Wednesday, October 3, 2007

How To Minimise Losses The Next Time You Invest

When it comes to investment, some people are not very sure what kind of risk and returns they are exposed. Most of the times, returns are discussed in depth but when it comes to returns, people do not pay special attention. If you have a sound financial knowledge, I am sure you will calculate all the risk that you will be exposed. In short, one will be automatically exposed to risk when one made an investment.

Risk can be classified into two categories. Systematic risk; represents risk that is common to all assets. It cannot be diversified away. The other type of risk is unsystematic risk; represents risk that is unique to an asset and can be diversified away.

Examples of systematic risks are interest risk, inflation risk, market risk, exchange risk and reinvestment risk. On the other hand, examples of an unsystematic risk are country risk, liquidity risk, business risk, default or credit risk, industry risk and financial risk.

As you can see, risk is a word that has a lot of meaning to it. You will need to consider the risk you will be taking. Choosing an investment vehicle is not an easy task as it requires you to do a thorough homework. A mistake in you r risk assessment can cause a huge lost.

The main idea of investment is to reduce the lost and increase the returns. There is no point if you make small returns conservatively but at one point, you make a huge lost. Risk can be reduced not eliminated. If you are not sure of what kind of risk you are exposed to, it is better that you do not invest in that asset. You will need to be sure and confident of your investment.

Be sure to do your research the next time you make an investment. There is no room for mistakes. You do not invest your money in an asst and hope that it will prosper. Hope are for the hopeless. You will need to be actively involved in your investments so that you can avoid unnecessary losses.

Asset Location - Increase Investing Returns & Reduce Your Taxes

Location Once the holy grail only for real estate investors is fast becoming the mantra for every stock, bond, and mutual fund investor. Experts and studies now recognize managing asset location is second only to asset allocation in determining the success of your investment returns.

Importance of Asset Location:
Asset location is a cornerstone to success for a simple reason. Taxable accounts differ from tax-deferred accounts {401(k), IRA and similar retirement}. Taxable accounts require you to pay income tax on every dividend and capital gain generated by your investments. This tax substantially reduces the amount of reinvestment and annual investment growth. On the other hand, retirement accounts defer taxes allowing returns to compound without penalty and at a substantially faster rate. Asset location refers to the optimal placement of securities between taxable and tax-deferred accounts. Good choices reward investors with long-term compounding and significantly higher returns. Poor choices, or more commonly, no choice, leads to below average results.

The effects are striking. Investors lose up to 20% of their after-tax returns by mislocating investments in the wrong type of account. So says a recent study from three finance professors Robert Dammon and Chester S. Spatt, of Carnegie Mellon University, and Harold H. Zhang of the University of North Carolina. The professors analyzed two asset classes, stocks and bonds, to determine suitability for investing within tax-deferred accounts. Their conclusion? Investors should keep equities in taxable accounts and bonds in tax-deferred accounts, to the greatest extent possible. Young investors stand the most to gain by following such advice. Three of the most powerful elements of investing -- dividends, deferred taxes, and compounding interest combine for a staggering effect to retirement income.

Unfortunately, the typical investor never takes advantage of all three benefits. A recent Federal Reserve survey shows Americans invest their taxable and tax-deferred accounts with identical securities. People focus on individual accounts rather than their entire portfolio. They ignore the benefits of allocating investments among different accounts and wind up with several accounts all holding the exact same thing. To their detriment, nearly half of all investors own bonds in taxable accounts and stocks in tax-deferred accounts.

Why asset location works:
Tax efficiency is more important than ever. Two recent changes have driven asset location strategy. Last years tax cut, the Jobs and Growth Tax Relief Reconciliation Act of 2003, slashed top tax rates on dividends from 35% to 15%. Those same dividends, however, would be taxed at the ordinary rate (up to 35%) when withdrawn from a retirement account. The new law further cut taxes on capital gains from 20% to 15%. Since most equity investments generate returns from both dividends and capital gains, investors realize lower tax bills when holding stocks or equity mutual funds within a taxable account.

Similarly, fixed-income investments (e.g. bonds) and real estate trusts generate a regular flow of cash. These interest payments are subject to the same ordinary income tax rates of up to 35%. A tax-deferred retirement account provides investors with the best possible shelter for such securities and their resulting profits.

