If you’re reading this blog, chances are good that you’re trying to get ahead financially. There are a lot of things you’re probably doing right, and some things that you need to work on. Amongst all the other fiscally responsible things that you may be doing such as building an emergency fund and living frugally, you need to be investing in order to get ahead.

The next question is most likely, what should I invest in? And this is exactly the question that you should be asking yourself. If you’re looking for someone to tell you where the best place to put your money is, you’ll have no problem finding them. You can find brokers for stocks and bonds. Turn on the TV at night and you’ll almost surely find someone willing to show you how to invest in real estate. You could also find someone to help you invest in gold, silver, or commodities.

One of these is not necessarily better than the other. You need to find out what interests you and where you’d like to invest. Warren Buffett has made a ton of money investing in stocks. Donald Trump has done likewise mainly through real estate. Bill Gates and many others have gone the entrepreneurial route and invested in their own business. The point is that there are many different ways to invest and increase your wealth. If this weren’t the case, the Forbes 400 would be a very boring list.

I’ve written before about shopping for investments, and that we should put as much effort into researching where we put our money as we do comparing the different models of cars or flat panel televisions. If you’re interested in real estate, learn all you can about the industry and how to invest there. Take a trip to the library and check out all the books you can on the subject. There’s a wealth of information out there on the subject.

Perhaps you’re drawn more to the stock market and the opportunities that are offered there. There are also plenty of books, audio books, and websites where you can learn fundamentals and strategies of the stock market.

There are a lot of opportunities out there if you’re willing to look for them and seize them. You know you need to invest, so figure out what you’re style is and what type of investing interests you the most. You don’t have to invest in just one asset class, but start with one and branch out from there. And remember that no one else cares as much about your financial future as you do.

Citigroup has said that its quarterly profit will drop about 60 percent because of the trouble in the subprime market and a weaker consumer business. They have also said however that they expect to return to a normal earnings environment in the fourth quarter.

As could be expected, shares of Citigroup dropped even before the market opened. I’m mentioning this as an example of the day to day news and information that affects the price of stocks. Citigroup is the largest U.S bank by market capitalization and I don’t see them filing bankruptcy any time soon.

I do see this as an opportunity to pick up shares of the company for relatively cheap. The dividend yield alone is over 4 percent. I also wouldn’t be surprised to hear various analysts talk about the stock as a great value say to pick it up while it’s cheap. Thus, the constant up and down of the daily prices. Today will most likely be a down day for Citigroup, but tomorrow is anyone’s guess.

If you see the company as a solid company, you won’t be shaken by one piece of news, and you might even seize the opportunity to buy it on sale. It would be wise to have a list ready of companies you’d like to own so when opportunities like this come along you’re ready for them. You shouldn’t try to time the market, but buying a solid company on a dip isn’t a bad strategy.

With all of the ups and downs in the market these days, people are wondering whether it’s a good time to invest or pull out. There is a lot of fear in the market and investor perception is constantly changing. There are large gains seen on any given day followed by huge sell-offs the next. Amidst all this you may be wondering yourself what your best option or path forward is.

All of this activity in the equity markets can be summed up and described as volatility, and in times of increased market volatility it’s natural for people to be a little leery. Interestingly however, increased market fluctuations are actually better for an investment strategy known as dollar cost averaging.

Briefly explained, one invests a set amount of money at set intervals. For example, you would invest $200 every 2 weeks. As a result, a larger quantity of the underlying investment would be bought when the price is down and less is bought when the price is high. The average price of the investment over time is then necessarily closer to the lower purchase prices.

This strategy may be used in a stable market, but it’s benefits are greatly amplified in a more volatile market because of the large price swings. This strategy is not a substitute for choosing quality investments. It is more concerned with acquiring a quality investment at a low price point (on average). So don’t let the fluctuating markets deter you from investing. Just find a way to have the current conditions work in your favor and perhaps give you an advantage.

If you haven’t heard, last week was one of the worst weeks for the market in years. The Dow dropped almost 600 points and the rest of the market generally followed suit. Many investors are still a little nervous as to the markets outlook, and it only rebounded a little today.

Instead of being nervous, sophisticated investors will see this downturn as a unique opportunity to pick up some stocks at what might be called, bargain prices. This doesn’t mean that you should just go out and buy anything that has dropped significantly in price. You should still look to buy quality investments.

For example, I saw this downturn as an opportunity to pick up shares of Citigroup Inc. (C). It’s a solid company with a history of solid earnings. They pay a nice dividend which at the current price yields around 4.6%. The best part is that after last week’s sell off, the stock is trading around its 52 week low. Obviously there’s no sure thing in the market, but it looked like a bargain to me.

I’m sure there are plenty of other opportunities out there after last week, it’ll just take a little effort on your part to find them.

There’s one other important thing to note. Most people see a market sell off, like the one last week, as a reason to panic, and they fear they’re going to lose money. We should consciously remind ourselves, however, to look at them as opportunities instead. It is a tough mindset to develop, but the earlier the better.

