Rules for Investing.

After about two and a half months of ravenously researching stocks and picking a few from each sector, I've come up with the stock that will stay with me until retirement. IBM. Right now the market is taking a dive due to the tragic natural disasters that hit Japan, and IBM is about as low of an entry point as I'm going to see for awhile. So, I sold all mutual funds and deposited my tax return, giving me some extra cash to invest (I'll need it to, IBM is roughly 160 a share)

Like a giant robot baby that breaths fire, I'm looking to be an emotionless machine that sticks to a set of predetermined "rules". Also, I may have to have the occasional outburst of pure fire-breathing baby rage when things don't go my way. With that in mind, I have come up with an overall set of rules when investing.

1. OPEN AN ONLINE TRADING ACCOUNT / FORGET THE STOCK BROKER

Broker's are only looking out for themselves. They get paid on commissions when you buy and sell, not on a percentage of your gains. They often try to sell you into a stocks their companies underwrite as they pay higher commissions. Online accounts give you control over the price you pay for a stock and the price you sell the stock at. There are many beneits of an online trading account including tools to help you select investments.

2. PULL YOUR MONEY OUT OF MUTUAL FUNDS

Mutual funds historically have had the lowest rates of returns. Also, company managed 401ks are nearly as bad because many of them invest in mutual funds. Diversify your money into stocks, bonds, exchange traded funds and cash. Diversification is by far the best way to guarantee a good return.

3. RESEARCH AND RESEARCH SOME MORE

Along with the tools provided by your online brokerage house, there is a vast amount of websites and free e-newsletters worth using for ideas, advice, and just to keep up on what is happening in the market. Don't go out and buy Company A because some newletter states they will be the next big thing. Research it. Find other stocks for other companies that do similar things, find the under-valued ones, the ones that haven't caught the attention of the 'pump and dumpers'. Two good sites are: http://www.fool.com and http://www.stockgumshoe.com.

5. BUY/SELL WITH A PLAN, NOT EMOTION

Just as in real life, emotion has no place in trading. Make predetermined points of selling and buying when getting into a stock, such as with stop-losses. Stop-losses are a way to sell a stock if it hits a pre-determined price. You can enter stop-loss' orders on most on-line trading accounts. These will protect you in most instances if a stock price starts to drop and you are not setting at your computer to enter a sell order.

Having a plan for your entire portfolio is also best. Figure out some sort of target asset allocation model. For example, through the help of my online brokerage account, I determined that I wanted to set up an aggressive model. This let me to come up with a simple pie-chart dividing up my investments at: 50% Large Cap, 25% International, 20% Small Cap, and 5% Cash. It's much easier to do than it might sound at first.

Let your winners run and sell your loosers with minimal loss (like no more than 10%-12%). If your winners hit a wall and you notice the stock price hardly moving, move the money into something else.