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Recommended AAII Tools & Benefits
For the member wondering where to start, the AAII editorial staff recommends the following list of AAII tools and benefits.
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Frequently Asked Questions About Financial Statements
Reading a company's literature can still be a mystery if you don't understand the jargon.
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The first step is always the hardest. And individual investors taking their first steps in an investment program must also confront a sea of stock market uncertainty. Some plunge headlong into the market with all their savings. Others barely wet their feet before heading back to the safe shores of their money market funds. The problem, however, with these two all-or-nothing approaches is one of timing—the risk of entering the market at a high point in the market cycle.
Dollar cost averaging and its variations, such as value averaging, offer investors an alternative, allowing them to ease into the market over time, which reduces the timing risk. The mechanical aspects of averaging provide an investment discipline, require no market forecasts and are relatively simple to initiate. Most mutual funds offer automatic investment and exchange programs—a cruise control for your investment plan that eliminates the more routine aspects of maintaining an averaging plan.
Dollar cost averaging is simple in concept: Invest a fixed amount at equal intervals and continue to do so over a long period. The result is that more shares of a stock or mutual fund are purchased when prices are relatively low and less are purchased when prices are relatively high. This can result in lower average per share cost over time.
Value averaging is a variation: Instead of investing a fixed amount each interval, the amount invested varies so that the total value of the investment increases by a fixed sum or percentage each interval. If share price increases alone cause the total value of the investment to increase above the planned fixed amount, then the investor must sell shares instead of adding to the investment.
Neither approach requires a forecast of market direction. And with both...
The question every investor wants to know is:
How well am I doing?
Although some people are satisfied simply watching the dollars grow, most investors want that translated into a performance figure.
Bragging rights aside, there is good reason to determine your own portfolio’s performance: Measuring the performance of your total portfolio is useful to see if the long-term terminal value that you hope to achieve with your investment program is realistic.
In general, you should be examining the return on your portfolio to make sure it is within the target range you expected, based on the investment mix you have settled upon. If it isn’t, you may need to make some adjustments, switching out of underperforming (relative to peers) segments of your portfolio, or you may need to make changes in your future projections—for...
