Stock Market: Restricted Stocks Are Better Than Stocks Options !!

Many companies are concerned by the Financial Accounting Standards Board (FASB) recommendation that Stock Options be shown on the company's expense sheet. Especially high-tech and start-up companies are concerned because they fear losing one of their great motivating tools. They needn't worry. There is already a better compensation choice, Restricted Stocks Options.

Motivation Through Restricted Stocks Issuing restricted stock is a better motivating tool than granting stock options for two reasons. First, many employees don't understand stock options. They don't know that they have to take action to realize any gain. It is far easier for them to understand a vesting period on restricted stock. Second, restricted stock can't become worthless like stock options. Even if the stock price falls, restricted stock retains some intrinsic value.

A Stock Option grant with a strike price of $10 has no value when the stock trades at $8. Restricted Stock awarded when trading at $10 is still worth $8. A stock option has lost 100% of its value. The restricted stock has only lost 20%.

Employee Ownership Through Restricted Stocks

One of the advantages restricted stock has from a management perspective is it is better at motivating employee to think and act like owners. When a Restricted Stock Award vests, the employee who received the restricted stock becomes an owner of the company. He or she has to take no further action to make it happen. The employee is now part owner and can vote at the annual meeting.

Actual ownership of part of the company is a powerful motivating tool in trying to get employees to own the company's objectives. This makes them more focused on meeting goals.

Stock Options, on the other hand, do little to instill a sense of ownership. They are viewed by most as a high risk gamble that has a potentially great reward. An individual may very well invest a couple of years helping a company grow and prosper when compensated for that time by stock options. However, their loyalty is to raising the stock price so the can cash out and make a bundle. They have no loyalty to the company and its goals. Often, they will choose actions which raise stock price in the short term, thus increasing their potential gain, rather than taking a longer-term view that will help the company.

Restricted Stocks Supporters

The LA Times reports that Microsoft plans to replace stock options with restricted stock grants. Amazon.co.uk notes that all their employees are allocated a number of Amazon.com restricted stock units when they join. The Altria Group, Inc., points out in their annual report that "in 2003, we made equity awards in shares of restricted stock rather than fixed-price stock options". Dell Computer Corp., Cendant Corp., and DaimlerChrysler AG are also reported to be moving toward restricted stock in lieu of stock options.

Manage This Issue

Restricted Stocks awards are a better tool for motivating employees than stock options. Restricted stock awards are better than stock options for motivating employees to think and act like owners. Restricted stock awards are better treated on the financial statements than stock options. That makes restricted stock awards better for the employees, management, the investors, and the regulators. There is no reason to not make that choice.

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To Your Online Trading Success,

A Professional Stocks and Forex Market Trader

Dan A.

Stock Market: What Are Mutual Funds?

­A Mutual Fund is a company that pools investors' money to make multiple types of investments, known as the portfolio. Stocks, bonds, and Money Market Funds are all examples of the types of investments that may make up a mutual fund.

The Mutual Fund is managed by a professional investment manager who buys and sells securities for the most effective growth of the fund. As a mutual fund investor, you become a "Share Holder" of the mutual fund company. When there are profits you will earn dividends. When there are losses, your shares will decrease in value.

­Mutual Funds are, by definition, diversified, meaning they are made up a lot of different investments. That tends to lower your risk (avoiding the old "all of your eggs in one basket" problem).

Because someone else manages them, you don't have to worry about diversifying individual investments yourself or doing your own record keeping. That makes it easier to just buy them and forget about them. That's not always the best strategy, however -- your money is in someone else's hands, after all.

Since the fund manager's compensation is based on how well the fund performs, you can be assured they will work diligently to make sure the fund performs well. Managing their fund is their full-time job!

Mutual Funds can be open-ended or closed-ended. But many people consider all Mutual Funds to be open-ended, while putting closed-ended funds in another category.

"Open-Ended" means that shares are issued in the fund (or sold back to the fund) whenever anyone wants them. With closed-ended funds, only a certain number of shares can be issued for a particular fund, and they can only be sold back to the fund when the fund itself terminates. (You can sell closed-ended funds to other investors on the secondary market, though.)

