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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 10172
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I would like to invest in stocks what is the best way to

Customer Question

i would like to invest in stocks what is the best way to invest and make an substantial amount of money??? this is my first time invest or dealing with stocks
Submitted: 1 year ago.
Category: Finance
Expert:  Lane replied 1 year ago.

Hi,

...

Well, first of all ... ne of the most important things, given the events of the last two days MIGHT be to invest right now (first thing in the morning).

...

As a caveat to that ... until we get to next November ... (the next presidential election) things will be very uncertain .. which ALWAYS makes for volatile markets.

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The big difference between the events of the last couple of the days and a true, fundamental market crash or correction is that the economic fundamentals are stronger now than they have been , unemployment is dropping and we've had several straight years of positive (albeit a little historically slow) economic growth.

...

GIven that ... MY recommendation would be to take whatever lump sum of dollars you have to invest and dollar cost average into a diversified portfolio of low-cost (small cap, mid-cap, large-cap, and international stocks along with some very short term bonds).

...

Dollar cost average means taking investing a level amount of money, monthly. What happens there is if you invest on a day when things are low you buy more of the cheap shares ... and it your monthly investment goes in on a high day, your fixed amount of investment has bought fewer of the expensive shares.

...

And given that markets always do better AFTER an election and are at their choppiest during the year before an election, this next 12 months could be the PERFECT time to catch some lows, exploit the volatility, and then have this ALL revalue back up, when (regardless of who wins) business can now plan accordingly, begin to invest capital and markets that gave been treading water correct back up to a normal growth rate.

Expert:  Lane replied 1 year ago.

Vanguard, T.Rowe Price, and others offer VERY low cost mutual funds and ETFs (Exchange traded funds) to do this and will set these investment plans up for no cost...This way you avoid brokerage commissions.

...

Expert:  Lane replied 1 year ago.

Now, if you re a risk-taker ... given the very low state of the market today you might want to do this all in one lump sum.

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Essentially, if an investor expects the overall strong trends (measured over market cycles o w to 6 years, not days) to continue, is satisfied with his or her target asset allocation, and is comfortable with the risk/return characteristics of each strategy, the prudent action is investing the lump sum immediately to gain exposure to the markets as soon as possible.

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But if the investor is primarily concerned with minimizing downside risk and potential feelings of regret (resulting from lump-sum investing immediately before a market downturn), then Dollar Cost Averagin may be of use.

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Of course, any emotionally based concerns should be weighed carefully against both (1) the lower expected long-run returns of cash compared with stocks and bonds, and (2) the fact that delaying investment is itself a form of market-timing, something very few investors succeed at.

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Expert:  Lane replied 1 year ago.

Here's something I sent to my more squeamish clients ... after the events of this latest dip (caused by China's problems, by the way ... not ours)

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Since 1900, there have been 35 declines of 10% or more in the S&P 500. … Of those 35 'corrections,’ the index fully recovered its value after an average of about 10 months.

The S&P 500 more than doubled in value from March of 2009 through 2013 with an annualized return of more than 20%.

The S&P 500’s average annual total return over the past 50 years is 10%

The average equity mutual fund, 10.7% over the last 10 years

The average mutual fund INVESTOR? ... 2.7% … WHY?

  • They ran scared at the lows (locking in those paper losses that always come back by selling at the lowest of times) … AND.
  • They speculate at the highs (waiting until things have been doing great before jumping back in).

Let’s not be part of that herd, those lemmings. Stay strong. Invest with knowledge rather than fear.

I’ll be very glad to discuss things with anyone, but likely, unless your time frame or goals have changed, I will recommend that you not change a thing.

And if you’re saving on a regular basis (like my 401(k) clients). .... or want to start to dollar cost average into the market .... Relish this opportunity. Keep it up!

Lane

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