Which investment goes where?
Fortunately, your asset location strategy can be relatively simple. Place highly taxed assets in the tax-deferred accounts first. Anything left over can go into the taxable accounts. From the academic study, the professors concluded with three general rules to help with the decision process. First, locate taxable bonds, real estate investment trusts (REITs) and related mutual funds into tax-deferred accounts. Second, locate stocks and equity mutual funds into taxable accounts even if you are an active trader and generate substantial short-term gains. Third, never buy a municipal bond until you completely fill tax-deferred accounts with taxable bonds or REITs. The combination of compounding and deferring taxes on the higher yields of corporate bonds is. If all this sounds a little overwhelming, just consult the table below.

Table 1: Asset Locations for High Returns and Minimal Taxes.

-- Stocks
-- Tax-free or tax-deferred bonds (munis, treasuries, and savings bonds)
-- Mutual funds investing in stocks or tax-advantaged bonds

TAX-DEFERRED ACCOUNTS (traditional IRAs, 401(k)s, and deferred annuities)
-- Taxable bonds (corporates, zeroes, TIPS, and high yields)
-- REITS (Real Estate Investment Trusts)
-- Mutual funds investing in taxable bonds or REITS

Two exceptions are worth noting. First, qualified distributions from Roth IRAs are tax free. Generally speaking, place assets with the greatest potential for returns inside a Roth. Second, if a 401(k) or IRA holds all (or nearly all) your investment money, throw this article away and focus only on asset allocation.

You, as an informed investor, can take control over taxes and related expenses to your investment returns. Allocate your investments to reduce risk and increase returns. Locate your investments by managing all your accounts to minimize the tax drag on your financial returns.

Tim Olson

Mr. Olson is the editor of The Asset Advisor, a financial investment service providing proven strategies for no-load mutual fund investors. He brings 26 years of education and experience from Stanford University, Ernst & Young financial consulting, personal wealth management, and venture capital investing.

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Screenwriter: Trading Places (1983) Deconstructed

From our deconstruction of hundreds of Hollywood blockbusters at

The Hero's Journey is the template upon which the vast majority of successful stories and Hollywood blockbusters are based upon understanding this template is a priority for story or screenwriters.

The Hero's Journey:

Attempts to tap into unconscious expectations the audience has regarding what a story is and how it should be told.

Gives the writer more structural elements than simply three or four acts, plot points, mid point and so on.

Interpreted metaphorically, laterally and symbolically, allows an infinite number of varied stories to be created.

The Hero's Journey is also a study of repeating patterns in successful stories and screenplays. It is compelling that screenwriters have a higher probability of producing quality work when they mirror the recurring patterns found in successful screenplays.

Screenwriter: Trading Places (1983) deconstructed

A good example of integrating two heroes in your story...

FADE IN: context; the city; visuals show the contrast between the working class and the well off.

Hero 1 and Mentor in their Ordinary World: Winthorpe and Coleman at home; Winthorpe at work.pork bellies.

Meeting the Antagonists and their motivations: Meeting the Dukes; debating Nature versus Nurture.

Hero 2 in his Ordinary World: Valentine begs from the Dukes.

Developing the Antagonists: the crop report; Randolph doesnt think that the scientist should have won the Nobel prize; mother always said Mortimer was greedy.

Antagonists nature: Ezra gets $5 for Christmas.

Meeting the Shape Shifters: dinner with suspect friends and Penelope.

Foreshadow of the Final Conflict: $50k to Clarence Beeks.

Foreshadow of the Call to Adventure: the Dukes talk about Winthorpe.

Developing Hero 2: Valentine pretending to be blind and crippledwhat unit were you in?

Developing the Antagonists and the Heroes: Valentine takes the briefcase; Winthorpe gets Valentine arrested.

Call to Adventure: the Dukes make a wager.

First Threshold (Hero 1) and Meeting Allies: Winthorpe at dinner with Penelope (Shape Shifter) and Coleman (Mentor).

Mentor agrees to the Journey: Coleman agrees to the Dukes request.

Foreshadow of the Physical Separation: Coleman will not be needed anymore.

First Threshold (Hero 2) and Meeting Allies: Valentine in Jail; "what, you ignorant"

Physical Separation: The Dukes bail Valentine.

Journey to the World of the Transformation on the Magic Carpet: The Dukes explain the deal in their car.

Meeting the Mentor: Valentine meets Coleman.

Hero 2 is a fish out of water in the World of the Transformation: Valentine in his new home "everything in here is mine, right?"

Hero 2s true nature: dropping the vase, Im sorry about that

Physical Separation (Hero 1): Beeks plants the notes on Winthorpe; being shamed in the Heritage Club.

