As we have stated many times before, choosing the right investments, in particular the right stocks continues to be a major sources of frustration for millions of investors. The urge to buy the latest "hot tip" from a friend, financial news report, a broker, and yes even a financial newsletter can be a very disappointing experience.

What I hope to show you here, is careful thought and analysis goes into each and every one of our recommendations at the Investor Alert. Choosing the right stock is only part of the equations. Picking the right stock in the right market is the key. Unfortunately, you can invest in the greatest companies on the planet, but if the stock market and business cycle are maturing, you will eventually lose money. Wall Street likes to take advantage of investor's ignorance of the important market cycles.

Three Key Market Cycles

1) The Business Cycle—The business cycle charts the course of the economy as it moves from expansion to peak then to recession. Knowing which direction in which the cycle is heading can keep you from making the painful mistake of buying a company just before it starts its cyclical downturn.

2) The Stock Market Cycle—The stock market cycle is a leading indicator of the future direction in the business cycle.

3) The Interest Rate Cycle—This cycle charts the interest rate trend from rate increases to rate decreases.

We know from history that certain sectors of the market do very poorly when the Federal Reserve begins to raise rates. On the other hand, some sectors begin to perform quite nicely. For example, When the Fed begins to raise rates, stocks in the sectors of the consumer discretionary, financial, technology, industrial, utility, and materials under perform. Conversely, stocks in the healthcare, and consumer staples area outperform.

Once you understand where the market is in terms of the three key market cycles, an investor can begin to evaluate individual companies based on Fundamental and Price Analysis.

Fundamental Analysis

1. Return on Equity (ROE) —The average return on equity in U.S. corporations is around 12%. Since 12% is average, and we are seeking to outperform the market averages, we want companies with the highest ROE available. Once a company's ROE is identified, we then place the company into its respective category. We screen and evaluate each based on the categories below.

2. Consumer Monopoly or Brand Name Products —In our screening process, I have found that companies who dominate their industries, or at least compete aggressively year in and year out, have a higher predictability rate for earnings growth and success, than those who could be labeled as "one trick ponies". Niche companies are also considered as long as they have the track record to back it up.

Institutional money managers have a fiduciary responsibility to the investors they represent. When considering a company for investment, money managers want guarantees. These guarantees include consistent and predictable earnings. The first places these managers look for consistency are companies who dominate a niche or industry. If the market temporarily mis-prices a company due to a temporary circumstance, we begin to get interested.

3. Debt Burden —A company that dominates a niche or an industry creates a lot of excess cash and profits. Companies who do not dominate try and grow through acquisition in hopes of one day creating a monopoly. Growing through acquisitions creates an increased debt burden since the acquiring company is not dominant. Accounting tricks are used to book the revenue and hide the debt. The debt burden in this case would be virtually impossible to reduce or eliminate.

Companies that dominate their industries can merge with another dominant company, and have no problems reducing debt. On the other-hand, a dominant company that acquires a non-dominant company risks mediocre results if an economic downturn occurs.

4. Earnings growth over the past 5-10 years —We want to know if the company's earnings are rising, erratic, or declining. If a company's earnings are rising, we want to know at what rate? Are sales and revenues increasing? Why?

5. Is the company buying back stock? —From retained earnings. Companies that feel their no business more valuable than their own, and use retained earnings to buy back the company stock. This sends us a very important message. We also want to know if the company insiders are buying or selling their own stock. If they are buying, we want to know if the purchases are option related or are they using their own money. Specifically, we look for Directors, CEO-COO, President, CFO and the Chairman of the Board. They are privy to information that Vice Presidents may not.

6. Total return to investors —Every April, Fortune Magazine prints a special issue entitled "Fortune 500". Fortune categorizes each company according to market cap, revenues, and assets. I quickly learned at a very early age that one column carried more weight than all the others combined. I ranked each company based on the total return to investors over a 1, 5, and 10-year time frame. I looked for companies that were consistently ranking among the top year in and year out. Using this method in conjunction with the previous five steps adds consistency and validity to the stock selection process.

Price Analysis

1. Initial rate of return—This number gives us an immediate look at how the company is performing, and is used to predict how the company has done the past 5-10 years.

2. Per share growth rate—This determines what a company's annual growth rate over a 5-10 year period.

3. Value relative to government bonds—We want to know if we can get a better return on the 30-year treasury or the stock.

4. Return on Equity (ROE)—The higher the better, 12% is average; we are looking for 15% or more.

5. Projected annual compounding rate—Growth rate the past 10 years predicted forward, then reduced.

6. Price I'm willing to pay—Target buy price

Other Considerations

1. Investors Intelligence Data—Bull (vs.) Bear ratio. Basically used as a contrarian indicator that gauges investor expectations.

2. VIX Ratio—The VIX Index is a sentiment indicator that measures optimism and pessimism in the market place. It is often used as a contrarian indicator since it also gauges investor expectations.

3. Corporate Earnings—Current earnings, revisions, guidance going forward.

4. Geopolitical Events/Shocks—Oil prices, War, Terrorism,

5. Fiscal/Monetary Policy—Raising or lowering of interest rates and taxes.

6. Inflation Data—GDP, the Trade Deficit, and the Dollar.

Once I gather all the data, I begin selecting stocks that have the most favorable risk reward characteristics going forward. Unfortunately, the newsletter business and financial newsletter advisors are being judged by the same yardstick as mutual fund managers. In order to gain notoriety faster, and sell more newsletters, financial writers are being judged on their stock picking abilities almost immediately after a recommendation leaves their lips.

Investment publications like the Hulbert Financial Digest rank newsletters based on performance which is pressuring newsletter writers to recommend riskier and more volatile stocks to achieve immediate results. If Warren Buffett's stock picks had been judged in the same manor as financial newsletter writers, then Coca-Cola and Gillette would have raked Warren's stock picking abilities through the mud.

We will not succumb to the pressures of choosing stocks for immediate results or instant gratification. If we happen to get immediate results, then fine. But our goal will continue to be investing in great companies, at great prices, at the right time. Even investment legend Jim Roger's once said that "he is a lousy trader" and his investments normally take two years to pan out. To illustrate my point, I'll leave you with the lesson of the Chinese bamboo tree.

One of my favorite stories is the lesson of the Chinese bamboo tree. It's actually a miracle, kind of like the magic of compounding. The Chinese bamboo tree starts from a seed. You plant the seed, and the first year you water and fertilize it and nothing happens. Then the second year you water and fertilize it and still nothing happens. This process continues through the 3rd and 4th years as well. But in the 5th year as you continue to water and fertilize the seed, sometime in the 5th year the Chinese bamboo tree grows 90 feet in six weeks.

