Investing A Guide For The Novice







By R. John

Copyright © 2017 by R. John, All Rights Reserved.

First ePUB Edition September 2017

Made in U.S.A.


This booklet is directed at the person who has never bought or owned a share of stock in their lives. Never invested in a Mutual Fund and has absolutely no idea what the initials EFT means.

This booklet is NOT going to tell you how to make a million bucks in one week. That’s virtually impossible to do, but it will give you some instructions that may help you get far better than bank interest on an investment of any size.

I am not a stock broker, accountant or financial adviser. I will not be offering “hot tips” but I will help you find your way through the marketplace for those who have no experience at all. I am an investor and a writer who has written non-fiction articles and fiction books over the last fifty years. I’m putting my own experience with the stock and fund marketplace into your hands.

Investing in stocks and funds is risky. You can lose some of your money. It’s like gambling. Don’t take anyone’s advice – including mine – to be gospel.

You never know when or why the stock market is going to go down. My experience shows this to be twice a week minimum, with major drops once or twice a year. I went through a mini-recession twice in one year watching my stocks and funds drop ten percentage points and they took 18 months to get back to the amount I had originally invested. However, after getting burned a few times, doing research and taking some responsible chances, I invested in a few stocks that went up 10% or more and this brought my total portfolio back into the black. After two years of making a few mistakes and patiently waiting on my long-term funds, I managed to make a 16.25% return on my initial investment

Understand this going in: You can invest in stocks and funds, then something could go wrong like another country leaving the European union, an unhappy American election, China or Japan adjusting their money or markets. This could send your $1,000 investment on Monday down to $750 on Tuesday and it might take 18 months just to get it back to $1,000. This is life in the stock market. If you can’t deal with that, don’t invest!

What's the alternative? There are a few insured bank Certificate of Deposits (CDs) or money market accounts that are now paying 1% (but these can go down). As an example, I put some money into a bank money market account at 4% several years ago, and the interest rate has since dropped to less than 1%. At 1% your $1,000 is making between $10 and $11 a year. Typical insured bank interest is currently making far less than that. $1,000 might get you 35 to 75 cents per year. But, that account is backed by the U.S. Government and you will always make a few cents per year in a savings account.

Now, you must decide: Do you want to make $1,000.45 each year in a savings account? $1010 each year in a CD that you must keep for maybe 3 years. Invest $1,000 in a mutual fund that can make anywhere from $1 to $25 in dividends each year? Watch it drop in value to $800 when the market is bad and take 18 months to get back to $1000 (plus your $1 to $5 in dividends) and in 36 months – barring a new recession – have that $1,000 turn into $1,040 (plus $3 to $15 in dividends for a potential total of $1,055)?

If a recession happens your $1,000 in mutual funds or stocks becomes $800 while your bank savings after 3 years becomes $1,001.35.

These are the chances you take investing in a volatile marketplace versus a stable, reliable but low paying alternative.

Ultimately, YOU must decide which way to go. All I can do here is help you learn the ropes, advise you about some of the pitfalls I faced and some of the things I did to make better investment choices.

I’m not charging one red cent for this ebook. It is free to own and free to distribute provided you do so complete and as is.

The Four Commandments


Playing the securities market is like gambling. Don’t invest any money you can’t afford to lose and save a little extra for the day when the market drops and you can buy-in really cheap!


I am not an expert or a fortune-teller. No one is. Even if they have a Ph.D. in market research. No one “knows” for sure what is going to happen.


Do your own research. Research carefully. Choose wisely.


Always buy low and get out while it’s high, with certain exceptions (like mutual funds in a long-term investment or retirement account) we’ll discuss this more in detail.


In this book, we are talking stocks and funds, primarily for long-term investment. I won’t be getting into futures, bonds or the Chicago Commodities marketplace. This is strictly about stocks and funds.

Long-term investment is something everyone should consider as we are being warned over and over that the American Social Security system may not offer security to all down the line. You may have to have your own “nest egg” and to be frank, to be of value in 40 years, it needs to be close to a half million in assets. These assets can be spread among many entities, such as the so-called twenty-year whole life insurance policies offered by a variety of very solvent mutual fund companies that give interest and dividends based on the cash value of the policy. If you die accidentally at any age, they will pay the face value to your heirs. If you live to be old and retire, you can withdraw all or some of this money. Other investments include Individual Retirement Accounts, Certificates of Deposit, Money Market savings accounts, company retirement accounts, gold, stocks and bonds.

Stocks are tools issued by companies to finance their operations by selling pieces of the company. None of you will probably ever own enough stock to control the direction a company takes. That usually requires 7% or more of the voting stock (and not all stocks you buy are voting stock). Since millions or tens of millions of shares of stock are sold and millions retained you need to invest big bucks to be Warren Buffett.

Stocks are totally volatile investments. They go up and down due to a variety of factors, the worst of which are the day traders.

Day traders are people who buy low at the start of the day and sell if the stock goes higher at the end of the day. They buy in volume, so when they buy or sell it creates a panic or feeding frenzy. Someone sells a big block of stock and it makes others want to sell out of the fear they think “someone else knows something they don’t know.” That usually isn’t the case with day traders. It’s buy 1,000 shares at $50 in the morning and sell it for $51 at the end of the day. They either pay only $14 to buy and sell on-line or they get to do it for free because they have a large amount on deposit with the brokerage firm. In this example, they made $1,000 in one day. A Certificate of Deposit doesn’t even pay that much in one year! At an insured bank, you’d be lucky at the current rates to make $500 in one year on $50,000, but your money is fully insured at a bank.

Now, of course, that $50 stock could go down to $49 by the end of the day. If it does that, the day trader holds on to it until it goes over $50 again, but in the meantime, they’ve lost $1,000.

Stocks drop magically. I watch Walmart go from $42 in 2002 to $90 in 2014. People who bought low back then and sold it later made almost a 100% return on an investment of a dozen years or less. Then over seven months it slowly dropped to $72. Then overnight in October of 2016 Walmart stock lost $10 in one day, dropping to $62 and finally settled around $58.

The day that stock dropped everyone was caught by surprise. Bank of America downgraded their projected high on Walmart from $85 to $65. They also downgraded their investment recommendations. No one saw it coming. What caused it was a bad report from Walmart about their profits. That scared investors. They began selling and before you know it a feeding frenzy occurred and the stock was down $10 by closing.

So, if you bought at $42 you still made money at $62, just not as much. If you bought it at $72, you lost money and may have to wait for it to go back up. It may never go back to $90 and could drop back down to $42. It’s currently back up to $80.

This is called a spread. The low and high over a period of time. Therefore, you must research to find out the highs and lows over a year, three years, five years and ten years. You want to see how the stock performs over time.

Stocks also surge overnight, usually when there’s a merger or buyout in progress. When a company is sitting at $40 and another company wants to merge or buy that company day traders may buy in hoping that $40 price tag will go up to $42, $45 or even $50. This is also a way to get stock in a better company at a lower price as they will often trade shares of stock so on Friday you have stock in Company A valued at $40 and on Monday you have stock in Company B valued at $120. You will, of course, have basically the same dollar value of B that you had in A. The advantage could be that B pays a higher dividend and could go up in value. But, it could also go down in value.

This is the way it is with stock.

Funds or Mutual Funds are generally not as volatile and they are not subject to day trading because there are fees for selling out too quickly. Generally, you must hold on to fund shares for at least 90 days and if you want to see a return, you typically must hold funds for two or more years. These are designed for safer (not totally safe), long-term investment for retirement accounts or college funds.

Mutual funds are basically a company that invests in a variety of stocks and bonds. This way, if some go up and some go down you don’t see a total wipe-out.

But, once again, that’s subject to the whims of the stock market. In 2008 there was a massive crash that even included the bond and fund markets. One stock brokerage firm even went under back in the 2008 big recession. In the middle of 2015, there was a mini plunge caused by the Chinese stock market and monetary “adjustments” that scared investors. As a result, major, normally secure, low yield fund accounts dropped in value. The average $2,500 investment lost close to $200, that's about an 8% loss in the value of a share and it took more than 18 months just to climb back to where it was before the dip. It has now been 20 months since that dip and some mutual funds are only now breaking even!

In that big recession of 2007-2008 I watched my company 401k drop by 50%, but after another seven years, it was up 300%.

