What Stock Market Returns to Expect

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Stock market returns rely solely on what types of investments you choose.  The riskier the investments, the more you can gain or lose in any year.  However, if you are investing for a long time horizon, then more risk will almost surely mean higher returns.  Also note that this assumes you invest in a diversified portfolio (i.e. not just one stock).  For example, if you invest in Company A, which is developing a new technology that hasn't yet caught on, you could make 1000%s or you could easily lose it all in just one year.  If you held this stock for 10 years, you could end up losing money all ten years.  On the other hand, if you bought Company A and 20 other companies like it, you could still lose or make quite a bit of money the first year, but you would not make 1000%s or lose it all.  And in the long run, these stocks together should make you money.

There is no hard and fast rule as to exactly what to expect when you invest.  And because the amount of risk you take in your investments can also not be measured accurately, it is even harder to know what type of returns to expect.

Here are some rough guidelines as to what type of returns to expect.  Remember, the opportunity to make more money also means the opportunity to lose more money.

Savings Account, Certificates of DepositBonds, Large Established StocksEmerging Stocks, Speculative Stocks

1 Assumes a diversified portfolio of similar investment types or a mutual fund of that investment type.

2 Assumes an investment period of approximately 1 year. These expected returns are based on historical results and actual results could vary by even more.

3 Assumes an investment period of at least 10 years. Any given year could fluctuate dramatically.

 

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Stock Investing Basics

The first thing you need to know about stock market investing is that it is easy to do and that anyone can do it.  The second thing to know is that there is no 'perfect' way to invest in the stock market. And there is no 'perfect' stock or investment product for you to choose. 

The best investment choices are the one's that you are comfortable with and the one's that most closely meet your goals. With that said, you can always choose stocks better when you're educated, so once you get started, keep practicing and you should keep getting better over time. As your investments grow, so will your knowledge of how to invest. Start simple and as you learn and save more money, expand and diversify the types of investments you have.

In its simplest form, here are the steps required to invest in the stock market:

Save Money

This sounds pretty simple but is actually the single biggest deterrent to investing.  It is important to know that you don't have to save a lot of money to begin investing.  There are plans were you can start by investing as little as $50 per paycheck. However, most brokerages require a $500 or $1,000 initial deposit to open an account.  If you can't come up with that much money right away, don't worry, start your own savings plan and tuck away as much money as you can in a bank savings account until you can fund your brokerage account.  At $50-$100 per paycheck, you'll be up and running in just a few months.  Having trouble saving money? You may want to visit this site and read hundreds of ways to save money.

Create a Strategy

Now it's time to create your investing strategy.  Are you going to invest for growth, for speculation, for a down payment on a house, for retirement, or for college?  Also, are you going to invest a set amount of money each month or are you going to try to 'time' the market? For a more detailed explanation of strategies, see our section on stock investment strategies.

Open a Stock Account

Now that you've saved money and have an idea of your strategy, it's time to open your stock account.  If you are opening an account for speculation, you'll want to open a margin account with option trading enabled, if you are looking for a retirement account, you'll want to explore the tax benefits of opening an IRA or Roth IRA, and if you are saving for college, you'll want to explore the 529 and Coverdell IRA accounts. For a more detailed analysis on opening account, see our section on how and where to open a stock account.

Fund Your Stock Account

This part is really easy. Once your account is opened you need to send money to your account.  A direct link between your checking / savings account and your brokerage is the fastest and most convenient way to fund your account.  By doing this, you can automatically have funds transferred each paycheck or month, or you can manually move money whenever it is available.

Select and Purchase Stocks or Mutual Funds

This is probably the hardest part of investing because there are tens of thousands of different investments to choose from.  Do you choose stocks, bonds or mutual funds?  And then, which specific stocks or funds do you buy?  The best way to choose stocks is to learn how to do your own research, which you can find in our section on stock investment research.  We also have a section on analyzing mutual funds.

Save More Money

Until you retire, you should never stop saving money.  Continue to save money with the goal of saving more and more each year.  As you watch your prior investments grow, you should become more and more motivated to save even more money.  The fastest way to do this is to increase your income and lower your expenses at the same time.

Invest in More Stocks and Funds

With the new money, invest in different stocks and funds to build a diversified portfolio.  See our section on building your stock portfolio.

Keep Educating Yourself

Keep reading up on the stock market and finding new investments that are right for you.  The more you read, learn and watch, the easier it will be for you to choose investments. See our section on recommended reading for stock investing.

Occasionally Rebalance Your Portfolio

Every year or so, take a look at your total portfolio and make sure that it is diversified, invested in quality investments, and that it is aimed toward your goals.  See our section on building your stock portfolio.

Another good way to learn the stock investing basics is by asking questions.

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Stock Market Investing FAQ

Sometimes the best way to learn about stock market investing is to ask questions.  Here are some frequently asked questions that may help:

Why is the Stock Market a Good Long Term Investment?

It's all about risk and return, and because your money is at more risk in the stock market than if you park it in a savings or CD (by the way, the money you invest in a CD is probably reinvested by the company offering the CD), the potential return is higher. It's true that the gyrations in the stock market can cause both large losses and large gains, but if your investment time horizon is long enough, these short-term fluctuations will result in relatively high returns. It is generally accepted, that the average long term return from investing in stocks is 10-12%. This is much higher than the average CD or savings rate of 4-6%.

Why does the Stock Market Get out of Whack with Reality?

Over the long term, the stock market is driven by underlying economic, financial and global growth. But in the short run, the market is driven by simple greed and fear, which are dictated by human emotions. During periods of prosperity, the stock market often rises faster than underlying earnings. During tough economic times, political uncertainty, and low consumer confidence, the stock market often performs worse than the underlying fundamentals predict.

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Stock Investment Research

You hear every day how "analysts" are raising or lowering their stock ratings. Ever wondered how they come up with those stock ratings and just how accurate they are?  Well, I was a stock analyst for close to ten years and can tell you first hand that you can do your own stock investment research and come up with answers that are just as accurate as theirs.  I'll try to break down into simple terms some of the techniques they use. If you are interested in learning more, there are thousands of books devoted entirely to this subject.  However, I would recommend keeping things simple and not getting too technical.

There are two steps to choosing the right stocks to invest in.  First, do your investment research.  This means learning about the fundamentals of the company, including their products, services, business goals, management depth and other intangible assets.  Once you've done this, it's time to apply various stock valuation techniques in order determine if the stock is priced attractively and if you should buy it.

