How to buy low and sell high
- Alan Lavine and Gail Liberman
The trick to investing: Buy low and sell high.
This is easier said than done.
The best way to meet this challenge generally is to have a system to manage your money. Otherwise, emotions, fueled by daily news of inflation and recession fears, easily can sabotage your efforts.
Constant dollar investing may be one of the simplest ways to remove the guess work, yet accomplish this objective. To use this tactic, you need to keep money in a stock fund and either a bond fund or money fund.
Each year, determine exactly how much you want to have in your stock mutual fund. Once you've met that goal, transfer excess profits into your bond fund or money fund and vice versa.
Say you decide you want to keep at least $1,000 in your stock fund and:
By the end of the year, your stock fund is worth $1,100. Sell $100 worth of shares and deposit it into your money fund or bond fund.
By the end of the next year, you only have $900 in your stock fund. In that case, you would sell $100 worth of shares in your money fund or bond fund and deposit it into your stock fund.
Should you pair your stock mutual fund with a bond fund or money fund? Generally, over time, you should get better performance using a bond fund. But bond funds are riskier than money funds. If rates rise, the value of your bond fund will fall. With money funds, you're less apt to lose principal.
On the other hand, when stocks decline, bonds often rise in value, which makes for attractive diversification.
Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.
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