The Best Way to Invest

If you are like most people with a 401k through your job, you have no idea what it is, what it does, and why it does it. Nonetheless, you have an enduring hope that when you look at it when you are ready to retire, it will have enough money in it that you can quit working for a living and start golfing and fishing instead. Of course there is social security too, but do you really want to rely on the government to send you a check. They may just decide that it is too expensive and reduce benefits or eliminate it altogether.

That means you ought to know something about investing, and that starts with the investing you are doing. Chances are you were automatically enrolled in a 'balanced' type fund, which is fine if you are older and risk is something you need to limit. On the other hand, if you are young, a balanced fund, historically at least, will not do as well over the long haul as others. In any case, mutual funds are always a collection of hundreds or even thousands of investments that include stocks, bonds, precious metals, international equities, etc. So if you do have a 401k, great, but know what you are investing in.

Investing through your work is a good idea, especially if there is a match, but you ought to invest on your own too. The reason is that you can make quite a bit of money, and its not really that hard, it just requires a little time and effort. First though, you have to be dedicated because inevitably, you will get worried and think you made a bad decision. But, if you stick to the "program" you will succeed.

It goes like this, buy low and sell high. I know, you've heard it before, but there is a reason it has become a saying. That's because it works and it is the best way to invest. The problem is doing it, because if you knew how, you'd already be rich. It's not that tough, you just have to know how to determine what low and high mean.

First of all, buying low and selling high is only effective if you trade large companies. By large I mean companies whose stock trades at least $1M worth of shares a day. This may sound like a lot, but it really isn't comparatively that much, but if you stick to companies of this size, you won't have to deal with problems of finding buyers or sellers, so you can buy or sell whenever necessary.

Second is to look at a chart of the company over the last year. If it is at a point that is pretty low for the year, then you may have a winner. For instance, if the high for the year is $50 and the low is $40 and it is at $41, then it may be a good buy. But that also means that a high would be about $46. In other words, when it gets to $46, which it is likely to do in the next year or less, then it is time to sell. A smarter option though is to set a stop loss of $46 (after it gets to $46 that is). That means it will sell if it falls to $46, but if it keeps going up, you can keep increasing your stop loss. That way, you can't lose because you will at least sell for $46, but you may be able to follow it much higher and make even more money.

Now the real secret to this strategy is cutting your losses. That means if your stock ends up going down even further, you buy more of it. After all, if $46 was a great price, the $43 is even better, right? So it turns out that if you keep investing when the price goes down, when it does go back up, you can sell it for less than you first bought it and still make a profit. Don't put all your eggs in one basket though. You should be using this strategy with at least a half dozen stocks at a time.

Like I said before, this is the best way to invest, but it only works if you stick to it and never give up. Only use money you can afford to lose though because otherwise you may have to sell before you've made money to pay bills or something. Buy and hold, keep buying if it goes down, and pretty soon, that 401k won't look so hot!