Question: Could you give us some basic rules about saving and investing. We're recently married. We don't have that much money but we're very interested.

Jamie Kelleher

Answer:

Dear Newlyweds,

No need to apologize for not having a fortune -- most millionaires started out with small amounts. And, your attitude is just right, so perhaps you'll become the next Warren Buffet!

Here are some general rules about investing that I think you will find helpful. If you have specific questions after reading them, be sure to write in again. We can elaborate on each one.

Note: You also mentioned saving...we'll address that next week.

• Be patient. Don't think you'll get rich overnight. Very few people do. Concentrate on steady, long-term saving and investing. Get in the habit of investing a given dollar amount each month.
  
  
• Don't rush into stocks and bonds. Until you have saved the equivalent of six months of living expenses in a money market fund or CDs. It's crucial to have an emergency nest egg.
  
  
• Know whether you're investing for income or growth. Many people never bother to figure this out and consequently are disappointed in their returns.
  
  
• Select stocks and bonds of leading companies at the start. They have proven track records, a great deal of independent research is available for them and there will always be a buyer should you wish to sell. (As you learn more about the market, you can venture out and add less well known stocks to your portfolio.)
  
  
• Buy a stock only if you can name two reasons why it should either appreciate in price or continue to pay high dividends. Some of the reasons might be:
  • It is a leader in its field
  • It has plenty of cash on hand
  • It carries relatively little debt
  • It has paid out a dividend without fail for ten years
  • It has honest management o It has reported increased earnings for three continuing quarters.
    
    
• Spread out your risks. Every company has the potential to have a difficult time, with lower earnings and other problems somewhere along the line. Therefore, never put all your eggs in one basket. Buy stocks and bonds in different industries.
  
  Caution: Resist the easy temptation to put most of your 401(k) in your company's stock. Remember what happened to so many unfortunate Enron employees.
  
  
• Decide the maximum amount that you're willing to lose and stick to it. It's far easier to buy a stock than to sell it. So write down the dollar amount or percentage you're willing to lose and should your stock hit that point, sell.
  
  
• If you do lose money, try to determine why your choice was a poor one.
  
  
• Study the economy and stock market on a regular basis. Listen to or watch the business news and/or read the business section of the newspaper at least once a week.
  
  
• Never invest in something you do not understand.
  
  
• Listen with caution to hot tips from people who think they're hot. Follow up by getting the company's annual and quarterly reports and read the analysis of the stock in Value Line Investment Survey (www.valueline.com), available at most public libraries. Bottom Line: Use your own judgment.
  
  
• Sell when you double your money and then go out for dinner.

Good luck!