Now, let me ask you a question, did the Chinese bamboo tree grow 90 feet in six weeks or had it been growing all along where nobody could see it? The story of Chinese bamboo tree can be applied to some of our stocks and the market in general. A wise rich man once told me "get rich slowly son".

In this day and age of instant gratification, the "I want it now "attitude will stop many from reaching their financial dreams. Daily, people a being suckered into thinking they can become professional day traders. Most investors cannot wait 2-3 years for a large reward.

“The One Conservative Investing Strategy Every Investor Should Use…But Hardly Any Do”

One of the biggest fallacies about Warren Buffett is his slow and steady long-term approach to investing. Let me tell you something, there is nothing slow about Warren Buffett. Steady yes, slow, not a chance.

Investors think when Warren Buffett buys a stock that he’s in for the long haul. Well, that’s only partly true. He’s in for the long haul on only a handful of stocks. The others are actively added, reduced or eliminated like middle managers.

Most investors are so wrapped up in Warren’s stock picking strategy that they fail to see the real secret to his success. Brokers and armchair investment gurus have been shouting “Invest like Buffett” for years now. They also yell “By, hold and forget about it.” Well, let me tell you my investing sports fans; you’re only hearing part of the story. What is the other part……CASH FLOW.

That’s right! Tons and tons of cash. If Warren Buffett is a “Buy, hold, forget about it” type guy, then where does he come up with the cash to buy more stock...Cash flow! Very rarely, if ever, do you hear Warren Buffett talk about cash flow. You hear him say, “Our problem is we have too much cash and very few places to put it.” But, investors ignore comments like these, and choose to only focus on what the Master is buying. I have not heard a single investor ask the billion-dollar question, “Where did you get all that cash?” It wasn’t from dividends. Warren doesn’t care for dividends due to the tax liability. He wants to own companies who reinvest their earnings, instead of paying it out and be double taxed. Warren Buffett’s Berkshire Hathaway owns a cash flow cow called GEICO. To add to his vast hoard, he purchased another insurance heifer called General Re. Combined, GEICO and General Re are mega cash flow vehicles that spit out greenbacks like a Federal Reserve Bank. The one thing Buffett understands extremely well is…Cash Flow.

Buffett wannabee’s are fooling themselves if they think they can mirror his total investment strategy. They simply don’t have the cash flow. Warren Buffett’s cash flow gives him the luxury of not panicking during a market decline, and gives him the ability to add to his portfolio any time he chooses.

Since you and I do not own a repetitive cash flow machine, we’ll have to build one for ourselves. We have often heard the saying “cash is king,” but I’d like to expand this and say that “cash flow is king.” You can start building your own “income engine” by using strategies once only known by the mega rich. The strategy I’m referring to is options.

The Options Market

Options give investors the right, but not the obligation to buy or sell a particular security at a predetermined price, at a predetermined date. There are basically two sides to an option:

1. Buyer - the speculative side
2. Seller - the conservative side

The buyer is taking money out of their pocket – hence speculative. The seller is putting money in their pocket – hence conservative.

Buyer - A buyer of an option is best described as a gambler. Similar to someone putting coins in a slot machine, the option buyer is hoping for the “big payoff”. When purchasing an option, the odds of losing are 80% ｱ. The buyer is betting a stock will rise or fall to a particular price within a particular time frame. If the buyer is wrong about the direction or the time, a loss will result. While some investor’s buy options to hedge their portfolios, others gamble.

Seller - A seller of an option is interested in cash flow. The seller basically accommodates the gambler. Since the buyer puts money in the slot machine, the seller plays the role as the slot machine. When an investor sells an option, the odds are they will win 80% ｱ of the time. The seller is not looking for the “big payoff”, just a smooth steady income stream. The seller is willing to sell stock that they own at a higher price than is currently quoted, and is willing to buy a stock at a lower price than currently quoted. Makes sense doesn’t it?

Definitions

1. Put Options - Puts give an investor the right to sell or put their stock to someone else. A put value increases as the price of the underlying security falls.

2. Put Buyer - The put buyer is betting that a particular security will decline in value. Since options expire the 3rd Friday of every month, the buyer must be right about the price the security will fall to, and the time frame of the decline. The buyer makes a cash payment for this right.

3. Put Seller - The put seller is hoping a particular stock will decline in value to a particular price so they can purchase it. To take the risk that they may have to buy a security at a price in which they want to own it, the seller receives a cash payment.

Example: Let’s say you want to buy 100 shares of Coca-Cola at $40 a share. But the current price of Coke is $45/share. You go into the options market and sell 1 Coca-Cola (1 option = 100 shares) 40 put that expires in one month. You receive 1 point or $100.00 in cash. If Coca-Cola falls to 40 or below, you keep the $100.00 and buy the stock. Your cost of 100 shares of Coke is now $39/share. If Coke never reaches $40/share within the month, you keep the $100.00 and repeat the process.

The risk in this strategy is only if a dramatic decline occurs in the stock. If you sell a 40 put, you are agreeing to pay $40.00 for the stock within a given period of time. If the price of the security falls to $30.00 before expiration, and you decide you no longer want to buy the stock, you can buy the option back at a loss. It is important to use this strategy with high quality companies you want to own. Do not get in a habit of buying an option back when the first stiff wind blows. Stick to the strategy and you’ll be amply rewarded.

4. Call Options - Calls give an investor the right to buy or “call” a stock from someone else. A call increases in value as the price of the underlying security rises.

5. Call Buyer - The call buyer is betting that a particular security will increase in value. The buyer must be right about the direction and the time frame of the price increase. The buyer makes a cash payment for this right.

6. Call Seller - The call seller is hoping a stock they own will go up, and in some cases do nothing prior to expiration. To take the risk that the owner of a stock may have to sell the stock at a profit, the seller receives a cash payment.

Example: Let's assume you own 100 shares of Coca-Cola at a cost of $40/share. You are willing to sell your shares at $45/share. The current price is $40. You go into the options market and sell 1 Coca-Cola 45 call that expires in one month. You receive 1 point or $100.00. If Coca-Cola rises to $45/share, you must sell the stock and you keep the $100.00 (a gain of 15%). If the option expires and the stock never reaches $45, you can repeat the process the following month.

The risk in this strategy is only risk of further gain. If Coca-Cola rises to $50/share within the month, you would have to sell the stock at $45. If you decided you wanted to hang on to the stock, you could buy your option back at a loss and close the option. Like I had mentioned in the Put example, we do not want to get into this habit. Our strategy here is cash flow and profits.

By implementing a strategy of selling options, you too can create your own "Cash Flow Machine". Remember, selling options is a conservative strategy, and by sticking to the strategy, you will greatly increase your total return potential.