As we’ll learn later such a loss is good for new investors who aren’t already knee-deep in the marketplace. For those who are, it can take a year or more just to get back to the break-even point.

This brings us back to Commandment One: If you can’t afford to lose it, don’t invest it.

Do you want a safe, sure bet? Get an insured bank savings account or a Certificate of Deposit. These don’t make very much of a return, but in the case of people who invested deeply before 2008 the savings accounts didn’t lose anything and paid back pennies on the thousands of dollars. That’s still pennies more than the mutual fund market did during that same time.

Now, if you’re under 55 and have $2,500 or more to spend, investing in a Mutual Fund and not taking your money out until you are 62 or older will get you a return on your investment.

Mutual Funds usually require a minimum buy-in of between $500 and $10,000. The average I’ve seen is around $2,500. You also can’t buyout for at least 90 days or you face fines and penalties. This is because funds are supposed to be an investment market, not a day trading stock market. They expect you are going to leave your money in there for one to twenty years.

Funds are managed by a team who do research, pick and choose investments and build a portfolio. Managing a fund costs money (buying and selling stocks, plus the very high salaries the managers make) that is deducted from the money the fund earns. In the prospectus, this is listed as a ratio and you generally want to stay as low as you can get with these expense ratios. Under 1.00 if you can. You certainly don’t want to go over 2.00 if you can avoid it. There is also a charge to buy in on most Class A stocks. This is called a Transaction Fee. The type of fee is based on the Load Type. Some Class A stocks wave the load, which means there is no fee. Class C stocks generally have no load at all, but you do need to look at the “Load Type, Transaction Fee” and “Expense ratio” on all mutual funds carefully.

A Front-End Load charges a fee when you invest in the fund.

A Back-End Load charges a fee when you sell or get out of the fund.

12b-1 indicates a fee is charged that can vary and is taken once a year from the fund monies, thus reducing the value of the fund.

A No-Load fund is what most of you want to look for.

No Load funds only charge a 12b-1 of up to one-quarter of one percent of the assets in the fund (0.25%, or about twice what most banks give you for passbook savings as of this writing). This amounts to 25 cents per 100 dollars, which can be a hefty fee if they are valued at millions of dollars. On a fund valued at 500 million dollars, this is a fee of one and a quarter million taken once a year. So, the value of the fund drops from 500 million to 498.75 million.

If you’re looking for funds, the smaller investor or older investor wants primarily Class C No Load funds with very low Expense Ratios. You can also go with Class A if it is No Load or if the Load is Waived.

A final factor is the Dividend a fund yields. These are usually paid once a year in January and are based on the shares you own and how long you have owned them. For the full dividend, you generally must have been an investor for the entire year. Dividend amounts are in percentages or fractions and the information page may also list the per share amount of the previous year awards. These are usually not very large, cents or fractions of a cent per share or less than 2% as a rule. Some are fractional. To make any return on the dividend, it should be listed as being higher than the 12b-1 expense of 0.0025. So, if a fund pays a 0.02% dividend this could get eaten up by the 0.025% 12b-1 fee at the end of the year. This example would offset part of the value reduction. Try to avoid funds whose dividend is under 0.025% – but you can certainly consider funds with low dividends if the rest of the package is appealing. Also, understand that the dividend amount can change with time.

The 12b-1 fees are included in the Expense Ratio figures for a given fund.

Class, I funds charge no fees at all, except for those that are a part of the Expense Ratio. These are not as commonly found as are Class A or C funds.

Most Mutual Funds don’t return a significant amount in a single year as they are intended to be long-term investments. They generally give good results over a 5 or 10-year period (except when crashes like the one in 2008 occur, then it takes longer for the fund to recover). Some funds, in fact, can lose money in the first year. In most cases, however, a fund will yield more than passbook savings interest in the first year, which is a pittance for most investors, but for a retirement account, it means you held your own or made a small gain. Over the long run, the fund should yield far more than even a Certificate of Deposit in a bank.

Mutual Funds also allow the investor with only a little cash to own part of the “big boys” the Microsoft's, Google, eBay's and other companies whose shares are in the hundreds of dollars. You can't really make any money in those markets unless you invest with tens of thousands because they aren't going to go up much in value and you must pay fees to buy and sell. Those fees eat up your profits. The funds invest in these types of companies, usually 1% to 4%.

A portfolio is a smorgasbord of investments. Bonds (T-Bills or Treasury Bonds), energy (oil, gas, electric), industrials (steel, manufacturing, etc.), communications (Verizon, AT&T, etc.), technology (Intel, Microsoft, SanDisk, Google), banking (Bank of America, Wells Fargo, Citi Bank, etc.) among other types of stocks.

If you have enough money to burn (remember rule number one!) you can make your own portfolio, but again read on and learn about the other rules and research.

Another type of Mutual Fund is the Exchange Traded Fund or ETF. These are funds that you can buy and sell just like stocks. Unlike Class C No Load stocks, however, there will be your standard Brokerage fee charges to both buy and sell the ETF. This means the price of the shares must go up over time. It also means if you buy a low quantity (and you can buy just one share of an ETF) the fund must go up in price beyond what your broker charges to buy and sell – that is a minimum of $14 right now (and this amount can change at any time) and can go up as high as $100 in some firms where you let them manage the account.

The most interesting of the ETFs include the Vanguard group. This is not an endorsement or recommendation, it’s simply an observation. The founder of the Vanguard ETFs did a thesis at school that determined one could do as well over a long period of time by just buying groups of the same market type as one could do with a well-managed and researched portfolio.

In short, Vanguard is a passive or minimally managed fund that avoids the costs involved in a management team that buys and sells. Vanguard buys a bunch of the same types of companies and retains them. While they may buy, and sell, it is not supposed to be done as often as a fully managed company.

Vanguard Energy ETF invests in Exxon-Mobile, Chevron, Phillips 66, ConocoPhillips, Occidental Petroleum and other energy based stock companies. The rise and fall of this ETF is based on supply and demand. Those who invested when oil was $80 a barrel may have lost value when oil plummeted to $50 a barrel. Those who invested when oil was low could see profits when oil climbs back up in price. Then, again, oil may not rise or fall in price for a year or more. Since I started writing this their Energy ETF went from $78 to $109, but it’s now gone down to $88.

Vanguard Total Bond is not doing as well because the bond market is low due to the almost zero interest the Fed is charging to borrow money. Bonds are what finance things (like building bridges or dams) and you can’t have much of a return on bonds if interest rates are low. The bond market could see a better time at the end of 2017 or the start of 2018 when the Fed raises interest rates, but they won’t go up very much.

Vanguard Health is doing okay right now, but if Obama Care gets into trouble or gets repealed, the health care industry could have rocky times for a year because they will lose Federal funding and lose premiums from the supposed twelve million people on the ACA program. If ACA continues and more people get insured and pay premiums, the health care industry could see a boost in income and return more profits to such a fund. Like all the Vanguard funds depends on the stability of the marketplace.

A more diversified fund could weather such problems and still return a profit or at least not lose as much.

In the case of a crash, and some naysayers are predicting one may happen soon, diversified funds could be in trouble while some industry related funds (but not necessarily all) the Vanguard funds could still make a profit. A stock market crash is not going to hurt the price of oil that much. That price is determined by foreign sources such as OPEC and domestic sources such as fracking and shale production. People still need to heat their homes, drive their cars and run their computers so energy companies will remain in business. The Vanguard Energy ETF could weather most storms, except another devaluation of oil or the discovery of an alternative energy product we currently don’t have. That could influence this narrowly selective fund.

ETFs are subject to the same “wildcatting” highs and lows caused by Day Traders because there is no penalty to sell an ETF six hours after you bought it. You buy it at $50 in the morning and sell it at $51 in the evening you can make a profit. When you dump it at $51 it’s going to scare people so tomorrow it may open at $49 and those investors still holding it get bruised.

These are your primary investments. Stocks can be a roller-coaster ride that either makes you fast cash or costs you bucks.

Funds will make you slow cash, but they still can’t weather serious economic failings like we saw with the housing mortgage crash of 2008 or the Savings and Loan fiasco near the end of the 20th century and the day the tech bubble burst in Silicon Valley.

Most banks survived all these disasters and still returned pennies on the thousands of dollars while market investors lost their shirts, and companies failed.

