Tuesday, November 4, 2014

Market Wrap-up for Nov. 3 – A Holiday Investing Plan

With October now in the rearview mirror, now is the time to prepare your portfolio for (gasp!) 2015. Here’s a simple plan to get your investments in order.

Time Flies

We all know the feeling: summer ends, and before we know it, it’s Halloween. Then Thanksgiving, Christmas, New Year’s, and all of the other end-of-year holidays disappear into one big blur. The final two months of the year tend to go by very quickly, which is why it’s important to take a look at your portfolio now – before the holidays begin.

Consider Some Cuts

Despite some recent turmoil, 2014 has largely been a good year for equities so far. So if you’re sitting on a stock (or two) that has fallen significantly this year, you may want to consider trimming or exiting your position. Our general rule is to look at stocks that have fallen 25% from their 52-week highs. Ask yourself the following questions about any stock you own that has pulled back that much:

What are the reasons for the pullback? Are the reasons stock-specific or industry-specific? Is this company well-positioned for growth in 2015 and beyond? Would my funds be better deployed elsewhere in the market?

These questions are just a starting point for your examinations, but they should be enough to get you on the right track. Remember, there’s no shame in selling – it’s a natural part of the investment cycle, and it frees up money for you to invest in better stocks!

Scale Into Opportunities

Speaking of investing in better stocks, if you’ve got some capital to put to work, come up with a plan to do so over time by scaling in.

Scaling into positions is a tried and true method of putting money to work for long-term investors. The concept is simple: purchase relatively small amounts of shares over time on a regular basis until you’re fully invested.

When you scale in, you accomplish the following:

Remove the mental barrier of investing a large sum, and Reinforce the truism that there is no “perfect” price to buy a stock at.

A Simple Strategy to Scale Into Positions

For this example, we’re going to assume an investor has $100k to invest in quality dividend stocks. We’ll be putting these funds to work over a six-month period, although this timeframe could easily be accelerated to just three or four months if you so desire.

Month 1: Set Your Targets

Identify a basket of high quality dividend stocks you’d like to own (choose eight to 10 of them from our Best Dividend Stocks List). Take your time, do your research, and fully understand these companies and their businesses. You’ve got a whole month to pick your stocks, so you should feel very comfortable putting your money to work at the end of this period.

Month 2: Place Your Orders

Once you’ve got your list of stocks to buy, take 15% to 20% of your funds–in this example, $15k to $20k–and divide it by the number of individual stocks you want to own in your portfolio. This will give you the dollar total you’re going to commit to each stock. For simplicity’s sake, let’s say you’re going to buy 10 different stocks. This equates to a $1,500 to $2,000 investment in each name.

Months 3-6: Repetition is Good

In months three through six, you’ll simply repeat the exact same process as Month 2 until you are fully invested. If you invest 20% of your assets each month, it’ll take you five months to reach your goal. If you’re investing 15% each month, it’ll take closer to seven months, and so on. The key is staying consistent with your investment plan.

You don’t have to place your orders just once a month either – feel free to break your purchases up into weekly chunks if you feel comfortable doing so. Just make sure you stick with your routine.

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