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Don’t Bother Researching Stocks Anymore

researching stocksIf you can’t be bothered to research individual stocks to add to your portfolio, there is another option available to you.

And it does not involve any complicated or insane strategies like naked short selling (which just sounds wrong any way), trading on the forex market, or investing in commodity futures.

The people who invest in things like that generally aren’t even investors.  For the most part, they’re employees whose continuing salary is dependent on looking as though they were being “active” enough.  And that’s fine for them.

But for those of us whose future retirement income depends on finding the right horse to ride right now, the second best option (other than owning your own business and having skilled employees manage it) is going to be selecting paper assets that tend to appreciate in value over the long term.

While investing in notes receivable through sites such as Prosper and Lending Club is a pretty nice way to get a decent return, they do have the limitation on capital appreciation – not to mention the fact that once you know what the amount you receive is going to be, it will never go up (unless they accelerate the repayment process, which means you won’t get paid for as long).

Obviously, the very best way to get a great return on your investments is to start a business, then systematize and delegate it enough that you aren’t running it all the time.

Also keep in mind that it should require at least two or three different, disparate jobs, to make it more difficult for an individual who works for you will go off and become your competition.  But starting a business is definitely not for everyone.

So the second best way you can get a good rate of return is through stocks and ETFs (exchange traded funds).  These paper assets are easy to buy and sell, cost little or nothing to hold on to, and can reward you with stellar capital appreciation.  But one thing not every investor considers is the upside potential of dividends, and the multiplying power of dollar-cost averaging coupled with a steady dividend.

If you have never heard of dollar-cost averaging, it is nothing more than investing the same amount into a particular asset on a set time schedule.  It can be something minor, such as putting in $5 a day, or a bit larger, such as putting in $1,000 a month.  If you buy on a fixed schedule, there is no room for second-guessing yourself, and emotions don’t come into play.

But this does not just work for stocks.  It also works for mutual funds (which often allow an investor to buy partial shares), and for ETFs.

ETFs are awesome for four reasons:

1. You can buy or sell them like a stock.  If the ETF were to suddenly turn terrible (which is nearly impossible, because of their heavy diversification), you can just sell it (even though that’s really the best time to buy more).  Also, if it becomes incredibly expensive, you can sell for a quick profit.

2. A lot of ETFs have low loads, or expense ratios.  The downside of any kind of fund is that it will charge you a fee to keep your money reasonably safe.  However, unlike the expensive, highly (over)paid brokers who run most regular mutual funds, ETF brokers tend to be far more reasonable.  You will want a low-cost ETF, which you can search for on a screener.

3. ETFs give you tons of diversification.  You can purchase currency ETFs, commodity ETFs, real estate ETFs… even broad-market ETFs!  So you can just set your account to invest automatically into an ETF or two, and then pretty much forget it.

4. ETFs can pay dividends, which means they can really jump start your investing.  Just let those dividends reinvest themselves, and your money will grow itself!

Posted by on Jul 9 2010. Filed under Finance, Retirement. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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