Building you own Portfolio

The most popular types of bonds have been issued by one of three groups: the United States Government, City, State, and Local Governments, and Corporations. Each bond category has different tax consequences, and varying degrees of risk. As to what types of bonds to own, you will want to own taxable bonds in tax deferred accounts like IRA痴 and tax free bonds in taxable accounts. With taxable accounts, you will have to take into consideration your tax bracket, and compare the tax free yields on municipal bonds to the after tax yields of taxable bonds.

I recommend that investors own individual bonds instead of bond mutual funds. With individual bonds, you know what you paid, what you池e going to get back at maturity, and what interest payments to expect. In bond funds, you cannot see the changes the fund manager is making in the portfolio, and the interest you receive may drop, as well as your original principal.

When building a bond portfolio outside of a retirement plan, you need to understand that the interest you receive on certificates of deposit, savings accounts, taxable money market accounts, government bonds and corporate bonds are taxed as ordinary income. Sometimes, if you池e not careful, the additional income you receive from these taxable investments can cast you into a higher tax bracket. Here痴 what to do:

1) Know your tax bracket.
2) Compare the after tax yield on a taxable bond to the tax free yield with the same maturity date.

TAX BRACKETS

Federal Tax Rate 2004-2005

Federal
Ordinary
Income
Tax
Rates Applicable Income Ranges (Based on Filing Status)

     Single      Married/Joint   Head of Household


15%: $6,001-     $12,001-        $10,001-

     $27,950     $46,700         $37,450

27%: $27,951-    $46,701-        $37,451-	

     $67,700     $112,850        $96,700

30%: $67,701-    $112,851-	 $96,701-

     $141,250    $171,950        $156,600

35%: $141,251-   $171,951-       $156,601-

     $307,050	 $307,050        $307,050

38%: $307,051+   $307,051+       $307,051+

1 Consult your tax advisor to determine your federal income tax filing status.

2 Taxable income of Surviving Spouses (qualifying widow(er) s) may be subject to tax rates normally applicable to taxable income of married taxpayers filing joint returns.

TAXABLE OR TAX FREE

In this next example, I wanted to show you a comparison of a $50,000 investment in bonds at 5% tax free and 6.5% taxable. I also chose a tax bracket of 30%, which isn稚 the high or the low, but right in the middle. Here are the results:

$ 50,000 yielding 5% tax free = $2,500 per year
----------------------------------------------------------------------
Minus 0% taxes = $2,500 net

$50,000 yielding 6.5% taxable = $3,250 per year
----------------------------------------------------------------------
Minus 30% taxes = $2,275 net

The bottom line obviously, is you keep more money by investing in a tax free bond at 5% verses a taxable bond at 6.5% in the 30% tax bracket. Another big factor we need to consider is the safety of the bond. Rarely, will you find a taxable corporate bond that is insured and guaranteed. The above comparison was made using today痴 actual yields from (Feb 2005) long term tax free and corporate bonds. Since most tax free municipal bonds carry some kind of guarantee or insurance to secure the principal and timely payments of interest, tax free bonds look much more appealing.

SAFETY RATINGS OF BONDS

Standard & Poor痴 and Moody's are the best-known and most influential credit rating agencies. Their role as raters is to assess the risk of certain bonds through the study of all information provided to the public, and to assign to the issue and issuing company grades that accurately reflect the company's ability to meet the promised principal and interest payments.

When S&P and Moody痴 issues a credit rating on a bond, it is not a recommendation to purchase, sell or hold a particular security. But the initial ratings, and revised downgrades and upgrades, greatly affect the attractiveness of the bond in the eyes of both issuers and holders. Bonds with higher ratings offer lower yields, while a lower rating usually results in a lower price on the bond -- a less expensive purchase for the investor, but a riskier investment.

Since any bond rating of triple B (BBB) or higher is considered 澱ank quality�, I would recommend that you keep all your purchases at this level or higher. The only exception is with tax free municipal bonds where most tax free bonds are insured and guaranteed. I would take advantage of this high level of safety and concentrate my purchases in insured bonds with triple A (AAA) ratings.

Bond Rating Codes
Rating S&P Moody's
----------------------------------------------------------------------
Highest quality AAA Aaa
High quality AA Aa
Upper medium quality A A
Medium grade BBB Baa
Somewhat speculative BB Ba
Low grade, speculative B B
Low grade, default possible CCC Caa

TYPES OF BONDS

Bonds sell in increments of $1,000, and this is known as 菟ar value�. Tax free municipal bonds must be bought in $5,000 increments, but par value is still $1,000. Bonds are normally issued at $1,000, and mature at $1,000. An investor that buys a bond for less than $1,000 is buying the bond at a discount, if they pay more than $1,000, they are buying the bond at a premium.

1) Government Bonds: The bonds issued by the United States Government are known as Treasury痴, and are widely regarded as the safest bond investment since they are backed by the full faith and credit of the U.S. government. These bonds are grouped in three categories.

a) U.S. Treasury Bills- maturity dates range from 90 days to 1 year.
b) U.S. Treasury Notes- maturity dates range from more than a year to 10 years.
c) U.S. Treasury Bonds- maturity dates of 10 years or more.

2) Municipal Bonds: Municipal bonds are issued by city, state and local governments for the public good, and are tax free. From time to time you will see taxable municipal bonds, but the main attractiveness of municipal bonds is their tax free status.

Often, tax free bonds carry some sort of guarantee or backing, which can be in the form of insurance, escrow, or the taxing power of the municipality. Municipal bonds are only a small step up on the risk scale from U.S. Treasury痴, but are often a more attractive investment due to their avoidance of state and federal taxes.

3) Corporate Bonds: Corporate bonds are generally the riskiest bonds in the market place because corporations are susceptible to changes in the economy, competition, and yes, even corporate corruption. Despite some of these risks, there are some big blue chip companies that issue bonds that investors should consider. Corporate bonds are taxable, and investors who do not wish to venture into corporate bonds should consider taxable (insured) municipal bonds instead.

4) Zero- Coupon Bonds: Zero- coupon bonds are bonds that do not make interest payments every year, but instead sell at deep discounts to their maturity values. For example, you can buy a zero- coupon bond at 50 cents on a dollar and when they mature, they mature at a dollar. At maturity, the investor collects all of the compounded interest plus the principal.

Zero- coupon bonds can be issued by the government, a municipality, or a corporation. A taxable zero like a government or corporate bond has some drawbacks since investors must pay taxes each year as the interest on the bond accrues. This can be frustrating since the investor has not actually received any income. Taxable zeros are normally more attractive in tax deferred accounts.

LADDERING YOUR BOND PORTFOLIO

Bond prices are impacted primarily by the rise and fall of interest rates. Quite simply, bond prices move inversely with interest rates. As interest rates increase, bond values go down. Likewise, if interest rates decline, bond values tend to increase.

