There are many benefits to owning your own business. I would like to compare this to investing to help you decide which is better, investing or business ownership. While each has its benefits, both are certainly not for everyone. They have there difference and definitely have their similarities. Both represent a form a gaining financial independence. So which one is better?

Owning your own business means you have no boss and more tax benefits. It also means how much money you make is up to you. If you work hard enough at anything then it will eventually be profitable. The big benefits include doing whatever your passion is and getting paid for it, deciding when and where you want to work, and being your own boss. This truly represents a freedom that almost everyone desires.

The cons of owning your own business could be huge start up costs, working long hours to get the business on its feet, and dealing with big company competition. These are certainly not insurmountable obstacles but they must be considered. The other thing to consider is that many businesses are not even profitable for the first year or so. This is not to say that yours would not be and you hard work would not pay off eventually.

Investing in a business is much like investing in the stock market. You are spending money on something right now that you hope will produce more money in the future. However, depending on the types of stocks you are investing in, you can avoid a lot of the cons that come with starting a business. For example, you can actually be very profitable in a short time with the right stocks, such as penny stocks. You can also start with a relatively small amount of money as you learn how to invest.

You can keep you day job and use a portion of you income every month to invest in the stock market either through a traditional broker or online trading account. This is not to say that you cant start your own business and put money into investing. Its just that for many it would be too financially difficult to do both. Many businesses are definitely good investments but if that seems beyond your risk tolerance then give stock market investing a try. If you learn the ropes you can earn just as much if not more than if you would have started a business, except you wont have any business expenses except for the small trading fees.

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You should never trust just one stock so much that you are willing to risk all you money in it and no other stock. A wise investor always spreads out their money among several different stocks so as to minimize the effect of a bad day in the stock market. It doesn’t matter how how or how stable you think a company is, the fact is you should never invest solely in that company.

Were not just talking about buying different stocks here. Were also talking about investing in different industries. If oil is doing bad then commodities may be doing well or vise versa. Just concentrate on investing in several different areas so your portfolio is effected by a big hit in one specific industry.

Its certainly been proven that investors with diversified portfolios see a more consistent return that investors who invest in only one or two stocks. Diversification is also a great way to decrease risk while maintaining aggresive returns. You can even diversify with penny stocks.

Lets say you invested in this one hot stock that you were completely sure about. One day that company has some bad news and investors make run for it and the stocks takes a dive. Thats bad new for your poor portfolio. Lets say that on the other hand you invested in 10 different stocks. One of those stocks has a bad day but you aren’t so worried about it because you have nine other stocks keeping your portfolio strong. See the difference?

You dont have to limit your portfolio to stocks. You can also invest in real estate, real property, and bank CDs just to name a few. The whole idea of diversification is to protect yourself while making satisfying gains. So around and study out the best investment options for your particular goals. Diversify along the way to win the game.

To demonstrate a real world case of how important diversification is I will tell you a personal story. When I first started investing I put 10k down on a very popular stock that did nothing but climb in value year after year. I simply had no reason to believe that this stock would perform in any other way except a positive direction. Wrong!! I lost 5k as a sadly watched this stock plummet as the result of corporate fraud. Lesson learned. Diversify!! That was a lesson learned the hard way for me but you don’t have to learn the hard way. Take it from me. Invest in more than one good stock, at least 5.

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The break down of Bear Stearns caused unnecessary panic in the financial markets. The story of Bear Stearns and their refusal to listen to the old adage of holding all your eggs in one basket should be the lesson learned here.

Bear’s history itself is impressive. The firm survived both World Wars, the Great Depression and every recession and market crash since then. So why did this prestigious investment bank fail? One has to look how Bear did business.

Collateral Mortgage Obligations (CMOs) are on the front page of every financial newspaper almost every day. CMOs are bonds that are backed by people, like you and me, paying their mortgage every month.

These bonds where once thought of as a safe investment, since most people pay their mortgage bill before they pay anything else. Well, this was Bear’s main business. While other wall street firms diversified their fixed income trading desks, Bear Stearns did not. And when people stopped paying their mortgages, the game was up.

Will there be other firms that face the same consequence as Bear? Probably not. Some firms with large fixed income desks may have large write downs in the 2nd and 3rd quarters of this year, but most of these firms have diversified their operating units over the years. Wealth management, equity trading and research, asset management, and prime brokerage services round out most Wall Street firms.

