I am 33, single and make about $35,000 a year as a writer. I'm interested in pursuing a fairly aggressive long-term investment strategy. Like many investors who arrived on the scene in the last few years, I am wondering whether I'm employing the appropriate long-term philosophy. I have about $170,000 in a variety of mutual funds managed by a broker. However, I was very interested in doing some investing on my own. So, I've been setting aside $1,000 each month in an online brokerage account. With my first $1,000, I purchased Nokia (NOK) (at $44) right after it took a big dip. I am in this for the long-term (five years at least), so I wasn't worried when the stock continued to drop to $39. With my next $1,000 I bought Cisco (CSCO) (at $63) right after it fell. My reasoning was similar. I didn't want to invest in "high-risk" tech stocks but I really wanted to concentrate in the tech sector. Cisco has fallen to about $58. Then I took a flyer on Avici Systemsundefined (after it fell from about $148 to $133). Unfortunately, it has dropped to about $105. Finally, I purchased Intel (INTC) after it fell to $48. It's at $44. My goal is to invest $1,000 each month in about 10 more stocks and then start repeating the process. I'm interested in acquiring Juniper Networks (JNPR) , EMC (EMC) , Applied Materials (AMAT) , Applied Micro Circuits (AMCC) , Ciena (CIEN) , Corning (GLW) , New Focusundefined, Natural Microsystems (NMSS) , Ariba (ARBA) , VeriSign (VRSN) , Texas Instruments (TXN) and Newport (NEWP) . Is this an appropriate long-term strategy? Am I looking at too many stocks? I've been invested in the market (through brokers) since 1997 and I've made virtually no return on my money. I changed brokers recently and so far I'm happy with his philosophy. Most of my money is invested in somewhat diverse mutual funds. -- G.M.
Investors who buy on dips are hoping to capitalize on a trending market. They step in when a stock's price drops due to profit-taking or general market malaise. They buy with the expectation that the decline is an aberration, the trend will resume and the drop in price presents a buying opportunity.
This approach has worked well since the stock market crash in 1987. The trend has truly been your friend. As long as the trend continues, the passage of time will restore your positions to profitability. Because this approach coincides with a long-term investment horizon for holding investments, it seems logical and prudent. The problem is that you're never sure when the trend will end. When it does, what you thought was a dip turns out to be a slippery slope.
Investing $1,000 each month when you're making $35,000 a year shows a real commitment to your future financial goals. That's great, but you should be taking advantage of any tax-deferred or tax-advantaged retirement plans before funding a taxable account. Even if you can't contribute to a corporate
plan, you should be able to invest $2,000 annually in either a
or a traditional IRA. See this
Investing Basics section for more on IRAs and taxes. Letting the money continue to work for you until you take it as a qualified distribution in retirement beats the heck out of using part of it to pay taxes on income and realized capital gains.
I like that you are taking the reins and making investments with part of your portfolio. It keeps you in tune with the market and makes investing fun. What you're doing is a type of
dollar-cost averaging, in that you're putting the same amount of money to work in the market each month. How your approach differs from the typical dollar-cost averaging strategy is that you aren't investing in the same stock month after month to get an average price for that stock.
Even though it may be more expensive in commissions than your online brokerage account, I think you should look into some new Internet sites that specialize in what
synthetic portfolios." These are prepackaged or customized stock portfolios you can buy with a single investment.
Buyandhold.com are a couple of sites that allow you to do this. (
also plans to get into the act.) Check out
coverage of these sites.
These sites will allow you to set up your list as a customized portfolio and add to each of your holdings with a single investment. That way you can invest in all the stocks on your list each month and reduce the risk of buying when the stocks are expensive. Then you won't have to wait for a dip to buy into your stocks. This approach will make you less of a market timer and more of a long-term investor.
The problem with running your own private sector fund is that you need to stay on top of what is going on in that sector. A portfolio manager for a money fund earns his or her management fees by staying abreast of what is affecting the stocks in her portfolio. If you want to manage this money yourself, you need to take on a similar responsibility.
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Dr. Don Taylor has been an investment professional for nearly 15 years, most recently as the treasurer for a nonprofit organization where he managed more than $300 million in assets. He is a chartered financial analyst, holds a Ph.D. in finance and has taught investment and personal finance courses at the University of Wisconsin and at Florida Atlantic University. Dr. Don's Portfolio Rx aims to provide general investing information. Under no circumstances does the information in this column represent a recommendation to buy or sell. Dr. Don welcomes your inquiries and feedback at