Being a Pig

Wow! That was a wild ride on the stock market today. I guess it makes this post more relevant.

It is important that when you have high gains on a stock, that you take some off the table. Let me give you a good example. I bought this Latin America mutual fund, before the stock market went in the crapper a couple of year ago. Before it went into the crapper, I was up over 80% on the fund and I had owned it less than two years. What I should have done, is taken that money I had made and sold it, but still keeping my original investment on the table. Why should I have done that? Because as Jim Cramer says "if you're a Pig, you're going to get slaughtered." In other words, if you get too greedy, then you will probably get into trouble.

So what happened to my fund? During the downturn, it lost all its earnings, and at the low point was down 30%. If I had taken the big earnings off the table, I could have still had that 80% earnings in my money market, or have bought some other fund or something. Instead, I lost it all and was in the hole 30%. This was my first experience with this, so I learned my lesson. That fund is now back up 30%, so I at least got the $$ I lost back (although I haven't looked after the big drop today, and I don't plan to)

So when you get big earnings on a stock, don't be a pig and take some $$ off the table!! Take that money and diversify into another stock/fund

crash course for stock/mutual fund picking

I got a lot of people that were interested in my previous post on investing, so I thought I would give bit more information on picking out good stock and mutual funds in a few easy steps.

First stocks -

Pick a stock of a company you are familiar with and a company you like - unless you are experienced and have a lot of time to research and study, stick to companies you know. Then go to any site - the site where you buy your stocks should have all this information and look up your stock

Look at the P/E ratio (price to earnings).. Each sector has a different p/e ratio that will tell you if the stock is a good buy. Look at what the P/E ratio is on your stock, and compare that to the industry average P/E ratio (hopefully the site you have chosen will show you this.. thestreet.com has it under Earnings when you search for your stock).. If your companies P/E ratio is lower than the sector average, then it is a good buy - it means that the price of the stock compared to its earnings is cheaper than competitive companies... if it is much higher than the rest, then the stock may be overvalued.

Then look at the dividend - might as well choose a company with a high dividend. Anything over 2% is pretty good and they can go as high as 6%+ - the current highest yielding stocks are T,VZ,DD,MRK,KFT,CVX,MCD,KO,JNJ,INTC - all companies you have heard of and all dividends currently over 3% (I have not checked their p/e ratio though)

If you are wanting to buy more than one stock - diversify yourself and buy over many different sectors - for example, don't buy both Target and Walmart - you are just repeating the same sector.

Mutual Funds

The company you choose should have several options for a No-Load, No-transaction fee mutual funds. In other words, you do not want to pay anything to buy this fund. If you have $500 to put into this fund, you want ALL $500 to go into that fund and NO fees to buy it!

Speaking of fees, look at the Expense ratio (what it costs a year to own the fund) - ideally, you want something that is much less than 1%, and definitely not higher than that. I have recently started with ETF's (exchange traded funds) because Fidelity has started to offer them (finally) with no fee to buy and that have extremely low expense ratio - like .09% - really low! If your company offers them at no cost - they are a low expense alternative. But if they are not offered, just pick a fund with a reasonable and low expense ratio.

Next, look at the Morning Star rating. Ones with a 4 -5 star rating are ideal.

Look at its lifetime performance. You want a fund that has been around for awhile and over it's lifetime has done well.

Of course then we would need to go into balancing your portfolio, but that is a whole other post... Sites like Fidelity, will actually tell you how to do that once you get more and more funds/stocks.

If you have to choose - mutual funds are easier and overall safer because you are paying someone that will hopefully make you money :) but stocks are fun too - just a bit riskier (that is why you go for good reliable companies and not chase stocks - unless you have a lot of $$ to waste, which I don't :P) You hear of people buying JNJ and holding it for 30 years and it pays for their retirement :) Just buy and hold... I would just put most of your money into mutual funds/ETF's and a smaller percentage into stocks that you like (sharebuilder works GREAT for slowly building stock shares at only a little $$ a month!)

Remember to just be mindful of all the fees and go with companies that are upfront about all their fees

Get investing!

I love investing - I read magazines about investing and like to watch shows on CNBC. I took a year or more off from paying attention to it much, due to the fact it was depressing. I let all our investments ride and ignored them, and when things turned around, we made all the money back (lesson to never panic and wait it out - unless you are older, then that is different case)... So recently I have renewed my love for investing and gotten back on the bandwagon - I have been rearranging retirement accounts and buying stocks, ETF's, etc...

Recently, someone asked me the best way to start investing (mainly because they didn't want to have to do the reading on what was best way to start).. First of all, if you have a 401K at work and your work matches, you BETTER be putting money in to get that match (up to the match), otherwise you are just THROWING away money!

Second, if you are doing that, or your work does not offer a 401K, open a Roth IRA ASAP! Many companies have minimums, but some don't so look around to find one with LOW costs and NO hidden fees. Roth IRA will give you tax free money when you retire. We have both a Roth 401K and Roth IRA's, so we shall be living our retirement mostly tax free :) (we personally use Fidelity for everything but our 529 college savings accounts and sharebuilder, but there are MANY good companies)

Now if you just want to put a little money into investing a month - I would start something like a sharebuilder account. If you don't have a Roth IRA, you can make this account a Roth IRA and they have NO MINIMUM amounts to invest and no account minimums, so even if you only have $10 or $20 to invest a month, you can still do it! No excuses. Their cost to buy a shares or mutual funds is only $4 - one of the cheapest rates you'll find (I have one of their plans, so it is even less a month per trade)... They even GIVE you $50 as an account bonus for opening an account.

Then pick a stock (or mutal fund) of a good, reliable company that gives a good dividend. companies like (these are their stock symbols) JNJ, PG, GE, WMT, COST, T, KFT, etc... all are companies you can almost rely on doing well - just think of one of you favorite companies and look at their stock. Pick one with a good Dividend rate - for example AT&T (T) has one of the highest divided rates at a little over 6%!!! You can't get 6% from your money sitting around. So high dividends are nice. The last few years, when stocks were in the crapper, my Disney shares were stagnant, but they still made money from the dividends.

Then just set up your account to invest - at least sharebuilder can do this, I am not sure of other sites - to invest $20 or so a month (or less, No minimums, but you do still pay the $4 to trade, so make that $4 worth it!) into that stock (or mutual fund) - if you are going to do more than 6 stocks, then get one of their plans, but if you are new to investing, stick to ONE stock at first (with a good dividend) and then once you are more comfortable, you can try some more. Have it set up Automatically each month (forced savings/investing), and you don't have to even worry about it - really easy :)

So there - almost everyone has an extra $10-20 a month - or you can find it - to start investing (make it a Roth IRA if you don't already have one!!) Remember, you can always remove your principal investment from a Roth IRA at anytime (but you must leave the earnings in until you retire) Just pick GOOD, RELIABLE companies and go for that dividend!! Now go start investing - it is easy and we aren't getting any younger, and you NEED to do this for your future!!