To manage risk and to minimize the impact of interest rate changes, investors need to diversify their bond portfolios based on varying maturities. This diversification is known as Laddering Maturities. Laddering involves building a portfolio of bonds with staggered maturities so that a portion of the portfolio will mature each year, or some other specified time period. By spreading out the maturities, you are investing at different interest rates, with the shorter-term bonds paying a lower rate, and longer-term bonds paying a higher rate. In the mean time, you are spreading out the risk of principal fluctuation.

I recommend that investors own bonds with maturity dates ranging from 1-5 years on the short end, with bonds maturing in each of the 5 years. After the fifth year, buy bonds that mature in 5 years increments until your final maturity dates are 25 to 30 years out. You will want to invest even amounts of money at each maturity with the exception of the longest maturities. For example, if you are investing $10,000 in each maturity, you may want to only invest $5,000 in years 25 and 30.

WHERE TO BUY YOUR BONDS

Most discount brokers like Fidelity or Schwab carry a broad inventory of bonds or have links on their websites where you can purchase bonds through one of their vendors. If you need assistance, one of their service representatives can help you find what you池e looking for.

Mutual Funds

Mutual funds are great, and many fund companies do a wonderful job. But, like anything else in life, you want to get the biggest bang for your buck. The problem most investors have with choosing the right fund is the huge number of advisors and brokers trying selling them. Obviously, financial advisors at banks, brokerages, and insurance companies are going to recommend mutual funds that either pays them directly or indirectly.

Investors that use advisors who are directly or indirectly compensated by banks, brokerages, and insurance companies are often at a disadvantage to the investors who use independent advisors through discounters, or do their own investing. So, let痴 cut to the chase. Investors should never pay a load to purchase a mutual fund, or pay someone to pick the fund for you.

Mutual funds are broken down into two categories: Funds that have sales charges (Load Funds), and those that do not (No Load). The part your broker may not be telling you is there may be 3 or 4 ways to buy the same fund. Since your Monte Hall broker wants to be paid extremely well, they may not tell you there is door #1, #2, #3 and perhaps door #4. Like the quote in the movie Indiana Jones goes 添ou have chosen wisely� really applies here.

The Load Fund Shell Game

A single mutual fund may have three or four pricing structures. Choose well and all of your money goes to work immediately. Choose poorly, and you could be paying out the nose and receive no possibility for parole for as long as five years. Ouch!

As an example, let痴 use Morgan Stanley Dean Witter痴 Dividend Growth Fund. Since we mentioned it earlier as a negative example, let痴 give it a little credit. After all, it痴 not the funds fault you were put in the 哲o Parole� pricing structure. Also note that the fund is an 的n-House� proprietary product.

The M.S.D.W. Dividend Growth Fund has four ways in which to purchase it: A shares, B shares, C shares, and D shares.

鄭� Shares - 5.75% upfront sales charge.

釘� Shares - 5%/ 5 year def. sales charge (no parole)

鼎� Shares - 1%/ 1 year deferred sales charge (parole in 1 year)

泥� Shares - 0% sales charge

As you can see, the 泥� shares are clearly the best choice for the investor. The investor will rarely hear about 泥� shares since the broker gets very little compensation. The 泥� shares were created to compete against no load funds like Vanguard. Brokerage firms are neurotic about gathering assets, so instead of saying 展e don稚 have that,� they developed an alternative. 泥� shares or no load shares are not advertised, they are used as a means of last resort to capture a client痴 assets. In addition, many firms feel if they can give in a little now, sooner or later the client will generate more revenue down the road.

If you池e tired of all the shell games, and conflicts of interests, the best alternative is to stick with high quality No Load Funds which are offered through discount brokers and independent financial advisors.

No Load Funds

Not long ago, the renowned mutual fund analyzer, Morningstar, did a study on the performance of No Load Funds versus Load Funds. The study revealed that no load funds actually had superior performance over load funds over the last 3 and 5 year periods. So, to be clear, funds that did not compensate the broker or advisor outperformed the funds that brokers pick for their clients. Hummm.

By far my favorite No Load mutual fund group is Vanguard. In this day and age it is important to eliminate as many conflicts of interests from your investment process as possible. Most investment firms are either publicly traded or privately owned by one or more individuals. Vanguard is different: They are client-owned. Helping investors achieve their goals is literally the sole reason for their existence.

Vanguard answers to no other parties (and therefore no conflicting loyalties), make independent decisions様ike keeping costs low謡ith only the investor痴 needs in mind. In fact, even as industry costs have risen over the years, Vanguard's costs have decreased. So when you invest with Vanguard, you get to keep more of your investment returns working for you, a difference that can compound significantly over time.

In this day of hidden expense ratios, the difference to your portfolio can translate into a significant cost advantage. Assume, for instance, that two funds each earned a gross return of 8% for one year: A low-cost fund with an expense ratio of 0.30% would provide a net return of 7.70%; a fund with an expense ratio of 1.30% would have a net return of just 6.70%.

What to do Now:

1) Use the Vanguard Funds as a part of your overall Asset Allocation strategy. I am especially fond of using Vanguard Index Funds (Mid-Cap, Small Cap, and International) in portions of an investor痴 portfolio where individual stock picking is difficult or high turnover is required to achieve results.
2) Go to www.vanguard.com to educate yourself on the various products they offer.
3) Go to the Reports link on the website and click on 滴ow to Be Your Own Broker� to make sure you are sticking closely to your individualized asset allocation model.

“The Top 10 Mistakes Most Investors Make….
Why They’re Keeping You From Your Financial Dreams”

1. No written investment plan - Let’s say you live in Florida, and you were driving to Montana for a vacation. I would venture to say that the first thing you would do is look at a map and plan your route. You might even plan a few stops along the way to site see, and make a few hotel reservations in advance. Investing is no different.

A written investment plan is no guarantee for success, but studies have shown that investors who have written plans have a better chance for success than those who don’t. A written plan forces an investor to be disciplined and focused on a goal or destination. Like a roadmap on a trip, if you should go astray, a written plan will put you back on the right path.

2. Poor Diversification - Asset allocation seems to be the chorus screams from the brokerage firms today. You’re a little late to the party guys. Why didn't we didn’t hear these screams during the “Hey Days” of the NASDAQ bubble? The truth of the matter is, asset allocation has been around a long time. Could it be that greed clogged the ears, and judgement of investors during the late 1990’s?

Harry Markowitz won a Nobel Prize for his work on portfolio diversification through a study called the Modern Portfolio Theory or M.P.T. The basic premise of MPT is that a proper diversified portfolio can limit your risk and enhance your return. The longer the investor’s time frame, the less risk is involved, and vise versa. A portfolio properly allocated between cash, bonds and stock obviously has less risk than a portfolio in just stocks, bonds, or cash.

