Exchange traded funds (ETFs) have made investing much easier because they invest in a basket of stocks instead of individual ones. Yet Bill Barker for The Motley Fool aims to make investing even easier through some short and simple suggestions:
- Buy what you know.
This famous phrase can be attributed to mutual fund manager extraordinaire Peter Lynch. While this gets new investors familiar with the process, it doesn’t truly teach anything about valuation or picking good stocks. For this to really work, investors need to know their favorite company’s cash flow statement and balance sheet, which newcomers rarely do. They interpret this as, "Buy your favorite brands."
- Buy low, sell high.
This phrase is arguably the most famous piece of advice. By definition, this should make investors a profit. However, the problem is perspective: What’s low or high to one person is not necessarily low or high to another. In general though, to buy "low," consider stocks with low price-to-earnings ratios, 52-week lows or during bear markets. Following trends is another way to tell when to buy a stock or ETF.
- Buy an index fund/ETFs.
This is the most mathematically supported, most doable piece of short advice. Index mutual funds and ETFs are great especially for investors who are short on time to research and pick stocks. There is no load, low cost, low turnover and a broad index to follow. For example, the Vanguard Total Stock Market Index (VTI) holds a variety of familiar companies such as IBM (IBM), GE (GE) and Pepsi (PBG).
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.