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Friday, November 2, 2007

Make Dat SCRILLA!!!!!!!!!!

I am NOT a financial professional with credentials to provide advice. I am giving my perspective on how I invest my money and how I manage risk. You should keep in mind I consider myself a young investor and if you want don’t consider me young I will duke you in the nose. Well that being said let’s jump right in.

My first goal is to make absolutely sure to take full advantage of my companies 401(k) match. You will not find a better return than your companies match. I usually use this money to invest in 10 or more of the riskiest mutual funds (small cap, mid cap, international) offered on the plan, they offer the highest potential returns. I do invest in some large cap funds.

I put money that doesn’t go to my 401(k) into high risk investments a.k.a. growth stocks and mutual funds with an international focus. I like high risk investments because they offer high returns. I manage my risk by investing in multiple stocks or funds. To do this I diversify by company, geography and by market segment. Keep in mind one or two companies can under-perform in a market segment but ten are less likely to do so, a country can experience inflation making products unaffordable but if this happens globally everything remains equal, and finally a whole market segment can go down but there are many segments. Consider the IT market it did really well until the bubble burst and investors incurred huge losses. That is okay if you had money in other high risk industries. I also find it important to diversify geographically to do this I invest in internationally focused mutual funds. They have resources I don’t have to research many companies in many countries, and again I spread my money like butter over as many funds as possible.

How does my risk management strategy really work? I select a population pull a large sample and get as close to average results as statistics allow. When I diversify I focus on the average expected return. I find as many stocks with a high average expected return as possible. Currently, I invest in ten of them a month. By using good sampling techniques I think I am guaranteeing myself a higher return than the standard market average.

My next step involves maxing out tax deferred investments Roth and 401(k), and admittedly I still have some work to do. Once, these are filled up with high risk and intermediate risk investments I will go back to investing in my trading account.

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