Investors need to identify their future financial goals, the time frame for achieving those goals, and the proper diversification.

3. Trusting brokers and their firms - The financial services industry is not a charity business. Whether you’re dealing with a bank, brokerage or insurance company, their first loyalty is to the shareholders and themselves. This is very obvious by the fees and commissions you are charged.

If you know what you’re doing, you can save a ton of money in investment costs. The more you save, the faster you will reach your financial goals. The more you know about the various products and services offered by a financial institution, the better off you’ll be. You do not need to let brokers, insurance companies, or brokerage firms tell you what’s in your best interest.

4. Taking tips from friends - Friends mean well, but often their enthusiasm is misguided and passed down. The lure of a hot tip plays on the gambling urge of many investors’, and “Hitting the big one” rarely pans out. Unfortunately, too many investors have to learn the hard way, and lose money. Since there are no safe shortcuts, investors need to realize that “Hot tips” have spelled doom for many investors.

5. Procrastination - Investors waiting for the right time to invest may be waiting an entire lifetime. Te reality is, there is no right time to invest. No one can predict future events, good or bad. No one rings a bell when a bear market ends, and by the time a new bull market is declared, it’s too late. Proper diversification can cure many forms of procrastination. But, the longer you wait, the longer it’s going to take to achieve your goals.

6. Taking too much risk - Some investors feel a lot of money in a few investments provide a greater return than a well-diversified portfolio. This is not the case if one of those “few” investments was Enron or WorldCom. In reality, no one knows they own an Enron or WorldCom until it’s too late. Even the rich oilman, J. Paul Getty, once said, “Put all your eggs in one basket, but watch the basket.” Since you and I do not own a couple of thousand oil wells, that philosophy does not apply.

People who speculate are forgetting about a precious commodity that we all share for only a while. Time. Time is on our side as investors, and against us as speculators.

7. Micro-managing your investments - One of the biggest mistakes investors make is being too “jumpy”. They jump from one investment to another because they do not receive instant gratification from their investments. These investors allow fear and greed to determine their next move. In the long run, this causes investors to sell too soon, and not buy something until it’s too late. A properly diversified portfolio with quality investments needs very little day-to-day management. True, the time will come when the percentages of a plan need adjusting, but this takes place as allocations become disproportionate, and not because an investment is temporarily out of favor.

8. Not enough funds for emergencies - From time to time, events occur in our lives that call for a change of plans. These events may involve being laid off, fired, death in the family, or a host of other reasons. Financial planning guides call for having cash reserves to meet any unforeseen events that may unfold. The usual recommendation is to have three months of pretax income reserves available at all times. My recommendation is to have six months of pretax income reserves at all times. The six months of reserves gives you enough time to make any necessary life adjustments without interrupting your long-term investment plan. Do this, and you’ll be able to handle almost anything that temporarily disrupts your life.

9. Believing financial publications - We’ve all stood in lines at the grocery store or WalMart and scanned the eye catching headlines on a Fortune or Money magazine. All too often, we are captivated by headlines like “The 10 Best Mutual Funds” or “The One Stock You Must Own Now.” More often than not, if you’re reading the headline, it’s too late. These headlines are cleverly worded to capture a person’s attention and to sell magazines.

It is been my experience that the funds and stocks touted in these publications severely under perform or drop like rocks over a period of twelve months. After reading one publication’s recommendation, I did a background check on the writer and found that the previous year he had written for “Rolling Stone”. Financial publications tend to write about investments that are “in favor”. Buying value is investing in quality when it’s out of favor.

10. Paying too much for investment services - It does not take a rocket scientist to know that the less you pay, the more you keep. Why should you pay a 5.75% upfront load on a fund when another fund with a similar track record charges you 1% or 0%? Why should you pay $100 for a stock transaction when you can pay $15.00? Keeping close tabs on what fees you are being charged can translate to a better return. Brokerages, banks, and insurance companies will not reveal the alternatives. I will.

Do you want take investment advice from someone who is under constant pressure to produce revenue and sell? What most investors don't know is many of the investment choices through big brokerage firms are limited to products that are carefully designed to maximize their profits. For example, many products like the Vanguard Mutual Funds and numerous Money Managers are not included on a brokerage firm's "Recommended List" because they refuse to pay a fee to be included on the list. This is known as "Pay to Play".

Unfortunately, the demands placed on brokers to produced revenue causes brokers to constantly live their lives "on pins and needles". The fear of being fired creates a "kill or be killed" attitude. Of course, the final victim in this vicious cycle is you, the investor.

You will receive biased advice from a salesman, and stock brokers are salesmen. I know this firsthand from my experience working as a stockbroker. After seeing how the system worked, I got out of Dodge as quickly as I could. You should too.

If you are looking for investment advice, seek advice from independent sources such as financial newsletters, and independent financial advisors associated with discount brokers. Discount brokers such as Fidelity, Schwab, and Waterhouse can provide you with names of independent financial advisors in your area. If you choose to be your own broker, newsletters like the Investor Alert can put you on the path to successful investing.

Another reason you should consider becoming your own broker or seek independent advice is the bogus and bias research reports issued by brokerage firm analysts. In past years, analysts issued bogus research reports to collect handsome bonuses by bring investment banking business to the firm. At first...blush, one would assume that the role of an analyst is to provide recommendations to brokers for their clients. That痴 only part of the story.

Analysts play an ancillary role that brings a major revenue stream to the firm. In fact, analysts serve several masters. Unfortunately, you the small investor are not one of them. Since there is no additional benefit in providing research to brokers and clients, the small investor falls last on the gravy train. What is especially upsetting is that brokers have no autonomy, and must follow the analysts opinions when recommending a stock to their clients.

It痴 only natural for people concentrate their efforts toward the most lucrative sources of revenue, but to issue bogus research reports to land investment banking deals, and to force brokers to follow an analysts advice also is immoral.

During the investigation of the securities fraud debacle, A Securities and Exchange Commission study revealed that Wall Street analysts issued sell recommendations only 1% of the time. If a brokerage firm had an investment banking relationship with a particular company, sell recommendations were none existent. The "Chinese Wall" is supposed to separate investment banking departments from the research departments were virtually non-existent. Laura Unger, former SEC chairperson, reported that in many cases an analyst痴 compensation is increasingly tied to the profits of the firm痴 investment banking business. Big institutions and investment banking clients benefited from bogus research, while the small investors crashed and burned.

Analysts didn稚 just use their own firms to promote bias research. No way, many analysts like Frank Quattrone, Jack Grubman, Henry Blodget and Mary Meeker were allowed to spread their bias through media outlets like CNBC, CNNfn, Bloomberg, and numerous financial newspapers and magazines. Of course, if these media sources knew in advance the motivation behind these bogus recommendations, they would have never allowed it.

