Investing is a lifelong process; it is more than just a matter of purchasing “hot” stocks and funds and hoping for above-market returns. Having a long-term plan is crucial to prolonged success in the markets, especially for individual investors. It is good to step back and reassess, even during periods of growth. If you start with the basics, you will not be caught taking on too much risk during periods of high market volatility (investors never feel like they are taking on enough risk during a strong bull market).
AAII’s Investor Classroom provides useful articles that can help you take a second look at your portfolio, starting with the basics (Figure 1). The Investor Classroom area is divided into four sections—Investing Basics, Mutual Fund Investing, Stock Investing and Bond Investing—with several articles in each. The articles are broken down into easy-to-follow steps that explain investing concepts in clear language. The following highlights some articles from each section that may help you become a better investor.
“Dividing Your Assets Between Stocks, Bonds and Cash” begins in step 1 by reviewing the importance of asset allocation and ends in step 5 with an example of how your portfolio’s performance will vary when you change its allocation. In between, the piece discusses the risks of the different asset classes that need to be taken into account and how asset classes work together in a portfolio.
A separate article in Investing Basics, “Setting Up an Ongoing Investing Program,” discusses steps to developing a long-term investing plan. All investors have emotions, but it is important to avoid making poor investment decisions during extreme market conditions. This article outlines strategies that can keep you on track and help you avoid investing when markets are at highs and liquidating when markets are at lows. Two periodic investing strategies discussed are dollar-cost averaging and value averaging. AAII’s Download Library also provides a spreadsheet that can help investors set up a value averaging program.
Choosing mutual funds can be particularly difficult because many do not perform as well as the general market. Management fees tend to lower returns. Because many mutual funds are actively managed, the difference between a top mutual fund and a bottom mutual fund can be immense.
One very useful article in the Investor Classroom covers fund statements. “Fund Statements: What to Look For” goes over each type of report offered by a mutual fund and specifies exactly where investors should focus their attention.
Another article provides tips on looking for mutual funds, in particular, explaining how to assess performance, management fees and loads.
The Stock Investing section provides in-depth articles on how to read the income statement, balance sheet and cash flow statement. Ratio analysis is a cornerstone of fundamental analysis, and the article “Putting the Numbers to Work: The Magic of Ratios” explains how to perform your own ratio analysis.
Other articles in this section provide information on collecting and analyzing data on dividend-paying and value stocks. A valuation worksheet, along with instructions on how to use it, is also offered (Figure 2).
As investors get older, they tend to put a greater portion of their portfolios into fixed income, especially during their retirement years. Although most investors can understand why the prices of stocks rise and fall, understanding how bonds work is a different story.
Articles in this section discuss basic bond concepts and how adding bonds can benefit your overall portfolio. Other articles explain the connection between bond prices and interest rates and what you need to know about bond credit quality.
A new CI Online Exclusive has been posted to the Computerized Investing website since the last quarterly issue.
In August, Z. Joe Lan wrote an in-depth comparison of the top comprehensive websites—those sites that offer everything from stock, bond and fund data to portfolio tracking and screening tools. In addition to Yahoo! Finance, Morningstar.com and SmartMoney.com, a newcomer made the list this year. To read more, visit our Computerized Investing home page at www.computerizedinvesting.com.
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