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Ask SunFyre: "If I only had $250 to invest, were should I start, and is it even worth it?"

Our very first Ask SunFyre Anything question comes to us from FerdiFred... "If I only had $250 to invest, were should I start, and is it even worth it?"

Investing is definitely worth it. Whether you have $250 or $250,000, the same rules apply. I started investing when I had $2000, and I only invested half of it, nine years ago. Today I have substantial assets by following a few simple rules that I created for myself.

RULE #1 -- Never invest money you can't afford to lose. While investing is certainly less risky than lottery tickets or online poker, it is possible to lose your money. It is possible to lose ALL your money. Don't invest any money you absolutely can't afford to lose.

Invest in what you know. I know a lot about technology, therefore the first two stocks I bought were Apple Computer and Unisys. At the time both were extraordinary investments, and I took my initial investment of $2000 and doubled it in a short period of time.

Decide if you're investing for long term or short term.

Long-term investments require patience and courage. When the stock market goes down, by more. Don't think about the money you're losing, think about the future money you will be making. Remember you only actually lose money if you sell.

If you're investing for the short-term, set very precise goals and execute. I have a small amount of money, about 10% of my assets, in what I call my "play money" account. I invest in stocks that I expected change rapidly, I get in, and get out with very precise numbers in mind. Typically if the stock goes up by 20% or down by 20% I get out.

One of my first investments was in WorldCom shortly after they bought MCI. One of my best friends also bought the stock. I sold my stock after WorldCom had made about 25% in only about six weeks. I took my profits and was happy. My friend ridiculed me because his portfolio went from $90,000 to $225,000 in approximately 2 years, mostly because he kept buying WorldCom and another highflying stock. In 16 weeks his portfolio was virtually gone after WorldCom went bankrupt.

I only buy stocks that I can afford to buy 100 shares. If I have $10,000 to invest, that means I'm only looking at stocks below $100. If I have less money to invest, I'm only looking at stocks in my price range. If you follow this rule with your $250, you should be looking at very inexpensive stocks. The benefit of this is if the stock moves slightly, it amplifies the movement by 100%. Be very cautious, however when looking at inexpensive stocks. Generally they are inexpensive for a reason. If it's a stock that has split multiple times, that could be a very good sign. If it's a stock that was very high but is dropped to bottom dollar, it may be on its last legs.

Final rule... keep feeding your portfolio. If you take a flat amount of money and invest it once, if the stock market goes stale you have to buy and sell to continue to make profits. If this happens, you're more likely to create losses by being forced to sell when things are slow. (Ask yourself why 75% of "professional" mutual fund managers don't beat the S&P 500.) If you constantly put a little bit of money away out of your regular income and invested at regular intervals, you can leave your stocks alone when they are flat because you always have a little bit of money to invest. When stocks are flat and the market is down, this is typically a great time to be buying and a horrible time to be selling. If you contribute a little bit each month out of your income, you can buy without selling during these times.

Definitely invest... if you can afford to lose.

Last but not least, the best investment is in yourself. Take that $250 and invest in a college course to learn a new skill and you could get far more than your stock market portfolio would ever produce. However, if you want to learn to invest in the stock market, $250 is a good price to pay.


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