With the Federal Reserve’s help, JP Morgan Chase will probably end up buying Bear Stearns (assuming their board of directors approved it). This is a good signal to US investors that the Fed will dig deep into their bag of tools to help the US economy survive the real estate bust.

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In essence, a REIT is a company that owns apartment houses, office buildings, shopping centers, or sometimes real estate mortgages. A REIT investment works in the same way that a stock investment works. You buy and sell REIT shares in the same way that you buy and sell shares of a stock. From the perspective of the investor, REIT record keeping works in the same way as stock record keeping.

You can use Money to keep the financial records for property you own and actively manage, such as rental properties, office buildings, and so on. To track direct real estate investments using Money, you need to complete two tasks.

First, you need to set up categories that match the income and expense amounts reported on the tax form you use to describe your real estate investing, income, and deduction data. This is the Schedule E tax form at the federal level for U.S. taxpayers; your state taxing agencies may use a similar form.

The Schedule E form requires you to report your rental income and the individual types of expenses that you incur, such as advertising, auto and travel, cleaning and maintenance, commissions, insurance, legal and other professional fees, management fees, mortgage interest, other interest, repairs, supplies, taxes, and utilities. The rent income item and each of these expense items needs to also have its own category.

Tax forms do change from year to year. This presents a problem in that you only know for sure which income and expense categories you report at the end of the year. Nevertheless, if you start with a good set of income and expense categories, real estate investment record keeping is much easier.

If you look closely at the Schedule E tax form, you will also note that you need to report income and expense amounts individually for each property you own. For example, if you own three small rental properties, the Schedule E form requires that each property’s income and expense be reported individually. The first property, for example, would be reported in the Property A column. The second would be listed in the Property B column, and the third in the Property C column. You would also total columns A, B, and C and report using the Totals column.

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Bond Ladders, barbells, and bullets are strategies that will help the investor balance their bond portfolios to achieve their desired result. The terminology of these strategies actually reflects the character of that strategy. For example, a bond ladder will enable the bond investor to set up a bond re-investment strategy, in steps. The barbell approach resembles a barbell in that bonds are purchased heavily in the short end and the long end. Medium term notes are left out of the mix. Finally, with the bullet strategy, each bond will share the same maturity date. They will typically start at different intervals, but they all will mature together.

Let’s review each of these concepts in more detail:

What does Bond Laddering mean?

Bond laddering simply refers to the diversification of a bond portfolio through purchasing a series of bonds that have increasingly longer terms to maturity. Bond laddering is similar to dollar cost averaging in the stock market. Let’s consider a simple ladder. Lets assume the investor wants to keep their average bond term to 3 years and therefore purchases 1, 3, and 5 year treasury bonds. This ladder would have a weighted maturity of 3 years (1 + 3 + 5) / 3 = 3. Let’s take a look at an example chart for more detail:

By allowing you to keep the average weighted maturity of your bond portfolio down, bond laddering is especially helpful in managing interest rate risks associated with longer term maturities. Ladders allow investors to take advantage of interest rate environments that are trending higher. The liquidity created within your bond portfolio when a security matures allows for the reinvestment at higher interest rates and if interest rates are not higher, you will continue to have a majority of your portfolio in higher yields than the market.

Additionally, bond ladders enable the investor to choose an appropriate ladder for their specific situation. For example, an investor looking for longer term income (savings for college tuition or retirement income) will shift their average weighted maturity higher than a shorter term investor would.

Bond Bullets

The bullet strategy, also known as maturity matching, is ideal for investors who do not need to recover their principal until a specific date in the future. For example, some of us know that our children will begin college in 10 years. Using that as a guide, a bullet strategy would buy bonds that mature on a specific date and leave the money untouched until that time, thereby eliminating any interest rate risks. If you believe that there is a chance that you may need to redeem the bonds before they mature, you will want to stagger the purchase of your bonds, which will help minimize the interest rate risk associated with bond prices.

Bond Barbells

This strategy is the most aggressive out of the three that we discussed in this article. Remember, that the longer the term to maturity, the more risk in the price of a bond. The barbell portfolio buys short term bonds maturing in two years or less and long term bonds, maturing in 20 to 30 years. In effect, a barbell creates a medium term average weighted maturity.

Traders that buy this strategy are anticipating that longer term yields will drop and that bond prices will skyrocket higher. They will then plan to sell their bonds and realize their gains. This strategy can backfire and put you in some real trouble as well. In situations where the yield curve steepens to the upside, short term yields drop while longer term yields gain strongly. In this scenario, you effectively are losing in both types of maturities.

See You at the Top,

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