          Setting up your portfolio 
           
          Now for the final lesson, we will cover your very own blue 
          print for success.  We have now covered repairing your 
          credit, setting up a spending plan, and buying your new 
          home.  Now we will cover your final lesson, your 
          portfolio. 
           
          The most important part of your portfolio is a solid 
          foundation.  Your foundation will consist of good saving 
          habits on your part, well thought-out plans, and low-risk 
          investments.  The first thing you need to do is save and set 
          aside three months of living expenses.  Once you have 
          saved this amount you need to set it aside in a savings 
          account.  This will be your cash reserve.  It will cover any 
          contingency, such as loss of job, serious illness, or 
          disability. 
           
          The next step will be to build your foundation.  There are 
          several ways to do this.  One good choice would be to 
          setup a money market mutual fund.  You could also look 
          into buying US government Series EE bonds.  They are 
          safe, pay a reasonable yield, and are tax-free.  You can 
          purchase these bonds from your local bank or the 
          company where you work may offer a payroll deduction 
          plan for US Series EE bonds.  These bonds are purchased 
          at 50% of their face value and mature to the full value 
          over a period of years.  Another area to investigate for 
          your foundation is certificates of deposit (CDs) at a bank.  
          Also, check into US Treasury Bills. 
           
          Once your foundation is in place, you will be ready to 
          move into low-risk investing.  Following the low-risk 
          investments will be medium-risk investing and if you can 
          do it  and still sleep at night, high-risk investments would 
          be last of all.  High-risk areas are futures, options, venture 
          capital, and speculative commercial land.  Personally, I 
          would recommend that you stay away from high-risk 
          investments until you have a substantial portfolio in place 
          and you have become much more expert in the area of 
          investing. 
           
          Now that you have an understanding of how we are 
          setting up this portfolio we will move to the next step 
          (low- and medium-risk investing).  These areas will consist 
          of index funds, blue chip stocks, conservative stock funds, 
          preferred stocks, convertible bonds, municipal bonds, and 
          convertible bond funds.  I will cover a couple of these 
          areas but I encourage you to look into the others as 
          alternatives.  We will first cover floating rate bonds that 
          will be a low-risk investment.  You can purchase these 
          bonds from full service and discount brokerages.  The 
          good thing about floating rate bonds is that they are 
          periodically adjusted to keep their rates in line with yields 
          of other instruments that in turn helps to keep you current.  
          In other words, periodic bond rate adjustments help 
          protect you from the full impact of inflation.  You will find 
          these bonds listed in national financial newspapers.  They 
          will be listed under the heading "New York Exchange 
          Bonds".  A floating rate bond will have a small letter "t" 
          after the bonds' date of maturity. 
           
          The next area will be in mutual and index funds that are 
          medium-risk investments.  Mutual funds are an excellent 
          tool for investing.  You can open a mutual fund account 
          for as low as $100.  The first thing you need to look at 
          when purchasing a mutual fund is the fund's performance 
          and who manages the fund.  You can pick just about any 
          financial magazine and find nearly all the information you 
          will need on almost any mutual fund.  Make sure you 
          choose a "no load" fund when you choose a fund.  This 
          way, all of your money is working for you right from the 
          start.  "No load" means that you do not pay a sales charge.  
          Why waste your money on a sales charge if you do not 
          have to do it.  As an example, I would probably set up 
          four separate mutual funds for my investing.  First, I 
          would choose a blue chip stock fund; second, I would 
          choose a government bond fund; next, would be an 
          international fund; and last, I would get into a fund that 
          goes after small fast-growing companies.  You might also 
          invest in an S&P 500 index fund.  Index is another way of 
          saying average.  Indexes are used to analyze how a 
          securities market is performing.  S&P 500 means Standard 
          and Poor's 500 composite stock price index.  This index 
          tracks 500 companies traded on the NYSE (New York 
          Stock Exchange), the ASE (American Stock Exchange), 
          and the over the counter market.  Therefore, the index 
          fund is a mutual fund that mirrors the stock market.    The 
          key to building an investment program with mutual funds 
          is to diversify your money over a broad area of funds.  
          This better insure your money's safety.  You can choose 
          your mutual funds in any sequence you wish.  this is just 
          an example of diversification.  The secret to making your 
          mutual funds grow is called compounding.  Basically, all 
          you do is reinvest all of your dividends and capital gains 
          back into your funds.  This allows you to experience a 
          more rapid growth in your investment. 
           
          Once you have established your mutual funds, just 
          remember to invest regularly.  I believe that you should 
          make it a habit to invest at least once a month into each 
          fund. 
           
          Now we have covered your foundation and set-up your 
          low- and medium-risk investments.  Keep in mind that 
          these investments are relatively safe and usually offer only 
          a modest return.  The next step would be stocks that 
          would be in the high-risk category.  These stocks are not 
          nearly as high-risk as options or futures, but you still face 
          the possibility of loosing all of your investment with 
          stocks.  Because of this high danger of loss, I will not lead 
          you into this area.  If you want to go after them, you are 
          on your own.  I will offer the following short primer on 
          the area for those that feel they must invest in an area that 
          offers a greater potential for gains (as well as a much 
          greater potential for losses). 
           
          Preferred Stocks are by far the safest.  They have a 
          guarantied income like bonds, lower prices, and a more 
          active secondary market like stocks.  The best and worst 
          of both worlds.  The lower prices make them an attractive 
          alternative to bonds to some investors. 
           
          Blue Chip Stocks have appreciation and income, are 
          considered safe over a long term and could be a solid base 
          for you portfolio.  Many individuals will probably build 
          nice retirement caches by simply sticking close to these 
          equities. 
           
          Growth Stocks are generally low-yielding.  There 
          attraction is based on future prospects.  Recommended for 
          aggressive investors willing to accept risk. 
           
          Small Company Stocks are from companies with low 
          capitalization and sales figures.  They are often attractive 
          because of their potential for growth.  These stocks are 
          usually strongly influenced by economic and market 
          cycles.  If you have the patience and are willing to take the 
          risk, these stocks can be money makers. 
           
          Futures are speculative investment based on predictions of 
          future movements in commodity or financial markets.  
          There is substantial risk to both your principal and any 
          appreciation as this market is exceedingly volatile.  These 
          are highly leveraged investments which means you could 
          loose more than your initial investment. 
           
          Options are a speculation that ranks very close to ordinary 
          gambling.  You are basically betting that you can guess the 
          future value of an investment vehicle at three or more 
          months into the future.  One advantage of options over 
          futures is that you are only risking your initial investment, 
          not more. 
           
          Well, there you have it, your complete blue print for 
          success.  Everything from rebuilding your credit to 
          purchasing your new home and investment portfolio.  
          After you have everything under control and you are in 
          your new home enjoying the security of your portfolio, 
          you can go back to the real estate area and consider 
          buying some of that real estate as an investment.  Real 
          estate is another excellent investment tool that will now fit 
          just right in your portfolio.  Remember:  Risk is the engine 
          that drives free enterprise.  Capitalism balances risk with 
          reward.  The higher the risk, the greater the potential 
          reward. 
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
            
           
          