So, to play it safe, the spare cash you can’t afford to lose should be in a Federally insured bank account or Certificate of Deposit. Ideally in an interest-bearing checking or savings account.

Mad money that you won’t need for a year or more should go into a no-load, Class C or I mutual fund with low fees.

If you have some cash, you might want to play the stock market. It’s not as risky as Las Vegas, but you can lose some of it if you’re not careful or get caught in an unexpected financial crisis. So, read on…

The Marketplace

For the purpose of this book, we are talking about the New York Stock Exchange or the NASDAQ. This trades roughly 2,600 different stocks. It’s located in New York and operates Monday through Friday from 9 in the morning to 4 in the Afternoon Eastern Time. On a few select Fridays before certain holidays the market might close early, typically at 1 in the afternoon. The market is closed on most National American Holidays or on Mondays if the holiday falls on a weekend.

There are three tallies of the marketplace. One is called NASDAQ, and it averages all 2,500+ businesses, of which some go up and value and some go down in value.

The DOW JONES INDUSTRIALS or simply the DOW is an average of 30 large, key businesses such as Apple, Exxon-Mobil, Walmart, IBM, McDonald, Coca-Cola, etc. You get the idea.

The S&P 500 or the Standard and Poor’s average is a broader sample that includes some of those found on the DOW INDUSTRIALS along with other companies. A total of just over 500 as compared to 30 on the DOW INDUSTRIALS.

Both the DOW and S&P come from the DOW organization and my observation has been that some mutual funds go up when the DOW is up while some mutual funds go down when the S&P is down.

The S&P usually follows the NASDAQ average as far as UP or DOWN goes. The DOW INDUSTRIALS can be UP when the NASDAQ and S&P are down.

These are simply an indication of what the entire marketplace did at a given time on a given day.

The DOW Industrials contains a mix of high-priced stocks (half the list is near or over $100 a share) and lower priced stocks (the other half is in the range of $25 to $90).

In my work with funds, I have noticed that when the DOW is up and the NASDAQ is down some types of funds tend to go up while others go down. The opposite occurs when the DOW is down and the NASDAQ is up.

If you average the DOW, NASDAQ, and S&P as a fractional percentage you can also guesstimate what your funds will see as an increase or loss at the end of the day. For example, if the DOW is down 0.05% and the NASDAQ is down 0.08% and the S&P is off by .06% you add these as .0005 + .0008 + .0006 and come out with an average of .0006. So, a $2500 fund could drop by $1.50. If the DOW is up .12% and the NASDAQ is up .23 and the S&P is up .18 you add this as .0012 + .0023 + .0018 you get an average of .00176 and you add to this as your multiplier of 1.00176. Your $2500 fund could go up $4.41 (1.00176 times 2500).

If you have an “Office” suite like Libre Office, Open Office or Word you can create a spreadsheet listing all your holdings, the date and value. This can be totaled at the end of the row. This can help you keep track of your investments and see how they are doing. After a few months, you can see what is working and what isn’t. In the case of mutual funds wait at least 12 to 16 months before opting out and try not to opt out if you are below the price you paid. There is a good chance that in another year or two that fund could go back to what you paid. Once it does, plus a tiny profit, you can consider selling and buying more shares in a fund that was doing better for you over the same period.


Stock Brokers are companies who are legally authorized to trade stocks. Not every Broker is authorized to deal in Funds, so you want to find a broker that handles all forms of securities. You also want to make sure that the broker is a member of the Securities Investor Protection Corporation (SIPC).

No brokerage firm is insured or protected by the Federal Government (as are the banks which are insured by the FDIC). The SIPC will attempt to get back as much of your cash and securities (at the market price when the Broker failed or at the current market price and ONLY up to the amount of total funds in the SIPC holdings shared proportionally among all investors) should your brokerage firm fail, but this doesn’t always include fraud or extensive losses. You could end up with 10 cents on the dollar or less!

Again, Commandment One applies: If you can’t afford to lose it don’t invest it!

Brokers charge a fee to process your trades (buys and sells) and this varies. Some brokerage firms provide do-it-yourself discount services, such as E-Trade, Merrill Edge, Scottrade, Tardigrade, Charles Schwab, and Fidelity, just to name a few. These offer trades as low as FREE to certain investors with large account balances, and they offer to buy or sell in the $5 to $10 range to everyone else. These are for automated on-line trades. Broker assisted trades vary in price from $25 to almost $100 per trade. One person we talked with who didn’t know and didn’t care, paid a $50 fee plus 50 cents per share trading fee to a broker when they could have paid under $8 if they changed brokers (you can do this, but there might be a charge – ask before you move) and did it themselves on the computer.

Having a broker that you can talk to (often called a Full-Service Broker) doesn’t necessarily mean a bag of beans. One broker we talked with gave us the basics for free and told us in plain English that he’d charge us $30 (or more) to do what we can do at home for $7. Brokers usually quote from the “party line” which means that they read the reviews and charts their own companies produce. You can generally read these for free on-line.

You do, however, have to set up an account with a brokerage firm if you want to buy and sell stocks, bonds, and funds. Some accounts may charge a yearly fee. Some may not. So, you want to do your homework and go with the firm that offers the best researching tools, is an SIPC member, deals in all types of common securities, including Mutual Funds and offers free incentives (which may require you to maintain a high, minimum balance).

To buy stocks, you need to deposit money with the firm or rollover your 401(k) (from a FORMER employer NOT a current employer) to an IRA at the firm. Most firms will do this for free. Most firms will talk with you on the phone or in person for free, offering help and assistance, but they won’t make phone trades for you without charging their full rate fee. You must do all your trades on-line for the under $10 costs.

Brokerage firms might or will charge a fee to sell a mutual fund. This can be as high as $20 for an on-line account, more for a Full-Service trade. So, make sure you research your funds carefully as you must keep them for a minimum of 90 days and should be keeping them for two years or more in order to see some growth. A Full-Service Broker may charge a fee to buy and sell funds. ASK before you buy! For more information, see the Funds chapter.


Research is a key to making better investments and many investors fail to do this, thus they rely on recommendations from analysts and their representative at the brokerage firm. Then they cry when the investment doesn’t perform in a positive growth manner.

Every stock, bond, and fund in the American marketplace are required to make full disclosure under uniform Security Exchange Commission rules. These include a listing of their top holdings, charts covering their performance over the day, month, year and longer. They tell you what their current dividends are and some stocks have no dividends at all.

Dividends are your fringe benefits. A stock, ETF, or fund you bought into could be on a temporary losing streak, but may still pay a dividend that either goes into your cash account with the brokerage firm, or can be paid to you directly as income, as a capital gain or can be reinvested in that same fund. Dividends are based on the amount of shares you own and how long you’ve had them. A stock might have dropped twenty cents a share since you bought it, but gives you a $5 dividend that helps take the bite out of that loss.

You want to research stocks and funds that return a dividend.

The research you will find there shows the lows and highs for each stock, bond or fund. You don’t want to buy high. That’s another Commandment. You want to buy low.

Everyone wants to own stock in a Google or Apple, but if the low on that stock is $400 and the high is $800 and it’s currently sitting at $780 you’re not going to make much of a return on this stock. You must wait for a crisis to occur.

What’s a crisis? The company being investigated as a Monopoly. The company being investigated because workers jump from their building. You see a report like this at night or on a weekend you can be sure that the next trading day that stock will probably start to drop and if it drops from say $780 to $700, now you may stand to make something from an investment.

This is research.

Walmart issues a notice that they are cutting their estimated profits for the next year or quarter and in one day their stock dropped from $72 to $58 and it’s now rising again as of this writing. Walmart is a very stable company and if you look at their charts, you will see that the stock price always drops in the fall and goes up during Christmas and in into New Year’s when Walmart generally gives a report of what a good year they had (we hope) and that will raise the price back up again, unless that report is a dismal Christmas, in which case that stock at $58 as of this writing could go down to $48. No one can predict.

Even the largest owner-shareholders of a company aren’t supposed to know the accounting reports for the last quarter and next year before you know them. To know them sooner constitutes grounds for Insider Trading if they dump their stock before the report is published.

