For a lay man, the functioning of the stock market has always been a big question mark. It is not as complex and intricate as many believe it to be. In this article we will be putting some light on the angle as to how online stock brokerage firms can provide you assistance to profit from the uncertainties associated with this market place. For novices, let me specify what a stock market is first.The share or stock market is a market place wherein company shares or stocks are traded at an agreed price by firms and individuals. Stocks can be thought of as a tiny partnership in the firm; of course you won’t have a say in their business decisions, but you will surely be a part of the revenues generated as profit in proportion to the investments you have made. This info might have made you more curious as to how to profit from these market places; well it is not wise to just jump in there and start investing.It is highly advisable to take the assistance of proficient stock broker firms which have experience and expertise in imparting accurate and pertinent tips and calls such as: – nifty futures tips, stock market calls, nifty calls, stock Market tips, nifty options tips, share Trading Tips, bank nifty tips, intraday tips, nifty intraday, nifty positional tips, and a lot more. This is because plunging into this market place all alone without any significant know how and acquaintance can result in undesirable consequences which will be hard to rectify later in terms of your financial stamina.Some of the most sought after reasons which allures many a folks into investing in stock market are: – the lesser time frame for bigger rewards, high ROI (Return on Investment), diminished financial requirements for start ups, the unproblematic nature with which share and stocks can be converted into hard cash and much more. But allured by these benefits, never ever overlook the down sides that come with it.The irregularities and instability of the stock market can wreck your bank balance. The frequency of scams, scandals and fraudulent schemes hitting the market place is a warning and you should steer clear of such facades the moment you sniff one. Then there is risk associated with virtually every investment of course of varying intensities, still the peril still exists. Thus the easiest way to gain is by subscribing to packages from a stock broker firm which specializes in trading tips, nifty tips, share tips, stock Tips, nifty calls, etc.The best feasible solution is to do a bit of intricate research on the World Wide Web pertaining to the accessibility of such firms, their profile and history, their time responsiveness, the accuracy of their tips and calls, testimonials of satisfied clients and a lot more. It is also crucial for novices to invest low amount of cash, which they can afford to lose. Although with professional assistance by their side, they don’t have to face a situation in the first place.
Inflation-protected bonds (TIPS) are looking interesting these days. TIPS are bonds issued by the US Government that guaranty you a fixed return (usually around 2%) PLUS whatever inflation (CPI) turns out to be each year. These bonds are one of the safest investments you can make because there is very little or no credit risk (issued by the US government), liquidity risk (TIPS are heavily traded), or inflation risk. These TIPS bonds adjust their principal value and payout twice a year to compensate for any inflation.Hedge Against Rising Inflation
PIMCO’s Bill Gross, one of the most successful bond managers in decades, recommended inflation-protected bonds in early January 2009. “TIPS will benefit if and when the government’s efforts to reflate (the economy) begin to take hold.” These efforts to reignite the global economy will lead to faster inflation than is currently priced into the securities. Historically when the government has stomped on the monetary gas pedal to get the economy going by flooding the market with liquidity it has led to increased future inflation. TIPS bonds allow you to be hedged against the risk of rising future inflation. Inflation is one of the primary risks to a financially secure retirement. In my opinion TIPS inflation protected bonds are now extremely attractive relative to regular US treasury bonds which are in a “bubble” right now and will suffer if/when inflation concerns increase again. The “yield spread” between TIPS bonds and regular treasury bonds is now about the most extreme it has ever been (in favor of TIPS being more attractive).Hedge Against Deflation
Right now investors are more concerned about deflation (due to the very weak economy) than inflation, which is why these inflation-protected TIPS bonds are priced much more attractively than normal. TIPS are attractively priced now precisely because inflation expectations are low. You don’t want to buy flood insurance after the water is already in your home. By then, it is too late and the price of protection is too expensive. Many investors are unaware that these TIPS bonds are also a hedge against deflation because at expiration you get the accumulated principal value of the inflation adjustments or par value, whichever is greater. If there is massive deflation for years your “real” return after inflation/deflation would be very good because you would get the par value of the bonds at expiration. Maybe they should call these “Deflation-Protected Treasury Bonds”? The outlook for the economy is very uncertain right now. Will it rebound in the second half of 2009 resulting in rising inflation or will it continue to spiral downward causing deflation? It seems to me that TIPS could be pretty solid investments in either scenario. That is not true for most other investments.Great Portfolio Diversification Benefits
Another reason to consider adding inflation-protected treasury bonds (TIPS) to your portfolio is the powerful portfolio diversification benefits they bring. This reduces the overall risk and/or volatility of your portfolio over time. The returns on TIPS bonds have low or negative correlation with the returns of many other traditional investments such as stocks and regular bonds. The correlation of TIPS returns with the overall stock market (SP500 index) over the past years has been only 34%. Over longer periods of time the correlation of TIPS bond returns with the stock market and with traditional bonds has been close to zero. Rising inflation expectations are good for TIPS returns but in the short term are negative for the returns of stocks and bonds and vice versa.Best Ways to Invest in TIPS
I am a fan of exchange-traded funds (ETF’s) due to their very low costs and superior tax efficiency (and other reasons). The most liquid exchange-traded fund that invests in inflation-protected treasury bonds is the I-Shares (Barclays) fund with the symbol “TIP”. The expense ratio on this ETF fund is only .20%. The trailing 12-month yield on this ETF fund has been 6.46% (including the inflation adjustments). The Vanguard Inflation-Protected Securities (VIPSX) is a good low-cost index mutual fund (also a .20% expense ratio). As with all bond funds that pay out interest income, these funds are not very tax-efficient so they are better off held in a tax-deferred account (401K or IRA) if possible. The yield on these TIPS funds is currently about 2.5% (plus whatever inflation is going forward). You can also buy these TIPS bonds directly from the US treasury online.