NEW YORK (CNN/Money) -
I've been receiving lots of questions about the market outlook and specific investing issues. I'll answer some of them here or in my new newsletter (see below) each week.
Here's a sampling of what readers are asking now:
Question: Why do I need to buy stocks individually? I'm more comfortable with mutual funds (despite the recent scandals).
Answer: If you're able to do nothing else, select an S&P 500 index fund at a major no-load company and add money to it at regular intervals -- every month or every quarter. Of course, you won't beat the market, but you won't lag it either.
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I believe you can do even better, however, without incurring high fees or taking excessive risk. If you buy large, established blue chips in a diverse group of industries, you'll enjoy all the advantages of an index fund.
You won't incur annual fees, and you'll be able to time your tax liabilities. (Whereas many mutual funds distribute taxable gains each year, investors who own individual stocks don't incur any tax liabilities until they sell.)
In addition, I believe that through careful, value-conscious stock selection, you can get an edge on the market. And because of long-term compounding, even small advantages add up to significantly higher profits over time.
Question: What about momentum investing? Should I consider buying the top stock or stocks from the past year, since it is likely that they'll continue to go up?
Answer: It's not a strategy that I would recommend. And you may take on greater risk in your hope of higher returns.
If you want proof that the momentum approach ends up being self-defeating, then consider this: If you'd bought the stock on the New York Stock Exchange with the highest P/E in each of the past 20 years and averaged their returns, you would have earned less than one-third the return of the S&P 500.
Successful investing is not a sprint. It's a long-distance race.
Question: What are some the criteria you consider when looking for your Sivy 70 stocks?
Answer: I look for the characteristics defining great growth stocks. Size is certainly part of it, and almost all of the stocks on my Sivy 70 list have market capitalizations and total revenues that top $5 billion a year.
I also look for diverse product lines and dominant positions in their industries.
I look for companies that seem capable of returning a steady 11 percent to 12 percent a year through a combination of earnings gains and yield. And diversification is always the first rule in building a balanced portfolio.
Michael Sivy is an editor-at-large for Money magazine. Sign up for free e-mail delivery of Sivy on Stocks every Tuesday and Thursday.
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