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In the recent past, you used to be able to fetch around $0.90 a euro. Nowadays the euro fetches nearly twice as much. It doesn’t take a math genius to figure out that European goods now cost more in terms of dollars, which has devalued tremendously, hurting the US economy.

However, there is a bright side to this situation. This has also brought a new influx of visitors from Europe who are exchanging their money for cheap American goods and services.

If you’re a manufacturer of goods and stuff, this is good news for you. A weak local currency favors producers of stuff because they have one big advantage over their foreign counterparts - cheap goods.

Cheap currencies are a way of transferring economic power from consumers to domestic producers. A weak dollar makes it cheaper to buy local goods than it is to buy imported ones.

Low currency means high returns on capital; it also means that foreign investors will enter to acquire relatively cheap assets. It also stimulates employment and production, and domestic corporate profitability soars.

So, if you look at the situation from a slightly different angle, it would seem that having a weak dollar could work in our favor.

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The mutual fund is an intermediary firm that collects money from many investors to invest in stocks, bonds, short-term money market instruments, and/or other securities.

Each share represents an investor’s proportionate ownership of the fund’s holdings and its generated income.

What are the advantages of mutual funds?

• Professional Management - Professional money managers research, select, and monitor the performance of the securities the fund purchases.
• Diversification - when one investment is losing another might be gaining. This setup spreads your investments across a wide range of companies and industry sectors, greatly reducing your risk.
• Affordability - some mutual funds accommodate investors who don’t have a lot of money to invest by setting relatively low amounts for purchases.
• Liquidity - mutual fund investors, after paying charges and fees, can readily redeem their shares at the current net asset value (NAV) at any time.

What are the disadvantages of mutual funds?

• Costs despite negative returns - investors must pay sales charges, annual fees, and other expenses regardless of how the fund performs.
• Lack of control - investors cannot ascertain the exact make-up of a fund’s portfolio, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades.
• Price uncertainty - with an individual stock, you can obtain real-time pricing information, but not so with a mutual fund. The price at which you purchase or redeem shares depends on the NAV, which might not be calculated until after the closing of major U.S. exchanges.

So, is investing in mutual funds for you?

Every investment has advantages and disadvantages, and features that may be important to one investor may not be important to you.

Whether or not any particular feature of mutual funds is advantageous to you will pretty much depend on your unique circumstances

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All the big performing stocks that you see today in the marketplace started small. If you’re sulking in a corner over the lost value of your stocks, cheer up! It’s not the end of the world. In fact it’s only the beginning of wonderful things to come. Stocks usually follow a cycle of ups and downs.

Not all of your bad performing stocks will have to go. Which among your holdings do you think will benefit the most when the market’s direction changes favorably? All the great performers start out small and hardly noticeable when they first emerged in the market. The important thing is for you to have the ability to identify these stocks and see their potentials.

Small caps have the potential of generating a huge profit in a very short time. The keyword here is potential, since the eventual outcome of your efforts greatly depends on how well you’ve handled your investments, and the relative unpredictability of small caps.

So, what are small caps? Let’s have a look at small caps and their subspecies:

• small caps - stocks with a small market capitalization, between $250 million and $2 billion;
• micro caps - stocks with less than $250 million capitalization; and
• nano caps - those whose capitalization falls below $50 million.

The marketplace is dominated by institutional investors, who enjoy less restrictive laws and regulations, simply because they’re thought of as “experts” in financial matters. In the traditional sense, individual players who are bound by the stricter rules have no way of competing with much larger institutional investors.

However, small caps are different. They have opened up new avenues for the ordinary investor with fewer restrictive rules, giving them the chance to compete with their institutional counterparts.

But the most important reason why you should invest in small caps is that they are outrageously cheap. They’re cheap because no one’s ever heard of them much less wrote about them. So when the trading comes they’re usually erroneously priced — a huge advantage for the individual investor.

A word of warning though, small caps are quite volatile and prone to exaggerated price swings in either direction.

Don’t buy small caps just because they have small market capitalization. They should be carefully examined and handpicked. If you’re not very comfortable handling highly volatile stocks, you should include less of these in your portfolio.

All the large stocks that we know today started as small caps. So when your stocks perform badly, reassess your portfolio and look closely, maybe there’s a little Microsoft lurking there.

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As in all aspects of life, investment entails a healthy balance between taking risks and playing safe. In the investment world, there is such a thing as being too safe.

When you first entered the playing field, you were told to stay away from high risk stocks and put your money someplace safe. But as you reassess your portfolio years later and see very little change in your earnings, you wonder whether you would have been better off had you ignored the advice and taken the risk.

Do high risk stocks really live up to their name? The answer is yes. They are highly volatile and are potentially dangerous investments.