In this section, I'll discuss how to do your own stock research.  To learn about stock valuations, visit the stock valuation section.  You'll need to take the results of both techniques into account before making your investment decision.

Let's get started by looking at the different ways to research stocks.  And by research, what we really mean is that we are going to find out as much information about the company as possible and then use that information to deem whether or not the company merits your investment consideration.  Use the following methods to formulate an overall opinion about the quality of the company you are considering.

Annual and Quarterly Reports

Each company files quarterly and annual reports with the SEC, which are called 10-Qs and 10-Ks.  They include a lot of information about the company and how the company does business, including competition, long term risks, as well as fully explained sales and cost analysis.   Read these statements over to learn about the company you are researching.  The more of these statements you read from different companies, the more you will learn to take away valuable information about the companies.  These forms can be found through any finance website such as yahoo or google.

Press Releases

Press releases are distributed through any finance website or on the company's website.  They can be released at any time and often cause stock prices to rise or fall sharply.  Go back in time and read the press releases to understand what the company deems important and what the current issues are with the company.  Press releases often announce new contracts, mergers and acquisitions, management changes, and of course earnings releases.  Watch for new press releases everyday to keep up with the companies you are researching.

Industry Reports

Every industry has an expert or organization that follows it.  Many of these industries are private and only offer full information for exorbitant prices.  However, most industry analyses offer some of their information for free.  Stock analysts also offer industry reports.  Sometimes you can buy these through a finance site or brokerage.  Also, you can always call or email the organization or analyst and ask them for a copy.

Analyst Days and Other Webcasts

Most companies have analyst or investor days.  You probably won't get an invitation but it is worth contacting the company and asking if you can attend.  They are often broadcast on the web so you can attend them for free.  Also, if a company you are following is presenting at an upcoming conference, ask them if you can attend.  They will likely put your name on the guest list so you can get in for free and learn about them and other companies in their industry.

Conference Calls

Companies host conference calls that are streamed via the web.  Some are scheduled weeks in advance, like for earnings reports.  Some are scheduled just a few minutes in advance, for suprise news.  These calls are available to anyone and you should listen to as many as you can.  You will learn how management thinks and acts and can better form your investment decision.

Competitive Analysis

Do your own competitive analysis.  Compare everything about the company you are researching against other companies that are like it.  Is it's market share growing?  Are its margins as high?  Is it growing faster or slower than others.  If your company is better than others in its industry, it usually trades at a premium in price to the others.  Only buy companies that are on the upswing.

Intangible Assets

Look for intangibles that make your company stand out.  For example, Dell and Apple both make computers but Apples brand name is an intangible that stands above the crowd.  Other intangibles to take into account are patents, ability to make accretive acquistions, and the quality of the company to attract talent.

Management Depth

You can find the history and background of the core management team in their 10-K filing.  You can also do some searches on the Internet that can tell you more about the individual leaders of the company.  More importantly, listen to the conference calls and look at their track records to make sure they are good.  Good management, especially in bad times, can make all the difference.  Look for experience and a history of success.

Company Goals

Find out what the goals of the company are.  Are they to grow existing business rapidly, grow by acquisition, help the environment, protect their assets, etc.  Make sure they meet your investing goals.  Watch for companies that are increasing spending faster than sales.  Although they are likely adding to future sales growth, they can go through periods of slow earnings growth in the near term.

Contact the Company

Have any questions about the company you are researching?  Call them!  That's right, call their corporate headquarters and ask for investor relations.  Or email them.  They can probably answer most of your questions.

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Building Your Stock Portfolio

How to Select An Investment. Here are some tips on how to narrow down your selection of investments.

CDs.  Choose your time horizon. Then find the CD closest to that time horizon with the highest rate. Shop around at your local banks or through your brokerage account.

Money Market Accounts.  Offered by banks and brokerages. Choose between tax-free and traditional accounts. Then look for the highest rate. Tax-free accounts are more beneficial if you are in a very high tax bracket, but they pay a lower interest rate.

Stocks.  Picking individual stocks is the riskiest method of investing. If you are just starting to invest, you should probably start with stock mutual funds. However, it doesn't hurt to add a small percentage (never more than 10% of your portfolio per single stock) of individual stocks to your account. Doing so will likely increase your participation level and interest in the stock market. To pick individual stocks, use a variety of tools, many of which are offered through your online brokers. Find companies that you know something about and that have a good reputation. Then, read about the company and learn about their business. Try to get your hands on some research reports to learn what other people think (but remember that research reports are wrong as often as they are right). Look for long-term trends that will benefit the company you like. Always invest for long-term reasons and don't ever buy a stock simply because it is popular or because you think you know something others don't. As a previous research analyst, I can safely tell you that every time I knew something that the rest of the market didn't know, I was wrong as to how the stock would react to the news. Basically, I'm saying that you can't predict the short-term fluctuations of the stock market or of individual stocks. The best way to invest is to find long-term, sustainable business trends that you can invest in, and then to hold your investment until you think those trends are changing. A great way to find stocks to read is to subscribe to a magazine that offers opinions and spells out their business models (try Smart Money or Kiplinger's) . Also, word of mouth works to give you ideas, but don't be too hasty acting upon other people's ideas. Quite often they are just repeating something they heard from their broker, or from a friend of a friend of a friend.

Mutual Funds.  Use the tools from your broker, or other sites like Yahoo Finance or Motley Fool, or even magazines like Money Magazine to learn about and compare different funds. Find a fund in the risk category you are comfortable with (capital preservation, income, growth, aggressive growth) that has demonstrated at least market average returns over the past. It also makes sense to go with funds from companies that you've heard of before (like Strong, Janus, Putnam, Fidelity). These companies will likely be in business longer and often attract better portfolio managers than other funds. Also, remember that previous results are not indicative of future results. High flying funds often falter for years afterwards, and the top performing funds often come from previously under performing managers. To find out if a fund is right for you, read their prospectus, which can be found on the website of your online brokerage, on the website of the fund company, or through request from your broker or brokerage. Look at the quality and experience of the managers of the fund, their investment philosophy, and the list of the top stocks held in their fund (all of these are required to be reported in the prospectus). Also, look at the fee structure of the fund. An average management fee shouldn't exceed a few percent a year. Also, some funds charge you extra fees to purchase or sell their shares. Stay away from these funds. And most importantly, don't fret too much about which fund you are buying, and when you buy it, and try not to be too critical of its performance. Give it some time before you judge its results. If it's not working out a year from now, then consider buying a different fund. For more information, see our section on mutual fund investing.

