This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

A Guide To Incremental Investing





At its high point in early April, the stock market had climbed by nearly 12 percent since the beginning of 2013 -- just before it lost more than 3 percent in only one week. Fluctuations like that tend to bring out the emotional worst in investors, with people chasing a hot market one minute and running for safety the next.

For this reason, as simple as it seems to say "buy low and sell high," people often end up doing just the opposite.

To escape being lured into emotional investing mistakes, it can help to have a more disciplined system to approach the market. Large moves in and out of stocks -- or any investment -- tend to increase risk. You can take the edge of off market fluctuations if you take a more incremental approach to investing, easing your way in or out of the market in small pieces rather than big chunks.

Here are five examples of incremental approaches to investing.

1. Dollar-cost averaging

This is a widely accepted method of smoothing out market price fluctuations. By putting a consistent amount of money into the market at regular intervals, your average investing cost will reflect neither the highs or the lows of the market. The drawback is that dollar-cost averaging isn't necessarily the most efficient way to enter the market if you have a large sum of money available for investment all at once. It also doesn't really lend itself to providing a selling discipline, or an orderly way to get out of investments. One of the more tactical approaches to investing described below can help overcome these limitations.

2. Price-sensitive investing

This can involve setting price targets on specific stocks, or on the market as a whole. This will allow you to buy when prices dip, and avoid chasing soaring prices. The only problem is that with the market's tendency to rise over time, if you are too stubborn about your targets, prices may run away from you and never come back. This is why you may want to look at valuation rather than just price, as described in the examples below.

3. Yield-based investing

The percentage of a stock's price that is paid out in annual dividends is a straightforward way of looking at valuation. Investing when dividend yields are high will not only help you buy when prices are relatively low, but it will keep your portfolio oriented toward a steady amount of income production. An alternative is to look at earnings yield rather than dividend yield, to help your portfolio capture more growth-oriented stocks.

4. Relative yield valuation

How do you know if a dividend or earnings yield is good or bad? One way is to use an alternative form of yield as a benchmark. For example, with income yields such as savings account interest rates and bond interest at historically low levels right now, stock yields are relatively more attractive -- but only to the point that rising prices don't wipe out that yield advantage.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 +2.54 0.14%
NASDAQ 4,095.5160 +9.2910 0.23%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs