Lesson 17: ETFs and Dollar Cost Saving
LESSON 17: ETFS and DOLLAR COST SAVING - THE LESSON FOR INVESTORS!
For those of you that aren't into trading or watching the market, here is an exact lesson for you on exactly what I would do to invest if I wanted to.
First of all, you need to pay yourself every paycheck (see previous lesson). I'd invest as much as I could afford per check. Just send it off to your stock brokerage place and pretend it didn't exist.
I would take the money and purchase the stock SPY (or MDY). It's not really a stock, it's an ETF, or Exchange Traded Fund. Let me explain ETF's real quick. An ETF is like a mutual fund. It is a holding pot for a group of stocks. SPY is the entire S&P 500 all rolled up into one stock for you. It's traded exactly like a stock. You can trade it anytime, day or night, with no worries. You do not pay taxes on the stocks traded within the fund either. On top of all this, the fee is 0.11%. That's 1/11th of 1 percent. It's not even worth thinking about.
The benefit of these ETFs is that you're diversified by owning just one stock. Only one thing to watch. There are tons of ETFs, you can look up info on them at www.amex.com.
What I would do is pay in every month and then only buy SPY when the current price is below the 50 and 200 day moving average on the chart. Here's a link to the current chart:
http://ichart.yahoo.com/z?s=SPY&t=1y&q=&l=&z=&p=m50,m200&a=v
Click on that link and look at it real quick. The blue line is the actual price of the stock. The red line is the average price for the 50 days prior and the green line is the average price for the 200 days prior. As you can see right now, the stock is way above it's averages.
This is the WORST time to buy this stock because the momentum will take it towards the averages. You want to buy when the blue line is below the red and green line!
So that's what I'd do. I'd pay into my account every paycheck and wait patiently for that blue line to fall below the averages, then I'd take all the money I had saved and buy shares. Rinse and repeat.
The average gain for the S&P 500 over history is 11%, so over the long haul you could probably make a killing doing this and if you only buy when the stock is below the averages, you will slaughter anyone who dollar cost averages!
Dollar Cost Saving is the way to go kids! Live it, learn it, embrace it, love it.
BTW - One more thing, don't feel you need to look at the stock on a daily basis. Look at it every pay day then ignore it. It shouldn't take more than 10 minutes of your time on that day and 20 minutes if you're going to buy. It's not this huge time waster people think it is. Trading stocks and watching them is easy if you have a strategy!
For those of you that aren't into trading or watching the market, here is an exact lesson for you on exactly what I would do to invest if I wanted to.
First of all, you need to pay yourself every paycheck (see previous lesson). I'd invest as much as I could afford per check. Just send it off to your stock brokerage place and pretend it didn't exist.
I would take the money and purchase the stock SPY (or MDY). It's not really a stock, it's an ETF, or Exchange Traded Fund. Let me explain ETF's real quick. An ETF is like a mutual fund. It is a holding pot for a group of stocks. SPY is the entire S&P 500 all rolled up into one stock for you. It's traded exactly like a stock. You can trade it anytime, day or night, with no worries. You do not pay taxes on the stocks traded within the fund either. On top of all this, the fee is 0.11%. That's 1/11th of 1 percent. It's not even worth thinking about.
The benefit of these ETFs is that you're diversified by owning just one stock. Only one thing to watch. There are tons of ETFs, you can look up info on them at www.amex.com.
What I would do is pay in every month and then only buy SPY when the current price is below the 50 and 200 day moving average on the chart. Here's a link to the current chart:
http://ichart.yahoo.com/z?s=SPY&t=1y&q=&l=&z=&p=m50,m200&a=v
Click on that link and look at it real quick. The blue line is the actual price of the stock. The red line is the average price for the 50 days prior and the green line is the average price for the 200 days prior. As you can see right now, the stock is way above it's averages.
This is the WORST time to buy this stock because the momentum will take it towards the averages. You want to buy when the blue line is below the red and green line!
So that's what I'd do. I'd pay into my account every paycheck and wait patiently for that blue line to fall below the averages, then I'd take all the money I had saved and buy shares. Rinse and repeat.
The average gain for the S&P 500 over history is 11%, so over the long haul you could probably make a killing doing this and if you only buy when the stock is below the averages, you will slaughter anyone who dollar cost averages!
Dollar Cost Saving is the way to go kids! Live it, learn it, embrace it, love it.
BTW - One more thing, don't feel you need to look at the stock on a daily basis. Look at it every pay day then ignore it. It shouldn't take more than 10 minutes of your time on that day and 20 minutes if you're going to buy. It's not this huge time waster people think it is. Trading stocks and watching them is easy if you have a strategy!
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