyard, portfolios need pruning on a regular basis to perform at their best. Portfolios and individual stocks should be evaluated periodically to determine whether they are still appropriate holdings given your time horizon, risk tolerance and overall portfolio. Keep in mind that sometimes no changes are warranted, but it’s a good habit to regularly review.

Strive for a balanced portfolio. Portfolios often need to be rebalanced over time, as your individual circumstances and the individual holdings’ situation changes. Take an objective look at your portfolio and ensure you are comfortable with the level of risk. If company stock options are available to you, make sure you’re aware of how that may impact your overall investment strategy. While it’s good to have confidence in your company, having too much stock in one company may expose you to more risk than you intend.

Be consistent. Counteract impulse buying and selling with a consistent approach to investing. Automated investing makes it easy to implement a disciplined approach, such as investing a set amount at regular intervals. This systematic investing can be a way to help minimize the effects of market volatility in a portfolio; however you will still need to review over time to make sure the strategy fits with your overall goals.

Embrace diversity. You’ll be in a better position to hang on to a sentimental favorite if the rest of your portfolio is diversified across a range of industries and assets. Diversity may provide balance in the event one or more sectors are down, but do keep in mind that diversity alone cannot protect against an investment loss.

Sell when the time is right. If you identify a loser that’s not likely to turn around, it may be advantageous to sell it now. Many investors continue to hold an investment with the hope that one day it will pay off to hold it. If you’re unsure about if you should cut your losses and move on, consult a financial professional who can give you an objective opinion.

Request a portfolio review. If you suspect your personal preferences and emotions are interfering with your investment decisions, defer to the experts. Ask a financial professional to conduct an objective review of your portfolio, with an eye to performance and your financial goals. Together you can look for opportunities to grow your earnings through disciplined investing strategies.

Types of Investment Risks

There are basically two categories of financial risk: The first is referred to as Systematic Risk.

Systematic risk influences a large number of investments across a wide spectrum. The financial crisis of 2008 would be a good example. Virtually, every asset was impacted adversely. This type of risk is almost impossible to protect against. In other words, sometimes lightning strikes.

The second is referred to as Unsystematic Risk, also commonly called “Specific Risk.”

This is the type of risk that impacts a smaller number of investments across a narrow spectrum. An example of this would be a highly regarded company using dubious financial practices (think Enron). Proper diversification is the key to providing protection from this type of risk.

Now let’s explain in more detail the specific types of Unsystematic Risk that exist in the world of investing.

Market Risk

This is the type of risk that you may be most familiar with. It is simply the normal fluctuations in the price of an investment. It is most apparent in stock-related investments.

Simply put, it is the risk that an investment will decline in value, due to market forces. This is also sometimes referred to as volatility, which is really the measure of market risk. These movements in markets are what provide the ability for an investor to make money.

Credit Risk

This is also referred to as default risk. This occurs when a person or entity (company/government agency, etc.) is unable to pay what they owe on their debt. It can be either the principal or the interest. Corporate bonds tend to have a higher risk of defaulting but tend to pay higher rates of return in an attempt to compensate. Government bonds tend to have lower default rates but pay a lower rate of return. If a bond is considered (by a rating agency) to have a relatively low likelihood of risk of default, then it is referred to as investment grade. Conversely, If a bond is considered (by a rating agency) to have a relatively high likelihood of default, then it is referred to as a junk bond. This is somewhat of a misnomer, since “junk bonds” can be a solid addition to an investment portfolio and can mitigate other types of risk.

Country Risk

This refers to the risk that is inherent when a country cannot meet its financial commitments (think Greece). When a country defaults on its obligations, the impact is often that of a cascading nature. That means not only will the bonds of the country be affected but also other financial assets within the country, such as the overall stock market. In addition, other countries or companies that do business with the defaulting company can also be impacted.

Foreign-Exchange Risk

Investing in foreign countries provides many advantages, especially in terms of diversification. When you invest in assets or debt of foreign countries, note that the currency exchange rates can change the price of the asset or debt. So, even though the asset increases in value when you exchange it for your home currency, you could suffer a loss. The converse is also true: the asset could go down, but when you transfer it into your home currency, you could also realize a gain.

Interest Rate Risk

This refers to the risk when a change in interest rates affects the value of an asset or debt instrument. Typically, the risk applies to bonds in a more direct fashion than it does to stocks. However, stocks, especially preferred, convertible and high dividend ones, can also be affected. With all things being equal, as interest rates increase, the value of the bond will decrease.

Political Risk

This refers to the risk that occurs when the policies of a country change, especially if it happens in a random manner. For example, if a company is selling in country ABC and that country radically changes its tax laws and becomes business unfriendly, companies that do business in that country can be adversely affected.

Binary Options – What You Should Know – A Cautionary Tale

About 18 months ago after receiving numerous emails touting Binary Options I decided to try them out. Like most people I had been looking for something to supplement my income something I thought I would have some control over and could do from home.

In simple terms Binary Options are basically a means of determining whether a currency, stock or indices will go up or down within a certain period of time, and trading on your decision on whether it will go up or down.

All the sites offer graphs showing the history of that particular trade from an hour to several days. There are several platforms, Binary, Long Term, Sixty Seconds and Pairs, and depending on the Broker chosen bids can start from $1 to $25. I chose two Brokers that had the $1 options as I wanted to become familiar with the whole process before I started with immediate trades at $25 plus.

Usually the minimum investment is $250 US. Many of the sites offer matching Bonuses on your initial investment, but be careful there are very strong rules on how much you need to trade in order to ever cash out the bonus.

