Easy technique for buying low and selling high
- Alan Lavine and Gail Liberman
Constant dollar investing may be one of the easiest ways to take the guess work out of buying an investment low and selling high.
Here's how it works, assuming you can invest a few thousand dollars in stocks, bonds and/or mutual funds.
Every year, determine how much you want in your particular investment. Then, after each year, take any excess amounts over that threshold and deposit them into a money market mutual fund or cash account. If you have less than that threshold, add to your investment from your money fund or cash account.
Say you aim to have $1,000 invested in a stock mutual fund. At the end of the year, you have $1,100 in the stock fund. In that case, you'd take $100 of that amount and deposit it into a money fund.
On the other hand, if the value of your stock fund at the end of the year dropped to $900, you would move $100 out of your money fund and deposit it into your stock fund.
You can use this technique with bonds instead of money funds. Typically during periods when stocks decline, bonds and bond mutual funds increase in value if you need to sell them. You should get better performance from using stocks and bonds.
Nevertheless, this is a more risky tactic than using stocks and a cash or money fund account.
Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.
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