If company founders and executives learned of a bad year before the stock market opened and the announcement was made, they could sell some of their stocks at the opening price and then buy them back at the close of day when the value drops. That is illegal. It happens now and then, but it is illegal. When it does happen, the SEC might suspect and investigate. Of course, as the media will tell you a person who gets busted for shoplifting or possession of a little marijuana gets a stiffer sentence than a corporate or brokerage insider who traded. But, some do get caught and must return what money is left.

This is a warning to the little guy. If some family member tells you a secret and you liquidate a large amount of your stock or portfolio before the world learns the same information, they could come after you and you will probably get big jail time!

So, look at the financial chart history of the things you are planning to invest in. Look at their highs and look at their lows. Look for patterns. Like I said I saw a pattern with Walmart and I’ll wager it also holds true for Target, Kohls, and some other large, successful stores.

Target, however, has been in troubled waters lately. They closed all their Canadian stores. They closed their streaming video site (TargetTicket, which is like Walmart’s Vudu and Best Buy’s CinemaNow). So, you need to do research and watch the reports on Target.

Of course, Walmart faced the same problems with some of their foreign markets.

Oil is still somewhat low in price as are some oil stocks. If oil prices go back up from $50 a barrel any oil company stock could make money for the investor.

What you do want to do is not put all your mad money into one egg basket. Keep a little out for that day when doom strikes and stocks go down in price, because once they start back up, then is the time to invest. Those who invested in September of 2015 or back in 2008 and held on for a year or more made a terrific return (provided the company they invested in didn’t go bankrupt).

By researching, you’ll get an idea where a company is headed based on their assets, dividend returns, stock performance over three or more years, news reports, and other factors.

Remember stocks and funds go down as well as up and no one is going to give you that loss back.

Remember the first Commandment: If you can’t afford to lose it, don’t invest it!

Market Volatility

The marketplace – this covers stocks, bonds, funds, bills – is very volatile. It’s like gambling. In order to invest wisely, you need to be patient, have funds you can afford to lose and wait for the right opportunities.

For those of you who have already invested, you need to weather the storm and that can mean holding on to your portfolio for one or more years.

Most mutual funds don’t do well the first year. By the third year, they are doing quite well in most instances. Over the long term, ten or fifteen years, they can see-saw because the marketplace has a habit of adjusting itself every five to ten years.

What causes the fluctuations? Foreign markets for one. Mostly Japan and China. When the Chinese stock market took an adjustment at the end of 2015 and re-valued their money the American marketplace took the biggest dump since the 2007/2008 recession. I watched funds that were costing $510 a share drop to $477 in one week. That, of course, is the time to buy in! Six months later that same fund was $523, and it paid $8 in dividends. So, if you bought in during January 2016 for $1,000 (minimum investment) by summer you made almost $1,100.

China will probably re-value things again in coming years. That is almost a certainty as many people feel that their economy will not rise as fast and plateau. As such, their marketplace will act like ours!

Oil was another factor at the current time. Oil was down in price and that depressed the entire marketplace. Sadly, oil was down well below $50 at the same time China was playing around with their market and currency. So, this was a double whammy, which is why the market dropped so far and so violently in a matter of two weeks.

Oil used to be below $50 all the time back when gas was 35 cents a gallon in America. But since OPEC (the oil producing cartel) oil has been well over $50. Often between $80 and $90. So, a drop in oil prices due to oversupply, down to $46 caused ripples in the space and time continuum all the way to the next galaxy.

A side effect of a drop in oil prices is a drop in energy stock prices. Exxon, Chevron, Phillips and British Petroleum all dropped from a high of $90 in 2014 to horrible lows for people already invested, but opened up opportunities for the new investor who could buy British Petroleum for $29, Phillips for $45, Exxon for $65 and Chevron for $85. Plus, these companies give a quarterly dividend in the area of $2 – $4 a share. As of this writing oil and energy still a fair deal, but not as good as it was in December 2015 and January 2016!

Once oil goes closer to $60 a barrel energy stocks will no longer be a big money maker for investors, but will be a reliable source of dividends and small increases. Better money than most CDs or savings accounts. However, the volatile marketplace can bite you should an oil glut or oil spill happen. Something like that sent British Petroleum from $90 to $23 and BP still hasn’t recovered after several years! So, if you bought BP for $90 in 2011 and held on to it, it’s now at $32 and you lost big time, but it may rise again, maybe even back to $90. It is not going to happen this year or even next year. But by 2020 BP could bounce back a little. During that time, investors will see $2 – $3 a share in dividends unless another disaster happens.

So, while oil is below $55 a barrel energy stocks may be a good value for investors with money to burn. It is doubtful that you will lose big time unless someone invents a pill to turn water into gasoline without the use of oil – and that could happen ten to thirty years down the road. But in the immediate five years, we still need oil to do just about everything and oil could go back up to $60 or $70. It could even hit $100 way down the line. Then again, it could go down to $40 and you’ll lose big time!

Another factor in recent times is what is commonly called “The Fed.” This is the Federal Reserve Bank. They set the interest rate for borrowing money and right how this is almost zero. Once upon a time, it was as high as 10%. Nominally it’s been 2-5%. The factor in this rate is inflation. The more inflation the higher the interest rate. The lower the amount of inflation the lower the interest rate.

This is the rate banks are charged. They, in turn, tack on more “points” or percentages to the consumer for student loans, car loans, housing loans, personal loans, and credit card fees. The recession of 2007/2008 brought interest rates down to help stimulate the housing marketplace which had collapsed with the mortgage banker problems when banks ended up owning all sorts of homes and bad debt.

Now, every time the Fed gets together (every few months) to decide what to do with interest rates the marketplace takes a small dump. And guess what! The Fed was having one of these meetings around December of 2015. So, along with oil and China, we had a triple whammy with the Fed causing ripples in the universe going all the way out to the edge of known space.

So, these are the things you must look for:

Is the stock market too high? Do they keep talking about the Dow or S&P approaching the “magic number?” Did it go over the “magic number?” Expect to see the market take a dump around this point in time and that is when you should invest your mad money provided no other factors are in play.

Housing. Has the price of a new home or apartment rent become so high that the average person can’t afford them? In 1954 a house in Los Angeles was $12,000. In 1964, it was $32,000. In 1974, it was $45,000. In 1985, it was $200,000. A mortgage banker and real estate broker I knew who left California and then returned asked me: “Did they find oil under the houses here?”

By 1989 some homes were selling for $290,000. Then the market bust happened and houses fell back down. Some to $190,000. I knew people who bought at $12,000 and failed to sell at $290,000.

I knew someone who had invested in unsecured 3rd or 4th mortgages on apartment buildings. For a while, he made a 15% return on an investment. When a tenant left an apartment, they raised the rent from $600 to $1,000. And eventually to $1,200. Suddenly the buildings were 40% empty because no one could afford the rent. He lost 95 cents on the dollar in that unsecured mortgage scam.

I knew people who bought homes out in the distant suburbs near Edwards Air Force Base in California, where there was a housing boom because of the space shuttle back in the 1980s. Then NASA pulled the plug on launches from Edwards and laid off workers. Suddenly houses that were mortgaged for $130,000 were valued at $90,000. People filed for bankruptcy and left vacant houses. Some of those houses may still be vacant as that area will not be built up for quite some time.

These kinds of factors cause recessions. We saw one in 1968 when scientists got laid off and went to work in retail stores after the California military installation bust happened.

We saw this in 1979 once again. Then again around 1989 with the Savings and Loan bust and the problems with junk bonds. The really bad recession that almost became a mini depression was in 2007/2008 with the junk mortgage fiasco. This caused brokers to fail, banks and insurance companies to almost fail. Very solvent banks started buying up small lending companies for what good assets they had. Bush and Obama floated loans to a variety of companies including Chase, Bank of America, General Motors and AIG. Had these companies failed (not been bailed out) we would have had a depression and mass unemployment as GM, AIG and the Banks would lay off many, many workers. Instead, the bailout worked, and the government has gotten most or all of those loans paid back, with interest.

Those with the money to invest in January of 2008 made a pretty penny by July of 2015. Starting in August of 2015 the marketplace took a dump because of oil, China’s finances and the Fed wanting to raise interest rates. This came to a halt in December of 2015 and January of 2016. Since then, stocks, bonds, energy companies and mutual funds are slowly getting back up to where they were a year earlier.

