33:["$","$L34",null,{"category":"$35","relatedArticles":[{"id":"cG9zdDoyNzE5NTA=","databaseId":271950,"postId":271950,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1590,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTQ5MQ==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19491,"categoryId":19491,"link":"https://smartasset.com/beginner-investing/articles","name":"Investing for Beginners","postCount":{"pageInfo":{"offsetPagination":{"total":587,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"beginner-investing","ancestors":{"nodes":[{"name":"Investing","slug":"investing","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Investing","id":"dGVybTo1MzE4","slug":"investing","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$36","date":"2025-01-05T10:00:00","excerpt":"

Active trading and buy-and-hold strategies suit different investors based on their goals, risk tolerance and time commitment. Active trading focuses on short-term gains with higher risk, while buy-and-hold investing takes a long-term approach with lower costs and less frequent trading. Here are the pros and cons for each strategy. A financial advisor can help you […]

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His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":805,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDQ=","databaseId":144,"userId":144,"avatar":{"url":"https://secure.gravatar.com/avatar/e1f3d3a0e571088b1ba1f56a767f73d3?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Brandon is a Certified Financial Planner™ (CFP®), Retirement Income Certified Professional (RICP) and Enrolled Agent (EA) with more than 10 years of experience as a financial professional. 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","

A financial advisor can help you choose an investment strategy that aligns with your portfolio.

","

How Active Trading Works

","

Active trading is an investment strategy focused on the frequent buying and selling of securities to profit from short-term market movements. It requires regular market monitoring and fast decision-making.

","

Active traders focus on taking advantage of market inefficiencies and price changes, often relying on technical analysis and chart patterns to guide their strategies. This approach can be used with stocks, options and futures.

","

Successful active trading depends on a trader’s skill in analyzing market data and trends. Technical analysis, which examines historical price movements and trading volumes to forecast future behavior, is key to this strategy. Active traders may use algorithmic trading systems to execute trades at precise times, reducing errors and increasing efficiency.

","

Pros and Cons of Active Trading

","

Active trading offers the potential for quick and significant gains, making it appealing to investors seeking short-term profits. But it can also present challenges, including higher risks, increased costs and the need for constant market attention. Here’s a closer look at five pros and cons:

","$4d","

How Buy-and-Hold Investing Works

","

","

Buy-and-hold investing is a long-term strategy where investors purchase stocks or other securities and hold them for an extended period, regardless of market fluctuations. This approach is based on the idea that markets generally grow over time despite short-term ups and downs.

","

The goal of buy-and-hold investing is to benefit from market growth and the compounding of reinvested dividends and interest. Staying consistent with this strategy helps investors avoid emotional decisions that can lead to losses during volatile market periods.

","

This approach focuses on the long-term potential of investments rather than reacting to short-term price changes. It encourages investors to stay steady, even during periods of market volatility.

","

Additionally, maintaining a diversified portfolio can allow buy-and-hold investors to reduce risk and increase the likelihood of steady returns over time. This strategy reflects the belief that staying invested through market cycles works better than timing the market, which could help investors recover from downturns and achieve long-term growth.

","

Pros and Cons of Buy-and-Hold Investing

","

Buy-and-hold investing can help you reduce transaction costs and simplify decision-making. But, it comes with downsides, like being exposed to market declines and having limited flexibility to respond to short-term opportunities. Here are six pros and cons to consider:

","$4e","

Bottom Line

","

","

Active trading attracts those who focus on daily market movements and have the time and expertise to take advantage of short-term opportunities. While it offers the potential for high returns, it comes with significant risk and demands constant attention and quick decisions. Buy-and-hold investing focuses on long-term growth, benefiting from compounding and lower transaction costs. It suits long-term investors who can tolerate market volatility and prefer a less hands-on approach.