Bond Funds.  Search for a bond fund the same way you search for a stock mutual fund. I wouldn't recommend buying bond funds unless you are nearing retirement, or unless you have a very large portfolio that you need to diversify. When buying bond funds, look at the duration of each fund. Find out whether it invests in long-term, short-term, or medium-term bonds. Use your online broker's tools (or Yahoo Finance) to look at their historical returns versus other funds. Look for good brand names and read the fund's prospectus to determine if it is right for you.

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How and Where to Open a Stock Brokerage Account

Open an Account. Once you know which types of accounts you want to start investing in, the next step is to open up an account. Here are the basics of opening up each account:

Certificates of Deposit – You can do this through your local bank. Enter your bank and ask the teller about opening a CD account. They will put you in touch with the right person.

Discount Brokerage – The fastest, easiest and cheapest way to open a brokerage account is to open it through a discount brokerage. Even better, open it at an online discount brokerage. My favorites (in order), are E*Trade, Schwab.com and Ameritrade. Ameritrade is the cheapest but has the least options, E*Trade is nearly as inexpensive but offers more options and a better interface than the rest (you can get bank accounts, research reports and other services), and Schwab.com is the most expensive but offers you to pay for additional services like advice, research reports and other full-service options.

Full Service Brokerage – These include companies like Morgan Stanley, American Express, Edward Jones, Merrill Lynch, Prudential Financial. These brokerages provide you guidance, advice and research reports, but they are much more expensive but their brokers can often push you toward investments you may not be comfortable with. Instead of charging a flat fee for trades, they usually charge a commission-based fee structure that can be much more expensive. Also, they charge annual maintenance fees on your account of sometimes hundreds of dollars. Be leary of these accounts unless you really need the extra guidance.

401K, 403B – These plans are ONLY offered through your employer. Find out if your employer offers one of these plans (or any other tax-deferred, stock investment or other plan) by contacting your Human Resources department. They will give you the forms needed to sign up.

Traditional IRA – You can open one of these with almost any brokerage or discount brokerage. I recommend doing it yourself with a discount broker like E*trade or Ameritrade. E*trade doesn’t charge a monthly fee and offers decent tools to help you choose your investments. If you want a little more guidance, you can open a discount brokerage account with Charles Schwab, who will give you personal guidance for additional fees.

Roth IRA – This type of account can be opened the same was as a Traditional IRA.

Coverdell IRA (Educational IRA) – You can open at many brokerages, including E*Trade or Schwab.com.

529 plan – Check with your state to see which plans are offered. Check out www.collegesavings.org to find more information about the plans in your state. Some of these accounts are also offered by online brokers including E*Trade and Schwab.com.

Other plans – Many other specialized, small-business or self-employed plans also exist. Such plans include SEP IRAs, Rollover IRAs, Custodial IRAs, QRP / Keogh, Simple 401k, profit-sharing, money purchase and other plans.

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Which Stock Asset Types Are Right For You

Choose your stock asset classes to invest in. Stocks come in all shapes and sizes.  They vary from the amount of risk they offer, the growth rates, the products they sell, the markets they cover, and on nearly every other aspect that you can think of.  There are many different asset classes to consider when figuring out which types of stock to buy.  Here, we'll cover some of the most common ones.

Least Risky Stocks to Buy.  The least risky stocks to buy are the well diversified mutual funds that are in stable sectors.  Stable sectors include companies with large market capitalizations, mature companies, dividend paying companies, and especially companies such as utilities or other non-cyclical and stable businesses.  These types of stocks are also known as low beta stocks.  Low beta means that the stocks do not move as much as the market.  For example, if the market fell 10% in a week, stocks with a beta of 0.5 would fall only one half of the 10%, or 5%.  Because they are less volatile than the market, these stocks are considered less risky.

Medium Risk Stocks.  Stocks that have more exposure to companies that are more volatile or faster growing are considered medium risk investments.  Stocks that fit the categories of growth stocks and value stocks typically fall into this category.  Medium risk stocks are usually well known companies and medium to large cap stocks that are fairly stable but that can have large swings when the market itself swings.  Medium risk stocks carry betas close to 1.0, which means that they typically move up and down about the same amount as the overall market.  There are many mutual funds and exchange traded funds (ETFs) that cover these market sectors, so if you are looking for medium risk stocks it is very easy to find them.

High Risk Stocks.  If you are interested in maximizing your returns, you may be drawn to the high risk stocks.  These stocks often move much more than the overall market, whether it be on the upside or the downside.  That means they have high betas, usually exceeding 1.5 or more.  High risk stocks are often high growth stocks or stocks in emerging markets.  In the 1990s, technology stocks were high risk.  In the early 2000s, Internet and biotech stocks were high risk.  In the 2010s, social networking  and cloud computing stocks are high risk.  As new technologies and business models emerge, they are almost always high risk until they establish growth and profitability.  That's because investors are always looking for the next big name to make them rich.  This exuberance makes high risk stocks very volatile.

Ultra High Risk Stocks.  Beyond high risk is a category of stocks that should be avoided by all investors.  That's because these stocks are really just speculative.  These stocks are called penny stocks.  Penny stocks are ultra volatile, are easily manipulated, and the trading of penny stocks is filled with fraud and deceit.  While less than 1% of all penny stocks actually become legitimate stocks, the other 99% eventually get delisted.

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The Compounding Effect of Stock Investing

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The compounding effect of investing your money is perhaps one of the most important aspects to achieving long-term wealth.  For it to work, you must be a long-term investor with a lot of patience.  Here is a summary of how it works.

Say that you invest $1,000 and that you achieve a return of 10% per year.  That means that in the first year you would have $100 in gains ($1,000 x 10%) and a total of $1,100.  In the second year, you'll start with $1,100 but this year you'll earn $110 ($1,100 x 10%) for a total of $1,210.  The third year you will earn $121 ($1,210 x 10%) and have a total of $1,331.  You'll notice that each year you earn significantly more than the year before because each year you earn money on the previous years' gains.  This is called the compounding effect of money and it is one of the most important aspects to investing and saving money.

It is important to understand that the longer you keep your investment, the more money you will make.  However, the amount of money you make does not rise in a linear fashion.  Instead, for each year you keep the money invested, you will earn significantly more money.  This can be illustrated in the following manner:

If you earn 10% per year, at first glance, it seems like it will take you 10 years to double your money (10 x 10%)), and 20 years to triple your money (20 x 10%).  However, this couldn't be further from the truth.  If you keep compounding your gains and earning 10%, you will actually double your money in under 8 years, and triple your money in under 12 years.  Your money will quadruple in 15 years and you will have over 6 times your investment by year 19!