If the issues we just raised do not motivate you to become your own broker, I don稚 know what will. To think Wall Street is going to change their ways and risk losing billions in revenue is only a wishful thought. Large institutional business and investment banking will always take precedence over the small investor. Brokerage firms will never admit to this, but you and I know better. So, unless you want to continue being last on the gravy train, seriously consider becoming your own broker. Let痴 begin:

STEP 1: Determining Your Risk Profile

INVESTOR RISK TOLERANCE DETERMINES ASSET ALLOCATION

Investing is no different than embarking on a trip across the country. To make your trip go smoothly, you need to plan, you need a roadmap. In investing, your roadmap starts with accessing your goals, needs, and risk tolerance. If your needs call for a return of 15% per year to achieve your goal, and your risk tolerance is extremely low, there is no way you can achieve your goal. However, if your needs call for a return of 8% per year, and your risk tolerance is low, your goal can be achieved.

Let痴 get started and see if your investment objectives correspond with your risk tolerance. After you have answered the questions, and added up the points, and see what investment style fits you the best.

Question #1 � Which investment objective best describes your goals.

	a) Preservation of capital	1 pt
	b) Income and keeping pace with inflation	3 pts
	c) 50% Growth, 50% Income	5 pts
	d) Blue Chip Growth with a small mix of aggressive stocks	7 pts
	e) Aggressive Growth, Income is not important	9 pts

Question #2 � What is your time horizon to achieve your goals.

	a) Ten years or more	9 pt
	b) Less than ten years, but more than 5	5 pts
	c) Three to five years	1 pts

Question #3 � Which best describes what you expect from your investments.

	a) An account that provides me with extra income	1 pt
	b) An account that combines moderate growth and additional income	5 pts
	c) An account that maximizes growth over the long haul	9 pts

Question #4 � The average rate of inflation is 3.5% per year. Which best describes your expectations for your account.

	a) I want to keep pace with inflation while minimizing risk	1 pt
	b) I want my account to outpace inflation	5 pts
	c) I am willing to take extra risk to significantly outpace inflation	9 pts

Question #5 � If my starting account balance was $100,000, I would be willing to accept one of the following fluctuations of my principal to achieve the stated return.

	a) 8% return = $90,000 worst year, $115,000 best year	1 pt
	b) 9% return = $80,000 worst year, $120,000 best year	3 pts
	c) 10% return = $75,000 worst year, $125,000 best year	5 pts
	c) 11% return = $70,000 worst year, $130,000 best year	7 pts
	c) 12% return = $60,000 worst year, $140,000 best year	9 pts
	ADD UP TOTAL POINTS	_______

STEP 2: Choosing an Allocation Model

Investment Style:	Points	Historical (1970-2001) Risk/Reward
1) Aggressive	37-45 points	Best +41.7/ Worst -24.1/ Ave +11.9
2) Moderately Aggressive	29-36 points	Best +36.9/Worst - 19.3/ Ave +11.5
3) Moderate	21-28 points	Best +29.6/ Worst -13.0/ Ave + 10.9
4) Moderately Conservative	13-20 points	Best + 25.4/ Worst -6.6/ Ave + 10.4
5) Conservative	5-12 points	Best + 21.7/ Worst -1.2/ Ave + 9.0

AGGRESSIVE	MODERATELY AGGRESSIVE	MODERATE	MODERATELY CONSERVATIVE	CONSERVATIVE
For long-term investors who want high growth potential and don't need current income. May entail substantial year-to-year volatility in value in exchange for potentially high long-term returns.	For long-term investors who want good growth potential and don't need current income. Entails a fair amount of volatility, but not as much as a portfolio invested exclusively in stocks.	For long-term investors who don't need current income and want some growth potential. Likely to entail some fluctuations in value, but presents less volatility than the overall stock market.	For investors who seek current income and stability, with some modest potential for increase in the value of their investments.	For investors who seek current income and stability and are less concerned about growth.
STOCKS 95% Large-Cap Stocks 50% Small & Mid-Cap Stocks 20% International Stocks 25% BONDS 0% CASH 5%	STOCKS 80% Large-Cap Stocks 45% Small & Mid-Cap Stocks 15% International Stocks 20% BONDS 15% CASH 5%	STOCKS 60% Large-Cap Stocks 35% Small & Mid-Cap Stocks 10% International Stocks 15% BONDS 35% CASH 5%	STOCKS 40% Large-Cap Stocks 25% Small & Mid-Cap Stocks 5% International Stocks 10% BONDS 50% CASH 10%	STOCKS 20% Large-Cap Stocks 15% Small & Mid-Cap Stocks 0% International Stocks 5% BONDS 50% CASH 30%

STEP 3: Diversifying Your Investments

SIMPLIFYING YOUR INVESTMENT CHOICES

The most difficult part of managing your own investment portfolio is choosing the proper investments. In fact, this is the major sources of frustration and anxiety for many investors. Well, worry no more. Our approach is simple, easy to understand, and frankly makes the most sense. How can I make such bold claims? It痴 very simple, experience. I have watched literally hundreds of investors make the same mistakes over and over again. The most amazing part of this story is they are still making them, and are still experiencing the same results; frustration and anxiety.

To start the process, you need to ask yourself a very simple question. Are you an investor or a gambler? Sounds pretty simple doesn稚 it? Well, it really isn稚 that simple because many investors confuse investing for gambling.

If you have to constantly monitor the market and look for the next trade on the latest hot stock, you are gambling. If you like to do this, please do not confuse this with investing. Do yourself (and your financial future) a huge favor, and open two accounts. With no more than 10% of your financial assets buy and sell whatever you desire. You can even choose to pick a stock or two from the Investor Alerts—"Traders Corner". With the remaining 90%, implement a strategic asset allocation strategy and stick with it.

For your serious money however (the 90%), here痴 what we recommend for your Asset Allocation Model.

1) Large Cap Allocation: I would pick from one of the three choices below. Of course, the amount of money you have to invest will be a big factor in determining which allocation you choose. If you want to own individual stocks, it has been our experience that accounts with less than $100,000 will have a very difficult time being properly diversified in individual stocks. Regardless of your asset base, you will need to choose from one of these three allocation methods before you begin investing.

A) Individual Stocks—To get the proper diversification, you need to own a portfolio of 20-30 individual stocks. If your allocation model is moderate, and your total investment assets are $100,000, then only 35% or $35,000 can be earmarked for the 20-30 stocks that make up this large cap allocation. This means you may own 100 shares of one stock, and 35 shares of another. Since we recommend an even weighting in most of our stocks, you may have to own less than 100 shares in some positions. If this is ok with you, it痴 ok with me. If your account is greater than $100,000, owning all individual stocks in the Large Cap area will work fine.