Load refers to the sales charges added to a mutual fund when you purchase it. The load charge goes to the fund salesperson as a commission and payment for their research services. Load charges can be up to 8.5% percent of the selling price and can be figured in as a front-end load (meaning you pay it when you buy the mutual fund) or a back-end load (meaning you pay when you sell the mutual fund).

Many Mutual Funds are no-load funds. Yes, that means there is no sales fee charged and the fund is direct-marketed so you can buy it without the help of a salesperson. With the wealth of information on the Internet today, it is certainly easier to make smart choices yourself to save money.

In addition to "No-Load Funds", there are also funds that charge up to 3.5% percent as a sales fee. These are called low-load funds and can still be a good deal.

Mutual Funds Fall Into Three Categories:

Equity Funds - are made up of investments of only common stock. These can be riskier (and earn more money) than other types.

Fixed-Income Funds - are made up of government and corporate securities that provide a fixed return and are usually low risk.

Balanced Funds - combine both stocks and bonds in the investment pool and offer a moderate to low risk. While low risk may sound good, it is also accompanied by lower rates of return-meaning you risk less, but your investment won't earn as much. You have to decide how much risk you're willing to take on before you invest your money.

If you have invested in a College Savings Fund (529 Plans - ­Next to saving for retirement, your biggest financial challenge is probably saving for your kids' college education.) or a 401k Account (In 1978, Congress decided that Americans needed a bit of encouragement to save more money for retirement! The plan got its name from its section number and paragraph in the Internal Revenue Code - section 401, paragraph K), chances are good that already own a few Mutual Funds. Mutual Funds are great for long-term investments like these. You can also buy mutual funds directly from a mutual fund company.

Most of these offer 'No-Load Funds' (or sometimes low-load funds). You can find lists of mutual fund companies on the Internet and purchase shares by simply filling out an application and mailing a check. Once you are a shareholder, you will receive statements telling you how the fund is doing as well as how much your own investment is growing. You can also set up monthly bank transfers to automatically buy more shares every month.

Remember to do your research and select a Mutual Fund that fits the level of risk you are willing to take with your hard-earned cash. Then just sit back and hope for the best!

...For More Information on Investing and Financial Planning, Check Out HERE!

To Your Online Trading Success,

A Professional Stocks and Forex Market Trader

Dan A.

Recommended Book: "How I Made 2 Million In The Stock Market" - By Nicholas Darvas

Why? You must, absolutely MUST, read, re-read, study and think about every line in the book "How I Made $2 Million in the Stock Market".

Well let's start with the fact that Nicholas Darvas (the author) turned $25,000 into $2,25 million by scanning the newspapers in just five minutes during the late, night early morning, period. He him-self said it wasn't so much the amount of money he made that pleased him but the ease and peace of mind it was achieved. It was SO easy.

Admittedly, he was lucky in that he traded his system during a roaring bull market. But his system makes money in all market conditions. It's just a fact that you'll make a lot more during a run-away bull market. That can be said for most systems.

Nicolas Darvas had the perfect attitude for trading. When he was wrong on a trade he shrugged his shoulders, cut his losses and looked for the next one. No second guessing. No emotion. No ego involved.

Without doubt Darvas' best quality was his ability to question everything. When he was wrong, why? What worked and why? What didn't work in the stock market and why? Question everything and eliminate what doesn't work. He pieced together a system that fitted his personality. The person who can do this will be a big winner in the markets.

Darvas' methods still work and always will work. If it stops so will the stock market. So if your serious about taking control of your investments and are willing to spend the time necessary, Darvas advise will be well worth the effort.

And as an added bonus, not only is this book filled with great infomation but it reads like a highly entertaining novel ' too. It's hysterical when news of his success leaks out and TIME magazine sends three different sets of editors down to interview him before they finally decide he is for real...I won't spoil it for you though!

To Summaries..."Read How I Made $2 Million in the Stock Market". Free Download Here.



To Your Stocks Investments Success,
A Professional Stocks and Forex Market Trader
Dan A.