How Should I Invest My 401k?

When it comes to the world of investing there may be no bigger question plaguing the average American than what to do with you 401(k). For a lot of people, the question goes deeper, and results in them wondering exactly how risky should they be with it?

While it is true that how risky you should be with your 401(k) is largely dependant on how close you are to retirement age, there are some simple truths that can serve as advice for nearly everyone.

Much like everyone knows that when it comes to stocks and investing you want to buy low and sell high, with a 401(k) you do not have to worry about making sure you are buying only when the market is low, or fussing over what to do if things are high.Because of the nature of a 401(k) there is no need to worry about timing your investments with it.

One of the most important things to remember when dealing with your 401(k) is that the money you are putting away into it, and investing into it is going to be held up until you do retire, because there are significant tax penalties that come into play if you need to take this money out before you reach the age of 59.5.

With these tax penalties in mind, it is also important that you are not planning on using the money in your 401(k) as funds for emergencies. Instead, you should invest in having other funds available in these situations. Ones that are much less risky, and liquid.

How Much Time Do You Have

Before you even get started with deciding how risky you can be with your 401(k) you need to have a good, basic understanding of how much time you have left in which you can invest.

As a basic rule, if you are within 10 years away from being retired, you are going to want to invest a little more safely and generally avoid risk. However, if you have 30 or more years before you are of retirement age you have plenty of time and can move forward allowing yourself to take a little more risk when it comes to investing and dealing with your 401(k).

There is a general rule of thumb for those who have a lot of time before their retirement that says you should work on selecting index funds in order to help yourself be much more diversified. The basic idea here, when it comes to your 401(k), is that since you are far away from retirement you have more time to be risky and get more rewards. Whereas, if you are close to retirement, you will want to play things a little more safe.

Dollar Cost Averaging

Your 401(k) has the advantage of dollar cost averaging built right into it, and if you are in a situation where there is plenty of time for you to use this to your advantage you should do so.

The key to doing this is continually contributing to your 401(k) no matter what the market is up to. Because you are continually buying and selling (both at highs and lows) your investments will average out over the time before you retire. This takes away the stresses of trying to make sure you buy low and sell high all of the time, and instead allows you to take a hand in there mentality if things go bad for a period of time.

However, if you do not have a lot of time before you retire, you may not have enough time for dollar cost averaging to benefit you. This means you will want to be a lot more sensible with the allocation of your risky investments.

Do Not Chase Returns

One of the number one things you will want to avoid doing with your 401(k) is chasing returns. Instead, you will want to make sure you pick out some solid index funds, and if you are planning on using your 401(k) as your main, long-term retirement funds, invest passively, with little risk.

Secrets to Investing in Gold

When you want to invest in gold, the first rule of thumb that you need to know about is the dollar cost averaging. This just means that you should invest a fixed amount of money in gold, every single month, no matter the price. When you’re an average investor, this strategy will primarily decrease your risks.

Money managers always advise their clients to allocate a percentage of your money in gold. While some say that it should be between 3 and 10%, others advocate that the allocation can be as high as 20%. And this happens for a reason. Gold can be an insurance against inflation, global uncertainty, and currency debasement.

But how can you invest in gold? Here are four different ways:

#1: Gold Bullion

Buying physical gold is one of the options that you have, and it’s the favorite for many people. You can buy physical gold at different prices, and it can include jewelry, bars, or coins. To store the gold, you can have a safe at home or store it in a bank safety deposit box. You can also try to buy and sell gold across the different local jewelers.

#2: Gold ETFs

Gold ETFs (Exchange-Traded Funds) are another popular way to invest in gold, and by using this option, you don’t need to store it.

While the GLD (SPDR Gold Shares) is the most heavily traded ETF, the iShares Comex Gold Trust (IAU) is one of the cheapest, and it has a 0.25% fee.

A different kind of ETF – the ETFS Gold Trust (SGOL) that launched in 2009, actually stores the gold bullion in Switzerland. It also gives investors access to different gold types.

Gold is a precious tool both for traders as well as for investors. It allows them to protect their portfolio as well as to hedge other gold positions they might have.

#3: Gold ETNs

If you are a more aggressive trader or investor, you might consider the gold ETNs (Exchange-Traded Notes). Simply put, these are debt instruments that track a particular index. For example, you give your bank the money for an allotted amount of time. Upon maturity, the bank will pay you a return based on the ETN performance. In this case, it should be according to the performance of the gold futures market.

#4: Gold Miner Penny Stocks

The last option you have when you want to invest in gold is to buy gold-mining penny stocks. Even the best penny stocks are usually risky since they can have as much as a 3-to-1 leverage to the gold’s spot price.

In case you only ant to trade the best penny stock, you should find the companies that have a high production, and that also have a reserve growth.

How Do I Find the Best Stocks?

Since penny stocks are sold and traded at such low prices (less than $1 in most cases, but some penny stocks are marked as under $5) there are a lot of misconceptions when it comes to picking them up.

A lot of people who invest in penny stocks do so with the idealistic dream of watching those 10-cent investments blossom in price by 10 times their original investment. However, there are several factors that you need to take into consideration if you hope to find the best penny stocks.