B) Individual Stocks/Index Fund Enhancement—This allocation works better for accounts over $100,000. Most fund managers use the S&P 500 and other indexes as their benchmarks, and statistics show that they beat their respective indexes only half the time. When fund managers do beat their benchmarks, they are usually taking on more risk by overweighting stocks in a hot sector which adds unnecessary risk to your portfolio. So, by owning a portfolio of individual stocks, and enhancing the allocation with index funds, you can potentially increase your return and lower your risk.

How you might ask? Most mutual funds have a charter or rulebook they must adhere to. One of those rules is they must be fully invested at all times. So, even if a fund manager saw a train wreak coming in the market, most could not get out of the way due to the rules of their investment charters.

At the Investor Alert, we have no charters, and if we feel its time to reduce our holdings in stocks, underweight a particular sector, or protect our accounts with market hedges, we will do so. You can be sure, if we see a train wreak coming, we will get out of the way.

If you choose to own individual stocks with index fund enhancements, here痴 what I recommend. For the percentage allocated to Large Cap, invest 2/3rds in individual stocks, and 1/3rd split evenly among 2 broad based Vanguard Index funds.
1) Vanguard S&P 500 Fund- Ticker Symbol (VFINX)
2) Vanguard Total Stock Market Index- Ticker Symbol (VTSMX)

C) Index Mutual Funds—There are basically two reasons why an investor would choose to allocate their entire Large Cap percentage to index funds instead of a mix of individual stocks and funds. Both, by the way are very valid reasons.
1) The investor does not want to be bothered with monitoring the performance, or making changes in their portfolios.
2) The investor does not have enough cash to properly allocate a portfolio in stocks or a mix of stocks and funds.
In both cases, allocating your investments entirely in index funds can make a lot of sense.

2) Mid Cap Allocation: Finding the proper investments in any investment category can be very difficult, not to mention frustrating. Since many Mid Cap and Small Cap Mutual Funds have turnover rates in excess of 100% annually, it would be foolish for an individual investor to try and manage these allocations themselves with individual stocks. The safest and most appropriate way to allocate your portfolio among these groups is to use index funds.

Like I had mentioned above, some non-indexed mutual funds will from time to time outperform their respective indexes. But, once again we must ask, at what risk to the investor? Since most non-index mutual funds rarely beat the index consistently, or over the long haul, I feel it痴 more prudent to own the index. The index fund I recommend for this category is the Vanguard Mid Cap Index (VIMSX).

3) Small Cap Allocation: Use a Small Cap Index Fund for all of the reasons we mention above. Allocating assets to small cap stocks as part of a properly diversified portfolio can be scarier than watching the exorcist. I have spoken to small cap fund managers through the years, and they even admit that they rarely have the stomach to own a portfolio of individual stocks in this sector. Instead, I recommend the Vanguard Small Cap Index- Ticker Symbol (NAESX) for this portion of your portfolio.

4) International Markets Allocation: There are many wonderful Blue Chip companies around the globe. BP Amoco, Nestle� and Glaxo are a few that immediately come to mind. However, gaining access to information on foreign companies can be very difficult, if not impossible. I am not opposed to owning individual stocks in foreign companies, but to gain proper diversification, you need to also have broad exposure to many foreign markets. To do this, we once again turn our attention to index funds.

For example, the companies I mentioned above are all European. You need to have exposure to other continents as well, not to mention a blend of different market capitalizations like large, mid, and small cap sectors. For this reason, I like to use the Vanguard Total International Stock Index- Ticker Symbol (VGTSX) to broaden our exposure to a large cross-section of the world. The Vanguard Total International Stock Index is comprised of three broad stock market indexes, the Vanguard European Stock Index, Vanguard Pacific Stock Index, and the Vanguard Emerging Markets Stock Index. The fund uses a blend of market capitalizations, while properly diversifying among the top 12 sectors of the market.

5) Bond Allocation: Stocks are ownership, while bonds are loaner ship. You are loaning your money to an entity in return for a promise of a stated interest rate and the repayment of the loan on a specified date. If the entity is a corporation, interest payments are received on a taxable basis, while municipal bonds generate federally tax-exempt income. Certain other bonds, known as zero coupon bonds, do not pay any current income, but rather are purchased at a discounted price and mature at a predetermined value at a specified time.

Bond prices are impacted primarily by the rise and fall of interest rates. Quite simply, bond prices move inversely with interest rates. As interest rates increase, bond values go down. Likewise, if interest rates decline, bond values tend to increase.

To manage risk and to minimize the impact of interest rate changes, investors need to diversify their bond portfolios based on varying maturities. This diversification is known as Laddering Maturities. Laddering involves building a portfolio of bonds with staggered maturities so that a portion of the portfolio will mature each year, or some other specified time period. By spreading out the maturities, you are investing at different interest rates, with the shorter-term bonds paying a lower rate, and longer-term bonds paying a higher rate. In the mean time, you are spreading out the risk of principal fluctuation.

I recommend that investors own bonds with maturity dates ranging from 1-5 years on the short end, with bonds maturing in each of the 5 years. After the fifth year, buy bonds that mature in 5 years increments until your final maturity dates are 25 to 30 years out. You will want to invest even amounts of money at each maturity with the exception of the longest maturities. For example, if you are investing $10,000 in each maturity, you may want to only invest $5,000 in years 25 and 30.

As to what types of bonds to own, you will want to own taxable bonds in tax deferred accounts like IRA痴, and pension plans. In taxable accounts, you will have to take into consideration your tax bracket, and compare the tax free yields on municipal bonds to the after tax yields of taxable bonds.

Whatever the case, in tax deferred accounts, you want to own bonds in high quality companies that carry a bank quality rating of triple B or higher. In addition, you wanted to own some bonds that are insured or backed by the US Government. Some municipal bonds are taxable and insured, and make great alternatives to US Government bonds.

To get a more detailed explanation of bonds, comparisons, and where to buy them, go to the Reports link on my website and click on Bonds.

6) Cash: The cash portion of your portfolio should be invested in something safe and liquid. It will also serve as a place to collect and store the dividends and interest paid from your stocks and bonds. Personally, I want to avoid paying Federal as well as State intangible taxes, so I use the Fidelity Tax Free Florida Municipal Money Market Fund.

If the amount in your money market is too large and you want maximum safety, you may want to diversify into other short term (1-3 month certificates of deposits, treasuries, or tax free floaters) instruments.

STEP 4: Calculating Your Retirement Needs

CREATING A FINANCIAL PLAN

When establishing a financial plan for you or your family a "first step" is usually to take a look at a personal financial balance sheet or your Net Worth. You値l quickly get a picture of what you have, what you owe and what the net balance is of each. Examining the components of your assets and liabilities and making projections of their individual values into the future can be helpful in forecasting your financial future and your retirement needs. Accurately recalculating your net worth every six months to a year will give you a track record of how your wealth is growing or declining over time.

