These five steps for maximizing your portfolio returns are all excerpted from my new book, The Little Book That Makes You Rich–which SFO Magazine rated one of the Top 10 Investing and Trading Books of 2007. This Little Book is packed with investing information to help get richer–no matter what the market has in store!
Step #1: Steer clear of index funds, stick with stocks.
This may seem like a no-brainer to many of you, yet an overwhelming number of investors still choose to put their money in index funds rather than stocks. Index funds are fine if you simply want to keep pace with the market. But make no mistake, it’s NOT the way to bigger, better profits in 2008. Look at this example:
Investor A who invested $100,000 in the S&P 500 in 2007 made $3,500, while Investor B who invested the same amount in JUST the stocks on my Blue Chip Growth buy list–stocks like Apple (AAPL) and America Movil (AMX)–made $20,000.
If Investor A follows this step for the next 12 months, he too, could pocket up to five times more money than in an index fund! Not a bad start to bigger, better profits, don’t you say?
Step #2: Invest in A-Grade stocks
While there are over 5,000 stocks on Wall Street, only about 3% are what I call A-Grade stocks. A-Grade stocks are the crème de la crème of all stocks–those that will deliver maximum returns in the current market. Investing in these types of stocks will undoubtedly give you a market-beating edge. In fact, if you had been investing in only A-Grade stocks since 1998, you’d have outpaced the S&P 500 10-to-1!
To find A-Grade stocks, I recommend examining eight specific fundamental characteristics of any company–positive earnings revisions, positive earnings surprises, increasing sales growth, expanding operating margins, strong cash flow, earnings growth, positive earnings revisions and high return on equity. Experienced investors will be able to take this checklist and hit the ground running–finding market-beating growth stocks in no time.
But if you’re more of a novice investor OR perhaps you’re simply looking for more instant gratification in your stock-hunting, I invite you to try my online stock-rating tool, PortfolioGrader Pro, FREE. Simply sign up now and you’ll have lifetime access absolutely free, no strings attached!
PortfolioGrader rates stocks on all eight of the fundamental criteria mentioned above just like a school report card: A’s are the best grades and are recommended buys, while F’s are the worst grades and are recommended sells. This tool makes it as easy as A-B-C to invest in A-Grade stocks.
>
Step #3: Don’t get emotionally attached to stocks
If you’ve ever seen the movie, A League of Their Own, Tom Hanks has a great line, “There’s no crying in baseball!” I often think of that line when I explain to investors that emotion has no place in investing. One of the worst things you can do is to become too attached to your stocks.
Get too attached to a bad stock, and you’ll ride it into the ground as you watch your profits melt away. Get too attached to a good stock, and you can get too greedy and become over-weighted putting all of your eggs in one basket.
You have to have the discipline to know when to sell your stocks. That’s why I’m a numbers guy and recommend my disciplined stock-rating tool to investors. Stick to Step #2 and stay close to A-Grade stocks, while steering clear of F-Grade stocks–no ifs, ands or buts. It’s essential to maintaining portfolio growth.
Step #4: Use a Zig-Zag approach when assembling your portfolio
Remember the tech crash of 2000? Anyone with all his or her money in tech stocks got crushed. To avoid this, and more importantly, to keep your portfolio making money no matter what happens on Wall Street, you absolutely must diversify.
There are plenty of A-Grade stocks across various industries, various market-caps and in various countries, so there’s simply no excuse for not following a Zig-Zag approach.
What do I mean by Zig-Zag? Well, when one sector zigs, another may zag. You want a portfolio that contains stocks that will balance each other. Should one sector slow, the other will accelerate, thus balancing your portfolio and keeping it full steam ahead.
The market isn’t going to become any more predictable in 2008. Maintain a Zig-Zag approach when you invest, and you’ll stay ahead of Wall Street. (If you’re interested in learning more, I detail the Zig-Zag approach in Chapter 12 of my book, The Little Book That Makes You Rich.)
>
Step #5: Strive to be tax-efficient!
I can’t tell you how important following this particular resolution is to your bottom line. I’ve seen tragedy unfold time and time again by folks who buy and sell without any regard to Uncle Sam’s share of the profits.
You can lose thousands of dollars a year if you’re not mindful of taxes. Worst of all, if you’re not diligent, the more successful you are in selling stocks for profits, the more profits you’ll have to turn over to Uncle Sam!
Here’s what you need to know in a nutshell. If you hold a stock for over 12 months in a non-tax deferred account, you typically get taxed at just 15%. BUT, if you hold that stock for less than 12 months, that rate more than doubles to 35%! That’s money taken right out of your pocket and never to be seen again.
So what can you do? Well, you can trade in a tax-deferred account, like an IRA. Or you can aim to hold on to your winning stocks for at least 12 months. My PortfolioGrader Pro tool can help you keep a close pulse on your stocks.
You see, all of the stocks I buy are at point-of-purchase A-Grade stocks. But in my tax efficient newsletter services like Blue Chip Growth and Emerging Growth, I aim to hold stocks for over a year. Over time A-Grade stocks often dip to B-Grade stocks, which is fine, sometimes even the best stocks need to take a breather. As long as the stock is holding up well, it’s more efficient for us to hold a stock and save on the taxes, than cut it loose prematurely and take a hit from Uncle Sam.
The Bottom line:
The key to benefiting from these 5 steps is following through and taking action on each. So keep in mind, PortfolioGrader Pro is a great resource (and a free one) to help you tackle these 5 steps. And my new book The Little Book That Makes You Rich is a handy little book (no pun intended) to arm you with more detailed how-to’s to help you get richer, quicker in the year ahead.
No matter what, if you take these five simple steps to heart–and more importantly, if you act on them–you’ll be on track to make yourself more money in the months to come. Happy investing!
At Blue Chip Growth, we stake our reputation on every investment we make and will return your money if we fail to meet your expectations. Our goal is to hand our readers 35% to 50% gains every 12 months. It’s a vow I’ve kept for more than two decades. When the numbers say to sell, we’ll do it quickly-profit or loss. We never fall in love with stocks nor do we stick with losers. This is how we’ve beaten the S&P 500 3-to-1 over the past 10 years. With nearly 80% of our current holdings winners, and our average gain 46%, we’re clearly well on our way to meet our 2008 annual goal, proving again that our investment in research continues to pay off for our readers! Sign up today for your risk-free trial subscription!
