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By Yvonne Volante
Mutual funds are extremely popular. There must be a reason,
right? But, like any other form of investment, mutal fund
investing requires some information and resources.
Easy access to investing information and the availability of
online trading has made life easier for do-it-yourself
investors. The Internet has brought the "trading" desk to
millions of households and it is now possible to buy and sell
shares, options, warrants, interest rate securities and
managed
funds from your own home. All you need is a computer and an
internet connection. In addition, you can do your own research
on a particular company or fund manager as well as finding out
what some stock brokers are recommending to their clients.
Much
of this information is free or available at a reasonable cost
and you can save yourself hundreds, or even thousands of
dollars in fees and commissions every year via the internet.
Rather than go through a full service stockbroker or
investment
advisor, why not give it a try?
When building your own stock or mutual fund portfolio, here
are
some pitfalls you need to avoid!
While you can find a plethora of good information on mutual
funds and stocks, you can also find very poor information.
Each
website claims to have the latest hot picks or the "top ten"
stock buys and often they contradict each other. Who do you
believe and what about the scams?
You will undoubtedly come across websites and chat rooms that
give investment advice or tips about investments, but many of
these are not qualified to do so. The information may be wrong
or misleading and some websites even repeat incorrect rumors.
There is overwhelming evidence that you will not become rich
by
listening to the advice of others. As an investor you need raw
information, not recommendations. You would not buy a car just
by looking at it...nor should you buy a company's stock or a
certain mutual fund without doing significant research. There
is no point trying to take control of your finances if you are
going to rely solely on a "tip" from a newspaper or a broker
or
an internet chat room. It is true that someone may know more
about a particular company or stock than you, but they could
easily be wrong - so do your own homework!
You need to be certain that you have sound reasons for
investing in a particular company or mutual fund. Do they have
an instantly recognizable name? Do you understand what they
do?
Do the products or services of the company stand a good chance
of being in high demand in a 10, 20 or 30 year time frame?
Does
it have a management team that moves with the times and is
innovative, yet keeps a firm grip on the company's finances?
Most of this information is available in a company's Annual
Report, but make sure that you read it with a degree of
skepticism...most reports are written to promote the company.
Keep in-mind that the historical and present prices of a stock
or mutual fund may hold some clues to the future price. In
practice, most analysts use fundamental analysis for short and
long term buy/sell decisions and use technical analysis to
confirm the decision.
Internet websites are a great place to collect information
about companies. Naturally, a company owned website will
attempt to portray the company in the most sympathetic light.
Depending on how serious you want to be about investing, it is
advisable to either visit or subscribe to investment research
websites. Research websites are valuable tools for any
investor
and provide company reviews, give general investing
information,
market updates, stock pickers, stock ratings, watch-lists,
portfolio managers, charts, share indexes, newsletters, alerts
and model portfolios.
So, how can you structure a stock portfolio to maximize your
wealth, ensure your peace of mind, give you total control of
your investments, be easy to manage and give satisfaction?
Here is a recommended strategy that has worked well for many
do-it-yourself investors:
1. Subscribe to a well respected investment research website
dedicated to analyzing financial information for investors.
They are independent from companies they list, do not receive
commissions or brokerage and rely solely on investor
subscriptions for income. They have to give their subscribers
quality information to maintain subscriber confidence.
2. Look for the model portfolios they have developed and study
the methodology they have used to create and maintain each
portfolio.
3. Read the research reports supplied for each stock and study
the graphs supplied for price movements and trading volumes.
Get a good feel for both the long term and the short term
trends of the stock.
4. Test each portfolio within a designated test period i.e.,
one month, one quarter, one year etc. Depending on the
website,
you can set up each of the model portfolios in a free
portfolio
manager provided on the website with unlimited stocks. Set a
starting date for a test period where you "buy" stocks listed
in the model portfolio at the closing price for that day. Make
sure you include brokerage as it is part of the cost base for
the stock. The website should either maintain up-to-date or 20
minute delayed stock prices, so a running balance can be
maintained for the profit/loss for each stock over the
designated period.
5. Compare each portfolio's published results with the results
that you have achieved in the portfolio manager. They should
agree with each other when the same stocks are compared over
the same time period. Your testing should develop a level of
confidence in the model portfolio.
6. Determine the best model portfolio for you to use. You can
do this using the last the last three months of stock price
history or perform a trial evaluation for the next three
months
of future prices. You can use one of the existing model
portfolios or create your own from the stocks selected.
7. Subscribe to an online share broker website and begin
trading.
8. Monitor stocks daily and review the performance of your
actual portfolio against the model quarterly.
You should take care to evaluate the methodology used by the
research website to develop the model portfolios. These
portfolios are designed by research firms to provide sensible
medium-term portfolios that make it easy for investors and
financial planners to replicate. You need to understand the
research methodology and develop a level of confidence in it
rather than just blindly accepting the published results of
each portfolio. You do not need to become an expert in
methodologies.
Building a share portfolio that meets your investment
objectives will substantially build your wealth over a period
of time. You can also save money in commissions and fees, have
peace of mind, total control over your investment and gain a
real sense of satisfaction. A good recource for information to
consider when you begin to have success at investing can be
found over at www.assetprotectionnv.com.
Finally, be carefull with your mutual fund investments. No
fund
will make guarantees so good research and a steady hand are
critical. Good luck comes to those that are prepared.
About The Author: Yvonne Volante, the author, is a big fan of
investing in mutual funds and writes for amutualfunds.com,
which is the premier mutual fund resource on the internet. You
can see all of the articles over at
www.amutualfunds.com
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