Now, do you stand pat and hold 'em or cash in your chips? Well, look at the long-term. Most stocks and funds will go back up, it's just a matter of time. If you want to take fast cash, also look at the dividend dates. I once cashed out to take advantage of a 10% return, but I lost out on $18 in dividends had I waited another week. Of course, in another week the stock could go back down. How much you make in this kind of sellout is based on your commission prices. If you have a broker do it that will cost you around $50 per transaction. If you do it on-line $5 to $11 per transaction unless you have a large cash account. Usually $50,000 in the investment account. Then it may cost nothing for an on-line transaction.

You must ask yourself, when there’s a dip about to come and you know it, is it wise to dump on a good stock or fund that returns good dividends and will certainly be up again next year just to make $50, $500 or $1,000, only to buy them or something similar with that extra cash.

On the other hand, when a major disaster strikes, like the junk bonds or mortgage fiasco, the TV news will talk about it for months. By the second day or so it might be wise to consider the option of dumping your stocks and funds, then waiting to see who survives and what the entry level prices turn out to be after the dust settles.

If you have $5,000 on Monday, $4,700 on Tuesday, $4,600 on Wednesday maybe it is time to cash out, take your $4,600. Wait until what you had goes down to $4,000 even and starts to rise again, then invest while it’s lost. You make a small profit selling or small loss if you wait too long. You buy back in when it’s low and in six months to a year you’re back to $4,900 and you’ve made $850-900.

Like I said, this is gambling. The marketplace is very volatile. If you’re going in, go in when things are as low as possible, not as high as possible. Look at the graphs and charts. See how high things are. Look at the time frame in months and years and see where the dips are. Look at how many years it’s been since the last recession. Look at how everyone feels about the foreign marketplace.

When investing, you want to use only money you’re ready to lose and jump in when the market is low, not high. You need to keep your ear to the ground. If you buy funds, be ready to keep them two or more years. If you buy stocks, also make sure you look at the high and low for the last year. Look at the chart for the last 10 years. If that chart keeps going up and up beyond the historical high point you can be almost certain that disaster could be just around the corner. Wait for it. Wait for that dip. Judge how deep that dip will be in terms of days, weeks and months.

If you can, wait for real disaster to strike and it almost certainly will in five to fifteen years. If you want to make a killing that is the time to start and make sure what you invest in is very solvent and not a one hit wonder.

Mutual Funds

Mutual funds hold stocks, bonds, bills, and similar types of singular investment paper that you could invest in separately, but it is a cooperative so they use the buying power of many investors or subscribers to buy-in big. As a result, most funds require an investment of $500 to $2,500 minimum!

For most of your “under $11” on-line trading services there is no brokerage fee charge to buy or sell funds BUT the fund, itself, can have a fee called: Load Type.

Some funds have No Load and let you buy and sell for a fee.

Some funds have Front End Load. You pay when you buy-in.

Some funds have Back End Load. You pay when you sell-out.

Some funds have a Waived Load. They have a fee, but for some reason, they won’t charge it at this point to buy or sell.

All funds have a management charge that’s expressed as an Expense Ratio and this is something that you need to look at carefully as it will eat into your fund’s performance. This ratio is expressed as a decimal after the 0. Such as 0.78 or 0.92. The smaller the value the less it will cost you over the life of this fund. Try to avoid funds with a 1 before the point such as 1.10.

Another thing to consider is the dividend percentage and the amount. I’ve found that certain types of funds give a larger dividend on average than other types of funds.

So, let’s talk…

Types of Funds

I’m going to look at three of the most common fund types:

Value Funds look for and buy into stocks and bonds that are a value. They may be undervalued at the current time, but have a potential to grow. They also have to pay a nice dividend.

One value fund I had paid $195 on a $2,500 investment in the first six months. Another fund paid $25 on a $500 investment.

Value Funds, however, rise and fall with the stock market and economic indicators, not that other funds are any safer, but remember these stocks are more volatile and underpriced.

Growth or Capital funds

These funds invest in what you might call your “blue chip stocks.” Things like Microsoft, AT&T, Google, PayPal, 3M Company, PepsiCo, Coca-Cola Company, etc. These are stocks that grow and grow slowly, pay good dividends, and immense gains over the long-term.

These funds often pay a very small yearly dividend. One fund paid $2 on a $500 investment, still a good deal compared to bank interest rates. It also fared better than a similar Equity fund as far as getting back out of the red after the China/Oil/Fed problems. Another fund paid $84 on a $2,500 investment. This one didn’t fare as well as the similar Value fund and is still $35 away from the investment point.

But to get a comparison:

$2,500 Value fund returned $195 and currently sits at $2,500

$2,500 Large Capital fund returned $84 and currently sits at $2,465

$500 Large Capital fund returned $2 and currently sits at $502

$500 Equity returned $25 and sits at $493

This is after almost one year in the fund.

Equity Funds

Combine the Value and Growth or Capital concepts. They don’t return as much in dividends as Value funds, but do return more than Growth or Capital funds. These are among the most common funds you will find.

Balance Funds

Similar to Equity funds, but safer yet as they make very sound investments in a wide portfolio of funds. These funds slide back like any fund in a bad market, but they go forward faster and make-up ground somewhat faster.

Look at these charts to compare:

This is a 10-year history of a Large Capital Growth fund

This is a 10-year history of a Balanced Fund

This is a 10-year history of a Value Fund.

This is a 10-year history of an Equity Fund.

The part to really notice is how all four of these funds are behaving in recent times due to the China/Oil/Fed problems and the recovery of lost value.

Now, don’t take this comparison to be scientific or hold true at all times. It is just for comparison in these times and on these specific funds.

But you can also see growth curves and you will notice they all lose at the same time and almost at the same relative rates.

Aggressive Capital Growth Funds

Funds that most people should avoid. The managers of these funds hope to make money fast by investing in stocks they expect to go ballistic, but sometimes fail to get off the pad. These funds can lose money as easily as they make money and the idea behind a mutual fund is to be a far safer investment.

Aggressive funds are for wildcatters. People how have money to lose. Gambler. It’s probably safer and surer than betting on the horses or one spin of the roulette wheel, but it’s still like investing in speculative stocks or bonds.

MUTAL FUNDS ALL have an early sell-out charge. This is generally 90 days or less from buy-in. Remember this: Funds are not like stocks! You don’t day trade them! These are like Certificates of Deposit. They expect you to hold on to them for more than 1 year. Funds are typically held for five, ten or fifteen years and they can double their original buy-in after that amount of time!

A final type of fund is called an:

Exchange Traded Fund or ETF Now, this is a fund you can day trade, but you’re going to get charged that $6, $7, $8, $9, $10 on-line fee from your broker for both buying and selling.

These funds are much like regular funds, except they are bought and sold on the stock market and you can watch the trading go on in real-time (actual Mutual Funds only get their price updated at the end of each work day). When you buy one share in these you are buying a package of valuable investments and not just a share in one company.

Remember, the safest investment, however, is an insured bank account. Something goes wrong you get your money.

When something goes dreadfully wrong in the stock or funds market, there is no insurance. If the broker fails, you may get your stocks or invested risk back (if they have an SIPC account), but if the market crashes and your investment falls by 90% no one and nothing will get that money back for you!

Mutual Funds do not behave like individual stocks because they buy into many stocks AND you should look at what the funds invest in and check how solvent that market is. For example, a fund that invests in banks, telecommunications, computer technology AND energy stocks could take a dip when the price of oil drops, even if the other stocks are doing fine. If banks get into trouble because of bad loans or a drop in the interest rate the Fed charges the fund could go down a little or not rise as much even if oil is going great. If the end of cable TV does manage to happen and your fund has invested in Verizon, Comcast, and Charter your fund will take a hit. When something serious happens like a depression or that thing we faced with China, Oil and the Fed your fund is going to take a big hit, one that can take a year or two for recovery.

Now, a well-balanced fund that does some banks, does some gold, does some bonds, does some technology, some T-bills and does some energy, it might not fall as much during a depression because some of those things can actually go up when a crisis hits! When stocks and bonds tend to fall, gold may tend to rise.

