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is scheduled, look at the bottom of the Investment Tips page. Just click the Investment Tips tab on the blue
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2) Leverage:
Leverage is used by investors to increase their return on investments. However, if the investor is incorrect about the
direction of the market, leverage also increases the loss. Options, futures, margin, ETFs and other funds may be
used to provide leverage. Investors may use leverage because they believe that there is a high degree of certainty
that the market will behave in a certain manner. 2:1 leverage will transform a 50% return into a 100% return. However,
it will also transform a 50% loss into a 100% loss. A single 100% loss would completely nullify the compounded effect
of the most spectacularly successful investment programs. Successive leveraged   50% losses are not unusual in
investment markets. Investment markets have a tendency to behave in ways that they never have behaved before.
Leverage should only be used by professionals. Before you choose to use leverage, you should consult your
investment advisor.
3) What is the difference between Compounded Return and Average Return?
Average return is easy to calculate but has serious shortcomings compared to Compounded return.
The difference between the two methods is critical to successful investing. It can be most easily understood
by answering the following question:

If you invest $1000 and have a 50% gain followed by a 50% loss, what is your return for the 2

Average Return:
Averaging the returns indicates that the investor broke even.
The average of those two returns is Zero. (50% - 50%)/2=0%.

Compounded Return:
The compounded return indicates a 25% loss. ($1000 +50%=$1500 remaining at the end of the first period.
$1500 - 50% =$750 remaining at the end of the second period. Having begun with $1000 and ended with
$750 after the 2 periods, the investor has incurred a 25% loss. ($250/$1000=25%).

Beware of Leverage:
If an investor had used 2:1 leverage, the average return would have still been 0%. (100% - 100%)/2 = 0%)
However, the compounded return would have been a 100% loss. ($1000 +100%=$2000 remaining at the
end of the first period. $2000 - 100% = $0 remaining at the end of the second period. Having begun with
$1000 and ended with $0 after the 2 periods, the investor has incurred a 100% loss.
4) Diversification
Investors should invest in a variety of investments so that poor returns in any one investment will not cripple
an investors overall investment program. Investments should be diversified by investment class such as
stocks, bonds, CDs, cash and  real estate. Investments with in each class should be diversified and
unrelated. Stocks in the same industry are not unrelated. Opinions differ as to how many unrelated stocks
are necessary to sufficiently diversify a stock portfolio. A stock portfolio 20 Computer hardware stocks is
definitely not diversified since they are all in the same industry. Investors who attempt to time the market
should use a variety of timing systems, diversified by method and time horizon (long, medium, and short
term). Consult your investment advisor to evaluate the most effective diversification plan for you.
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