In developing an investment strategy, the most important thing is setting specific goals. Because the specific goals you will get the right information from the period of time and value in the future. Then, from the side of ourselves, we also must examine our risk tolerance for investment. Do not get disturbed sleep due to choosing investments that are too high risk.

And after the two points above, you are doing, then you need to develop alternative strategies for a variety of investment options. Strategies need to be supported by accurate calculations. From these calculations, you will get the value of the funds you need to invest to achieve financial goals that you have set begins with your financial situation today.

In the process of development of investment strategies, there are some steps that we can do to achieve its intended purpose. First, to understand and examine the transaction costs. Second, know the pluses and minuses of alternative strategies. Third, make a wise placement in the choice of existing assets (asset allocation) based on measurable objectives.

Seeing the impact of transaction costs

There are two main factors that can reduce yield investment transaction costs and taxes. Financial institutions such as securities firms or banks always charge a fee for every transaction that we do. For example, every month we will be burdened by administrative costs when placing money in the bank. Transaction costs also applies when we want to pay the bills through the bank. Investing in any mutual fund will have costs, such as costs for each purchase of mutual fund units. All this must be understood and examined, so we can make decisions related to investments.

Another cut investment taxes. For example, a bank deposit interest tax will be cut by 20 percent. For example, if the deposit interest rate currently is 6 percent of the actual net results (after tax) earned less than that, which is only 4.8 percent (= 0.8 x 6 percent). When we transact shares (buy and sell), then we will be burdened by taxes and transaction costs. In a stock transaction, the tax charged is based on the percentage of the final transaction value. This means that the tax payments are not dependent on the profit or loss on the transaction. So, although we are experiencing a loss (the difference between the buy and sell negative) in stock, we will still be burdened by taxes.

In summary, before you invest in investment instruments, we need to know and understand the cost of transactions, including tax, we need to pay. Calculation of the yield to achieve the desired objectives are based on net yield after costs and taxes.

Alternative strategies to know plus minus

With the availability of alternative investment strategies, we must carefully consider the pros and cons before the decision is taken. There are two things we should consider in selecting or implementing investment strategies. Both issues will be discussed below.

Time versus money

Are we going to pay someone to be able to monitor the progress of our investments or we’ll do it myself? Here’s a trade-off is time and money. With busy every day, often a family’s financial planning business that will be ignored. Both in the early planning process or during implementation, they need adequate attention so that we can achieve what the objectives of the family. When our time is limited so an alternative solution is to delegate the task to the professionals handling. This option should be considered carefully so that financial goals can not be abandoned because of lack of time.

Recording

Do we want all of our investment data is bundled in a single report or feel quite comfortable with many different reports for each type of investment that we do? All this is related to the investment options. When we conduct investment transactions with many companies, then each period (eg every month or six months) we will always be busy with various reports of our investment growth. Monitoring many separate reports can be very time consuming and uncomfortable. This discomfort can be reduced by placing the funds only on an investment management firm. Allocation of funds to the different instruments can be made through an investment management company if the company provides a variety of investment options. The problem is, not all investments offered by one company is the best. Typically, a company only has one advantage compared to other companies. Thus, these factors should be considered in determining the investment option.

Buy-and-hold market versus time

In general we know two ways to invest, ie buy-and-hold and market timing. The first way is to buy some alternative investment vehicles, and still hold for a long period of time. The hope is the magic of compound interest to (the magic compound interest), as highlighted in the discussion before, realizing that provide opportunities for large profits in the long run. So the long-term perspective and consistency is the key. Other camps, the believers in the market (MT) did not agree with the argument buy-and-hold (BAH). According to the MT fraction, investors may suffer if they do not take advantage of price fluctuations (volatility). Supporting MT recommend to take advantage of changes in market prices. For example, when prices were declining then you buy it and when prices go up you sell. In short buy low sell high, buy low or sell high. That way investors will get the maximum benefit from the investment.

Market strategy is timely promising extraordinary profits. Professor Robert Merton, Nobel Prize winner in Economics in 1997, examined three investment strategies using stock market data in New York in the period January 1, 1927 – December 31, 1978. The third strategy began with initial capital of U.S. $ 1000. The first strategy, call it strategy deposits, is an investment in short-term securities 1 month (eg commercial paper or T-Bill) and the principal and interest, rollover the beginning of each month. The second strategy, called the buy and hold strategy (buy-and-hold) is investing in the stock market (represented by the stock market index of New York) continuously (capital gains and dividends reinvested obtained beginning of each month) for 52 years.

The third strategy is the perfect market time strategy. Means the beginning of each month, investors consult to a â € ~ computer astrologer who never salahâ € ™. If you think this computer forecasts stock index will rise for 30 days, then the money will be invested in the stock market. Conversely, if an astrologer to predict the computer will share index falls, then the money will be transferred to the investment of short-term securities during the next 30 days. And so on for 52 years.

For the first strategy, investor money just to grow to U.S. $ 3600. For the second strategy, the investor money to grow more than 60-fold to U.S. $ 67,500. What’s interesting is the third strategy. In a seminar attended by finance professor Robert Merton gave a short quiz to survey estimates these professors about the results of the third strategy.

Well, if you are asked to guess, how do you estimate the results of this third strategy? Most likely, your estimates will not be much different from the estimate of this financial professors. The result is the same. Estimated finance professors at the seminar was Professor Merton was not accurate. In general, estimates range from hundreds of thousands of dollars to tens of millions of dollars. We’re sure you guessed at about the same number. The appropriate response is, do not be surprised, five point three six billion dollars (this answer is written in capital letters on purpose so as not easy diintip before guessing). Extraordinary, ranging from a thousand dollars, in 52 years you can earn money several times a much-needed IMF financing the Indonesian government during the period of crisis.

So, the logic of buy low sell high is absurd. Investors will be lucky to buy at the lowest price and sell at the highest price. The problem is, whether to buy a particular time will always be true when the price is the lowest level and the time to sell when prices are at the highest level? The possibility exists, but the possibility is very small. There will be no one who is always correct in predicting or estimating the market price changes. In practice, much less precision is estimated that eventually an adverse impact on investment that you place.

In determining the time to buy no single investment manager who dared to say with certainty that the price of shares in the capital market is the lowest price, they do all of these estimates is a calculation that may have errors or inaccuracies. Although prices have been low, there is no guarantee that prices will not fall further. In contrast, although the price has been high, there is no certainty that prices will not rise higher. If too many errors prediction, not a profit rather than loss of investors.

For investments to achieve financial goals such as long-term family 10, 20 or even 40 years into the future, we recommend that our method is also reviewing the dollar / rupiah cost averaging.

Asset allocation

Before we determine the investment choice, we must know that there are a variety of purposes and adapted for the achievement of the period. Setting up the fund children’s education is also one of the family’s financial goals. This goal is a long-term financial goals. Suppose we want to set up college funds for our children is 2 years old. We still have at least 16 years before our kids to college. Investment options that provide a large yield expectations in the long term with measurable risk can be an option. Mutual funds or a combination of mixed equity funds and fixed income mutual funds is a potential candidate for this situation. In the planning of educational funds, we recommend placement options are not too aggressive funds. We do not want to speculate with a high risk that can occur when the necessary funds are not available or not enough.

From these examples show that the allocation of funds for various purposes which should be tailored to the needs and goals. Should we begin to see the various options available investment alternatives that can be tailored to our level of risk tolerance and investment time period is required.

Hopefully this review helpful and add to our insight in building a strategy tells ivesting.

Happy investing.
thks