In previous posts I’ve written about market capitalization and the P/E ratio, and the basics of the stock market. Today I want to introduce another concept used to analyze a company to determine whether you’d like to invest in it.

Return On Equity (ROE) is a measure of a companies ability to profitably employ the money that shareholders have invested. This measure is calculated as follows:

ROE = Net Income / Shareholder’s Equity

A company’s net income may be obtained from the income statement while the shareholder’s equity is reported on the balance sheet. You don’t actually need to calculate this yourself, though, since many financial sites such as Morningstar will provide it for you.

So, now that you have this number, what does it mean for you? Like I stated earlier, it measures how profitably a company employs its investors money. It should be obvious that the higher this number the better; however, there’s a little more to it than that.

Say a company has an 18% return on equity (General Electric is one example). Let me be clear now; this does not mean that you will earn 18% on the money you invest. If you remember from an earlier post, when you buy a stock, you’re buying it on a secondary market, and it has no effect on the company’s financials. What you are doing is buying an ownership interest in the company that then entitles you to any FUTURE earnings and growth.

This is where the 18% ROE comes into play. Now that you own a few shares of a company, the company will hopefully post a profit from which you determine what’s called Earnings Per Share (EPS). These earnings belong to you as the shareholder. The company now has to make the choice of what to do with these earnings.

There are a few main options. The company may announce a dividend, in which case you will be paid out a portion of these earnings. The company may choose to buy back it’s own stock with these earnings (a topic for another day), or it may choose to reinvest the earnings back into the company which is what we call retained earnings.

It is this last option that we are interested in when we talk about Return On Equity. Based on our example of an 18% ROE, we can expect the company to earn an 18 percent return on this reinvested capital. It is this compounding year after year of profitably retained earnings that can make one wealthy.

There is an upfront cost to get into a stock because of the current market valuation. Looking back at the P/E ratio, if a company trades at 20 times earnings and has earnings of $2 a share, you can expect to pay about $40 per share. If you buy this stock, you can view the earnings as your return on your investment, in this case $2 / $40 = 5%. This doesn’t look like anything spectacular, but it’s the $2 in earning that will compound at the 18% Roe.

In the second year you could reasonably expect earnings increase to $2.36 (2 x 1.18 = 2.36). This then increases your return to 5.9% (2.36 / 40 = 5.9%). After 10 years of the earnings compounding, your $40 initial investment is now returning over 26%.

Obviously there are assumptions being made such as a sustainable ROE and earnings growth and the like, but it’s the concept that I want you to understand. It’s another tool to put in your financial toolbox. Hopefully, this has provided some insight into the investment world and will help you in the future.

I’m reading a book right now entitled Buffettology written by Mary Buffett, Warren Buffett’s former daughter in law. There is a chapter titled The Myth of Diversifications Versus the Concentrated Portfolio. It portrays a very different perspective on investing that what is generally purported.

“Warren believes that diversification is something people do to protect themselves from their own stupidity. They lack the intelligence and expertise to make large investments in just a few businesses, so they must hedge against the folly of ignorance by having their capital spread out among many different investments.”

While I don’t much care for the tone of this quote, I do happen to agree with it. Most people don’t want to spend any more time than necessary on choosing their investments. All you have to do is look at the very lucrative mutual fund industry to see that this is the case. And when I say “very lucrative”, I’m not talking about the individual investor, but instead, the fund managers.

It’s also interesting to note that the bulk of the gains in these funds usually come from a few well performing investments. Proponents of diversification will say that you need to own many investments because you don’t know which one’s will be the outstanding performers. Those like Warren Buffett will say that you should learn the basics and then some of investing and do sufficient research. This way you will only invest in very secure and highly profitable businesses.

You can choose the style that you feel most comfortable with, but it is certainly food for thought. Why is it that we’ll spend hours upon hours researching all the features and specifications for the new LCD TV we want, and we’re content to just deposit our money into a fund where we most likely don’t even know what it’s invested in. No matter what style you choose, it can’t hurt to learn more about how to choose good investments.

I read a good article over at Get Rich Slowly that talks about investing in broader terms than what is usually thought of as investing. Whenever someone talks about investing, most people invariably think of the stock market, bond market, or mutual funds. However important these types of investments are, they aren’t the only way to make money on your money.

Many personal finance gurus make assumptions about how much money you can accumulate if you invest X number of dollars a year for so many years and earn, say, a 10% annual return. The obvious question that many then ask is where can I earn 10% consistently?

It may come as news to a lot of people, but stocks and bonds are not the only way to earn such returns. As I’ve mentioned before and this article points out, there are many other ways or opportunities through which we can earn great returns. You’ve got to keep your eyes open and think creatively sometimes, but it can be done.

If you’ve taken advantage of a unique opportunity that you’d like to share we’d love to hear about it. Tell us about your experiences in the comments.