To illustrate this effect, we've added a graph and table below that shows the effect of compounding your investments:

Total Dollars by Year, Assuming a 10% Annual Return

Total Dollars Invested and Profit Per Year, Assuming $1,000 Initial Investment and a 10% Annual Return

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How the Stock Market Works

The stock market is driven solely by supply and demand. The number of shares of stock available for sale dictates the supply and the number of shares that investors want to buy dictates the demand. It's important to understand that for every share that is purchased, there is someone on the other end selling that share (or vice versa).  When people's views of the stock market or individual stocks change (which can be driven by economic fundamentals, consumer confidence, fear of terrorism, or company earnings), the demand for stock changes.  This also causes the prices to change.  For example, if people in general believe that the economy is growing, they become more optimistic and want to own more stock.  This increases the demand for stock.  At the same time, since people are selling less stock, it also decreases the supply of stock for sale.  Both of these factors cause the average stock price to rise.

In essence, the stock market is really just a big, automated superstore where everyone goes to buy and sell their stock. The main players in the stock market are the exchanges. Exchanges are where the sellers are matched with buyers to both facilitate trading and to help set the price of the shares. The primary exchanges are the NASDAQ, the New York Stock Exchange (NYSE), all of the ECNs (electronic communication networks) and a few other regional exchanges like the American Stock Exchange and the Pacific Stock Exchange. Years ago, all of the trading was done through the traditional exchanges (like the NYSE, American and Pacific Exchanges) but now almost all of the trading is done through the NASDAQ, which uses ECNs and thousands of other firms with access to the NASDAQ to facilitate trading.

To give you a better idea of what happens behind the scenes, here's an example of one of the many ways that the stock market works:

You open an account with E*Trade. You send E*Trade a check for $1,000. E*Trade deposits the check into a trading account that is listed under your name. You log onto E*Trade and place an order to buy 100 shares of a stock in Company A, which is currently trading at $5. E*Trade uses it's network to tell the NASDAQ and all of it's related networks that there is demand for 100 shares of Company A's stock. The NASDAQ finds someone who is willing to sell 100 shares of Company A and, instantaneously, they execute the trading of stock between you and the person selling the shares. The trade information is sent to a clearinghouse where the information is processed and the shares will now be registered to you. Basically, the clearinghouse will designate 100 shares of Company A to E*Trade and E*Trade will designate those 100 shares as yours. The actual stock certificates are typically held "in street name" at the brokerage and never really need to exchange hands (although you could request that the stock certificates be transferred to your name and held by you).

In a nutshell, that's how the stock market works. It's really just like any other marketplace - it facilitates the exchange of goods between interested parties and works to reduce distribution costs and set prices.

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How Much Stock Risk to Take

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Choose your risk level to invest in. Decide on how much risk you are willing to take, and on how much risk you are comfortable with. The longer your time horizon, the more risk you should take. The more risk you take, the higher your return should be. When you take risk, make sure you try to diversify within your risk level. For example, if you are investing in medium risk, large cap investments (like Fortune 500 companies or S&P 500 companies), either buy several stocks or buy a mutual fund that invests in a broad array of these companies.

Determine Your Goals and Needs. Depending on what your goals are, you will utilize different investment tools. Here are the first questions to answer. If you are saving for one or more of these goals, then prioritize them and allocate your investment money among the various investments.

Are You investing for the short or medium-term? If so, you’ll want to open a traditional brokerage account, or maybe even use your local bank. If you are investing for the short-term (less than a year), then you are probably best off if you purchase a CD at your local bank or park your money in a money market savings account. If you are investing for the medium-term or long-term, you’ll want to open a brokerage account. Opening a brokerage account is as easy as filling out and mailing in an online form, and can be done by almost anyone.

Are You investing money that you will want access to before retirement? If so, do not invest the money in a tax-deferred account, but rather follow the advice from the previous goal.

Are You Saving for retirement? If so, you’ll want to utilize as many tax-deferred investments as possible, including any 401K, 403B, IRA or Roth IRA that you qualify for. 401K and 403B plans are only available through your employer. These are the most beneficial tax-deferred plans available. If you are eligible for these plans you should start investing in them immediately, and contribute as much as you can each paycheck and each year. The difference between an IRA and a Roth IRA is that an IRA is tax deductible the year that you create it. Also, if you already participate in a 401K or 403B plan, you are usually unable to contribute to a traditional IRA. In a traditional IRA your money grows at a tax-deferred rate but when you sell it you’ll have to pay taxes on the full amount. On the other hand, with a Roth IRA you are taxed on your contribution the year you make the deposit, but you will never have to pay taxes on the money when you take money out. (Click here for a good example of the differences between the two)

Are You saving for children’s college? If this is one of your specific goals, then you can invest money in a 529 plan (either a prepaid tuition plan or a savings plan) or a Coverdell IRA (formerly know as Educational IRA). Also, see collegesavings.org to find out what plans your state offers.

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Recommend Reading for Stock Investing

Despite all the research and technical analysis you might do, it pays to read up on sources that can give you new ideas. We recommend the following sources to help your investing prowess:

Smart Money Magazine - Printed by the Wall Street Journal, this magazine has lots of investment ideas, as well as other ways to manage your finances.  You can buy this magazine with your frequent flier miles or find an online deal for around $10 a year.

Money Magazine - A great source to get investing ideas, as well as ways to manage finances.  The cost is very minimal for this magazine.

Barrons - This subscription is delivered every Saturday and lists all kinds of statistics on the weekly market and upcoming releases.  It also has several opinion articles that make market calls and predictions.  A subscription to this is very expensive, but you can usually use frequent flier miles to buy it.

Yahoo Finance - A very comprehensive financial site that allows you to build portfolios of watchlists and allows you to access all press releases, SEC filings, articles and blogs, message boards, analyst information and you can even purchase research reports there. By far the best message boards for stocks.

Google Finance - A good portal, not as good as Yahoo for overall information, but it does offer some articles that Yahoo doesn't.  Also, google updates real time stock quotes faster and more accurately than Yahoo.

CNBC - Watch CNBC in your spare time.  You can learn the language and see how "professionals" analyze the market and stocks.  By the way, don't ever trade on what Jim Cramer says.  He is entertaining but changes his mind daily.

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Stock Investment Strategies

Recommended ways to invest in the stock market:

Don't try to time the market. As tempting as it is to try, it is not possible to time the stock market. People have written millions of pages of research on this topic and NO ONE has ever found a legitimate way to determine its trends.

