Managing Your Portfolio

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Buying And Selling Stocks And Bonds

The simplest way to buy and sell stocks and bonds is to open a brokerage account. Most brokerage accounts can also be used to purchase mutual funds and many other investments. When you purchase stocks and bonds, you will pay a commission (sales charge) to the brokerage firm to compensate it for handling the transaction.

The two basic types of brokerage accounts, full-service brokerage accounts and discount brokerage accounts, differ in two primary ways — advice and expense. With a full-service account, the investor is typically assigned a stockbroker who provides recommendations on which stocks and bonds to buy and sell and when to do so. Because of this, the commissions and other expenses associated with full-service brokerage accounts may be significantly higher than what you will find with a discount brokerage account.

As the name implies, discount brokerage firms perform transactions for you at a fraction of what it might cost through a full-service firm. While discount brokers will not provide you with specific buy-sell recommendations, most offer many resources to help guide investment decisions. These resources — usually accessible via the Internet — include market news, stock charts, financial data and third-party opinions.

One especially helpful tool is called a stock screener. This allows you to enter the attributes you desire in a stock and to receive a list of stocks that match those inputs.

Using Ticker Symbols

To make it easier to rapidly obtain quotes and information, each stock has an identifier known as a ticker symbol. It appears as an alpha abbreviation identifying the company offering the stock. If you watch financial television broadcasts, you will likely see these symbols streaming across the bottom of the screen, displaying prices from recent trades. You can also use these symbols when researching stocks on the Internet.

The most important time you will use a ticker symbol, however, is when you place a trade. While many companies have similar sounding names, ticker symbols are unique allowing you to be clear about which one you want to buy or sell.

Placing Trades

You will usually have three choices of how you place your trades.

• Face to face.
• Over the phone.
• On the Internet.

Of these, Internet trades generally are the least expensive.

When you are ready to trade, the instruction you provide to the brokerage firm is called an order. There are several different types of orders.

• Market order: Buy or sell at the best price available in the current market.
• Limit order: Buy or sell, but only at the indicated price or better.
• Stop order: Buy or sell when it reaches a specified price, known as the stop price. Once this price level is reached, a stop order becomes a market order.
• Stop limit order: Buy or sell at a specified price. This order combines features of stop and limit orders.
• Day order: Effective only during that trading day.
• Good 'til cancelled order: Remains in place until it has been executed.

Monitoring The Markets

Since 1896, the Dow Jones Industrial Average (DJIA) has served as one of the most widely quoted indicators of American stock market activity. The DJIA is a price-weighted average of 30 stocks of the largest U.S. industrial corporations representing a variety of key industries.

The table below lists other indexes used to track both stock and bond market activity.

Focusing Your Investment Strategy

To make the most of your investment activities, financial planning professionals recommend you consider implementing some time-tested strategies.

Invest For The Long Term
The more time you give your investment to grow and compound, the more likely you are to reach your financial goals. History shows that patient investors who focus on long-term goals can withstand fluctuations of the stock market.

Use Time, Not Timing
If you start early and invest regularly, you will be able to use time to your advantage. Do not try "timing" decisions to buy and sell based on the market fluctuations. No one has accurately predicted the market fluctuations over the long term.

Keep Emotions Out Of Your Actions
Investors tend to be motivated by emotion based on short-term variables and the latest news. Think and act intellectually, not emotionally. Investing success requires patience, stamina and an unemotional approach. Do your homework; then stay on course.

Increase Your Knowledge
Learn all you can about investing and specific investments by regularly reading business periodicals, investment books and annual reports of companies whose securities you might want to purchase.

Avoid High-Risk Investments
Avoid futures, commodities and other risky forms of investing — at least until you know all about them and you are willing and able to accept their increased risks.

Avoid The Crowd
If you choose your investments by leaping into whatever is currently doing very well, you may be setting yourself up for recurring losses over time. You could find that the best performing stock in one year becomes one of the worst in subsequent years.

Diversify
Select a wide variety of securities for your portfolio to minimize investment risks. Experts suggest that diversification can reduce the total risk of investing by more than half. Investing in several assets will produce a return based on the average of your various investment returns, rather than relying completely upon the return of one investment.

Evaluate Your Investment Plan
You should evaluate your investment plan annually or at times of significant life events. If necessary, rebalance your portfolio to ensure your mix of investments aligns with your goals, risk tolerance and the time horizon.