Do Not Confuse Share Price and Share Value

There is one major mistake a lot of investors make when looking for the best penny stocks to invest with, and that is confusing the price of shares and the value of the shares. While some penny stocks may seem like they are affordable, there may not be much of a benefit in purchasing thousands of shares of an inexpensive penny stock, over buying just a few shares of a stock with a slightly higher price point.

When searching for the best penny stocks you have to make sure you are getting the best bang for your investment buck. This means making sure that you do not overlook the number of shares outstanding when you are trying to strike a balance between investing $1,000 in shares of $0.10 over a firm that trades for $100.

A lot of people only look at share price as a deciding factor when looking to invest in penny stock. However, when trying to find the best possible penny stocks, you much keep the number of shares available in mind.

Watch Out for Dilution

Even when you are dealing with the best penny stocks, there are factors you need to watch out for, and one of the main ones is dilution. Thanks to company tools such as employee stock options, share issuance and stock splits that are sometimes used by companies in order to raise capital the amount of outstanding shares can skyrocket and even get out of control.

Dilution happens when a company issues shares as a way to produce more capital (which is a method a lot of smaller companies have to end up doing to stay a float.) However, when they produce a lot of shares, this can dilute the ownership percentage that is held by you, as well as other investors.

This means that, while the business may not change at all, the price of the shares can drop drastically. This means it is important to find a good penny stock company that has a strong handle on their share structure, because that means there is a much smaller chance of dilution damaging the value of your shares.

Best Way to Identify the Best Penny Stocks Today

Spotting a winner in the realm of penny stocks takes some practice, skill and a little bit of luck. However, just because a lot of the companies that trade their shares for under a dollar tend to have smaller market capitalizations, this does not mean all penny stocks fall under this category.

One of the best ways to find good penny stocks to invest in is by making sure you find out the most you can about the strengths, and fundamental elements at the core of the companies you are looking at. One of the things to look for is whether or not the company relies on issuing new shares in order to raise capital for themselves, or if the company has proven to be profitable, or shows that it will be able to turn a profit based on the way they have their business structured. Another key elements to keep in mind are whether or not the company seems to be competitive within its sector.

Those investors who are willing to do their homework when it comes to the best penny stocks, and create a list of penny stocks to watch will be able to find gems waiting to be invested in.

What Are Penny Stocks?

All penny stocks come with a degree of risk. Yes, even the best penny stock can be a risky investment opportunity for beginner investors, as well as seasoned veterans.

Penny stocks are stocks that are normally traded outside of the sanctions of the world’s major market exchanges, and are traded at relatively small stock prices, and, usually, they come with small market capitalization.

Penny stocks are known for being very speculative, as well as coming with a high degree of risk because of numerous factors that surround them. Some of these factors include a lack of liquidity, larger than normal bid-ask spreads, limited disclosure, as well as a lack of information and stock history.

These stocks are usually traded over the counter through OTC Bulletin Boards, as well as pink sheets.

Where Did Penny Stocks Come From?

The term penny stock has grown and evolved along with the market over time. While there was a time when any stock that traded for less than a dollar per share was considered a penny stock, new Securities and Exchange Commission (SEC) regulations have modified the penny stock definition to include all stock shares that are traded below the $5 range.

While the vast majority of penny stocks (including the best penny stocks) are not usually traded on the major market exchanges, there are a few cases of large companies that have shares trading below $5 while still on the main exchanges thanks to market capitalization.

This means stocks such as Curis Inc. (CRIS) – a small-scale biotech company – can have its penny stock listed on the Nasdaq. However, stocks like CRIS are not typical of a penny stock. Typically, a penny stock is indicative of a smaller company with highly speculative shares. These smaller companies are usually subjected to much more limited requirements when it comes to listing their stock, as well as much fewer filling and regulatory standards.

How are Penny Stocks Created?

Much like any other publicly traded stocks, penny stocks are created via the process of an initial public offering (IPO.) This means that in order for the penny stock to be created a company must first file a statement of registration with the SEC (though there are some situations where a company may qualify to be exempt from SEC registration.) While the company works with the SEC, it must also make sure that it meets the requirements of securities laws in the locations where they plan on selling the stock.

Once they jump through these hoops, the company may begin to solicit orders from prospective investors, and (if these choose to,) the company may apply to have their stock listed on a major exchange, or just have the stock trade on the Over-the-counter market (OTC.)

Small companies, as well as start-ups, usually issue stock as a way to start raising capital to help fund the initial growth of the company. While this process is a long, and costly one, issuing stock can also be one of the most efficient strategies for these companies to build this capital. Penny stocks tend to be the result of these capital-growing ventures, which means they can be very profitable, but also precarious.

When Does a Penny Stock Stop Being a Penny Stock?

There are a few things that can happen that would trigger a penny stock to change into a regular stock. If the company you have penny stock in issues new securities within an offering that is already registered within the SEC, or if it registers a preexisting class of securities with the proper regulatory body. These transactions result in the stock can be triggered into becoming a regular stock.

This change occurs because they then require the firm to obey periodic reporting and disclosure of business activities, financial conditions and company management to investors.