What is the best investment strategy when investing in stocks and bonds?

Answer 1

You should invest in stocks, bonds, and money market funds. You want to buy a diversified portfolio of stocks, as individual stocks are too risky. For most folks this means buying mutual funds. I like Vanguard.com, other people like Fidelity, TIAA-CREF, and DFA. Buy no-load, low cost funds. If you are like most people you will invest part of your money aggressively in stock funds, and part conservatively in money market funds and bond funds. Vanguard.com has an on-line questionnaire which will give you an idea of how to do "Asset Allocation," determining how much to put in each type of fund.

If your company offers a 401K plan at work, try to invest the most you can. The money grows tax free, and some companies will match your contribution. Investing in a mutual fund IRA is also a good idea. If you have children, you may want to consider a 529 plan or other college savings plan that grows tax free.

I like index funds. Because of their broad diversification, you are less likely to have a dramatic drop in value. They also have the lowest expenses. For stock funds, I would suggest putting ~70-80% of your money in the Vanguard Total Stock Market Index Fund. and ~20-30% in a foreign stock index fund. However, there are many different opinions out there on what the best mutual funds are. Read the links below and form your own opinion

If you have high-interest debt, like credit cards, it is best to pay this off first before trying most of the investment ideas above. You should also have 3-6 months of salary saved up as an emergency fund in a bank or money market fund before trying more risky investments.

Believing advice you get on Yahoo answers can be risky, so read these websites for further information. If you find it too confusing, contact a professional financial advisor. They will charge you significant commissions, however.

Sources:

http://www.vanguard.com/VGApp/hnw/planningeducation
http://www.fool.com/school.htm
http://sec.gov/investor/pubs/assetallocation.htm
http://www.diehards.org/readsites.htm
http://finance.yahoo.com/education/begin_investing
http://finance.yahoo.com/funds/basics

Asset Allocation Calculators
(Determining how much to put in stocks and how much into bonds and money markets is a personal decision depending on your financial status. These Asset Allocation questionaires give you a rough idea how to do this. I like Vanguard best, but try some of the other sites as well.)
https://flagship.vanguard.com/VGApp/hnw/FundsInvQuestionnaire?cbdInitTransUrl=https%3A//flagship.vanguard.com/VGApp/hnw/planningeducation/education
https://ais2.tiaa-cref.org/cgi-bin/WebObjects.exe/DTAssetAlcEval
http://www.ifa.com/SurveyNET/index.aspx

Web forum: http://www.diehards.org/
(Many investment web forums are overrun by scam artists. This one seems the most legitimate site.)


529 plans: http://www.savingforcollege.com

Answer 2

Assuming you are a long term investor, now is the time to start looking for bargains in the stock market. Most people think that times like these are when people should avoid the stock market but truthfully, these are the best times to begin or expand investing. You have to be realistic though. You can buy a "good" stock today and because the market is in the crapper, that stock could go nowhere or down a little more. However, you must realize that the economy will recover. Keep saying that to yourself. It will recover. It always does. That's how economies work. So that stock you buy today for say $100 might dip to $90 but then shoot up to $130 (or whatever) when the economy recovers. Most people mistakenly believe that they will just wait until the economy improves before they invest in the stock market. The error with that thinking is that the stock market rises in anticipation (very important) of the economy improving. I.e., the stock market doesnt wait for "good" economic news to appear before it rallies. It rallies in anticipation of good news coming say 6 months from now. That means you want to buy when things look dire. There's an old addage on Wall Street: "When they are crying, you should be buying!"

Answer 3

Hi John,

The "best strategy" is a very subjective concept. Some strategies might be the best for one person but not the best for everyone. Some people prefer value investing while others prefer growth investing

As far as stocks and stock mutual funds are concerned, value investing makes the most sense to me. Every investor should be looking to buy low and sell high. Value stratgies outperform growth strategies over time, and normally do so with less risk. There are several different styles of value investing, but the one resonates with me is Benjamin Graham's approach. Graham, considered by many to be the father of value investing, was a professor at Columbia University and one of his students was Warren Buffett. Graham looked for inexpensive stocks that provided what he called a "Margin of Safety." His belief was that stocks with a Margin of Safety had less downside potential. Graham, unlike Marty Whitman, who is another very successful value investor, considered the market and investor psychology. Whitman tends to focus entirely on company fundamentals.

I highly recommend the Intelligent Investor by Benjamin Graham. It is a classic and timeless.

I also recommend a research report on the Tweedybrown.com website called " What Has Worked In Investing", which can be found by clicking on the research & reports section of their website.

I hope this helps.

Michael A. Weiss, CFA
The Editor
The Mutual Fund Investor
http://www.mutualfundinvestor.net

Answer 4

Diversify. With all the ongoing volatility and losses in the market these days, it's clear that even Wall Street pros don't always know where the market is headed or which investments are best. Diversification puts your eggs in a variety of baskets, and lays a foundation for long term growth.

Also, use retirement accounts. A legal tax shelter is always a good strategy for your investments.

Answer 5

The previous 2 answers are excellent. Homework is essential, you must know what you are buying and why. To elaborate, you should research how your company makes money, how much money it is making, and what can affect how much money it will make in the future. I also feel obligated to tell you that you MUST be diversified, do NOT put more than 20% of your money in one company or sector. Diversification gives you protection, if during the recent trumoil, you had only 20% of your assets in the housing sector and the other 80% divided evenly between 4 other sectors then you would be considerably better off than the individual who was 50% in housing. Please note that buying 3 different home builders is not diversification.

Answer 6

Do do your homework ,
Do read the key stats info ,
Do Not buy just because you 'heard' it was hot .

Know what you are buying and why .
Study Yahoo finance Investing Ed 101 and use the glossary whenever you hear a term you do not fully understand .

Buying on 'gossip' is the fast track to poverty .

>

Answer 7

i like the value approach myself. just read the following 2 books.
1) the intelligent investor
2) security analysis

both where written by the" father of value investing" Benjamin Graham

Answer 8

Striking right balance between stocks and bonds in your portfolio will need a good deal of work. Here is a good article that provides some more insight.

http://creating-wealth.blogspot.com/2007/08/impact-of-asset-allocation.html

http://creating-wealth.blogspot.com/2007/08/how-to-build-robust-portfolio.html

Answer 9

There is no one best system, particularly for stocks AND bonds.

There are several reasonably good systems for different types of stocks and bonds.

Personally, I like buying small cap breakouts. You can read more here:

Answer 10

in addition to above, set limit orders to buy and stop orders to sell controll your losses and don't be afraid to get out if your pick gets too hot.