Should I try online trading to build stock portfolio?
Dear Dave,
How do you feel about online trading for building a stock portfolio? Assuming that someone has done their homework on which stocks to buy, is there anything else to know about do-it-yourself trading?
‘ Kevin
Dear Kevin,
There’s one very important thing to know ‘ don’t do it! This kind of thing is just one rung below day trading on the ladder of stupidity.
Here’s the problem. When most people talk about ‘doing their homework’ on single stocks they’re just barely skimming the surface. And most of the time this involves just talking to their broke friends. There’s no way you and your golfing buddy are going to dig up and decipher the kind of solid, reliable information you’ll need.
I’d much rather go with a mutual fund that’s spent millions of dollars analyzing companies and doing real research. What you’re talking about is a million times riskier than using good growth stock mutual funds ‘ selected by professionals ‘ with 90 to 100 different stocks.
‘ Dave
Dear Dave,
My husband and I disagree over the maximum amount of our take-home pay that should go toward our house payment. What do you think?
‘ C.R.
Dear C.R.,
You can qualify for a low-side ratio of around 28 percent of your gross monthly pay. That’s what you make before taxes. But you should never take out a mortgage with a monthly payment anywhere near that large.
If you’re wise your payments won’t be more than 25 percent of your net, or take-home pay. If you keep your mortgage payments at a fourth of your take-home pay it’s lots easier to stay out of debt in other areas and save money.
‘ Dave
Dear Dave,
We have no debt other than our house, so we’re doing pretty well financially. My husband’s income covers all the bills, and mine is just extra money every month. I’d like to begin investing my income in mutual funds, but the idea frightens him a little. How can I convince him?
‘ April
Dear April,
There are two kinds of scared. One is when you’re afraid something can really hurt you, and the other is fear that comes when you don’t understand something. The second is the kind of fear lots of people have when it comes to investing.
Knowledge alleviates fear, April. So here’s the knowledge he needs. Ninety-seven percent of the five-year periods in the entire market history ‘ including Pearl Harbor, the Great Depression and 9/11 ‘ made money. Want more? One hundred percent of the 10-year periods have made money.
Investing is a lot like buying a house. As a rule, homes don’t go down in value over the long term. The market may fluctuate, but in the end you’re probably going to be OK. The stock market really isn’t a risky investment, either, as long as you put the money in there and leave it alone for a long time.
‘ Dave
Dear Dave,
My husband and I are debt-free except for our house. Should we start saving to invest in a small business idea before the home is paid off like you did?
‘ Jenny
Dear Jenny,
That’s not exactly how I did things, but sure you can. I don’t have a problem with that at all. When I started my business I started from nothing, so I didn’t have to save up for anything and it’s always paid its own way.
You’re about to have some real fun being an entrepreneur, Jenny. Go ahead and put aside $2,000 or so, then tear into the house payments and get that mortgage knocked out.
‘ Dave