A good stock purchase can make you $25 a share capital gain plus $100 in dividends in one year. Don’t expect a fund to do that well. In fact, many funds lose money for the investor in the first year. Funds are designed for long-term investors who are looking for reliable growth over a 3, 5, 10 or 20-year period. The same may not hold true for all stocks. Some stocks may plateau after five or ten years and while they still give dividends and small growth that $25 a share gain you got the first year can turn into a $1 share growth after a few years. And the marketplace could die on a company. Remember the “Dot Com” crash in the 1990s. Remember that broker Shearson Lehman went totally out of business in the recession of 2008. Remember that all the Savings and Loans went under and while the money people had in their accounts was insured by the Federal government, the shares of stock that investors had in a given bank went down the drains and in some cases became wallpaper.

Here is where a mutual fund can survive. If they only invested in a few savings and loans, or a few insurance companies, or a few automakers and had other investments . . . yes, the fund took a hit, but the investors in those funds didn’t get totally wiped out. That is not to say that a fund with bad management or bad investments can’t go belly up, but it’s very hard to do. A fund manager would have to pick an awful lot of really bad stocks, bonds, and metals to go under.

The final thing to at least consider in the funds YOU pick is if the fund is evenly divided among the DOW and S&P 500. There are days where the DOW is UP, and the NASDAQ is DOWN. On those days, SOME funds go up in value while other funds go DOWN.


These are a type of “ownership” in a big company.

There are several types of business ownership including sole owner (one person), partnership (two or more), Limited Liability Company (a partnership with some corporate protections), A Professional Corporation (for Doctors, Dentists, and Lawyers), an S-Corporation (privately held with no more than 100 shares of stock and 10 shareholders, it offers the protection of a Corporation with less tax liabilities) and a full-blown Corporation, which are typically founded in tax havens like Delaware, Texas or Ireland.

The full blow Corporation can be privately held (there is no limit to the type and number of stocks or number of shareholders) or public. When a privately held Corporation decides to go public, they offer up a fraction of one or more classes of stock in what is called a Public Offering or Initial Public Offering (IPO).

They generally sell less than 49% of total stock to the public and retain 51% to keep ownership of the company and direction. Anyone holding 7% or more of the stock is a heavyweight player and probably has a seat on the board that directs the company (Board of Directors). These people are said to have a “Controlling Interest.”

To give you an idea most Mutual Funds usually only have 3-5% of the stock in a given company, so they don't generally have a controlling interest.

You and I will probably never own even half of a percent of any one stock that’s how diluted most Companies are!

The price of the stock is the value of the companies fixed assets (buildings and equipment), revenues (how much they are making doing what they do), costs and liabilities (expenses and loans), and “good will.” That is part of a reason why when something bad happens the stock might fall even though profits haven’t changed. Goodwill went down the drain and that can add up to 10% of a company's total worth!.

Shares outstanding are the numbers of shared out there in “investor” land and that’s a worldwide playing field. People in China, Italy, Russia can generally buy into an American Company. Either directly through their own market or through a New York Broker.

The shares you don’t know about are in the vault of the company. These are kept in reserve for when they need to finance something and they don’t want to float a loan.

There are generally two classes of stock. A and B. Sometimes called Preferred and Common. One of these has voting rights (you can attend shareholder’s meetings that are open to all, but typically you vote by proxy) and the other doesn’t. One costs slightly more than the other. Both generally pay the same dividends.


This is the first thing you look for in any stock or mutual fund. If the thing is not paying dividends, it is probably not a good investment. It means it is probably not making money.

Dividends are generally expressed in both a dollar amount and a percentage. Most dividends on stocks are paid quarterly, so if the information says it pays a $1.20 dividend per share of stock that means you’ll get 30 cents a share every four months. Ten shares is $3, a hundred shares is $30, a thousand shares is $300.

Look closely at the cost of the stock against the amount of the dividend. For example, a stock selling at $50 that pays a dividend of $1.20 per share might be a better investment than a stock selling at $100 that pays $1.50 per share. You can buy more of the $50 shares and get more of that $1.20! If you’re in this for the long-term investment and return, then dividends are going to play an important part.

Another thing to look at is the rate of bank and CD interest. Right now (2017) the BEST CD interest is 1% (in 1985 this was more like 8%) and bank interest is a fraction of a percent (0.01 to 0.06). Your dividends today should be paying more than 1%. As the future brings higher interest (and that won't be until 2020 at the earliest) stock dividends alone are better money than even a Certificate of Deposit.

You will probably never see stock dividends higher than 4% of the value of the stock so don't use this as a rule of thumb forever. You also must look at the price of the stock. Is it rising? If so, by how much a year? Stocks that are flat or losing are the ones you stay away from.


Look at my section on Mutual Funds. These charts are available for stocks as well. Look at the angle, look at the dips and look at the overall marketplace. Know what you’re getting into. Search the web for articles about the company. See if they are being investigated for anything. See when their union contracts are due to end.

You don’t want to buy into a company just because it has a snazzy name or you think it has a reputation.

Look at the lows and highs for the year. Try not to buy when they are at the highest. If it was high and then went low, find out why. If it was something like BREXIT or the price of oil dropping below $50, then it was just a hiccup and might be a good investment. If it is at the highest point, you have to look at the charts and see if that stock is a steady climber.

I was looking at a whiskey stock and some of the rumbles said it might have reached its limit because back in 2001 there were only a few Bourbons while today that are dozens and dozens. It also didn’t have the greatest dividend for the price of the stock. Instead, I went for a soft drink company with a nice dividend, at a good price that looked to be a steady climber over the last 10 years with no real dips. I got it partially for the dividend. Stocks like this might be a good buy in winter as people drink fewer sodas. Remember, buy low and sell high. Something like soda you might buy in December or January, hold until August or September then sell and take profits.

This was how I did my research and I’ve blown it a few times. I once used this DRAM making company to generate a few bucks. It once was as high as $35 and low as $8 and I bought in at $12 and was going to sell out at $18 like I did before. Instead, it took a nose dive down to $10. I eventually got rid of it at $14, making a very small profit after the $15 brokerage fees to buy and sell. It also didn’t have a great dividend. Today, however, it’s at $20 a share.

I bought into another internet company that had no dividend and I ended up so tired of the ups and downs and never breaking even that I sold it at a $6 loss just to get out from under the stress of that yo-yo stock. A $6 total loss is not a bad loss. But it wasn’t the $5 profit I was hoping might eventually happen once I realized what a turkey that stock was. That was when I started doing more research instead of just picking stocks because of the “name.”

So, if you want steady, immediate money find some solid stocks with good companies, steady growth nothing bad down the line (like the fear that cable TV may be a dying industry) and good dividends, then use this to supplement any mutual funds you have.


The first thing you need to understand is that these are designed for retirement, as such, you can’t access them until you reach an acceptable retirement age, currently 59 1/2 years of age. If you attempt to access an account sooner, there is an early withdrawal penalty, with some exceptions!


This is an individual retirement account that you CAN withdraw the money you invested at any time with NO penalty (except for those fees charged by the institution holding the account).

That’s the good part. You can also invest more money into a Roth IRA as you get older. You can take out up to $10,000 to use as a down payment on a home after the account is 5 years or older and provided you haven’t bought a home in the last two years.

There are more tax-free withdrawals allowed over the traditional IRA or 401k, however, taking amounts out to live on or for vacations are taxable as normal income (with the usual deductions).

The money you invest comes from your already taxed income. It is NOT a pre-tax investment. So, when you pull the money you invest out later in life, it is NOT taxable because you already paid taxes on it before you invested.

Another bad point is that you can’t borrow against a ROTH IRA.

The final good point, you NEVER have to withdraw with a ROTH IRA. No mandatory withdrawal on this type of account, so if you don’t need it in your lifetime you can leave it to heirs (like your kids).


This is a PRE-TAX investment. That means you get an investment tax credit up to $2,000 (more if you are over age 40) off your income taxes.

Let’s break this down. You make $30,000 a year. You invest $2,000 in a TRADITIONAL IRA. When you file your taxes, you get to reduce your gross income by this amount. So, you are paying taxes on $28,000 in gross income (you need to see a tax expert to learn how to do this properly, but this is the effective result of your IRA deposit).

The bad part is you can't withdraw one red cent until you are 59 1/2 years of age or you will get a 10% penalty, however, you can borrow against the money in your TRADITIONAL IRA, but NOT with the ROTH IRA.

You also can’t invest as much money in later years with a TRADITIONAL IRA as you can with the ROTH IRA.

