Money & Investing - Banks.com

There is an old saying about the stock market: “Buy low, sell high.” And for many, now is the time for just that. Indeed, there are plenty of so-called “vulture investors” out there right now, waiting to pounce. Stock Market Funding reports on how things are playing out for these investors:

NY Times reports even before the ink dries on a proposed $700 billion bailout for the financial industry, Wall Street players have begun jockeying to be the first ones to snap up distressed investments on the cheap. As they try to make sense of how a government bailout would play, vulture investors are combing through balance sheets of possible targets that could run into trouble if banks start calling back loans to businesses and the economy worsens. …

They are preparing for a field day for deals, not only in the financial industry, but in the industrial, retail and other sectors where the flagging economy and tight credit will push more companies to the brink.

You don’t have to be a vulture investor to take advantage of the climate, though. Measured, thoughtful investments made now can yield good results down the road. Considering value stocks and companies with good fundamentals that are likely to recover is good bargain-hunting sense.

Others are considering funds that are meant to take advantage of pooled performance. Index funds are rather popular right now, since you can get more for less, and — over time — the market generally gains. But for such a strategy it is necessary to have a long term outlook. We’re talking an outlook of 10 to 20 years in order for such a strategy to work well.

Still others are hedging with commodities and using gold to try and prevent inflation from eating away all of their assets.

Are you employing any strategies to maximize your investments right now?

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Tags: stock market, stock market news, investing blog, index funds,
economy, investments, vulture investors

I got a great reader question in my email inbox yesterday:

If I buy a stock for $30 and it later drops to $20 - can I buy more of the stock at $20 and sell the $30 stock and claim a loss?   Is there a waiting period …or is this a “wash”?

With the current stock market climate, I daresay that there are plenty of people wondering just the same thing. It is important to understand the IRS “wash rule” in order to avoid the hefty penalties that can come with selling a stock and then buying more of it within 30 days.

IRS wash rule

The IRS wash rule states that you cannot sell a stock just so that you can take a tax loss. Indeed, if you want to sell a stock, you cannot buy or sell that same stock anytime within 30 days (that’s before or after) of the sale. If you want to buy or sell that same stock, you have to wait until the 31st day. It’s not illegal to engage in a wash sale, but you can’t get any tax benefit from it.

Making a plan for selling losing stocks

Before you sell losing stocks, it is important to have a plan. Consider the reasons why you are selling the stock, and plan ahead. This way, you can have a reasonably sound investment strategy while still getting the tax benefit of selling losing stocks. Here are some suggestions for creating an investment strategy around selling losing stocks:

1. If you think the stock will be worth purchasing at the lower price, plan to buy it again in 31 days.
2. Hedge against a possible rally. What happens if the stock rallies while you are waiting? Well, think of the stock of a competing competing company in the same sector. In many cases, companies in the same sector will rally together. This way you can still realize gains if the stock market turns around.

It is also worth noting that you can consider other investments. Perhaps you want to move on to something else.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Tags: stock market, IRS wash rule, investing blog, investment strategy,
wash sale, investments, selling losing stocks

We know that diversification and regular portfolio rebalancing are keys to a solid investment portfolio. But is diversification always the answer? Interestingly, no. If you do not have a great deal to invest right now, diversifying may not be the best choice (unless you are getting that diversity by investing in a single index fund, perhaps).

Stock Trading to Go offers a handy guide to how much diversity you should consider for your investment portfolio, depending on how much money you have to invest:

Depending on how much money an investor has set aside to invest in the stock market, their portfolio as far as number of holdings should follow this general diagram:

• <$4,000 = 1 stock
• $4,000 - $10,000 = 1 - 3 stocks
• $10,000 - $20,000 = 1 - 5 stocks
• $20,000 - $500,000 = up to 6 or 7 stocks
• >$500,000 = 10 - 15 depending

I like this because it points out the possibility of over-diluting your investment portfolio. Indeed, it is possible to have too much diversity, with your investment holdings so spread out that they are rather impotent. In some cases, it is a good idea to have concentrated returns from a few solid holdings. As you increase your net worth and have more money to invest, then you can consider diversifying further.

It is best, especially for beginners, to try and keep things as simple as possible. Don’t get caught up in constant re-allocation and diversification. Instead, research some solid investments and add those to your holdings.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Tags: stock market, investment portfolio, investing blog, diversification,
holdings, investments, index fund