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Written on April 10th, 2009
Before getting into the beef I want to make five points.
First,
If you are over fifty five, and definitely if you are sixty I do not feel this information if pertinent to your situation.
Second,
I am assuming that you are already putting away at least 5% into a pre-tax 401k or other type of job sponsored retirement plan.
Third,
I assume you have enough cash to cover at least six months worth of expenses in case you lose your income.
Fourth,
I still believe we are going to see more declines in both the stock market and the real estate market.
Fifth,
As with any investment if you are not comfortable with the risk do not take the leap.
During the meltdown I put sell orders on our remaining stocks. We have three investment accounts with one of the online stock brokers, a Roth IRA, a Regular IRA, and a regular investment account. Up until mid March we were 100% in cash for these three accounts.
We now have thirty months of cash on hand to cover bills and living expenses in case of a loss of income. I advocate having at least six months as a minimum. But, I also tell folks that this number should be the number they feel comfortable with.
During this timeframe an event occured that was a catalyst for me deciding to move back into the market. When GE stock went under $6 a share I knew it was time to start moving back into the market.
I had seven key investment goals in mind
Lets take a look at each one of these.
The only way to find out about a company is to research it.
There are a number of resources I like to evaluate a stock. First, Google is a good resource for researching a company. The companies own website can be an okay resource as long as you realize it is the companies site and the spin will always be positive. My online stock brokerage has research tools but frankly there are two sites I use to research.
Here are the URLs
I like this screener as it allows me to get a list of stocks based on certain financial criteria that I select. I use this to hunt for dividend paying stocks
Yahoo Individual Stock Screener
This is one of the better resources for researching a company
You need to keep in mind that even publicly traded companies can keep dark secrets. All I need to say to prove this point is Lehman Brothers. Once can google keywords like "Alcoa problems" to dig a little deeper and dig up the dirt on a company.
Like you and anyone else that was in the market I lost a big chunk of money. I had an IRA that was worth $78,000 and by the time I went into 100% cash position went to $42,000. At the point that I decided to get back into the market I decided to do it incrementally.
I took about 1/5 of my cash and bought
| Company | Shares | Current Dividend |
| Alcoa | 200 | 1.5% |
| Bank of America | 200 | 0.6% |
| Wells Fargo | 100 | 9.1% |
| GE | 100 | 11.7% |
| Pfizer | 100 | 9.5% |
| RR Donnelley | 100 | 11.1% |
| Teco | 100 | 7.2% |
You may think I am nuts for buying bank stocks. It is certainly a risk. But I am investing for the long haul. These are are large blue chip companies. Further, these are all dividend paying stocks. In the two weeks since I purchased these stocks I have seen the following gains.
| Company | % Gain (Loss) |
| Alcoa | 24% |
| Bank of America | 48% |
| Wells Fargo | 43% |
| GE | 14% |
| Pfizer | (0.2)% |
| RR Donnelley | 29% |
| Teco | 3% |
These are nice short term gains. But, I am in this for the long haul. That being said I am still a fairly conservative investor. I recently went in and put sell triggers to ensure that even if these stocks go into a decline I will still make a profit. As these stocks hopefully go higher I will adjust the sell triggers to reflect the new gains.
I am not recommending these stocks to you. These are what I bought after doing my research. I am providing this as a "real" example.
In good times or bad times individual securities go up and down. Individual sectors (like Retail or Energy) experience periods of growth and decline. In other words, in any economic situation the market is volitile. You can learn a great deal about investing but making money in the market always boils down to selling securities at a higher price than you bought them for. One of the best metrics that is often ignored is the 52 week range. This allows you to buy a security during one of its dips. You still need to find out why a stock is in decline before you buy it, but in conjunction with buying incrementally is buying a stock when it is in a dip. Just be care that the dip is not a company going down for good. This is where good research comes into play.
If you are thirty you have a lot of years to invest and build a nest egg. Buy low, sell high is the easiest formula for investing. If you have a decent cash position what better time is there to buy good quality stocks than right now?
If you believe we are going to get through this period in our history and you have time. Then this is the time to buy stocks. Good stocks that is.
Now for an interesting twist. Consider setting up this investment as a Roth IRA (assuming you are eligible). Why? Because you always have access to the principle without any tax consequences. Further you can sell a stock to realize a gain and not be liable for taxes on the gains. Suppose you bought a hundred share of XYZ corp at $2 a share and it shoots up to $40 a share. Even though we are investing for the long haul sometimes you want to take some immediate profits and reinvest them. Under a regular brokerage account you would need to report capital gains on $3800. This is going to cost you some money.
Keep in mind, with a regular investment account you are only subject to taxes on gains at the time you sell. Of course you will be taxed on dividends and distributions the stock makes to you (but not for a Roth IRA).
The less you diversify the more you are taking a risk. Buy stocks in many different business sectors. It is better to buy less shares and more quality stocks. With online brokerages you can buy and sell shares in any quantity.
Buy stock from a company over time. Time and buy the dips. This strategy is exactly what you are doing with your 401k.
With interest rates at such a low rate I like to buy securities that pay dividends. Of course you run the risk of losing wealth if principle of these securities decline. This is the case even when buying conservative securities with very moderate flucuations like utility companies. But, if you are investing for the long haul you can weather these dips without problem.
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