Another bad part is that every red cent you withdraw counts as income tax because you tax sheltered your investment AND the income generated by the investment. Whereas in the ROTH IRA ONLY the income generated by the investment is taxable as income.

With a TRADITIONAL IRA, you MUST start taking money out at age 70 1/2.

With both types of IRAs, you are welcome to invest in almost any commodity (some funds and investments won’t sell to an IRA). Stocks, bonds, mutual funds.

How do you start one of these? You go to any of the brokers (and many banks) out there and you start one of the do-it-yourself under $11 accounts unless you really want to pay the brokerage firm upwards of $50 per transaction to buy and sell anything.

Once you start either a ROTH or TRADITIONAL IRA, you then pop some money into the account. $2,000 maximum per year unless you are over 40 or 50. Then you go home, sign on the account and pick funds, stocks, and bonds available to your IRA at your broker.

Most funds have a “buy-in” minimum. Some as low as $500. Many of them want $2,500 initial buy-in. Check the history of the fund going back at least ten years and look at the growth. Check their entire holdings and look for stocks and other commodities that are strong and stable. Look at the expense ratio and make sure it’s under 1.0. Look at the dividend amount or percentage.

You must decide what you are going to do with the dividends and capital gains. The problem with re-investing is that if the fund goes up in price, the reinvestment is at the new, higher price. If the fund then drops, all of it drops! However, if you don’t reinvest and the fund goes up, then pays a cash dividend, it goes into your IRA cash account and you can use that “found” money to buy stocks, other funds, ETFs or wait for this fund to drop in price due to a problem in the market place.

I lost reinvestment money (technically) during the 2015 mini recession. My $500 fund went up to $510 and paid dividends, which bought shares at that new rate. Then the fund dropped to $465. If I had the dividend take as cash my account would be +$10 more than it was after the fund dropped in price. In theory, at least!

Since then I get cash dividends, put that into my cash account for a rainy day when the stock market takes a nose dive so I can buy some blue-chip stocks at far lower prices.

You don’t want to liquidate those losing funds unless they continue to drop due to bad management. Make sure they are not under investigation. If it’s a bad selection of stocks and they don’t correct this problem, it might be worth selling at a loss. If it’s just that the market is bad because of a recession holding on to your losing funds could eventually pay off. Remember these grow slowly and can lose the first year. One thing you know is to invest in different funds with your new $2,020. Next year you might get $70 in dividends from the whole pack and you keep that $70 in the cash account. Your new funds are up a few dollars. Your old funds have come back almost to where they were when you started. So, you have $4,030 in funds plus $70 in the cash account.

That $70 will eventually grow to $150, 250, 400 and in ten years or less, you can buy a $500 fund with your cash account just from letting dividends accumulate. If you re-invest and the market goes up and down who knows where your balance will be in ten years.

I tell you this because I had funds when the mini-recession of 2016 hit and this dropped 18%. After 18 months I was still not in the black on all the funds. Since I started putting the capital gains and dividends back into the cash account and I have extra income even though those funds are down. I used that cash to buy into energy stocks and ETFs when the price of oil was down. Those stocks went from $75 to $95 in a year. So, that dividend windfall gave me a 25% capital gains return, while my funds were down 2%, my stocks were up. The stocks were also paying $3 a share in dividends. Twenty-five months after I started by IRA I was up 16.25% from both funds, stocks, and dividends in the cash account.

Energy is topping off at this time, so I’m not expecting the same amount in the coming months. But there will be the steady $200 to $300 in dividends and capital gains each year no matter if the stocks and funds go up or down. The funds are slowly going up while energy goes up and down with the wind. One day a given stock is $90, the next day it’s $89 and then back to $90 and then almost to $91. Then it goes back to $90 or less.

ALL stocks and funds are going to drop like hot cakes during a recession. If you see a recession coming, you might want to sell out. Sometimes it’s better to take a loss, provided the stocks and funds continue to drop and you have enough time to get your cash back for reinvestment. Remember, it can take up to five days once you sell for that cash to be readily available to buy once more.

I would avoid cable TV stocks at this point in time. I would also avoid communication stocks. Automotive stocks are also iffy as GM almost went under in 2008.

Remember my advice. Buy low. Read the history of the funds and stocks you are considering. Look at the recent and long-term charts, but remember that for an IRA, you are going to keep that money in a fund for 5, 10, 15 or 20 years. If it is a good fund, it will go up in value and return interest and dividends, all of which become taxable when you start withdrawing funds at age 60.

You should monitor the marketplace daily and look at your IRA all the time. As for whether to do automatic reinvestment, remember my admonishments to buy low. This doesn’t always happen with an automatic investment.

In my case the reinvestment of gains occurred two weeks before China, the Fed and Oil crashed. As a result, my IRA bought more fractional shares of mutual funds at a very high rate that went down drastically two weeks later.

On the positive side, by reinvesting you can get fractional shares of a Mutual Fund, while with cash investing you must buy the minimum quantity. So, that just goes into your CASH account. Yes, you can use it to buy some stock. Yes, you can put that with the $2,000 you invest next year. But if your fund is good and making money, maybe reinvesting that $2 to $50 is a good idea over the long run of 10 or 20 years.


This is a company retirement plan, and it has to be started by your employer and you must follow your company rules. There are two types and you don’t get a say, it’s what your company starts. There’s a ROTH 401k and the TRADITIONAL 401k and they pretty much have similar tax and funding rules to their IRA equivalents except as follows:

You MUST withdraw at age 79 1/2 with either type of 401k.

You are NOT vested for investment or company money (only your own contributions) for a specified period of time determined by your employer. My employer specific was seven years. That meant I had to work for them for seven years to get the full amount of the 401k. Less than that and you only get your own investment money.

You can invest a lot more money into a 401k than you can with an IRA. Up to $18,000 a year (limited to 15% of your gross pay under IRS rules). So, if you are making $50,000 and your expenses are so little that you can pay for housing, car, food, and vacation with $32,000 a year you can invest $18,000 into the company’s TRADITIONAL 401k (if they allow it) and you will only be taxed for INCOME on $32,000 which is a lower bracket than $50,000 (state, Social Security, and disability may still be on the $50,000 amount). You can usually change the deduction from your paycheck and they don’t take the full $18,000 out! It’s a per paycheck amount.

NOW, if your company has a ROTH 401k, then you don’t get this deduction. You are paying tax on $50,000 and the 401k deduction comes after they take out all that income tax withholding.

Now, the really bad part. You must live with what the company’s brokerage firm offers and I’ve read their prospectus. You really don’t know because it’s usually “types” of investments rather than named stocks or funds. So, if you read my section funds you’ll have a little understanding when they say ‘do you want to invest in LARGE CAPITAL FUNDS or VALUE FUNDS or EQUITY FUNDS.’ Then you get put into a portfolio you have NO control over until you leave the company and roll it over into a personal IRA, provided you stay there long enough to become vested and don’t roll it over during the low point in a recession. You can generally leave your money in the company 401k, it simply won’t get any more contributions from you or the company, but it will get money from the investment holdings. If you are in the middle of a recession, try holding on to that 401k UNLESS the brokerage firm is shaky and on the rocks, then take your losses and roll it over to a better firm! But if the firm is good and they’ll let you keep it sitting there, wait for one, two, three years for the fund to increase and then roll it over to an IRA you control.



This is another alternative and I have 40 years’ experience with it. This is something you must start at age 18 to 28 for the best rates. (You can do it for your children at any age the insurance company allows.) You must also plan in advance. I had $20,000 when I started and that seemed like a lot. It would pay off a house back when houses were $35,000. But by the time I hit 50, it wouldn’t even buy a decent automobile!

A Whole Life Policy is a type of mutual fund. These are written by well-established companies such as Prudential, New York Life, Met Life, and Mutual of Omaha. They are endowment policies, which means when they mature after so many decades you can withdraw money from them or cash them in.

Since you pay for these after taxes you only pay income or capital gains tax on the money they return and you get dividends and interest. Basically, if you start a policy at age 20 by age 60, it is mostly paid and the dividends and interest amount to half the value or more, provided you didn’t borrow against the policy.

Generally, you can borrow at simple interest rates your agent will tell you about. Mine was 4 and 5% which was great in the 1980s, but not terrific today, although 2-3% might be the best you can manage on a loan with a bank today. So, 4-5% isn't all that bad after 40 years with the policy.

