Assumed that you have had your stock portfolio for one year: a. If one of your s

Question

Assumed that you have had your stock portfolio for one year: a. If one of your stocks is paying a dividend of $0.50 per share quarterly what is the current income from your portfolio? b. Now calculate total return on your portfolio. c. If the estimate growth rate for next year of your portfolio went up by 10%, what would happen to your PEG ratio? d. What is the major reason for placing a stop loss order on a stock that you own? e. Which of your stocks has the best chance of increasing in value and cite a reason.

Explanation / Answer

Years ago, we had our investments handled by a financial adviser at a bank, one which had held our finances for years. Because of this, we felt rather comfortable, even trusting about that...perhaps overly so. Our investments were on automatic hold and they did well for quite some time. Then some sudden and questionable fees were charged to our account, all done without notifying us first. Although we asked, no paperwork was ever produced to prove that we had been notified of this change. This motivated us to hire a lawyer and get legal advice. The result? Thanks to timely help, we got the lion's share of our money back, leading us to assume that perhaps the investment people felt it was fair to give it back to us. I have all the paperwork from that period and I occasionally revisit it when I feel shaky about managing our finances. We've done better than ever since getting involved in what I like to call DIY or Do it Yourself Investing. We still use financial experts but we they are consultants now and don't make decisions without checking with us first - and we always know the fees we are paying. The lesson: since that one unfortunate experience, my husband and I manage our own stock portfolio. I want to be clear what I mean by that. We do our research, seek out professional financial advice and don't assume that we are experts. However, thus far, we have yet to charge ourselves thousands of dollars in fees a year, although we occasionally treat ourselves to a nice dinner out, if our portfolio is doing well. We have met our long range and short term goals thus far and we haven't tossed thousands of dollars to someone in fees, especially someone who wasn't making any money for us. Perhaps you'd like to try your hand at managing your own stocks. If so, you might be interested in some information I've learned while handing our stock portfolio and investments. For the purposes of this article, I am not going to try and suggest which stocks should be a part of your stock portfolio. I do not consider myself a certified financial planner or a stock expert. I'd strongly advise any new or even experienced investors to learn the basics of research and how to invest in stocks and continually seek out new information as the economy changes. However, I can note that we have used the tips here to build a profitable stock portfolio, one that could well provide us with the financial security to get through retirement. Wondering about what goes into a stock or investment portfolio ? It contains a collection of investments, whether in individual stocks or mutual funds, that are owned by you (perhaps along with your spouse or other person). Even if you decide that you don't want to manage your own stock portfolio, perhaps by reading this article you will at least know if someone else is doing a decent job at managing your money. If not, consider taking on the role yourself and yes...even try to manage your own stock portfolio. Please don't make the mistake we did and assume that any so-called expert is above reproach or human error or weakness! Here are the steps we took to manage our own stock portfolio: Step one: in order to manage a stock portfolio yourself, start with your own individual situation That has to be a key step. Why? Because every situation is highly unique. Our stock portfolio is targeted for a couple with children, middle class, getting closer to retirement age. If you are young, single and just starting out, you have more time on your side to learn and make mistakes and possibly recoup your money. I don't happen to believe there is any investment or stock management plan that fits all people, no "one size fits all" investment strategy. Your age, your job situation and your tolerance for risk can all affect the choices you make as you try to manage your own stock portfolio. Also, if you have any special needs, whether medical challenges or diseases - or you are simply trying to leave money for a handicapped child, of course you'll want to keep those variables in mind as you plan your stock portfolio. If you expect to get Social Security, you'll want to include that in your planning. Bottom line: be honest with yourself and don't try to take huge risks if it will leave your stomach churning at night, tossing and turning with worry. Be clear about your own comfort level when it comes to investment risk, market volatility and your own lifestyle. Step two: think about how your employment situation affects the way you might manage your stock portfolio If you are self- employed, you may not have a company stock plan or the option of investing with a company match. If you are employed by a company, however, you might have that option. If you aren't familiar with the words company match, this basically means that every time you put a certain amount of money into investment plans, mutual funds, company stock or other investment vehicles approved by your company, your employer will match a percentage of your contributions (up to a set percentage or amount in many cases). As an example, let's say your company matches 10% of everything you contribute to an investment plan. That is like getting that 10% of your contributions free, an automatic bonus. Of course, the stock portfolio or investments could still go up and down in value. But the percentage contributed by your employer won't have been provided by you. It is bonus money, whether it goes up in value or not. It is like gambling with someone else's dollars. Can you still lose? Absolutely. But it might not sting quite as much, at least for that portion of money you didn't contribute yourself. Bottom line: find out if you have a company match for any money you intend to manage in your stock portfolio. My personal preference is to have an automatic amount of money go into company plans that include a company match because of the free or bonus money that automatically gets added along with our contributions. Step three: do your research as you begin to manage your own stock portfolio While an extremely detailed tutorial on researching and picking the right stock mix is beyond the scope of this article, some basic questions can help you help yourself to make solid financial choices and up your chances of good investment returns. At the very least, find out how each stock has performed historically, the average rate of return, whether the stock is taxable or not, if it has kept pace or done better than the S & P 500 over the years and any information about annual dividends. Many online companies such as Fidelity, Morningstar and Vanguard have helpful tools to provide information about the benefits of investing. Bottom line - start doing your research before you jump into stock portfolio management programs that you handle yourself. Step four: if you feel afraid, shore up your courage by learning the benefits of starting early and compounding. Although you can find similar models of this little exercise at many online sites, I've always found the one by Vanguard, located here: personal.vanguard.com/us/content/SiteWide/FlashPgs/SWFlshPwrOfCompContent.jsp to be extremely helpful. I've shown it to my children and their eyes always widen in surprise (as mine did, the first time I saw an example like this). Basically, this nifty online program illustrates the advantages of saving and investing early. According to the information there, if one person starts saving money at age 25 and manages to save $2000 a year with an average return of 8% and then stops investing at age 35, that person could well outperform a person who starts investing at age 35 and continues to invest till he or she reaches age 65, putting that same $2000 into the account each year, getting the same 8% return. Who comes out ahead? According to the online model, the person who started at age 35 and stopped investing at age 35 would end up making over $314,000 - compared to the $244,000 plus that the other investor gets, even if that other investor saves for more years than the person who started earlier. Amazing!

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