How to Pick a Mutual Fund or Stock: Spexy Lady’s 5 Easy Steps

For most of this year, I have to admit, I’ve been a Dramamine queen, as this stock market has literally been a wild roller coaster ride. And rest assured, Spexy Lady’s roller coaster days have long passed! In a climate like this, it’s time for some straightforward tips on how to pick a mutual fund or stock.

For those who’ve hung in by their pedicured toe-nails, the market has soared in the last several weeks, logging some huge gains for socking away in our Manolo Money Fund – those leopard Manolos are definitely on my buy list! But for the year-to-date, many of us may be barely even, or perhaps behind, depending on what we owned.

2012 is just around the corner! What now? How do we get ahead next year, make up for last year, or just get in the game? How do you pick a mutual fund or stock without losing your mind — or your stomach?

Here’s a simple way to start: Spexy Lady’s 5 Easy Tips for How to Pick Mutual Funds and Stocks*

1.  Log in.  Log into one of the easy-to-use financial websites like Yahoo Finance, or Fidelity and type in either the stock symbol, mutual fund symbol, or company you might want to invest in. If you don’t know the symbol, “Google” the company, i.e. “Stock symbol for McDonalds.”

2. Check the charts. When picking a mutual fund or stock, Spexy Lady clicks on Fidelity (it’s so easy), then clicks on the “Research” tab. Type in MCD (who doesn’t love McDonald’s fries??) A new page comes up, and she clicks on “Charts” (on the left). We see how the stock did this year, and over the last 3 years and 5 years. If it held up through the worst of times—2008, May 2010, and this September and October—that’s a good sign. Since we love color, the charts show us in shades of green, blue, orange, lavender how MCD did compared with the Dow, the S&P 500, and even other stocks in its Industry. We click the box for all three. We like what we see! Next, compare MCD with its competitors (Wendy’s, Sonic etc.) We type in their symbols too. MCD did very well!

3.  Stick with dividends. One way to pick a mutual fund or stock in such volatile times, is to look for those strong companies that pay dividends. Both Yahoo Finance and Fidelity have up-to-date information on the dividend yield of stocks and mutual funds. The yield is the percentage that the company pays out annually, monthly or quarterly to its investors. A yield of 2% on $1000 investment would be roughly $20. To find McDonald’s dividend yield, we go to Fidelity, type in MCD, and click on “Research.” Go to “Earnings and Dividends” seen on the left column. Click on the Dividend tab. Scroll down to find the yield. Nice! Over 2.5% (a/o 11/30/11) Better than my CD! Check how long they have been doing this – some pay dividends for awhile, then biz gets bad, and away goes the dividend check. MCD has been paying dividends consistently. Good news. Under “Dividends,” look at growth. We like companies that pay more dividends every year. Over 5 years MCD has had strong growth (over 20%, a/o 11/30/11)

4.  Check analyst opinions. The big wigs on Wall Street are trained to know their stuff, and have info those of us at home don’t have. We click on “Analyst Opinions” on Yahoo Finance or on Fidelity, for MCD under the Research section. Yahoo’s list of pros give MCD a “2” on a scale of 1 (buy) to 5 (sell). A good sign.

5.  Read Morningstar. Many people go to Morningstar first for mutual fund advice, to screen funds, and to find stock picks, however, SL’s experience has been that this score should be just one of several factors taken into consideration. Information may not be the most current, but if you want to give it a whirl, go to Morningstar’s website, type in MCD. A page pops up, and as of 12/3/11, it gets 3 stars out of 5 (best). The info above might suggest a better score. Go to “Charts” on Morningstar. Click on comparative stocks—YUM Brands, Sonic, Wendy’s, etc. Here we find YUM has done better than MCD over the 3-year and 5-year marks, but not the year-to-date or 1 year period. MCD has outdone ‘em all year-to-date and for one year.

There are other important factors to consider as well, but to avoid putting you to sleep, let’s start with that.

I like to begin with the end in mind…how much do I want to peel off at the end of the year, or when my investments are in the green to land those Manolos in my closet? Or more importantly, how much does my portfolio need to grow over time so I never run out of Manolos? 

*Disclaimer: For professional financial advice, you should consult a licensed financial expert, such as a Certified Financial Planner, or Registered Investment Advisor. Spexy Lady’s recommendations and opinions are her own, designed to manifest her Manolo lifestyle.

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A small-town Nebraska girl, Rosanne Hart graduated with a BS in Journalism from Kansas State University. At the age of 30, with a $1000 line of credit, she founded a national fashion/beauty PR/Ad agency, The Hart Agency, Inc., in Dallas. Despite her initial inability to balance a checkbook, and having flunked college accounting, she pulled it together and built The Hart Agency into a $1.5M agency, with offices in New York and Dallas, handling fashion clients and Fortune 500 accounts. An advocate for women-owned businesses, she is a founding member of The Texas Women’s Venture Fund, the Dallas Chapter of the National Association of Women Business Owners, and mentor to young women.

Her two sons keep her humble. She writes a blog on money matters under her alter-ego Spexy Lady and says outrageous things on Twitter: @thespexylady.