7 dos and don'ts for rookie investors

Just because you're a beginner doesn't mean you have to invest like one.

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VIDEO ON MSN MONEY

50Comments
Mar 28, 2014 7:42PM
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Good basic investing advice. Especially, “Do: Maintain cash savings”

I’ve always adhered to a policy of keeping two years of living expenses in cash reserve before even thinking about investing in stocks, bonds, or other investments (yes even bonds are risky these days). I know it sounds extreme to some, but, this practice saved my a$$ and my portfolio more than once over the last 25 years.  And, with extended job loss and other financial threats now a constant in our brave new world, I recommend it more than ever.

 

Mar 29, 2014 1:28AM
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Don'ts:


Don't pay attention to any "Stock Market Analysis" found on MSN..

Mar 29, 2014 12:25AM
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Warren Buffet stated that people will always find something to worry about. Well, to that I would reply that just because they call you paranoid doesn't mean that someone isn't out to get you!
     The only thing that has driven this market up for the last 5 years is low interest rates and the Feds pumping money into the banks and the market. Now the Feds are pulling away the 'punch bowl" Get ready for a correction. 
Mar 29, 2014 4:36PM
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3 Vanguard index funds.  I've got all my money in just 3 broad index funds charging under .1% annually.   Over $4 million as of today.  I'm not giving an advisor $40,000 a year to manage it.  I'm not making Wall Street any richer.  Keeping it for myself.
Mar 29, 2014 12:33PM
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My advice....do research first. Keep your portfolio diverse, and keep a little in cash in case of an emergency. Know what you're buying, and have a good reason for buying it. Don't rely solely on what some person says. A lot of times, people will give recommendations because they may have their own personal interest in them.
Mar 29, 2014 9:04AM
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Low-fee index funds are the way to go in a 401(k) account.  It's so easy to lose a tom of money through those fees.
Mar 31, 2014 4:32PM
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Senor Akimoto,

Sir, a majority of seniors and/or the elderly DO NOT understand either the seriousness or the complexities of this problem.  Moreover, it is much worse than just a problem -- it has become an epidemic in the financial community.  FISHER INVESTMENTS is a fiduciary for its clients (investors) i.e. a legal or ethical relationship between two or more parties.  As  such, when  FISHER INVESTMENTS betrays that trust with its clients, it is not only gut wrenching , but much worse, it is financially devastating!  Unfortunately, the commentary and warnings (the TRUTH) which I have expressed about FISHER INVESTMENTS seems to have fallen on deaf ears.  Still, I will NOT be deterred; I will continue telling the TRUTH about this greedy, self-absorbed man, KEN FISHER, and his deceitful and egregious company, FISHER INVESTMENTS!

I do apologize for the offensive and unnecessary language (cursing) that I used to express my opinion in this blog!

Don Moore
Mar 29, 2014 7:24PM
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You do not need to be very smart or have a computer and lightening fast algorithms to invest successfully. What you need is common sense, a little basic knowledge of the time value of money, P/E and debt ratios and a willingness to read.  Do not try to evaluate an annual statement of a company if you are not trained, I have an MBA and do not consider myself qualified.  Read what the professionals say.  There are many unbiased sources.  Take the information you get from the pros and apply your own common sense.  Have an advisor to bounce ideas off, but in the end go with your opinion.  Be patient, diversify, have a strategy. ( My strategy is to maximize current dividends while minimizing capital losses.  I do not care if a stock goes up if it pays a good current return. I worry a lot about what the pros call value traps and get out of any investments I do not see as having stable earnings.)

 

 Never buy what the pros call momentum plays, in my book they rely on the greater fool theory and if you do not get out at the right time you can get killed.  Examples of this include Crocks, Amazon and most new bio-pharma.  Never buy on the basis of fear of missing out and never sell on fear.  Be patient!

Mar 30, 2014 6:47AM
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The posts advising you to stay out of the markets are the correct ones. The SEC has stated outright that high-speed trading is destroying the small investor. Best to avoid organized finance and invest your money locally. I will add- that each month the Federal Reserves lessens how it gives to banks who put it directly into the stock markets, the more volatility comes of it. Stay away and you actually will have money for that rainy day.
Mar 29, 2014 5:55PM
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"Television shows, radio programs, articles and other sources of investment advice can point you in the right direction..."