Use cost averaging. By buying stocks on a periodic basis (like once a paycheck, once a month or even once a year), you will always be buying at an average price. If you try to time the market, you may be buying at a high or low valuation.

Take taxes into account. When you buy stocks, try to hold them for more than one year so you get taxed at the long term capital gains rate, which is currently 18%. If you sell your stock before one year, you will be taxed at your ordinary income tax rate, which is almost always higher than 18%, sometimes twice as high.

Invest as much as possible into tax-sheltered 401K, 403B and IRAs. By investing in tax deferred plans, you are able to invest money and not worry about the tax implications. With 401K and 403B plans, you get to invest your earnings before taxes, so the investment will grow on a higher base. For example, if you received a paycheck for $2,000 gross pay and taxes were taken out, you'd be left with only $1,200 or so to invest. The investment return on $1,200 could be substantial, but if you could invest that same $2,000 in a tax deferred account, you would be investing and earning a return on $2,000 instead of $1,200. Also, many employers offer matching investments that could make that $2,000 investment equivalent to a $4,000 investment. Put as much as you can into these tax deferred investments.

Diversify your investments. Don't just invest in stocks. It is better if you diversify your investments into other asset classes including real estate (a house), cash (savings account or CD) and maybe even bonds. That way, if one asset class really underperforms, you will have some exposure to the better performing assets.

Diversify your stocks (mutual funds). When investing in the stock market, don't load up on just one or two stocks. Diversify your investments across many stocks. If your portfolio is not large enough to buy 15 or more different stocks, you should consider purchasing one or more mutual funds to ensure diversification.

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Growth Stock Investing

Growth stock investing is a typical way to long term investing. When we hear the phrase "stock market", we might think of shares being traded every day. But trading in stock market is different from growth stock investing. In trading, traders only take advantage of the stock's price fluctuation. Normally, a trader buys a stock at a lower price and sells at a higher one. Profit comes from the price margin or from the resulting balance between the buying and the selling price. In growth stock investing, it is not only the increasing price of stocks that makes an individual investor buy some shares. The increasing size of portfolio and its dividends are in fact the primary considerations.

Buying some growth stocks begins with identifying the future of a small company. Most people think that large companies are a good bet for investment. In reality, these large companies do not have any more room for growth perhaps because of operational cost. The most probable reason to buy such blue chips is the stability of investment and income. Smaller companies can be a better source of growth stocks. However, not all small companies could become growth stocks. There must be a condition to determine so. Some companies are said to be growth stocks when they are fast growing. Ideally, early buyers are the ones who will benefit the most. Thus, every investor wishes not to be late in his entry.

It must be sought and analyzed why some companies grow so fast. It could be that they are competitive in their respective industry or they just happen to get some opportunities that make them competitive. This competitiveness can be identified by their consistent effort to innovate. Assuming, a company introduces a new product which is unique in the market. After a short period of time, the product becomes popular and the best in the market. Not long ago, the company plans to develop another unique product in order to sustain their market dominance and repeat the same miracle. Since they have proven their credibility, investors will surely line up to buy some shares of such a company even upon the release of the news that the company is said to develop another competitive product. This aggressive innovation can make the company a candidate for becoming a growth stock.

It is recommended that investors start with enough capital when investing in growth stocks. There is no exact amount of what is enough for all investors. But everyone knows what is acceptable for himself. Let us suppose that we started with $50,000. We bought a stock worth $1 per share, so we owned 50,000 shares of a growth stock. After a year, our stock was worth $2 and the dividend was $10%. If the dividend were declared to be a stock dividend, our shares would become 55,000 shares. Since the market value of the stock was $2, we had a floating investment worth $110,000. In just one year, we gained more than a hundred percent. If we had put the money in a bank, we would have earned only around 10%. In that case, our money would only be $55,000. This example is not a joke. It happens all the time in the US stock market. The important thing an investor should consider is to select the right stock. Therefore, in this scenario, growth stock investing is value investing. Investors should invest in the anticipation of shares valuation. The larger the capital we invest, the higher the value the investment can have.

When the US economy is growing faster, more and more companies benefit. The strongest factor why many companies grow fast is a better business climate. Growth stock investing is a lot easier in such condition. It is the period of expansion not only for certain companies and industries but for the whole economy itself. To begin a growth stock investing, investors should become familiar with the right economic fundamentals that affect the business environment and the performance of stocks in general. Most economic indicators are released monthly, quarterly, and annually. Not all indicators are influential to growth stock investing. But anything that affects the economy in general can directly affect any stock. There are a few economic indicators that we should look at in growth stock investing such as The Federal Reserve rate decision, the Non-Farm Payroll (NFP), and the Growth Domestic Product (GDP), and global economic news.

The Federal Reserve rate cut encourages risk appetite for investment in equities or stock market. It may also imply that the inflation is not any more a threat to the health of the economy. Sometimes, even without a rate cut, any dovish statement of the Fed chairman favoring a potential rate cut can move the market sentiment. Meanwhile, a hawkish comment favoring a possible rate hike creates risk aversion or a sentiment that the economy is overheating and the inflation is threatening the general health of the economy. A rate hike is a strong warning that the growing economy has reached the limit. Therefore, it is highly risky for growth stock investing.

Another influential fundamental indicator is the Non-Farm Payroll. It shows whether or not new jobs are created within a certain period of time. When NFP result is higher than expected, it implies expansion. It means that jobs are added to the payroll of most companies because of the growing demand of their products and services. Additional jobs can also mean more buying power of the consumers. This is the reason why the Dow Jones and S&P500 react heavily every time the NFP data is released. When the NFP data is better than expected, it is also a better timing for growth stock investing. However, this data can make or break a stock position. If the actual result is much lower than the previous one, the value of stocks will surely decline.

On the other hand, the GDP is one of the most reliable data to measure the growth of the economy. Upon the release, stock prices fluctuate. If the GDP is higher than the previous, investors may take advantage of the overall health of the economy. But sometimes, the GDP is not that influential. In fact, it is a little risky for growth stock investing especially when the GDP is increasing along with the higher inflation. However, the annual GDP result is a lot helpful for a long term growth stock investing. It shows that the economy has already gone far and the fundamentals are strong. So, it is safe for any long term growth stock investing.

Global economic issues can somehow affect the US stock market. Most large companies in the US have widespread international exposure. In the New York Stock Exchange, most stocks, being traded every day, are multinational companies (MNC) with operations around the world. Any good or bad news abroad can move the US stock market. One good example is the Euro-zone debt crisis. There are a lot of American companies operating in Europe. So, when the price of the Euro goes down, so does the S&P500 or vice versa.

