Systematic Investing

PLEASE NOTE: This information does not constitute financial advise, it is merely for informational purposes.  Please consult with your personal financial advisor and do your own due dilligence before making any investment decisions.  The stocks listed in this article are for illustration purposes only and are not to be considered recommendations.

Before we begin, let me share with you the #1 rule I've learned in stock market investing:

The best way to lose your money is by trying to make money too fast!

This is a lesson I had to learn the hard way.  I began my career as a futures broker where you typically have 10 to 1 leverage.  In other words, you control $10 worth of assets with only $1 of margin money.  In this type of scenerio it's possible to double your money or lose it all very quickly.  In most cases people lose their money because they let fear and greed play a strong role in their decision making.

As I've gotten older, I find myself more and more risk averse.  I no longer want to take big risks.  I would much rather make a decent return on my money without the risk of losing it all.  Today Exchange Traded Funds ( aka etf's ) have made it easier than ever to invest in broad stock indicies, individual companies or various sectors.   Most people start out with some of the basic indicies:

SPY   -  Tracks the Standard and Poors 500 index.
DIA    -  Tracks the Dow Jones Industrial Average.  
QQQQ - Tracks the Nasdaq 100  
ONEQ -  Tracks the Nasdaq Composite Index
IWM -    Tracks the Russell 2000 

One simple strategy would be to invest $100 per month splitting it evenly into several of these ETF's.  This would give you a nice blend of stocks.  An example would be putting $30 into SPY, $30 into QQQQ and $40 into IWM.  Then 30% of your money would track the S&P500, 30% would track the Nasdaq 100 and the remaining 40% would track the Russell 2000.   The reason for such diversification is because the S&P 500 is more weighted toward financial and energy stocks of large companies.  The Nasdaq 100 is the 100 largest Nasdaq companies weighted toward Biotech and Technology stocks.  The Russell 2000 is a small company index and over the long run small capitalization companies tend to perform better than large cap.

Setting Up A System For Investing!

Just as we recommend using systems for internet marketing, you should also use a system for investing.  This eliminates the emotional aspect of it and allows you to dollar cost average your stock purchases.

Once you have established positive cash flow from your Internet Marketing or other business activities you can use a service like ShareBuilder or FolioFN to purchase stocks on a regular basis.  Start by investing $50 - 100 per month as soon as you have free cash flow.  Then increase the frequency and size of the investments as soon as possible.  You can choose to purchase stocks once per month or once per week.  If you are investing less than $100 per month it's probably best to use once per month, but if you want to invest $400 per month I would do $100 per week.  That way you get a better average cost throughout the month.

With either service you can signup for a basic account which has no monthly fees and only charges you $4 for making stock transactions. This will give you a chance to look around and get familiar with the service.  Then once you decide on a plan of action, you will probably want to upgrade to at least the standard plan.  If you are planning on making more than 2 investment transactions per month, it will pay for itself.

With ShareBuilder, I like the Standard plan for $12 per month, because then you get 6 free stock purchases plus the gain & loss tracker and the PortfolioBuilder.  If you haven't had much success investing in the past, the PortfolioBuilder is a valuable tool.  It recommends a portfolio of ETF's that best matches your goals, experience and risk tolerance.  For the average individual it is much better to use this type approach instead of trying to pick individual stocks.

If you need to make more than 10 purchases per month, then you would be better off moving up to the advantage plan.  An example of this would be in you contributed to 3 different ETF's on a weekly basis.


Current ShareBuilder Pricing (Subject To Change)

FolioFN is built around the same concept as Sharebuilder but offers a few different services, such as their own investment portfolios (similar to ETF's).  Their basic plan is very similar to Sharebuilder in that it offers $4 purchases and $14.95 real time stock trades ( vs. $15.95 with Sharebuilder).   There is however a $14.95 charge if you don't make 4 purchases within a given quarter, which Sharebuilder does not.

If you move up to the Bronze Plan for $14.95 per month you get 200 free investments and access to 1 custom portfolio.  So if you want to make lots of purchases throughout the month, this is probably the most competitive product on the market.  The Silver and Gold plans simply offer more allowed purchases, 2 or 3 custom portfolios and Live trades for $3.95. 

Current FolioFN Pricing  (Subject To Change)

Investing Is Very Flexible With ShareBuilder Or FolioFN

Once your account is setup you can choose to invest in just one stock, eft or portfolio or spread your money across several different ones.   One big benefit of these services is that they allow you to buy fractional shares, so if you like a $100 stock or ETF you can still invest $50 and it will buy simply buy you 1/2 of a share.  This makes it possible for you to accumulate a position in any stock over time.

Focus On Using Cash Flow To Accumulate Assets

By taking an income stream and funneling it directly into investments you will be amazed by what you can accumulate over time.  If you can build an income stream of $1000 per month for example, you could put away $12,000 per year.  You will want to put about 30% or so into the money market portion of your account so you have it available to pay income tax on April 15th!  The rest can grow tax free until you decide to sell the shares ( except for any dividends they are taxed the year they are received, but at a favorable rate).

Once your portfolio has built up, you may want to check out other services such as timing cube, to try enhance your overall returns.  However, I must stress again:  If you speculate with your money and think you can get rich by trading.....  the odds are very strongly against you!

In addition, when you sell your stocks you will have to pay capital gains on any price appreciation.  So if you do not successfully time the markets, it's a double whammy!  Before you begin buying and selling on a regular basis, read this document.   It will shed some light on how costly it can be to buy and sell stocks on a regular basis.