Go to any of the links below to start developing your own financial plan by examining where you are now, and what it is going to take to reach your goals. For example, if your asset allocation questionnaire profiled you as an "aggressive" investor (11.9% average return), and the financial planning calculator below states that all you need is 8% a year to reach your goals, you may be taking too much risk. If this is the case, then you need to adjust your allocation model from "aggressive" to a lesser risk category.

In addition to the links below, your discount broker will also have retirement planning calculators that you can use.

Retirement Planning Calculators

CNN and Money Magazine Retirement Calculator

Smart Money IRA Calculator

Smart Money Retirement Calculator

Smart Money 401K Planner

WHAT IS AN ANNUITY?

An annuity is a contract (policy) between you as the policy holder and an insurance company. Depending on what kind of an annuity you have purchased, the insurance company will provide you with certain contractual guarantees. The minimum investment in an annuity is usually around $5000.

DIFFERENT KINDS OF ANNUITIES

There are basically five kinds of annuities: a single premium deferred annuity, an immediate annuity, a variable annuity, an index annuity, and a tax-sheltered annuity.

THE 5 KINDS OF ANNUITIES

1)A SINGLE PREMIUM DEFERRED ANNUITY (SPDA)-The SPDA,or Fixed Annuity got its name because people deposit a single premium, or lump sum, in the policy, and deferred because the taxes are postponed until money is withdrawn. An SPDA is a contract between you and an insurance company that guarantees you a specific interest rate for a specific period of time. The length of time the interest rate is guaranteed for can vary from one to seven years.

The SPDA or fixed annuity closely resembles a certificate of deposit at a bank. In both cases, you get a guaranteed interest rate for a period of time.Of course, a certificate of deposit is guaranteed by FDIC, and an annuity is backed by the financial strength of the insurance company. You will incur a surrender charge if you take more than 10% of your money out within the penalty period, and in a CD you'll be faced with a six-month interest penalty if you withdraw money before the time period is up. The difference, however, is that with a certificate of deposit, you will be paying taxes each year on the interest you have earned,where an annuity grows tax deferred.

2)SINGLE PREMIUM IMMEDIATE ANNUITY (SPIA)-An immediate annuity is a contract with an insurance company that guarantees you an immediate fixed income for the rest of your life, and, in some cases, continuing for a certain period even after your death.

I am not real fond of this type of annuity because I see very little benefit to the investor. If the investor has a SPDA or fixed annuity and needs income, the can simply opt to take their 10% free withdrawl each year, or annuitize the contact over a period of time. Depositing a lump sum in this type of annuity simply for income is not a wise choice.

3)VARIABLE ANNUITY -A variable annuity is also a contract with an insurance company for a specific period of time, but when you deposit money into a variable annuity, the money can be used to purchase mutual funds,or simply put in a money market or fixed account within the insurance contract.

A variable annuity can have many funds for you to choose from, and some allow you to even purchase bonds. One of the main attractions of a variable annuity is they can be used as retirement plan substitutes. Your contributions to an annuity are usually with after tax dollars, but you will enjoy the benefits of growing your money tax deferred. In taxable accounts, you probably have had large gains in mutual funds that you wanted to sell, but haven't done so, because you'd have to pay so much in taxes. A variable annuity can solve this problem.

4)INDEX ANNUITY- An index annuity is a contract with an insurance company for a specific period of time. The surrender period on an index annuity is usually about 7 to 10 years. The index annuity tracks an index such as the Standard and Poor's 500 index, and your return on your money will usually be a percentage of what that particular index did for your corresponding investment year.

The popularity of index annuities have grown in recent years because insurance companies started enhancing the product with "Principal Protection". This means if the market went down, you're investment could never be worth less than what you invested. Of course, there is a catch. The catch is Principal Protected Index Annuities have an upside cap. This cap limits your gains to 2-3% a month, and is cumulative. This means if one month the index looses 3%, and the next month gains 4%, you would still be at a zero return because your monthly cap was 3%.

All in all, you may limit your upside, but your downside is protected. In the long run, the index annuity should outperform SPDA's or fixed annuities, but may underperform the actual indexes.
If your looking for a way to participate in the stock market with no downside risk, modest upside appreciation, and tax deferral, Principal Protected Index Annuities may be for you.

5)TAX SHELTERED ANNUITY (TSA)- A TSA is basically a retirement plan that is maining offered to school teachers and hospital workers.TSA money is usually deposited monthly and is extracted from the pay of employees on a pre-tax basis.TSA's offer a broad choice of investment vehicles similar to a variable annuity. Of these choices, the investor has to choose what investments he/she wishes to own.

Most human resourse offices can provide you with information on how to allocate you investments. To simplify the process, you can simply go to the REPORTS section of my website, and click on the "How to be Your Own Broker" report. Complete the questionaire, and follow our suggested asset allocation suggestions.

COMMISSIONS/FEES

The difference between the annuity and other investments is that in most cases, annuities carry the highest commission percentage of them all, which is why brokers and insurance agents love them so. Usually the fee that the person "earns" by selling you an annuity is around 5% to 6%. In some cases, it can be higher and in others lower.

Annuities are becoming less restrictive than in the past. Annuities can now be purchased without tying up your money for long periods of time, and have no declining sales charge. All Fixed Annuities have penality periods, so there is no flexibility there. But you can take comfort in knowing that 100% of your money is invested immediately, and nothing comes out of your pocket. Also, there are no ongoing fees associated with Fixed Annuities.

Annuities offer many advantages for investors, but like anything else, you have to know what you池e doing.

If you池e interested in annuities, do business with an independent financial advisor that is not compensated for what he/she sells, but charges a quarterly fee to properly allocate and monitor your assets. If you do business with a broker or insurance agent, more than likely they are going to recommend an annuity that pays them upfront and has a declining sales charge or penalty period. If you must deal with a broker/agent, insist on a 渡o penalty, no backend� sales charge annuity.

1. Establish a financial plan - Setting goals and establishing a comprehensive financial plan is the starting point to acquiring and keeping long-term wealth. Before you begin setting goals, it is important to know where you are, so you can determine where you need to be. We do this by analyzing our current financial situation, set goals for the future, ad make adjustments in our lifestyles to allow our goals to become a reality.

The secrets to acquiring and keeping wealth do not begin and end with the stock market. The stock market is only one of many strategies we use to accomplish our objectives. A solid financial plan not only prepares us for our retirement years, but makes life more rewarding during our working years. Retirement for some could last 30 years or more, and during this time you can expect to see market cycles of varying degrees. You can plan now and be prepared for whatever comes your way, or you can do nothing and be subject to a life of uncertainty.