FIVE PRINCIPLES OF INVESTING

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Because there are so many variables in the stock market, we think there are a few guidelines that every investor should follow:

1. Determine your risk tolerance.
2. Diversify your holdings
3. Lower your costs
4. Invest consistently
5. Manage your taxes

Let’s take a look at these principles one by one...

1. Risk Tolerance: What’s yours? Our portFolio Wizard can help you determine your risk tolerance, based on your investment profile. Try it now.

This is what the Wizard shows for a medium-term, conservative investor:

MEDIUM-TERM CONSERVATIVE PROFILE. You are setting aside money that you will need in "4 to 8 years." You do not want to accept great risk that the value of your investment will drop significantly. In general, you prefer investments that do not swing wildly in value, even if that lowers your chances of making large speculative profits.
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How to invest?
Investors with your goals should allocate their money among different types of investments with different levels of risk. Given your profile, you might consider investing like this:

(Insert Pie Chart)

Investment Categories % of Assets
Closed-end Bonds Funds 55.00%
US Securities: Large-Cap 25.00%
US Securities: Small / Mid-Cap 5.00%
REITs / International Securities 10.00%
Cash 5.00%


2. Diversify: With your risk tolerance in mind, now it’s time to choose the securities you want to go into your portFolio.

Spread your risk! There is simply NO better way to do this than with Folio investing. Unless your name is Warren Buffett, you probably aren’t the best at picking just a few winning stocks. Would you know how to pick the next Microsoft?

You can, and must, diversify your portfolio... and still be able to expect reasonable long-term returns.

With Folio investing, you can put up to 50 securities in one portFolio. This is instant diversification (And you do it all, with the click of a mouse.)

You choose the ones you want, from 5,500 securities and from our Ready-to-Go Folios (RTGs). The choice is yours. The vehicle is a portFolio.

In the bull market of 1999, the S&P 500 Index returned more than 20%. But, at the same time, over 25% of all stocks in the index lost more than 20% of their value.

The lesson? If you had only invested your money in the declining stocks, this bull would have trampled you. So, all smart investors diversify.

What about sector investing? If you believe a few biotech companies show enormous profit potential, you could buy them and hope that you picked the right ones. Or, you could diversify... and intelligently expect that the long-term winning stocks will offset the effects from the losing ones. (You’ll find industry and sector specific stocks in our Ready-to-Go portFolios).

All in all, experts agree that the best way to hedge against the market is through diversification. However, even that can’t totally eliminate the risk that the entire stock market will experience sharp, sudden drops.

Purchasing portfolios from Folio investing, with at least 20 or more diverse stocks, is much better than trying to pick a few, individual stocks.

Folio investing is for the long-term investor. This is not the place for day traders or those who want to time the market to the minute or the hour.

3. Lower Your Costs:
Since investing is about making your money grow, it makes sense to find investment vehicles that will allow you to keep more of your own money. The more you have to pay in trading costs, fees and commissions... the less your returns will be.

When you use portFolios for your investing, you don’t pay exorbitant trading costs, as you would if you bought and sold your stocks one at a time . to try to build and maintain a diversified portfolio. Nor do you pay high fees and commissions, as you would with mutual funds that take an enormous bite from your returns.

With Folio Investing’s portFolios, you can choose up to 50 diversified securities that you want to go in your portfolio... all for a low monthly fee. No hidden charges. No surprises.

For only $19.95 per month, you get more than enough trades (200 per month). And we’ve made it easy for you to create and manage your portfolio, using our online tools.

Be sure to compare the costs at brokerage firms and at mutual fund companies. Then decide if Folio investing makes sense for you. If you’re a long-term investor, who understands the importance of diversification and you’re someone who wants to keep more of your own money... we think you’ll choose us.

4. Invest /Consistently:
Every investor knows that the more money you have in your account, the more that money will grow. So it makes sense to add more money and buy more securities on a regular basis.

This kind of consistent investing will help you create a disciplined, long-term investing program. And we’ve made it easy for you to do just that. Because you only pay a flat fee per month, you don’t have to worry about how much all this will cost.

With our commission-free window trades, you don’t pay anything extra when you buy securities for your portfolio on a regular basis. And we make it so easy for you, with electronic funds transfers (EFTs), direct deposits and our automatic buy/sell tool.

Let's take a quick look at 3 ways to invest consistently and easily:

EFTs:
We set up a link between your bank or investment account to us, which takes about 10 days. You can also set up a link from as many different banks or investment firms as you want.

Each month, the amount you designate will be transferred from your bank or investment firm to us. This way, you’ll always have money available to add securities to your portfolio on a regular basis.

When the funds arrive, they are placed in your Cash and Money Funds and earn daily interest. The money will be ready to use when you’re ready to buy new securities. (A 10-day hold will be placed on withdrawing funds.)

Direct Deposits:
If your employer offers direct deposit, you may want to have a portion of your paycheck come directly to your Folio account. This is a great way to invest consistently.

Your employer will have the proper form you’ll need, along with a voided Folio Investing check, to set up a link. Once this is done, your deposits will be available for you to use to invest one business day after your paycheck.

Automatic Buy/Sells:
With this tool, you can invest a specific amount of money in a portFolio each month. You can take it from the money market fund or cash in your account.

You decide the dollar amount and the day of the month you want to make your
investment. And you can set up as many Buy/Sells as you want for each portFolio.

Another great tool to help you with disciplined investing.

5. Manage Your Taxes:
When you sell your shares, your tax bill will depend on your profit or loss and how long you owned your shares. If you decide to sell shares that you’ve owned less than a year, your profits will be taxed at the short-term capital gains rate. (Same as your personal income tax rate.)

But, if you sell your shares after a year or more, the long-term capital gains rate would apply, which is currently between 5% - 15%.

Since the real investment return is "after-tax," smart investors know that when they sell is vital to getting to keep more of their own money. But, keeping up with all this requires a lot of attention... unless you have Folio Investing’s tax lot tracking system on your side.

With our tax lot tracking, our system will determine which stocks to sell that will put you in the best possible tax situation.

And, you can simply download your Folio Investing tax information into your choice of a tax preparation program. Or, you can always just print a list and attach it to your tax filing on April 15th.

These are the 5 principles of investing... use them wisely!