But since they are overwhelmingly biased toward short term investing and full of sensationalism to buy and sell, they more often point you in the WRONG direction - including msn.

Get yourself a good book on investing, whether it's mutual funds, ETFs, stocks or bonds.  For stocks, two easy to follow books for value investing are Mary Buffett's "Buffettology" and Peter Lynch's "One Up On Wall Street."  They will point you toward steady growth stocks at reasonable prices that are likely to make money for you.  Using that philosophy I gained 36% last year compared to the market's 32% (including dividends) and this year so far 1.32% compared to 0.96%.
I generally do 10%-20% better than the market most years by sticking with sector-gorillas with steady growth, low debt, good return on equity, durable competitive advantages, at reasonable prices as per Buffettology, OUOWS, Philip Fisher's "Common Stocks and Uncommon Profits," Ben Graham's "The Intelligent Investor," Lita Epsteins, "Reading Financial Reports for Dummies," etc.  The time studying such books pays off.
Mar 29, 2014 8:13PM
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People can write books or give advice on investing to make a living or enhance their pockets for themselves. In other words, we live in a capitalist society. Nothings wrong with that but the majority does not do it for free nor to make you wealthy. Financial advice on investing should be taken with a grain of salt. We all live in tremulously times (unchartered terrain). It feels like were in a glass house surrounded by a weak wall of boulders waiting to come unglued if you ask me. That's just my opinion. God help us all if or when it does fall apart.   
Mar 29, 2014 6:19PM
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People will need their money when life (%&*!) happens and hits you hard. I find it very difficult to believe that we are going to keep rising from here and go to infinity (everyone seems too optimistic about the economy from day to day data) ... oh well, we just might. Who am I to speculate or predict the future. However, what the Fed is doing .. has to make you wonder ?!?!?! Interest rates will eventually go up but I don't know when. That has the real potential to blindside and hurt everyone like a mack truck. Anyways, I experienced the madness in 2008. Thought I could take it, its a whole different matter when it happens, and like I said life happens and who knows how long it will be when it happens. We never seem to learn from our past mistakes. Bernie Madoff fooled everyone and this was not the first Ponzi scheme in history to take place here. Need I say more? Valuations are extremely frothy now. Kind of feels like "deja vu" if you ask me. It will happen when nobody expects it .. out of nowhere. Bam!!! It can knock all of us out of our shoes. The economy got fixed because of Fed intervention? Huh? National deficit? Unbelievable how much money we owe! That alone should scare everyone. People buying stocks off loans from their brokerage firms? Sure thing. We all live in a crazy world of debt. Everyone's got it. All shapes and forms of it. Is everyone's job permanent here? Most of it is minimum wage unskilled temporary jobs at best as far as I'm concerned. We should follow Germany's vocational model toward training and employing the youth for a start here to address the unemployment problem. Furthermore, US companies are buying back their stock and paying off their debt because of the ridiculous low to near zero interest rates (their not really expanding their business nor hiring).. thanks to Fed policy (unchartered waters--even they seem unsure about it all). The last time I checked on my school loan, its 5% interest (they are making a killing from me on a daily basis!). Whereas, saving in CDs, money market/bond funds, or bonds doesn't even get me close to 1% at most. Stocks at this level? ... well, play at your own risk. Health care's future? For profit hospitals can't even break even from Medicare reimbursement payments, which is less now while costs are rising from the reform. Drug costs? That's whole another issue that can snowball into an avalanche. The exploding rise of baby boomers affecting Social Security? What is our unemployment rate? Can we pay this in the future? We need to address so many potential disasters waiting for us over the horizon. Kicking the can down the road is what we seem to be good at. Anyways that's my rant, and I'll end all this by saying that there are two things that are permanent in this life as Ben Franklin once said, Its death and taxes, and nobody is exempt from either. After you invest your hard earned or borrowed money, the taxes you pay, commission fees, and the effects inflation (who knows but it may be worse in the future -- its always a potential threat) can make you want to rethink your whole outlook about everything. One last thing or quote I'd follow --  "Its better to give advice than to take it." - very wise man. Cheers.
Mar 28, 2014 10:00PM
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Read all the SEC stuff available about what you are doing. Make sure the companies have the money to pay you what you'd consider adequate return or dividends. Divide total assets by total liabilities and if you don't come up with 1.5 or more (this is known as a debt ratio), look very carefully and make sure that mitigating factors would otherwise make the investment sensible.
Apr 29, 2014 2:19PM
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Never finance a depreciating asset
Never entrust your money to strangers
Never allow the public to know the whereabouts of all your assets
Never allow any financial institution to place your money/assets at any risk
Banks do not protect your assets against legal seizures or amounts, which exceed that which is insured
Avoid Bonds
Nothing is gained which doesn't exceed the corresponding inflation rate
Those who don't find ways in having their money work for them will always work for their money


