It’s time to take another of those “breathers” we’ve used in the past to collect our thoughts and get ready to move on. And today you’re a participant because I’m going to respond and answer some of the investment questions you’ve asked during the last few months. So let’s get started!
First, a question came in asking: “When you read ’10 hottest stocks right now’ in an article, is this true? Should we go right out and invest in those stocks?”
The answer is: No. Lots of facts come into play with such a title for an article: how old is the information, who’s giving the pitch, do they have a vested interest in pushing those particular stocks for investment?
What kind of research (if any) went into the selection of those stocks? If the magazine article touting “The 10 Best Stocks of the Year” came out in January of 2007, for example, how have those stocks fared for the first six months of the year? In other words, you should still do your own research and not take others’ research for granted.
If the person or group presenting these stocks is reliable, if their statistics show they have picked proven winners down through the years (in good markets and bad), you might then consider investing in a few of their stock picks in limited amounts and with limited funds. Test them; see how they do in your own portfolio. Don’t just jump in and spend all your investment money on their ten stock picks. Once you jump in, it’s very hard to get out without substantial losses both in value of the stocks and in commissions paid to the brokerage firm you’re using. Be cautious.
Another good question: “When first starting an account with a discount Internet broker, what is the LEAST amount of money I can use to open the account for investment purposes?”
My good answer: It varies from one brokerage firm to another and the type of account you are opening. For example, retirement accounts can be opened at most brokerage firms with less money required to open a regular account.
And keep in mind the competition for your account is stiff, so many discount brokerage firms are now offering many perks to get you to sign up with them. Free trades, $100 in cash deposited into your account, less money to open up the investment account to begin with: these are all incentives offered to get you as a potential customer. So shop around. Most brokerage firms nowadays, I have discovered, will let you open an account with them for around $500, which gives you the opportunity to get going on your investing and trading very quickly. Take advantage of it.
Some asked this question: “Suze Orman (CNBC financial expert and author of several books on finances and investing) says not to invest in bonds — is this true?” The answer: Generally speaking, over the long haul, stocks outperform bonds. However, bonds are a good way to invest for those of you who are very conservative and don’t want the risk of stocks and for those of you approaching retirement and want to protect your principal. So, while buying stocks is usually a better investment than buying bonds, don’t discount owning bonds in your portfolio, depending on your situation.
Next question: “How often do I need to check my investment account? Every day? If so, should I start smaller so I can monitor it?”
Next answer: Unless you’re highly anal and absolutely compulsively have to check your stock portfolio daily, once a week should be enough. And unless you have some pretty speculative stocks in your investment portfolio needing more monitoring, once a week and often once a month is enough. Some stock portfolios don’t even need any checking at all but once a month; you just take a peek to see if they’re still doing well for you, and if they’re not, you sell the ones that are disappointing after finding something to substitute.
For example, you have five stocks in your portfolio and when you check them after owning them for two months, one of the stocks is down, say, 10 percent. You have been thinking if you had some extra investment money you would buy Company X’s stock. Why not sell the loser and buy Company X?; swap the same amount of money for one stock into the other in the hopes the new stock will do better than the old.
Starting small (two or three stocks) in your account is a good way to “get your feet wet.” It’s easier to manage a few stocks than it is 20 or 30. So the answer is also, “yes, keep the portfolio smaller while you’re learning, then you can increase the number of stocks you own as your confidence builds.”
Well, hopefully these questions and answers strike you as something you’ve been wanting to know, and now … go out there and invest and make some money!
We will get back to Q&A soon, so stay tuned (and send your questions)!