Once you sign up the Broker assigns a trader to you. This is where I need to caution you strongly. The first thing the trader does is to go to some lengths to make a friend of you to garner your trust via phone and Skype. Then the next move is to get you to invest more funds in order to get you into a “VIP” trading group insisting that they can’t help you without sufficient funds to get you into a good trading group where the expert analysts determine the best trades.

They are extremely persistent even when told there are no additional funds. They will suggest they run your credit card with the pretense that it doesn’t matter if any funds are approved or not as they will match it with a bonus if you allow them to try it. They say they will try up to $10,000 knowing that that amount could not be approved. I indicated it would not go through and I made it clear that they should not be trying any lesser amounts. They said that was fine as the purpose was to try so they can prove to their bosses that it had been tried and they could then give the bonus and enter you into a better trading group. However, this is exactly what they do, they start with $10,000 then keep trying your card with smaller amounts until they finally get an approval on whatever your credit card can bear.

In my experience it doesn’t seem to matter how much funds you already have in your account even with your wins, they have a reason that you should add more funds to get you into better trading groups or fund guarantees and they are persistent. They will try this tactic each and every time you connect with your Trader.

When they do give you a trade they give a time frame and amount they suggest you invest. However, it is not a suggested amount. When I made some trades with lesser amounts I received lectures on trust, and indications that they could no longer work with me unless I listened to them and took the advice of their expert analysts and placed the trades as suggested.

Each and every trader assigned to me, used the exact same tactics and when I pointed this out, they insisted they were not like the others and each of them indicated they were only interested in helping me succeed. Baloney, they were just interested in lining their own pockets and obviously plying people for additional funds plays a part in it.

My experience was the same with both Brokers and with all of the traders assigned to me (I think they have a huge turn over in traders as they kept disappearing) Bullying is the only word for what I was put through.

Once your funds are depleted then unless you are prepared to add more funds they have no further interest in working with you with the small amounts you have left in your account. To be honest the suggested Trades were for the main part losers, and I actually did about the same with my own choices.

The moral of this story, is to be extremely cautious when dealing with Binary Options and the Brokers and their Traders. I am sure there are some Investors with large investments that might make good returns, but for the small every day investor, it is a very risky program and know that you will be bullied with the intent of getting you to invest additional funds, funds you likely cannot afford. If you choose to go this route only use funds you can afford to lose – trading is a gamble.

Ways to Keep Your Portfolio Global Warming-Proof

In the recent 21st session of the Conference of Parties (COP21) in Paris last November 30 to December 11, 2015, the Paris Agreement was finally adopted. After a series of negotiations and anticipation, the first global climate change treaty aiming to cut carbon emissions around the world was agreed upon by 195 country leaders. The deal was the biggest move to fight and avoid the effect of dangerous warming to the human race.

Impacts of Climate Change

Global warming as an effect of climate change is evident anywhere in the globe now and its impacts to the world economy is also noticeable. In 2015 alone, flashfloods, earthquakes, landslides, wildfires and heat waves occurred in different parts of the world. CBC News listed the nine worst natural disasters that happened in 2015 leaving thousands of people dead, homes and buildings destroyed and livelihood killed.

Eight thousand people were reported dead in Nepal and Kathmandu during the 7.8 magnitude earthquake on April 25, 2015. In South Africa, 200 people were either dead or missing and about 120,000 families have been displaced due to widespread flooding in January. On a national level, for each natural disaster that occurs there is a corresponding effect to the investors, the prices of commodities, stock market, work force and national products.

The Paris Agreement should help resolve this problem in the next decades. However, there are also business sectors that will ache with the adoption of the treaty such as coal, oil, and chemicals. The COP21’s goal in keeping the global temperature rice well below 2C would most likely mean finding more renewable sources of energy to compete or even replace coal, oil, natural gas and chemicals. While the COP21 is a great cause to the human race, it also presents a threat to some of the big industries around the world.

Safety Measures for your Portfolio

If you have large investments in one or more sectors mentioned above or in something else for that matter, you must know how to protect your portfolio from global warming.

One of the best ways to prepare for any global warming related fortuitous event is to set up an emergency fund. Much like how a country prepares for any disaster, individuals too should spare at least one year’s worth of savings for emergency purposes. Emergency funds are recommended to be placed in FDIC-insured and high-interest accounts to ensure stability and liquidity.

Another way is diversifying investments. Wide ranged investments lower the level of risk that an inventor faces. Diversification could vary in location or industries. In simple terms, it means not putting all your money in one basket. One wise diversification method is to avoid having closely related investments so that you will still have strong cards remaining when the others become weak.

The third measure is to keep your creditor status in good shape. Remember the cliché, “you’ll never know what you’re missing ’til it’s gone”? Well, an approved loan could be one of the things you would be missing if you didn’t pay your dues right. To protect your portfolio, you must be able to tap financial institutions, ask for help and get approved when everything else fails. Getting a loan, contrary to popular belief, is not always wrong. In most cases, large corporations have numerous loans to keep their businesses running and earning. Keep a healthy creditor’s record because you will never know when it comes in handy.

Lastly, make sure that you purchase insurance policies that cover damages due to natural disasters such as flood, earthquakes, landslides, etc. This may entail additional cost but the benefits are worth the investment. Look for tried and trusted insurance companies.

Now, to avoid losing a lot of money from the anticipated greener operations and new government taxes, one must get over the denial stage and start accepting that global warming is real and the worldwide carbon emission decrease campaign is already out there. Invest in the right businesses, environment-friendly equipment and processes. If you have large sums to spare, you may consider placing some in the renewable energy production sector.