May 27, 2014 10:57AM
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They missed the most important "do" for any investor, beginning or well seasoned... educate yourself.  If you don't have a good solid understanding of what you are doing all the advice in the world is worthless. Read read read, some of it is mighty dull, but you learn as you go. The education is free at the public library.  If you don't have a good understanding to read a company financials, know the differences of an ETF vs a mutual fund vs a bond fund vs an index fund, large cap vs small cap, etc etc etc, you will never be able to make sound decisions, learn to walk before you run. A wise man taught me that is not a matter of you can't do something, it is just that you never learned how........
Mar 29, 2014 11:29AM
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"Don't: Try to time the market
You can't.
As the most famous and well-respected investor of all, Warren Buffett, wrote in this year's letter to Berkshire Hathaway (BRK.A) shareholders, "The goal of the nonprofessional should not be to pick winners -- neither he nor his 'helpers' can do that"

First of all, who in Hades are you to tell others what they can or  can't do. Just because you or I can't do something hardly means someone else can't do it. Don't put your limitations onto others. As far as Warren is concerned, he is no different then any other Major investor, they need as many folks in to get the biggest Bang for their Bucks. So Warren is just protecting his positions. Also, Buffett get special investment deals that's not available to 99% of other investors. Those deals are severely rigged in his favor. Buffett also has a backdoor to great arrangements via the FED, also something 99% of everyone can't do.

We are literally in uncharted territory on nearly every Economic Front. We have epic Pollution on a Global Scale. WE have engaged in unchecked GMO Food production. Global Debt has soared 40% since the Great Recession while we have done little to solve the issue of stolen Funds from Social Security and the Medicare Trust Funds. So as the Corrupt Money Changers sit there and preach Patience, time is Literally running out before the Chickens come home to Roost. You can't continually Rob Peter to pay Paul and NOT pay a Major Price. The givebacks in Stock Gains will be Epic. And it might not ever recover.



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DO: Be weary of DRIPs. That one share of XYZ might seem like a place to start, and all, but after perusing all the fine print, you might find that, after all applicable fees, it would be nearly impossible to come out ahead.
Apr 29, 2014 4:16PM
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Shame investors can't do what BoA did 5 years ago. 


As a mutual funds trading portal, BoA employees would take all the trades that were losers after the 4:00PM cut off time and correct them to show a gain with the time posted on the trade back dated to  4:00PM or earlier.


That's the true way to avoid losing money!


PS- I like the BoA employee that gave my post thumbs down.  Classic!

Apr 29, 2014 3:42PM
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Looking at the picture of the woman you could just as easily substitute her stock analysis sheets for a horse racing handicap analysis sheet.  The results are about the same.


Mar 29, 2014 12:36PM
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Agree with most but Don't time the market.  Having been entirely in CDs at 506% prior to the 2008 meltdown and having backed the truck up in in March, 2009 buying GE, INTC and others I made up everything and more that I lost in the 2000 dot com bust.  Sector rotation including cash and CDs can be a very effective strategy even if you miss last 5-10% of a top.
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