WHEN GOOD INVESTING GOES BAD
This is the risk of investing on margin. There are specific rules that govern margin accounts that spell out when the brokerage house can sell your securities and when they can ask for their money back because the market price for the security has dropped. If you have the cash to satisfy these margin calls and can pay off your debt with interest to the brokerage house, then you are in the clear. However, if you don’t, then you have to look at liquidating some of your other assets to cover the payment. Like I said, investing on margin is great when the market goes up. You purchase more securities with the money you borrow from the brokerage house, your investment goes up faster because you own more shares, the brokerage firm is mak- ing money off of you in the form of interest, and everyone is happy. However, it’s not so great when the market goes down. Unfortunately, no one knows what the market is going to do, which poses another risk to investing on margin.
There are ways to make money in the stock market, as long as you are patient. The stock market is the best place to try and make money, because it offers many diverse companies (varying in size and sector) in which to invest. And while there will always be stories of those people who made their money in the market very quickly, the major- ity of successful investors are those patient people who employ a buy-and-hold tactic.
This approach is used most widely by mutual fund investors. They research the funds they are interested in, buy them, and then hold onto them throughout the good times and the bad. This is a very good approach to investing, but it does have a downside, too. Buy- and-hold should be applied to those investments and equities that make up the core of your portfolio. Use this approach to building your core and to help provide some stability. Those funds or equities that are a part of this core are rarely traded and should be held for at least a couple of years.
If you chose to employ this strategy for your investments, be sure to research not only the mutual fund you will be using it for, but the manager as well. Although I do tend to look at past performance of a