Here are ten random steps and 12 random tips on investing. We have put them in chronological order, sort of.
10) Keep an eye out for companies to invest in. Create a list (can be done online on your personal investment account). TIP #1: Keep an eye out for companies every where … in the subway, on a plane, on a lunch break, at your doctors office. You should always be thinking, “Hey, I bet that company is doing well! I wonder …” TIP #2: What is your specialty? Are you a plumber? Then you have specialized knowledge! Look for companies that you have “inside” information on. This works for all professions/educations/hobbies/obsessions. Take a look around, at the products you see everyday. I am positive there are some great bargains there for the buying!
9) Scrimp and save: I always tell myself, “1 dollar today, is $100 when I retire! Am I willing to spend $100 on a pen?” This is my mantra — especially when something catches my eye, and I get that jones for a little retail inebriation. TIP #3: Open up a new bank account (make sure they don’t charge a monthly fee!) or investment account and have a percentage of your wages transferred into it — this is your “business account”; use it for your investments. TIP#4: Either a) spend only cash [i.e., $100/week petty cash fund] or b) put a stop to all transfers/lending/overdrafts etc. on your checking account, and then put only a set amount of money in that account. A worse idea is to buy a pre-paid card to accomplish the same thing, but they charge you to buy it, and maintain it (example prepaid card; example gift card). TIP#5: Don’t spend change, ever! Take your change, put it in a piggy bank, and once every few months, deposit it into your “business account”. We bet you’ll be surprised!
8) Buy good value stocks (explanation) in bulk! So, we have found three companies we want to buy. We have $3000 dollars to invest. The math seems simple: $1000 for each, right? No.
The reason why not, is that you have to pay the fee’s three times! If you think of each fee as another partial share you can’t buy, then you can see that the lower the purchase amount, the greater the fee is, by percent: i.e., $8 is 8% of $100, but $8 is only 0.2% of $3000! TIP#6: While you wait for your money to accumulate to ~$3000 (or whatever), you can use the money to buy tax-free bonds (and if your really smart, you can ladder them [example]) (this also can be used as part of your cash reserve).
7) Buy stocks in sectors: In the economy there are different sectors (example). Your goal is to buy quality value stocks in each of these sectors (advisers tend to want to invest in them in percentages, based on the percentage they represent in the economy; i.e., if consumer goods makes up 15% of the economy, your stocks in that sector should represent %15 of your stock portfolio. We really don’t know if this is based on any science, or if it is just “common sense” [or simply a historical anachronism]. Our thoughts are that buying solid value and growth [definition] stocks in all sectors will be hard enough, and it will be sufficient). For more info, read this short article: here.
6) Diversify by never buying the same stock twice: Buy one company and hold it until you retire. Diversify by purchasing stocks in all sectors (first one stock in each) then, when you have all the sectors covered, buy another company in the same sector. This will diversify your portfolio (why is this necessary?). TIP #7: If you are going to sell a stock because you are not happy with it’s performance/management/policies etc., sell it and then transfer the money into your IRA. Why is this a good idea? Well, you don’t want to make too much money during the year, or your taxes will kill you, and since you can only put in $5500/yr, your limited in how much you can sell. Plus, it forces you to only sell a few stocks a year (or $11,000 for you and your spouse — who needs their own IRA!). It also makes sure you are investing the maximum into this great vehicle while simultaneously preventing you from spending it!
5) Buy using a “Market Order”: Did you know that companies charge more for a limit order or other ‘exotic’ orders? Since we are investing for the long term, a few cents wont make a big difference — so we at StockGuilt just buy and then go to the park with our kids. TIP #8: If a company is doing a terrible job, and you realize you have made a mistake, you can sell it at a loss and come out even if you also sell a stock that has made money in that same year (i.e., a loss of $500 and a gain of $500 makes your capital gains zero!). Always keep track of the bottom line, and be as close to no profit as possible for your taxes.
4) Give money! (A.k.a., Tip # 9) This has nothing to do with purchasing stocks, but we feel it is important. If you are going to pay taxes, and let the government use your money to do stupid and/or horrid things, you are going to hate yourself. But, you have the option of spending your tax dollars on the right things! If you think the government should be spending more money on education, then that’s where you should put your money. Don’t think of it as charity, think of it as your duty as the head of a very, very small department of the federal government. You alone decide where that money should be allocated! Congrats on the promotion!
3) Go to the library and read a book: This is where you get expanded knowledge of investments. Keep away from books on stock investing, as this will make you over-think things and mess up the long term strategy that will work, if you just leave it alone! TIP #10: Read non-fiction biographies for insights and inspiration on new companies, strategies, and a warm buzz of enthusiasm! It doesn’t matter who, what, where, when, or how, you will be inspired. TIP #11: Forget about your stocks! Just leave them be. Do not watch the “market news” or any of those investing shows, as this will just make you anxious. If you need inspiration, read it in mutual fund prospectuses.
2) Read Discover magazine and Popular Science, etc. (A.k.a., TIP #12): This is the cutting edge of science, and we are constantly astonished by what we read in these magazines — and more importantly, about the companies that are making it happen.
1) Get some disparate friends (A.k.a., TIP #13): Not desperate friends, but disparate, diverse, weird. They will have insights into investments you would never think of. Buy them a drink, and let them blow your mind!
If you are going to get into investing, the very first thing you should do is look into an IRA (look at the pros/cons of ROTH vs. traditional here).
Any online investment house can host your IRA, for free (well, the account is free).
Why an IRA? Because it forces you to not spend what you save (or, at least gives you serious pause), while also giving you a tremendous tax advantage (while the money is within the IRA):
i.e., If you cue up all your big-gun dividend yielding stocks, and put them into your IRA, you don’t pay taxes on the dividends (whether or not you re-invest them: why this is important) … then you can buy non-dividend stocks* for your non-IRA investments and not pay taxes until you sell them [at which point you should have very little “income”, a.k.a., you’re retired, and won’t get taxed like a brain surgeon].
As one professional said, “Put your tax-adverse investments within your IRA, and put your tax-advantaged investments (e.g., US government bonds) outside of your IRA.”
Hustle! The faster you get your IRA up, the more you can contribute! Time is the main variable at work here!
*Keep this in mind and be careful — in general companies that pay dividends do so because they are not reinvesting their money, whereas a company that is growing fast is probably not paying dividends (or, very little).
NOTE: StockGuilt is a blog about interesting stocks, and our views. We are not stock brokers, investment councilors, planners or legal advisers. In fact, at least one of us is an idiot. The rest are just folks who think about investments. This is what we think, and what we will do/did. In no way are we telling your what to buy or sell … Do your own homework.