","

Investment Planning Tips

","$4f","

Photo credit: ©iStock.com/yasindmrblk, ©iStock.com/Vadym Pastukh, ©iStock.com/ArLawKa AungTun

"],"experts":null,"link":"/beginner-investing/active-trading-vs-buy-and-hold","modifiedIso":"2024-12-17T20:23:41.000Z","published":{"datetime":"2025-1-5","readable":"January 5, 2025","readableExtended":"January 5, 2025, 10:00am ET"},"publishedIso":"2025-01-05T10:00:00.000Z","shareInfo":{"title":"Pros and Cons of Active Trading vs. Buy-and-Hold Investing","origin":"/investing/active-trading-vs-buy-and-hold"},"isNewsArticle":true},{"id":"cG9zdDoyNjkwMzI=","databaseId":269032,"postId":269032,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1590,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTQ4OA==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19488,"categoryId":19488,"link":"https://smartasset.com/real-estate/articles","name":"Real Estate","postCount":{"pageInfo":{"offsetPagination":{"total":159,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"real-estate","ancestors":{"nodes":[{"name":"Investing","slug":"investing","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Investing","id":"dGVybTo1MzE4","slug":"investing","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$50","date":"2024-11-19T22:55:21","excerpt":"

The gross multiplier is a key metric in real estate that helps investors compare rental properties based on income potential. By analyzing a property’s gross income or rent, this measure assesses its value relative to earnings. Calculating the gross multiplier can help determine if a property aligns with an investor’s return goals. A financial advisor […]

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","

What Is a Gross Multiplier?

","

A gross multiplier is a financial metric used in real estate to evaluate the value of a rental property relative to the income it generates. It helps investors gauge whether a property is priced appropriately based on its income-generating potential.

","

This multiplier can be applied using either gross income (total income from all sources) or gross rent (specifically rental income), depending on what you want to measure. It is calculated by dividing the property’s purchase price by its gross income.

","

This provides a snapshot of a property’s earning potential, helping investors compare similar properties more quickly.

","

For example, a property with a lower gross multiplier may indicate a better value for income, while a higher gross multiplier could suggest a premium price. However, while useful for comparison, the gross multiplier fails to account for expenses or specific market factors, so it is often best used alongside other valuation metrics.

","

Gross Income Multiplier

","

The gross income multiplier (GIM) is used to evaluate a property’s overall income generation by considering all sources of income, including rent, fees and other income streams. This measure is particularly useful for investors looking at properties like multifamily buildings or commercial real estate, where additional income sources may contribute significantly to the property’s revenue.

","

Formula and Calculation

","

The gross income multiplier uses a simple formula.

","

Gross Income Multiplier = Property Purchase Price / Gross Annual Income

","

For example, if a property’s purchase price is $500,000 and it generates $100,000 in gross annual income, the GIM would be 5. This means the property is priced at five times its gross annual income.

","

Gross Rent Multiplier

","

The gross rent multiplier (GRM) is a valuation tool that specifically considers rental income, focusing only on income from tenants rather than all sources. This metric is especially useful for residential rental properties where rental income is the primary or sole source of revenue.

","

Formula and Calculation

","

The gross rent multiplier uses the following formula.

","

Gross Rent Multiplier = Property Purchase Price / Gross Annual Rent

","

For example, if a property’s purchase price is $400,000 and it generates $50,000 in annual rental income, the GRM would be 8.

","

Gross Income Multiplier vs. Gross Rent Multiplier

","

","

While both the gross income multiplier and gross rent multiplier serve similar purposes in property valuation, they differ in the types of income they consider. The GIM looks at all income generated by the property, making it ideal for commercial or multifamily properties with multiple revenue streams. In contrast, the GRM focuses solely on rental income, making it more suitable for single-family rentals or properties where rent is the primary income source.

","

Another key difference is in their applicability. The GIM provides a broader view of a property’s earning potential, as it accounts for diverse income sources like parking fees or laundry income. The GRM is simpler, focusing exclusively on rental income, and can be especially helpful for investors comparing similar residential rental properties.

","

Other Considerations

","

While the GIM and GRM offer valuable insights, they have limitations that investors should consider. Neither metric accounts for expenses like maintenance, taxes or property management fees, which can significantly affect a property’s profitability. Therefore, while a low GRM or GIM might suggest a property is a good value, these numbers do not tell the full story about ongoing costs.

","

Additionally, location, market trends and economic factors play a role in property valuation but are not reflected in these multipliers. For example, a property in a high-demand area may have a higher multiplier, which could still be justified if rents are likely to increase. Investors should use GIM and GRM in conjunction with other financial metrics and local market knowledge to make well-rounded investment decisions.

