Growing Your Investments
by Building an Investment Portfolio
How to make your investments grow?
Buy investments that are in line with your objectives
Stick to your goal
Don’t make reactive decisions, make proactive ones
Add extra money to the investment
Where can I buy investments?
Brokerage Firm- Facilitates and processes purchases and sales of financial securities. Depending on what type of security you want to buy will determine what brokerage you want, so it would be good to research them. Your bank also may offer investment accounts. Here are some brokerages we recommend for multiple types of securities:
Account Types
Brokerage (Standard)
This is a regular investment account where you will have freedom to choose from any investment the broker offers.
You can open an individual account, joint, or both.
Educational
529 College Savings
These accounts have tax advantages, but also have limitations in what type of investments and the money can only be used for certain educational institutions.
Retirement
These accounts have tax advantages, but also have limitations on the types of investments and the money can only come out of the account at designated retirement age by the government.
Individual Retirement Accounts (IRA)
Traditional IRA- The money you put into the account would be exempt from your taxes (if you made the money that year), but would be taxed when you take the money out for retirement
Roth IRA- Money put into the account is all taxed, but when you take the money out for retirement it’s not taxed.
Workplace Retirement Plan
The place you work at may offer a retirement account and would be better to use over an IRA in most situations. So inquire your workplace.
Finding Investments
Your Brokerage will have screeners for different types of investments. You can also use another company’s screener. A screener finds investments based off criteria you set. Below are good criteria to use in a screener (you might not need to us all of them):
Stock Screener
Price > $10 (Usually companies under $10/share are small and very risky).
Size: Generally defined by the Market Cap. Small-Cap: $300M-$2B. Mid-Cap: $2B-$10B. Large-Cap: $10B-$100B. Large companies are less risky, but there is less opportunity for growth.
Dividend: If interested in dividends look for a high yield (over 2%). Dividends are payments from the company to its shareholders. To calculate the amount of money you would receive from the dividend multiply the dividend yield by the total dollar investment in that company.
Growth: Price Growth > 10%/year over the last 5 years.
Risk: Beta (over 1.0 means the stock is more volatile than the market, less than 1.0 is vice versa, and a negative beta means the stock performs opposite to the market). The higher institutional ownership usually means the less risky also.
Management Efficiency: Return on Equity (ROE) > 10%/year. ROE
Financials: You will want to see if the number is better than the industry average. Here are some numbers you could look at to know if the company’s financials are good: current ratio, debt to equity, asset turnover, working capital, etc.
Fund Screener
Performance > 10%/year over last 10 years
Cost:
No Transaction Fee: Simply means there is no extra fee on the purchase.
Expense Ratio < 1. If you notice that you have a high r-squared (closer to 100%), then make sure your expense ratio is low.
Turnover Ratio: The smaller the rate the lower the taxes.
Minimum Initial Investment: Just make sure you can afford the minimum initial investment.
Risk:
Less Risky = Lower Beta and standard deviation (σ), but a higher Sharpe ratio.
A higher top ten (or top five) investment percentage the more volatile the fund.
Composition:
Small Growth vs. Large Value vs. Mid Core. This gives a good idea of what type of securities the fund invests in. For more info click this link: MorningStar
Net assets give you an idea of how many people invest in the fund. Net asset growth would help you see if the fund is on an upward trend (positive growth %) or a negative trend (negative growth %).
Morningstar Rating = 5 Stars
Manager Tenure >= 10 Years
Screen for your Investment Objectives (the above suggestions may not apply)
Picking Investments
Compare the good investments you found and pick the best ones. The best ones lineup with your investment objectives. The below icons are google sheets that can help you with choosing between different investments (Click file, then make a copy to transfer to your own drive):
Stocks Vs. Funds
Stocks
- More Volatile
- Buy and Sell quicker
- No minimum holding period
- No minimum initial deposit nor minimum balance
Funds
- Less Volatile
- Diversifies portfolio immediately with one purchase
- Withdraw any amount of money (above minimum balance), instead of a specific number of shares
Referral Benefit Program
Stocks
Again, this company only allows stock, ETF, and cryptocurrency trading.
Funds, Stocks, and More
The link will take you to the contact page. Please enter your first and last name and TDAmeritrade as a subject and we will get back to you within a week.
S&P 500 Index
The S&P 500 Index is the most reliable long-term index. The stocks in the index consist of the top 500 U.S. companies. The S&P 500 is the best indicator of how the top 500 U.S. companies are doing.
25% chance that the year you start investing will have a negative return
59% chance that the year afterward will be positive
99% chance that in one year you will regain all your money
97% chance that in three years you will gain all your money after a consecutive 2-year loss
The S&P 500 has produced an average of 10% per year since its inception
Investment Templates
