Jake Bernstein no bull investing_8

152 NO BULL INVESTING n Begin a program of investing regularly in mutual funds. n Consider a DCA approach in lower-priced quality stocks. n Use DRIPs or DRIP mutual funds as your vehicle of choice. Add to your investments every month, even if only with a small amount of money. Select the mutual funds using the MOM method described in Chapter 7 or use the DCA ap-proach explained previously. If you do not want to invest in mutual funds because they move too slowly for you, then you can invest in individual stocks. n If you invest in individual stocks, make your selections based on the MOM method I taught you or use the DCA approach. n If you begin with $500 or less, try to restrict your buying to stocks under $5 per share, so that you can trade 100 shares at a time. Trading in less than 100 shares at a time will cost you more in commissions, eating into your profits. n Parlay your profits. By this I mean invest your profits by buying more shares. n If you buy mutual funds, choose the automatic reinvest-ment plan for your dividends. As you can see, you will need to begin at a relatively slow pace if you have a small amount of capital. The idea is simple. Think of it the same way you would money in a savings account. At current interest rates, money in the bank will not grow rapidly. In fact, by the time you factor in even the low rate of inflation, you are likely just marking time and not getting ahead. Therefore, it’s to your advantage to put your money in a more promising “bank,” the stock market. Investing on a shoestring budget can be fun as well as challenging, but you must remember a few important caveats: STRATEGIES FOR A SHOESTRING BUDGET 153 n As a small investor, you do not have the money to make risky investments based on tips or rumors. Avoid these at all costs or you will see your small amount of money dis-appear rather quickly. n Invest only in well-established companies that have had a lengthy history of paying dividends and whose debt is low. n Avoid high-flying stocks that may have a great deal of prom-ise or “sex appeal” but that do not meet the qualifications listed in the first two points. n If and when you get dividends from your investments, put them back into your investing account. n Do not be tempted by e-mail or postal solicitations to in-vest in new stock issues or in stocks that do not meet the requirements outlined here. n If and when your total investment portfolio has doubled, you can expand your investments to include more risky stocks and perhaps ventures outside the stock market— but do so with caution. n If and when you have doubled your investment, use a stop loss procedure to lock in at least 70 percent of the profit you have made. (Stop loss procedures are discussed in my book Stock Market Strategies That Work, as well as in other books on investing.) n A wealth of free information is available via the Internet. You should not have to pay for any of the information you need in order to follow the procedures outlined in this chapter. n Remember that the approach I have suggested here is a conservative approach. You will need to take baby steps at first. 154 NO BULL INVESTING A FEW PORTFOLIO SUGGESTIONS FOR BEGINNERS AND SMALL INVESTORS Here are a few suggestions for the three different levels of starting capital discussed in this chapter: 1. $5,000 up to $20,000. If your initial capital is over $5,000 but less than $20,000, you can follow the DCA approach as well as the momentum approaches discussed previously. Invest in the core conservative stocks that make up the 30 Dow Jones stocks, mutual funds, and only a few higher risk stocks, such as those in the biotechnology field. Do not get involved in things such as futures, single stock fu-tures, futures options, or stock options. Do not day trade or short-term trade. For amounts over $20,000, you can be more aggressive. Look into single stock futures, cov-ered options programs, LEAPS (long-term stock options), and even a small amount of futures trading. You can even explore some day trading in stocks. Read more books about technical analysis and higher risk investing. 2. $2,500 to $5,000. Stick to conservative stocks, use the DCA methods, do not use the momentum method until you have more than $10,000, and use the DCA method in mutual funds. 3. Less than $2,500. Be very conservative. Begin with DRIPs and other mutual funds. You can invest in a few individ-ual stocks. Reinvest your profits. Add regularly to your in-vestment account even if the amounts are small. You can buy mutual funds in very small dollar increments. Finally, for all levels, I suggest that you avoid investing in “load” mutual funds. These are mutual funds that charge a STRATEGIES FOR A SHOESTRING BUDGET 155 fee for investing. There are many “no-load” funds that will do well for you. You can find mutual funds on line at zacks.com or morningstar.com. Attempt to buy only mutual funds that have a four-star rating or higher. You can use the DCA moving average and/or momentum methods with mutual funds in order to time your entry. You can expand your base of operations when you have prof-its to show for your efforts. This will, of course, depend on how much money you have to start with and how much you can in-vest monthly. As a general rule, I suggest moving to a higher level of risk when you double your money or your available in-vestment capital increases by at least 35 percent. In closing, I want to emphasize that investing is a dynamic process. Conditions in the investment markets are constantly changing in the marketplace, and you must be adaptable. You can make money if you buy low and get out when the markets are high, or you can buy while prices are rising and get out when they have risen sharply. Either way is acceptable. The keys to suc-cessful investing are consistency, self-discipline, a long-term per-spective, and knowing when to get out. I have not given too much attention to exit timing because stocks can, at times, exceed your most ambitious expectations. To set a price or a time target would not be a good thing. Therefore, my rule for exit is simple: Con-tinue to lock in a percentage of your profit as prices move in your favor. Allow the market some leeway. Lock in 70 percent of your profits, and if you close out your investments because your stocks or mutual funds have retraced their gains, then begin your program again with your expanded base of capital. 156 NO BULL INVESTING ... - tailieumienphi.vn