Tuesday, April 27, 2004

Millions of books, websites and financial advisors claim and tout they know how you can make money in the stock market – having read many of these myself and having some experience with portfolios and the stock market – I think anyone who holds a steady job can generate and create wealth to be comfortable and not worry about the daily gyrations of the stock market and what the pundits claim on CNBC. But how would you do it?
There are a few things that anyone can and should follow and over time you will get rich.
Follow these steps as far as possible and preferably accomplish all of these.

•Put the maximum you can and preferably max out your 401K (in 2004 you can put away 13% of your income)
o Follow this asset allocation 30% Bonds, 50% US stocks & 20% International stocks.
o Do not invest more than 10% of you total 401K into your company’s stock.

•Create a savings fund of a minimum 3 months to a maximum of 6 months of expenses – Keep it in a savings or a money market account

•Next put away the most you can into a Roth IRA (in 2004 most people can put away $3000)
o Preferably invest this money in a well diversified no load mutual fund
o If you prefer buying stocks rather than mutual funds then do not buy stocks buy good, solid businesses – for example Pfizer, Proctor & Gamble, GE and many others. (disclosure – I own some GE)

•Live frugally, Live below your means, try and save some more over and above your 401K, Savings fund and Roth IRA and then some more
o Invest this in well diversified no load mutual funds as well.
o If you want to buy stocks – again buy good solid businesses
o We all want to do something exciting and play the market – If you insist on satisfying the gambler in you – go ahead and speculate in risky stocks but only with 10% of the money that you managed to save after funding your 401K, Savings and the Roth.