The Small Investor's Guide   .  .  . New ideas for small investors

How to make money your first (and last) day! 

Here's a little "trick" that you can use to make 2 or 3 percent your very first day whenever you buy a mutual fund via your IRA or 401K. This may not seem very significant, but keep in mind that the average fund only makes about 5 or 6 % over each entire year, after inflation. So how in the world can I make almost half of that the very first day I buy in? And how can I make as much on the day I sell it to buy another?

Timing is everything!

One of the most frustrating things about buying a mutual fund is the fact that, unlike a stock, you have no solid indication of what the price will be when you buy it! The price isn't set until sometime after you place the order! This is particularly annoying when you have an IRA or 401k that is restricted to only mutual funds! Well, through some buried-deep information that is now available to every investor, you can greatly increase your odds of buying low and selling high.

The trick is based on the fact that the stock market typically continues the trends that it has set over the first six hours of operation. The markets open at 9:30 AM Eastern time, and close at 4:00 PM. Generally, you have to put in any order for a mutual fund buy or sell at around 3:30 PM -- well before the market close. As long as there isn't a dramatic shift in direction, you can make an informed decision of whether you should place that order, or wait for another day.  

Buy today, sell today, or wait for another day??? 

Here's how you'll know whether to buy/sell or wait. The problem is that your mutual fund may not be tracking the overall market very well. In fact, the more specialized your target fund, the less likely that it will track the broad indexes. So, here's the trick. You can get everything you need from Yahoo Finance (finance.yahoo.com). Look up your intended mutual fund quote. On the left side of the page, click on Holdings. For this example, I've linked it to the holdings for the BGEIX Global Gold mutual fund, one of my darling mutual funds for the past six months.

Here, you'll see the performance of the top stocks that mutual fund represents. The total percentage of this mutual fund held in these 10 stocks is a strong indicator of how closely it will track the stocks themselves. While you don't know the actual future price of the mutual fund, you can view the current price of its major components! Just click at the bottom of the list, where it says, Get Quotes for Top 10 Holdings.  If these stocks are tanking, it's an ideal day to buy. If they are climbing, a great day to sell. If not, just wait and do the trade on a more "active" day.

Why throw away this opportunity!

While hardly revolutionary, this is an extremely easy way to make significantly more each time you buy or sell a mutual fund. I'm certainly not advocating day-trading of mutual funds. Most have to be held at least 30 days, and often 90 days (sometimes even more!) before they can be sold without penalty. Be sure you know these times, and what the possible penalties are, before you buy or sell. 

But any time you've decided to trade, make certain you use this trick, if possible, to optimize your mutual fund's gain on the buy and on the sale. By the way, this technique also works extremely well for broad index funds that are not composed of just a few stocks. Just watch the index instead of looking at components. And never buy or sell before 3:30 PM. The market is much more likely to reverse and cost you big money. Why not use all the information readily at your disposal!

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