Handle short-term investments with a marksman’s precision. Selling them at the right moment, when their value is at its highest and just before it begins to drop, is both an art and a science.

With short term stocks, it’s possible to double or triple your investments in a very short time, but if you’re not careful you could end up losing your money.

Your long-term investment, on the other hand, is a sure-footed creature, but you won’t be able to enjoy its fruits until it matures, and that’s a very long time.

To come right to the point, the secret to a healthy investment is diversification.

A well planned portfolio with a healthy mixture of short- and long-term investments is the key to getting the most of your money.

Your short-term investments are intended to be ‘short-term’ and can’t carry you through the long haul. Your long-term investments, however, are meant to last for years — to grow slowly but steadily.

In a mixed portfolio, your short- and long-term investments can work together to ensure that you reap the fruits of your hard earned money.

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As an investor, it’s important to know where you’re putting your money and why. So you’re interested in buying stock from a company you like, but how well do you know the products or services it is selling?

How widely accepted a company’s products or services are by consumers is a good indicator of how well the company will be performing in the long run.

Now, take a look at yourself. You have your car, your clothes, your other personal stuff and you surround yourself with things you like. You must have reasons for choosing these products. What are they? Durability? Dependability? Good taste?

Based on your own judgment and personal experience, you learned that these products are good, that’s why you bought them.

You see, when consumers respect certain products, the company who makes them is bound to make it, even through hard times. Why? Because these products have proven their worth, and people in general always buy quality and time-tested products.

However, it also pays to keep your eyes open for new promising products and companies, but this is a different topic and will not be elaborated here.

Knowing your company’s products is the first step in knowing its intimate workings.

If you know your company well enough you will be able to make corrective measures long before potential problems affect your investment. This will help you make important decisions like when to buy or sell stocks.

You may have figured out all the numbers: the sales projection, profit and costs, but you will never know how good a product is until you’ve used it yourself.

When you are convinced that your company sells good products and services, rest assured that your investment will also be doing pretty well.

The secret to a sound financial investment is to diversify your portfolio by spreading your risk thin among different investments.

Diversification involves carefully choosing the right group of investments so that each of these different assets can act as a buffer against losses in the others.

Under normal conditions this could slow or even stunt growth as this situation could hinder your investment from reaching its maximum potential. But market conditions aren’t always normal and diversification can become your savior when one or a couple of your stocks turn sour.

Let’s study the history of Bear Stearns a little bit. Having survived the two World Wars and the Great Depression, the company stood firm in its belief that specialization — not diversification — is the key to financial success. However, this prestigious investment bank all of sudden came crashing down, which caused turmoil in the financial world.

Why did this banking institution collapse? While its competitors diversified their holdings, Bears Stearns was a specialist and held on to only one type of investment — Collateral Mortgage Obligations.

CMOs were at that time considered a great investment when people still paid their mortgage bills. But hard times came and payments stopped, hitting specialist Bear Sterns the hardest.

There’s a lesson to be learned here: Don’t put all your eggs in one basket.

What you can do is allocate your assets. Divide your investment portfolio among different categories, such as stocks, bonds, and cash. As to which different combinations of assets your portfolio eventually holds is a matter of personal preference.

Good luck and happy investing.

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If you’re thinking about investing in an airline, think again. The flagging airline industry has been struggling to keep its wings above the clouds for nearly a decade now. Plagued mainly by rising fuel cost, airlines were forced to obtain credit from lenders and investors at exuberant rates.

The vicious cycle continues with the ever increasing oil prices and the sudden decline in value of the airlines’ badly-maintained collaterals. This resulted in credit crunch, where lenders and investors were forced to make it difficult for airlines to obtain financing. You see lenders do this by increasing interest rates and/or requiring additional collateral.

The airline industry has been ailing for years, but the big blow came during the 9/11, which almost literally shattered the industry to pieces, and has not recovered from that incident since.

Take the case of Delta Airlines Corp. and Northwest Airlines Corp., where both parties agreed to merge in a $3.63 billion stock deal. These two airline giants will pool in their resources together to obtain about a billion dollars in new revenue and savings just to survive the crunch. The credit crunch made raising revenues and financing more expensive, and the condition was made worse by the decline in consumer demand due to the weak economy.

Will the airline industry ever recover? Will the merger of Delta and Northwest save these companies from future decline? There have been a lot of things done to rehabilitate airlines in the recent past, but only a handful survived. Why? It’s because no one has direct control over oil prices. And how can you convince a frightened nation that it’s safe again to take the plane after that dreadful tragedy?

As an investor, you would want to put your money where it can safely grow, and investing in airlines is just not safe anymore.

Some authorities believe that the two airlines together could survive and become competitive even beyond the US. However, the risks are high and chances are, in the near future, the evil downward spiral would again occur. But who knows, maybe not.