How to Invest in the stock market

First, let me pose 2 questions:

1.	What percentage return do you need on your investment each year on average? 
 
2.	How much risk can you afford? (scale of 1-10 where 10 is very high risk)

Note: Return and Risk are tied together. One can not exist without the other. 
If you can answer both questions, you only have to pick a stock that fits your criteria. 
For example:

1.	An answer of (5%-return, 1-risk), you should invest in bonds or savings account.
2.	An answer of (8%, 2), you should invest in CD's.
3.	An answer of (10%-15%, 4), you should invest in blue chips like AT&T
4.	An answer of (20%-30%, 6), you should invest in high tech blue chips like MSFT or CSCO.
5.	An answer of (30% or greater, 8), you should invest in internet IPO's or other internet stocks like AMZN.



Train yourself using the Internet investment sites:

Setup a dummy portfolio on an Internet investment site like www.investor.com. Buy & sell stocks for 6 
months or until you are comfortable. When you are ready to do some real investing, you now have access 
to tools that allow you to do your own research. 

Because it is a dummy portfolio, you can add some of those internet IPO's and see if you are emotionally 
affected by them.




What does risk really mean:

Risk is about emotional balance. If you take on too much risk, you will emotionally become unbalanced, 
and you will start making bad decisions. You'll be your own worst enemy. Let's see how you fare in the 
exercise below:

AOL (an internet stock)  in 1999 lost 50% of it's value in 3 months, it then regained it plus an additional 
20% 3 months later.

If you had $100,000 of AOL, your asset would have gone DOWN to $50,000, then UP to $120,000. 

Let's replace AOL with the words "Your House".

"Your House" lost 50% of its value in 3 months, it then regained it plus an additional 20% 3 months later.

How does this kind of fluctuation make you feel? If you can't emotionally handle this kind of up and down, 
you probably don't want a high risk stock.

Let's try this again, but change the numbers.

"Your House" lost 10% of its value in 3 months, it then regained it plus an additional 10% 3 months later.

If this makes you feel better, then stick with blue chip stocks. If you can't handle even this fluctuation, you 
need to stick with bonds or CD's.





Access Accounts:

Full brokerages should be able to give you more services. An "Access Account" is an example. This type 
of account gives you a checkbook, VISA and a 50% margin on your account.

With an Access Account you can now buy more stock on your margin, use your charge card or write 
checks without ever having to make a monthly payment. The interest is added onto your margin account. 
For example, a $20,000 asset would give you an additional $10,000 to margin. You can also use the margin 
to buy stocks you only want for short term profits.





Full vs. Discount vs. On-line brokerages:

A good full time broker will easily pay for their commission, by buying lower, selling higher, and giving 
you good advise.

For discount and on-line brokerages, you set the sell and buy terms. The full time broker will get your sell 
or buy terms, and then watch the market for a better deal. A full time broker should consistently get you an 
extra $.50 to $1.00 extra per share. Since a full time broker charges around $.50 per share, you get the 
broker's services and the services of a full time brokerage firm for free.

On-line brokerages are good for people who want a more hands on experience or can't find a good full time 
broker they can trust.

Discount brokerages are misleading. People think they have a broker, but they don't. Investors are still on 
there on own to fend for themselves as best they can.

If you can find a reliable full time brokerage firm, and a broker who you can relate to and trust, I 
recommend going with the full time brokerage firm. They more than pay for themselves as I have shown. 
It is nice to have a professional second opinion on an action you are about to take.