","

Frequently Asked Questions

","

What Is the Difference Between GIM and GRM?

","

The GIM considers all sources of income from a property, while the GRM only includes rental income. GIM is often used for commercial properties with multiple revenue streams, while GRM is more suitable for residential rentals.

","

Can GIM and GRM Be Used for All Property Types?

","

GIM and GRM can be applied to most income-generating properties, but they are more accurate for properties with consistent rental or income streams. They may be less effective for properties with fluctuating income or unique expenses.

","

Are There Drawbacks to Using GIM and GRM?

","

Yes, these multipliers do not account for operating expenses, market conditions or property-specific factors, which can affect profitability. Investors should use them alongside other financial metrics for a complete analysis.

","

Bottom Line

","

","

The gross income multiplier and gross rent multiplier are helpful tools for investors evaluating rental properties, providing insight into a property’s value relative to its income. While these metrics are useful for comparing properties, they should be used with caution and combined with other valuation methods to gain a full picture of a property’s investment potential.

","

Real Estate Investment Planning Tips

","$5d","

Photo credit: ©iStock.com/fizkes, ©iStock.com/fizkes, ©iStock.com/Jelena Danilovic

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Futures trading strategies offer ways for investors to profit from market trends and price movements. Traders can speculate on price directions, manage risk, or hedge investments. Common strategies include going long for rising prices, going short for falling prices, spread trading for price differences, and arbitrage for market inefficiencies. Each strategy carries risks, so investors […]

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","

1. Going Long

","

Taking a long position in futures trading means buying a contract with the belief that the asset’s price will increase by the contract’s expiration date. This strategy is suitable for traders who expect the asset’s value to rise based on market indicators or external factors.

","

As an example, let’s say an investor predicts that the price of crude oil will rise due to an anticipated production cut. They purchase a crude oil futures contract at $70 per barrel, locking in that price with the expectation that it will climb in the coming months. If the price rises to $80 per barrel by the contract’s expiration, the investor can sell the contract at this higher rate, earning a $10 per barrel profit.

","

A specific strategy known as breakout trading seeks to capitalize on significant price movements by entering trades when prices move outside established support or resistance levels. For long strategies, an upward breakout suggests an opportunity to enter a trade as a sustained upward movement may follow.

","

Going long can increase returns with leverage, but it also increases the risk of losses if prices drop. To manage risk, some investors use stop-loss orders, which automatically close their position when prices hit a certain level.

","

2. Going Short

","

Going short, or selling a futures contract, is based on the expectation that the asset’s price will decrease. This strategy is useful when market indicators suggest a potential downturn, allowing traders to profit if the asset’s price falls by the contract’s end.

","

Suppose a trader expects corn prices to drop due to a forecasted surplus from a strong harvest season. They sell a corn futures contract at $6 per bushel. If the price drops to $5 per bushel by the contract’s expiration, they can repurchase the contract at this lower price, pocketing a $1 per bushel profit.

","

Short positions carry the risk of unlimited loss if the asset’s price unexpectedly increases. To mitigate this, some traders set stop-loss orders to exit the trade if prices rise above a certain level, helping to control potential losses.

","

3. Spread Trading

","

","

Spread trading involves taking simultaneous long and short positions on related assets to benefit from the price differential, or spread, between them. This strategy works well for traders looking to profit from relative price movements without being exposed to the full volatility of a single asset.

","

Consider an investor who believes that heating oil prices will rise faster in the near term compared to crude oil due to seasonal demand. They enter a “crack spread” by buying a heating oil futures contract while simultaneously shorting a crude oil contract. If heating oil prices increase and crude oil prices remain stable, the spread between the two widens, allowing the trader to profit.

","

Another form of spread trading is a “calendar spread,” where the trader buys and sells contracts on the same asset with different expiration dates. For example, a wheat trader might buy a July futures contract and sell a December contract, expecting that the near-term price will rise relative to the later price. Success in spread trading requires knowledge of seasonal and market factors that affect price differentials.

","

4. Arbitrage

","

Arbitrage seeks to take advantage of minor price discrepancies between markets or exchanges, where a trader simultaneously buys and sells the same or similar futures contracts. Though typically used by institutional investors, individual traders with access to fast trading platforms may also employ this low-risk strategy.