It is therefore ideal for growth stock investing when there is no problem around the world. But there are some investors who have different attitude toward growth stock investing. They buy stocks on dip and they sell on rally. These contrarian investors trade during the worst time because they believe that the cheapest stock price is the best start for any growth stock investing. And after quite some time, they sell when everybody is willing to buy.

Whatever method one wishes to follow, the key fundamentals of the US stock market are highly important for growth stock investing. Investors' decision depends on the information they get and each finds different opportunities and perceptions. This condition makes the stock market more efficient for growth stock investing.

Michael F. Anyayahan is a freelance forex trader and writer. To learn more, visit: http://www.forexuniverse.yolasite.com/.

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3 Important Things To Know Before Starting Stock Trading

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Do you want to start a stock trading investment by yourself? But worried that you would lose money? And not sure how or when to start? There are several things to think about before jumping into the stock market. If you do it right, the stock trading is rewarding investment, but if you buy stocks without preparation, you will lose the money. Take my three simple advices to buy stocks.

Start with extra money that you would not mind even if you waste all. In the bull market, the prices keep increased, and it feels like the great opportunities are slipping away. So they tend to put large amount of money, even borrowing money by using the margin account. And they end up paying off the dept. Even if the market was sunny today, there could be storm coming on the next day. Believe me, the feeling would be devastating when your stock drops 50% or more. Remember Netflix? It was almost around $300 but fell to $70 range. Always start with minimum amount of money that you are comfortable with.

Monitor the major stock indexes. And buy stocks in a bear market. The market is always about the fight between the bear and bulls. Year 2008 and 2009 were for the bear, The period 2010 through the 1st quarter of 2011 was for the bulls, but eventually European financial problem lead the market to bear during the second half of 2011. So I think it's time for the bulls to run. But when do you jump in? You need to periodically monitor the Dow Jones industrial and S&P 500 points. You can easily find the long term chart graphs for the indexes with additional technical indicators such as RSI7 or MACD. When you have low RSI or MACD for longer period time, I say that would be a good time to buy some value stocks. When the technical indicators remain on the upper side over 70, you should just wait until the market excitement settles down.

Choose a large value company if you are a novice. In the past, I have bought some never-heard-of company stocks after reading blog article advocating possible 10 bagger ( Earning 10 times). Especially the penny stocks. But the result was terrible. The price fluctuation is too severe for regular people to handle. One of the penny stocks was going out of business completely. I mean they are penny stocks company, so they are very dangerous for the long term investment. So my suggestion is to buy a good valued company such as Google, Apple, and IBM when they are cheap during the BEAR period. And it is for sure that they would not likely to go bankruptcy.

Thank you. That was the major three ideas for staring stock trading. To buy stock, you would need to do some study to make money, but it is surely worth the time. Please check out How to buy stocks blog. It has the detailed information on what to do to start trading stocks.

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5 Steps to Choose the Right Stock Options

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So, everyone's making money trading options and you are eager to make the move from good old boring stocks to options trading. That's good, but ever since you started options trading, you are bombarded with the hundreds of options available on every stock and you can never seem to make the correct choice when it comes to choosing which particular option to trade. This guide will teach you 5 simple steps to choose the correct stock options for options trading.

Step 1: Decide on the outlook of the underlying stock.

There is no magic formula in options trading where you can simply trade and profit without concern for the trend of the underlying instrument. The first step to choosing the correct option to trade comes from what you expect the underlying stock to do in the first place. There are generally only three outlooks in stock trading; bullish, bearish or neutral. However, in order to optimize profits in options trading, there can be as many as six different outlooks; sustained bullish, moderately bullish, neutral, volatile, sustained bearish and moderately bearish. You need to decide on which of these six outlooks most closely conform to your expectation on the underlying stock as each of these outlooks require a different options strategy to best optimize its profit potential.

Step 2: Decide on the time frame of that outlook.

Now that you have decided on what the underlying stock is going to do, the next question to answer is WHEN you think the underlying stock going to fulfill its expected outlook. This answers the question of which expiration month to trade your options on. One of the first things that baffle new options traders is the number of expiration months available for each stock. Options are derivative instruments that expire once its lifespan is up. It isn't like stocks which can last as long as the company remains in existence. This makes choosing the correct expiration month so important. Options become more and more expensive and less and less sensitive to movements in the underlying stock with longer expiration. This is why trading options isn't as easy as simply trading options with the longest possible expiration. If you trade options with unnecessarily long expiration, you are paying more for nothing and lowering your return on investment. Conversely, if you trade options with too short expiration, you can end up with a worthless expired position even before the underlying stock has time to move according to your prediction. As such, the more accurately you can predict when the underlying stock is going to behave the way it is expected to, the better you can optimize return on investment in options trading. There are situations such as earnings releases or some major announcements where the exact timing of the outlook can be determined. Other than such objective events, predicting when a stock is going to hit a certain price or remain within a price range requires extremely strong technical analysis skill and experience.

Step 3: Decide on the magnitude of that outlook.

The magnitude of an outlook refers to how strongly you expect the underlying stock to move in the expected direction. In the case of an expected neutral trend, magnitude refers to the expected length of that neutral trend as well as how much volatility is expected within that neutral trend. This is also why in options trading, bullish and bearish trends are classified as either sustained or moderate. Knowing the magnitude of the outlook allows you to decide on the moneyness of the option that you should trade. Moneyness refers to how much in the money or out of the money an option is. The more in the money an option is, the more expensive it is, the lower the leverage but the better it is at capturing profits on small price movements of the underlying stock. The more out of the money an option is, the cheaper it is, the higher the leverage and the less sensitive it is to price movements on the underlying stock, making them better for use when the expected magnitude of price movement is big.

Step 4: Decide on the optimal options strategy for your account level.

Now that you have an idea what the underlying stock might do, when it is going to do it and how powerful the movement might be, this is when you should decide on the optimal options strategy to profit from that move. The optimal options strategy could be as simple as buying a call option or put option or as complex as a Double Butterfly Spread. Your choice of options strategy would also be limited by your account trading level which defines the range of options strategy that you are allowed to perform. This options account trading level is determined by your broker on an individual basis depending on your fund size and your trading experience.

Step 5: Decide on the exact option to trade taking all of the above into consideration.

