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Two Ways To Buy Stocks

Posted on | May 14, 2011 | Comments Off

Most people think there are two ways to buy stocks, and they are the extremes.  These ways are by being a day trader or by buying investing a set amount of money every month no matter what (similar to a 401(k) plan).  I totally dismiss this idea.

In my view, the two ways to buy stocks are as follows:

  1. To regularly invest a set amount of money (I usually use DRIP plans) each month
  2. To every once in a while buy more shares when attractive opportunities arise

Combining these two methods should result in an excellent long-term portfolio and excellent long-term returns.

How do you do this?  Well, the steps are as follows:

  1. First, you have to select the stocks you want to own (we will help you with that)
  2. Second, you should start up some DRIP plans where you will auto-deduct money from your checking account into DRIP plans that buy shares of the companies you want.  This is your foundation.  You don’t want to max out your contributions, because you should also been pooling cash on a regular basis for future opportunities that you’ll want to take advantage of.
  3. Then, when there are major market corrections or your favorite stocks are trading down for some reason (as long as it’s not a long-term fundamental change in the company), you can use the excess cash you’ve been building to buy more shares at lower prices and higher dividend yields.

It’s a simple plan, and it’s intended to be.  Most people make investing overly complicated and try to do too much.  Focus on a few quality companies, get to know them, and build positions over time with the above method.

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