Strategies
There are many different ways of making money in the stock market. Drip
programs have already been discussed. Now we need to discuss developing a
portfolio with different strategies to maximize your investment dollars.
Capital gains as they are called are the most common way of creating wealth.
Basically it is an increase or gain in value. If a stock goes up one point, a
dollar per share is made. It is as simple as that. Now remember in figuring out
the profit, Uncle Sam wants their part in taxes. Capital gains are figured at a
different tax rate than earned income from your job if you own the stock over a
years period. So this helps out for the totals at the end of the year if held in
a long term period. Now for the good news, the only time you pay taxes on this
type of an investment is when you sell them and get the money. Dividends are
taxable and are declared yearly, the company will send you a statement of your
income.
Drip programs are the easy way of making money. Something to think about is
using capital gains with them. Generally speaking, companies that pay higher
dividends will not have much movement in the value of the stock. Example: Union
Electric, Dividend of $2.54, Price 39 1/8. Dividend is 6.49%. Figure by taking
2.54 divided by 39.125. Shows up as .06492. The high for the year is 40.125 and
the low is 34.5. Currently, the third quarter review is a 1.6% capital gain. Now
Lucent Technology, Dividend of $.30, Price is 86 ¼. Dividend is .3478%, high is
90.75, low is 42.125 and third quarter review is 86.5% gain. Lucent made more
money in capital gains and over all.
Now let us look at setting up a portfolio and getting started. Utility
Companies and telephone companies are a good conservative investment, a good
basis for steady income. Get these set up first and establish a dividend basis.
These are always a reliable and steady income with in a portfolio for long term
investing. Being conservative is the smart way of starting out. You have worked
hard at saving so let’s not throw it away.
After getting your base started, then expand the portfolio. Set up about 6
Drip accounts and maximize adding to them. This all takes time, so do not get
discouraged. It is tempting to change and pull money out of these accounts for
any number of reasons. Well the decision should be for investing in a better
strategy. Use one of these Drips for this purpose then. Sort of like a savings
account that pays better that a bank. This money is not liquid and can be pulled
out on a whim; it takes paperwork and a few days to get to. So it gives you time
to really think about spending it.
Once a good base is established, look at other possibilities for making more
money. Now go after a stock that has capital gains and a higher return. Look
into companies that interest you. High Technology is in demand. Check this out
Dell Computer (NASDAQ), no dividend, and price of 99.875 a share; third quarter
review of 275.1%. $36.30 invested January 1, 1997 would be worth about a hundred
dollars! Today is October 5. This is where you need some money to get started in
this type of gains. Odd lot purchases, (other than 100 share lots), are
acceptable. Try to stay with numbers of 10, 20, 25, 50, 75. Brokers do not
really like to do this, but will do it. You could have invested 363 dollars for
10 shares, plus commissions (35.0), total of 398 dollars. Would be worth today
(4-24-98) after a split $1526.25. Now don’t be afraid of a 76.3125 a share
cost, go buy 10 shares at $798.12. This is why you have been saving your money
from page 1. Dell has a good track record and probably will make you some money.
Divide up the portfolio with different types of strategies and percentages.
It is called diversifying the risk factor. If one looses, it will not have a
totally bad effect overall. Don’t keep your eggs in one basket is the general
idea. Spread the risk out depending upon your own personal risk factor. If you
are younger, keep about a 40% conservative, 30% middle risk and 30% aggressive
factor within the portfolio. With age increase the conservative percentage
amount.