Having taken all of the above factors into consideration, you would then be able to decide on the exact correct option to trade. Here's an example of how it works:

Assuming it is January now and the price of a stock is $50. Assuming you think the price of that stock is going to move upwards but only moderately up to $55 by next month. You decided that this is a moderately bullish outlook which can be better optimized using a Bull Call Spread, writing out of the money call options on the expected price ceiling on at the money call options, rather than just buying in the money call options and your account trading level allows you to execute such debit spreads. Taking all of these factors into consideration, you decided to execute a 50/55 bull call spread on that stock's March expiration options, giving a little bit more time for the stock to move to that expected price.

Just follow these five simple steps and you will always be able to find the correct options to trade like an options pro!

Jason Ng is the Founder and Chief Option Strategist of Masters 'O' Equity Asset Management and author of top options trading education site, Optiontradingpedia.com. Learn more about the Six Directional Outlooks in Options Trading.

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The Stock Market and Stock Market News

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A stock market or equity market is a public entity for the trading of company stock (shares) and derivatives at an agreed price. The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. Participants in the stock market include individual retail investors, institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares. Their orders usually end up with a professional at a stock exchange, who executes the order of buying or selling.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery. Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter verbal bids and offers simultaneously. The other type of stock exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders. Actual trades are based on an auction market model where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. When the bid and ask prices match, a sale takes place, on a first-come-first-served basis if there are multiple bidders or askers at a given price.

A few decades ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, usually with long family histories to particular corporations. Over time, institutions such as pension funds, insurance companies, and mutual funds have become the major players in the stock market. The rise of the institutional investor has brought with it some improvements in market operations. One improvement is that fees have been markedly reduced for the 'small' investor.

Stock markets provide a considerable amount of information daily. And the rise of small investors in the stock market has led to an increased demand for the News. The news analysis consists of the tracking, recording, analysis, and interpretation of the flux and change of it. Such analysis could include the performance of well-known and not-so-well-known companies. This form of journalism can also cover news and features articles about the people, places and issues related to the stock market in particular and the financial industry in general.

Stock market news is disseminated in a variety of ways. Most newspapers, magazines, radio, and television news shows carry a segment dedicated to the trends of the trading day. However, the internet has fast become the medium of choice for a considerable number of stock market news watchers. On the internet, such persons can get not only up-to-the-minute reports on trading, but also detailed and in depth financial journalism.

For more information about stock market news please visit Stock Market News

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Last 11 Years Stock

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WE WOULD like to remind our readers of the research findings we had published a few weeks back showing that for a large number of the last 10 years stock prices have shown an uptrend between November and February. The analysis had shown that if investors bought stocks at the low of November prices and sold in February, then they were almost certain to make gains.

Like most statistical research, these conclusions too were based on empirical data and carried a small margin of error in the form of an exceptional year. However, it is interesting to note that the stock market trend so far has been in line with the findings. From sheer despondency just a week back, the market mood is turning distinctly positive. There has been good amount of buying by foreign institutional investors and domestic mutual funds.

Even daily traders and small punters are regaining some confidence in the market. Volatility in the markets is down and indices have not fluctuated wildly last week. All these indicate a better immediate future for the markets. However, investors should be cautious and should not plunge headlong into the markets.

When we believe that the markets would bottom out in November, it implies that there would be no sharp run up in stock prices. The markets have already run up sharply in the past week and there could be some amount of consolidation over the next ten days. In our opinion that would be the ideal time for investors to take some long term view on the markets. At a macro level, there are many positive indicators suggesting that a turnaround in the markets could be around the corner.

In short, we expect the broad money supply, measured as M3, to start going up in the coming weeks. It is an important indicator and must be monitored by informed investors. One of the most important factors governing trends in the market is free liquidity of money. Have seen that free liquidity fell sharply from February leading to a shrinkage in demand for stocks in the months after February.

As the oil import bill shot up and inflation rate remained high, money flows remained under pressure leading to restricted flow of funds to the market. However, that situation is now changing. We believe that in the weeks ahead free liquidity would improve leading to higher demand in the markets. In our estimate, the inflation rate has peaked after the recent oil price hike. In the weeks ahead we are likely to see a decline in the inflation rate. Also the impact of industrial slowdown would be reflected in a decline in credit growth to industrial sector.

This would increase money supply with the banks and lead to higher flows into the markets. Also central government has already raised nearly 85 per cent of its targeted borrowings for the current financial year and therefore, if there are no last minute splurges, government may not be a big borrower in the months head. This should allow more money to come to the markets.

Also fund flows from the India Millennium Deposit scheme would add to liquidity in the system, provided RBI does not sterilise these flows from local markets. The relative slowdown in industrial activity would also pressure non-oil imports and in case oil prices head lower, as looks likely, the forex reserves could really rise. Also we are in the traditional FII buying season.

A look at the last eight years data shows that October has almost always been month of FII selling while November to February is the period when they are usually net buyers of stocks. All these add up to substantial rise in free liquidity flows and hence more money chasing fewer assets. Readers would appreciate that ultimately it is the demand-supply equation that determines asset pricing.

Hence, if more money chases stocks in the days ahead, prices are more likely to rule firm. That is our reasoning for recommending a buy in the days ahead. Of course, the recommended strategy is to buy on the dips, that is buy when the indices fall. This is a distinct shift from the bear market strategy of "selling the rallies". We also believe that in the forthcoming rally, the old economy as well as new economy stocks would move.

Investors with low risk profile could opt for old economy stocks in growth sectors while the big risk lovers could continue to dabble in technology stocks. But look out for convergence stories, companies where old economy and new economy are merging could be the new blue eyed boys of the market in days ahead. For more information on this theme read on a site financialanalystreview.com.

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Penny Stock and Trading Perspectives

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The literal meaning of the word 'penny stock' is any trade for pennies or those that trade for under $5. Previously, this kind of trading had a bad name because it was generally an investment made at bargain prices for undervalued, undiscovered or most of all, over-looked things. However nowadays, investors feel that these represent all the small companies across the world at large, which are yet to be discovered. It is relatively a smaller investment made and hence easy for a freshly started company to adhere to.Therefore, they tend to accustom themselves in following the rule of trading at first. This is a beneficial approach because the right pick of these can easily transform a few hundred dollars to a few thousand dollars.

Trading Perspective:

From a trading perspective, there are many reasons why a trader may get involved with stocks. A new investor might want to know the basic trend of buying and selling shares and a low-priced investment would seem like a good place to start from. Also, an experienced trader might want to get involved in a hypothetical situation to try out a theory. However sometimes, a competent trader might be driven towards these investments in his earnest to play with some risk money. This is because at times, trading of this kind is exciting. It can become a hobby for oneself i.e. risking money to double the amount and strike it rich.