If you get a double indemnity clause, it pays twice the face value for accidental death. Without it, it pays face value (less anything you might have borrowed). That makes this a good investment for a family. If the husband or wife dies and you have a $30,000 policy with an accidental double indemnity clause you get $60,000 – generally tax-free (once again, consult a tax expert on this, but insurance payments are typically not taxed). That can help with a temporary expense and even pay off part of a house loan.

NOW, with an IRA, 401k, CD all your dependents get is the money in that account. In the case of a Whole Life (not a Term Life) Annuity even if you only paid on it for 5 years and it only has $1,200 in cash value it pays the face value to your specified dependents upon your death. Making this an interesting part of a portfolio IF you have a family.

And at age 60 or so you can start pulling out $$ from the total cash value. If you take out only payments, the policy will still stay in force and still return interest and dividends on the remaining cash value.

The downside is when you float a loan as I did to do some projects and later pay some medical bills because my credit card payments were 11% interest while the insurance policy was 5% interest. It made better sense to finance that way.

When I cashed out the policy, there was only a few hundred in cash value left, but I got a paper bill for thousands in for the money I borrowed that came from interest and dividends. Since I didn’t itemize those loan interest payments were lost. However, I cashed this in when I was over 65 and had a large deduction on income tax, no other income other than writing and social security, so my tax liability was nil.

You can also cash out your Whole Life policy at any time and collect the entire cash value, less some nominal or mandatory fees (and this is taxed as income). Ask your agent if there are any fees to cash the policy in early. You will have to report all interest and dividends as income on your taxes. They will send you a 1099 or other form by March of the following year.

If you are under 30 a $50,000 whole life policy costs around $30 a month. In 30 years, you have invested $10,000 and dividends and interest could amount to another $10,000 to $30,000 adding to the cash value.

At age 60 you could have $20,000 to $30,000 cash value in a $50,000 insurance policy that would pay $50,000 minus what you withdrew or borrowed on your death. Double if you have an accident with an accidental death rider.

Remember, you want Whole Life, not Term insurance. Term insurance, while cheaper and good for protecting your family from debts, is not an annuity. You can’t cash it in and get what you put in plus interest. Once you put in, it’s gone.


What you will need: A pad of paper and a pen or a computer spreadsheet or a computer notepad. For two weeks, I want you to keep track of stocks and bonds off the internet. All you have to do around eight or nine each night or morning is make a search for the letter code and their site will tell you where the stock is at dollar wise.

I also want you to annotate what goes on in the world. BREXIT for example. Or an announcement the Fed will determine rates this week. Or Japan has just devalued the Yen. Then I want you to see how the stocks and bonds perform. I want you to do this for two to three weeks and it will give you an idea of what your performance will be like in the marketplace. Use this as a basis to pick stocks and funds now or to wait.

I also suggest you keep a nest egg aside for when the next recession comes, and it is coming. Within the next 10 years, we will see a recession. It happens almost like clockwork every eight to twenty years. Once that recession bottoms out, pick a few stocks or funds that you’ve monitored that are now very low in price. Make sure they are not so shaky as to go under. Once they start climbing again, buy in with that nest egg of investment money you have decided to LOSE.

I want you to pick a few stocks and funds. Maybe go by someone’s suggestion. Don’t do more than eight to ten total stocks as these as large quantities will be hard to keep track of.

You should NOT buy any stock that you can’t at least afford to purchase 10 shares because it’s simply not profitable. Also, understand there is a small fee (a few pennies) per share of stock when you go to sell. So, if you have 100 shares it could cost an extra $2 or $3 to sell plus the broker’s fee of $10 for an online, do-it-yourself transaction or $40 with a full-service broker.

Get the picture!?

Now, go, pick some stocks and funds and watch them for two weeks. Better yet, a month. Then decide how much to invest. If you’re young, maybe you want to start three accounts. Two at a broker. One as an IRA, one as a wildcat taxable account. Another with a reputable life insurance company as an annuity while you are still under 30 and in good health, as the premium will not go up, you get to cash out the principal with no taxes and the accumulated dividends and interest with capital gains or income tax charge. You can cash out anytime. It pays face value to a significant other or partner. If you got $20-30 a month free and clear, it’s a good investment as it is a generally sound investment if you go with one of the Mutual companies that have been around for a century or more.

Stock and funds go up and down. An IRA account will not feel the pinch in 20 years unless we have a full-blown depression. Plus, with an IRA, you can sell off funds after 90 days and stocks the next day, provided you have the money to pay the fees. And in an IRA, there is no tax bite unless you withdraw that money. So, a cash fund sitting there doesn’t accumulate interest (my broker is also a bank so I get 0.01% interest quarterly on the cash account) or dividends, but it also isn't taxable until you draw out of it. You can sit and wait for a small recession and use that cash to buy-in stocks and funds at their lowest point in 2 to 12 years!

You do that and you might have a nice nest egg when you hit retirement age.

Just remember the rules: Be ready to lose some money. If you hold on, you might see it break even and go up in value, but you will lose and lose more than once over the years.

Mutual Funds probably won't see a profit in THE FIRST YEAR. These are long term investments that show 2 to 4% after 3 or more years.

Pick and choose carefully. My personal stocks are up 3% because I bought low and kept them, plus they provide dividends. I sold my high earning energy stocks when they topped out and then re-bought them when they hit rock bottom. My mutual funds are now up 13%. I bought when I didn't know anything about the marketplace and I did a pretty good job picking Value and Capital stocks. I expect these funds to continue to grow, barring a recession and I keep wondering (along with other experts) if we will see such a recession before 2020.

At this point my rolled over 401k is now 16.25% higher in my own directed IRA. So, I consider that an accomplishment and this happened during the rocky road of China tinkering with their currency and stock market, oil dropping to $27 a barrel and the Fed raising the rates one time.

I went from a panic attack seeing my retirement account down 8% at one point to being up 3% (while it should be up 8% on that IF day when the Mutual Funds recover).

My final advice to you is to take the advice you get from the advice givers CAREFULLY, especially those come on ones that claim to have made a fortune in 10 days. Most of them want you to buy something, like a book. I’m giving this one away for free. I’m not here to make money off you unless you want to buy my fiction books! Also, I don’t want you to sue me saying you paid me a whole dollar for the book and lost your shirt. Hey, I warned you up front that you were going to lose. I told you about my losses. This book is free. I’m warning you not to follow expert advice. I’m not an expert, so don’t live your life based on what I tell you, do your own research and fact checking!

Enter the market with your head level on your shoulders. Don’t spend money you don’t have to burn. Don’t judge stocks and funds by their name or covers. Don’t follow the lemmings off the cliff. Don’t cry if you lose a little. Invest wisely, sell profitably, buy in when it is as low as you can get it. Wait long enough to see if you bought a stinker, or it’s just a problem with the marketplace.

And all of you, please! Plan for your retirement. An extra ten thousand can help, but you really need to have a quarter million spread along a 401k, IRA, a bank insured CD or Money Market account, stocks, and bonds, if you have a family Whole Life Insurance with a major company.

About the Author

R. John was a columnist with Issues Magazine for five years. R. John has been in print under a variety of pen names since 1967 writing general non-fiction and technical articles.


The Author’s Fiction Works:

Welcome to Tinseltown

A young woman’s journey down the rabbit hole that is Hollywood and Television production.


Available in paperback and eBook for all readers.



Six girls come together to form a pop-rock band, then get more than they bargained for with global success, fame and fortune…

Available in paperback and eBook.


The Author’s Non-Fiction Works:

Investing A Guide for the Novice



Twitter: @RJohnBooks


Investing A Guide For The Novice

This booklet is directed at the person who has never bought or owned a share of stock in their lives. Never invested in a Mutual Fund and has absolutely no idea what the initials EFT means. This booklet is NOT going to tell you how to make a million bucks in one week. That’s virtually impossible to do, but it will give you some instructions that may help you get far better than bank interest on an investment of any size. It covers stocks, mutual funds, IRAs, whole life annuities, brokers, retirement accounts, etc.

  • ISBN: 9781370460113
  • Author: E. R. Dee
  • Published: 2017-09-13 06:35:21
  • Words: 15439
Investing A Guide For The Novice Investing A Guide For The Novice