Hero 1 is a fish out of water in the World of the Transformation: being stripped of the Old Self. (Winthorpe stripped on entrance to the prison).

Hero 2 (Transformation 1): Valentine in the bar; showing the big boys his Limo outside; you gotta lotta guts showing your face in here Accompanied by the Mentor: Coleman is waiting outside.

Hero 2 (Transformation 2): Valentine throwing everyone out of his house. Accompanied by the Mentor: Coleman being the butler.

Meeting Hero 1s Mentor: Meeting Ophelia.

Shape Shifter character developed: Penelope waiting for Winthorpe.

Shape Shifter switches: Penelope leaves Winthorpe.

Hero 1 (Transformation 1): Coleman doesnt let Winthorpe in the house. Accompanied by the Mentor: Ophelia watches.

Hero 1 (Transformation 2): Winthorpe gets thrown out of the bank. Accompanied by the Mentor: Ophelia watches.

Resistance to Trial 3 (Hero 1): Ophelia (the Mentor) almost leaves Winthorpe.

Foreshadow of the Final Conflict: Valentine and Winthorpe see each other through the car windows.

Resistance to Trial 3 (Hero 2): Valentine doesnt know what they want from him; Coleman tells Valentine to stay true to himself.

Trial 3 (Hero 2): Valentine enters the Dukes building and is taught about commodities.

Trial 3 (Hero 1): Learning Ophelia is a prostitute.

Seizing the Sword (Hero 2): Valentine makes the Dukes money playing the pork belly market; Valentine returns the money he finds on the floor (becomes trustworthy).

Seizing the Sword (Hero 1): Winthorpe learns the true nature of his friends; buying the gun; learning that money aint easy to come by; of his previously privileged existence.

Near Death Experience (Hero 2): Winthorpe offends at dinner

Near Death Experience (Hero 1): Winthorpe in bed with the flu.

Developing the Mentor: Ophelia turns down a customer.

Reward (Hero 2): the blonde hits on Valentine over dinner.

Reward (Hero 1): Ophelia gets into bed with Winthorpe.

Foreshadow of the Atonement (Hero 1): Winthorpe sees Valentines picture in the paper.

Complete Transformation (Hero 2): Valentine working late at Christmas.

Foreshadow of the Atonement (Hero 2) Valentine notices the cheque for Mr Beeks; wonders what wager they're discussing.

Complete Transformation (Hero 1): Winthorpe becomes a criminal; plants drugs in Valentines office; holds a gun up to security.

Complete Transformation (Hero 2): Valentine thinks Winthorpe should be put in jail.

Complete Transformation (Hero 1): Winthorpe drunk; a bum; eating fish I the bus.

Atonement with the Father (Hero 2): Valentine learns about the wager in the bathroom; that Valentine will be switched back.

Resisting the Atonement with the Father (Hero 1): Winthorpe walks away from Valentine; tries to kill himself.

Atonement with the Father (Hero 1): Winthorpe tries to kill Valentine.

Apotheosis: Valentine tells Winthorpe that the Dukes made a bet; wager was for $1.

Ultimate Boon: (Synergy): Back in the house; Valentine, Winthorpe, Ophelia and Coleman acting as a unit.

Refusal of the Return: Valentine tells Winthorpe he cant just shoot the Dukes.

Rescue from Without: Mr Beeks on TV.

Magic Flight: the characters on the train; dressing up on the train; tackling Beeks and swapping the briefcases.

Crossing the Return Threshold: Valentine and Winthorpe give the Dukes the false crop report; dressing up as Beeks.

Journey to the Final Conflict: Coleman and Ophelia give up their life savings.

Master of the Two Worlds / Final Conflict: Valentine and Winthorpe are masters of the Stock Exchange; the Dukes have to sell their seats on the exchange.

Freedom to Live: Coleman chooses both the lobster and the crab on the island.

Learn more

The Complete 188 stage Heros Journey and FREE 18 stage sample and other story structure templates can be found at

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Kal Bishop, MBA


You are free to reproduce this article as long as no changes are made and the author's name and site URL are retained.

Kal Bishop is a management consultant based in London, UK. His specialities include Knowledge Management and Creativity and Innovation Management. He has consulted in the visual media and software industries and for clients such as Toshiba and Transport for London. He has led Improv, creativity and innovation workshops, exhibited artwork in San Francisco, Los Angeles and London and written a number of screenplays. He is a passionate traveller. He can be reached at