General Trading View Point:

A conventional trading view-point for stocks would be to at least give it a try as it is easy and anyone can do it. Trading a small amount is a great way to know about the market itself without risking a lot. At the same time of course, you have a valid amount of reward waiting for you in a short time frame. If a person has a strong belief in the idea of a company and thinks that they will boost up in price, this kind of trading would be a favorable choice.

Tips for Improvement:

Trading with these is not as easy as it sounds to be. There are certain tips one should keep in mind when investing in something like this. The trader must be fully notified of the details of the company he is investing in i.e. its management, its business potential and how it makes money. These shares may seem very profitable if you look at their details, however, one should not risk buying an abundant amount of shares at once. This is because even though you can make serious money from these, they can turn out to capricious. Therefore, the investment amount should be kept low as it is just a start. Practicing trading with made up scenarios is also a good idea before some actual cash is used. This way, the stocks for a favorite company can be viewed and a new investor can get a real feel of the market. Most importantly, a trader must be equally honest with himself when going for penny stock business. If the required research for investment isn't done by the trader, he should give up on the idea altogether or else, take assistance from a particular newsletter. In terms of a trading viewpoint, it is the best approach a fresh investor could go with.

Visit earlybirdtrades.com if you wish to know more about penny stock trading. As this type of trading is a bit risky, it is good to know all about it first.

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Explaining Investing to Kids - Stock Spin-Offs

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For my nephew's 13th birthday, I transferred some shares of stock into a UTMA account for him under a dividend reinvestment plan (DRIP), and I've been using the investment as a teaching opportunity. Every time I get a statement or other correspondence about the investment, I forward it to him with a brief note explaining what it is and what it means to him and his investment. This article is my latest email to him about the spin-off notification we received. Others trying to teach children about investing might appreciate reading my correspondence, too. So I lightly edited it to make a bit more cohesive for people without a knowledge of the background, and I offer it to you...

We received a notice of a stock spin-off from Fortune Brands (ticker symbol: FO), and since it affects your holdings, too, I wanted to explain it to you. Fortune Brands owns a bunch of other companies, as I've mentioned. Fortune is the sole owner of Jim Beam, Moen, and Master Lock, for example, so if someone wanted to invest just in one of those companies, they can't - they'd have to buy shares of Fortune Brands. You & I own Fortune Brands, so effectively, we own a proportionate interest in each of the companies Fortune owns. In the notice we received, Fortune's board of directors (whom we elect) has decided to break out one of the companies they own, "Home & Security, Inc," to allow it to trade separately. You and I own share of Fortune Brands, so you and I own a portion of it, too. Fortune Brands could have simply sold the company and either given us the money or reinvested it back into Fortune Brands. Instead, they've decided to distribute the stock, proportionately, to each Fortune Brands shareholder, to do with as we please.

On October 3rd, shares of "Home & Security" will be distributed, and you and I will each get our proportionate share... and the value of Fortune Brands will likely decline by the value of the Fortune Brands Home & Security stock they distribute. In theory, this transaction should have no effect on the immediate value of our holdings - it will just be divided among two smaller companies instead of all held in one larger company. Fortune Brands will still be a huge company, so it's stock price shouldn't reduce by much, and I expect the value of the much smaller "Home & Security" will be small. People will begin to be able to trade in "Home & Security" on September 16th, so after that, we'll have a better idea as to the individual values of the two companies. At that point, we may decide to keep them, or sell one or both of them.

Incidentally, for clarification, a stock "spin-off" is different from a stock "split," in that new shares of an independently-tradeable company will be created and distributed, rather than just changing the value of quantity of shares of an existing company.

About the Author:

Brian Blum is the founder, president, and chief consultant at Maverick Solutions IT, Inc. Maverick Solutions provides technology consulting and support services, primarily to schools, NFPs, and SO/HOs in the New York Metro Area. Maverick Solutions helps clients get more value from their technology budgets. Visit our Website to learn about the services we offer, or read our blog, Maverick Ramblings, for assorted tips, tricks, and information of technology interest.

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Why Is the Stock Market Improving?

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After months of going nowhere fast, the stock market is looking like it wants to go higher. The S&P is now within striking range of summer 2011 highs after hitting a low of 1074 back in October.

Why the sudden change in direction?

First, corporate earnings have been well received. Apple itself had a blowout quarter, getting a very positive market response, and now has the distinction of being the highest market cap stock in the world, neck and neck with Exxon Mobil.

Next, the market senses an improving (albeit slow) economy, with weekly jobless claims remaining under 400,000 for a number of consecutive weeks now. We're also seeing an improved manufacturing picture and consumer sentiment has been improving as well.

Also, there has been considerable technical improvement in the market. Specifically, important indicators that technicians watch have gotten markedly better. For example, in early October of last year, the 20 day moving average on the S&P - that is, the average closing price for the preceding 20 day period - crossed above the 50 day moving average for the first time in a number of months, which was a very bullish development. Additionally, the 20 day crossed above the 200 day in early January, another bullish signal and resulting in a move higher.

We've also seen the yield on the 10 year treasury bond move up from a December low of 1.8% to as high as 2.09 on January 23. This move in yields indicates investors are willing to take on more risk, benefiting equities.

Another key development has been the decline in the Volatility Index, or the "VIX" - commonly referred to as the "fear meter." The VIX has gone from a reading of over 47 in early October to just over 18 in late January. That is a significant shift in thinking, and indicating more willingness to invest in and trade stocks.

Everything I've laid out has resulted in a better market picture, but can it last? Where might the market be headed?

Some will say we are in an election year, and that will influence market behavior. That might be true, but there are always events, some out of the blue, that can impact market performance. So, we pay more attention to what the charts and historical data tell us, with the belief that the market is always looking forward, and charts never lie.

It doesn't really make sense to try to predict where the market will be by the end of 2012; we're more focused on the here and now. But, if the bulls are able to clear the high of last year of 1370 on the S&P, it should pave the way for the market to go even higher.

John S. Hopkins Jr is one of the co-founders of Invested Central. John founded the company in 2004 after spending almost thirty years in the financial services sector. John started out by producing and providing educational training programs for financial institutions and their employees. Hundreds of companies and thousands of employees have used his training materials and John has taken this successful experience and now provides educational training to stock market investors.

You can learn more about John and Invested Central, and sign up for our free stock market newsletter, at http://www.investedcentral.com/

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