","

Arbitrage requires precise timing and is often conducted by high-frequency trading systems. While generally low-risk, arbitrage can involve significant capital and specialized software, as well as rapid market access to capture these fleeting opportunities.

","

As an example, let’s say a gold futures contract is trading at slightly different prices on two exchanges – say $1,500 on one and $1,505 on another. An arbitrageur buys the contract on the lower-priced exchange while selling it at the higher price on the second exchange. By locking in the $5 difference per unit, they secure a low-risk profit, as long as the transactions are executed quickly enough before the discrepancy disappears.

","

Bottom Line

","

","

Futures market trading strategies provide different opportunities for investors to engage in financial markets, including speculation, hedging and exploiting price inefficiencies. Knowing the risks of each strategy could help traders choose approaches that fit their financial goals and risk levels.

","

Investment Planning Tips

","$75","

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Revenue bonds are municipal bond issued to finance specific projects like utilities, airports, or toll roads. These bonds differ from general obligation bonds because they are repaid solely from the income produced by the project, such as tolls or fees, rather than tax revenue. Investors favor them for their connection to tangible assets and a […]

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","

If you’re considering revenue bonds, a financial advisor can help you determine how they will fit into your portfolio.

","

What Are Revenue Bonds?

","

Revenue bonds are debt securities issued by municipalities, government agencies or other public entities to fund specific projects that generate income. These bonds differ from general obligation bonds, as they are tied only to the revenue generated by the project they finance, such as a toll road, power plant or public transit system. Issuers do not rely on taxes to repay the bondholders but instead use income like tolls, fees or lease payments.

","

Revenue bonds are considered project-specific, meaning the success and financial viability of the funded project are key to repayment. This structure often appeals to investors who prefer a direct connection between their investment and a revenue-generating asset.

","

How Revenue Bonds Work

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Revenue bonds function by earmarking specific income streams to cover interest payments and principal repayment. When an issuer sells these bonds, investors provide upfront capital, which is then allocated to the construction or improvement of the revenue-generating project. Over time, income from the project—such as utility bills, bridge tolls or ticket sales—is collected and used to make periodic payments to bondholders.

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The repayment structure often includes a trust agreement that outlines how the generated revenue will be managed. In many cases, funds are prioritized for bond repayment before covering operational expenses. Additionally, some revenue bonds are secured by reserve funds or third-party guarantees, offering an extra layer of assurance to investors.

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However, these bonds are not risk-free; if revenue from the project falls below expectations, the issuer might struggle to meet payment obligations. This makes due diligence on the project and its revenue projections important for investors.

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Revenue Bonds vs. General Obligation Bonds

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General obligation (GO) bonds and revenue bonds are two distinct types of municipal securities, each serving different purposes and carrying unique risks. GO bonds are backed by the taxing authority of the issuer, while revenue bonds depend solely on income generated by specific projects.

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Below are some of the key differences between these bonds:

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Investing in Revenue Bonds

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Retail investors have several ways to buy revenue bonds, including through brokerage accounts, mutual funds specializing in municipal bonds, or directly from issuers during initial public offerings. These bonds are also available on the secondary market, allowing investors to buy and sell them at current prices. For newcomers, investing in municipal bond funds or ETFs can offer a diversified portfolio across different sectors and issuers.

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When considering revenue bonds, it’s important to assess the financial stability and revenue potential of the project being financed. Investors should look at the project’s revenue history and forecasts, any reserves set up to protect payments to bondholders, and the bond’s credit rating from agencies like Moody’s or Standard & Poor’s, which indicates the issuer’s ability to fulfill its financial commitments.

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Investors should also be aware of the tax implications of revenue bonds. These bonds often come with tax benefits, such as being exempt from federal and sometimes state and local taxes, which can be particularly advantageous for those in higher tax brackets. The specific tax advantages depend on the purpose of the bond and the investor’s location.

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Bottom Line

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Revenue bonds link repayment to the financial success of specific projects, offering potentially higher yields than general obligation bonds but with greater risk since repayment hinges on the project’s performance. These bonds appeal to investors looking for potential tax benefits and investments connected to real infrastructure projects. However, you should first assess the project’s revenue potential, credit rating and risks to determine whether these investments match your financial goals and risk tolerance.

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Investment Planning Tips

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