Long term investing is the name of the making money game.

The above picture is the historic chart of the DJIA (Dow Jones Industrial Average), from 1900-present. The DJIA is an index, a group of 30 of the largest and most publicly-held corporations in the U.S. The DJIA is one of the most quoted indices and along with the Nasdaq, the Russell, and the S&P, gives a basic measure of what the market is doing on a particular day.

The stocks that currently are included are:

3M
Alcoa
American Express
American International Group
AT&T
Bank of America
Boeing
Caterpillar
Chevron Corporation
Citigroup
Coca-Cola
DuPont
ExxonMobil
General Electric
General Motors
Hewlett-Packard
Home Depot
Intel
IBM
Johnson & Johnson
JPMorgan Chase
McDonald's
Merck
Microsoft
Pfizer
Procter & Gamble
United Technologies Corporation
Verizon Communications
Wal-Mart
Walt Disney

These are all huge companies, often called, 'large-cap'. They are not the stocks that you want to trade or make fast returns on since they are slow movers. These are the value stocks that help a portfolio keep steady and avoid big swings during volatile markets (ring a bell to current conditions?). All of these companies have proven earnings, long track records of growth, and pay dividends (share profits with shareholders). This makes them attractive to investors that want stock market exposure but don't want too much volatility.

So, this explanation begs the question: Why does any of this matter?

The answer is simple. Take another look at the chart above. At first glance, you might think, 'wow, the market has always gone up despite a few hiccups'. You would be right. The single most important factor you need to know, is that since inception of the DJIA index, its annual returns have averaged about 8.5%. Yes, 8.5%. That is pretty darn good. Especially when you consider that you would have participated in the gains and losses during the good times and the bad. Now if you would have sold at all the highs and bought during all of the lows, you would be a lot richer and likewise have a bigger smile on your face, but that isn't realistic.

Lessons learned:

1- The market will go up over the long term. Keep a long term investment timeframe, especially for accounts intended for retirement and other long term goals.

2- Timing can greatly affect returns, BUT, if you stay the course and continuously invest, you will be fine.

3- Large-cap stocks, many of which are in the DJIA and S&P 500, grow slow, but are steady and safer than many other investments. Investing in stocks is inherently riskier and more volatile than other investment vehicles, but the returns are also greater. Like the saying goes, "the greater the risk, the greater the return".

That's is for today.

Homework: google the different stock market indices and get a basic understanding of them. Also, check out some mutual funds that mirror those indices. These are called index funds and are low cost investments that simply own only the stocks in a specific index. For example, a S&P 500 index fund is FSMKX, fidelity spartan s&p 500 index fund. These are very low cost options and are intended to have a return that is the same as the index.

Next time, I'll talk a little about sectors and some intriguing plays for the future.

The bottom line...........

Today is Thursday, April 24th, 2008.

The global markets, the U.S., and now foreign countries (i.e. Europe, Asia, even emerging markets) are all experiencing a 'crisis' for lack of a better term. Credit crisis. Housing crisis. Retail crisis. Call it what you want, but at the end of the day the markets have been battered and the average informed investor is about as skeptical as it gets. Hence why most are sitting in cash and not invested fully, if at all, in the stock or bond market.

This should not be the case!

Reasons as to why you should invest, now:

1-the market is trading at about 10-15% below the highs late in '07 and if you have the money to invest, you can get some great value, especially in stocks. I don't care what sector you invest in right now, even though it will make a small difference, the fact of the matter is that stocks are trading at a large discount to what they should be and if you get in now there will be big gains in the next 2-5 years. Yes, there will be volatility and ups and downs. BUT, if you have a long term attitude, there is mucho dinero to be made.

2-the 'crisis' is nearing an end, not at an end or over currently, but getting there... I could quote studies all day long but the facts are easily interpreted: the avg. recession, which we are in, lasts 10 months and drops the market 12-18%. This drop marks the half way point and since we saw the bottom in February, which was about a 15% drop depending on which index you follow, this means that we should be coming out of the recession in a couple months. That is, if history stays true to itself.

3-the Federal Reserve Board aka 'the fed' has acted fast and aggressively to cut interest rates and open the discount window to financial institutions, this has eased liquidity and helped bank balance sheets, which in turn has made investors a little more comfortable with the financials, which make up 20% of the market cap in the U.S. (To put this in layman's terms: the fed opened its wallet and told banks that it could borrow as much money as it wanted at a lower interest rate)

4- many companies have made write-downs but should be ready to make some write-ups on loans that were previously thought to be default/bad. Likewise, many companies have had lower than expected earnings and have projected a lower guidance for the upcoming year and '09, this gives them some leeway for the next few years and lowers expectations. The result of this is basically they have lower goals and can reach them easier, thus making investors more impressed even when they meet these smaller goals.

There are more reasons but these are the main ones. In one of my next posts, I won't focus on the macro-market, instead, I will look at the micro-market aka individual sectors and industries and make some recommendations about what I think will perform well in the near future.

Alright kids, that's all for today. Mas informacion manana. Your homework for today is to read at least one article on the current market. Have fun!

The Inaugural Post

Ok, so here's the deal. You, the investor, have a sum of money. You don't currently need it; so what do you do? (That is the inherent question, right?)

Keep it in your savings account? Of course you do. Unfortunately, the problem with that is that the savings, or worse yet, checking account, yields a great return of 0.7% annually, if that.

So what do you do? Invest it, and get a return, year over year of 6-10%? Of course you don't.

That is why I am here. To educate. To inform. To open your mind. Whatever you want to call it; I want people to take the initiative to want to learn about putting their money to work. Because keeping money in an account at a bank is what I call 'safely losing your money'. (take into account inflation, especially this year)

So.....

My two cents: The problem with society and mainstream America is that 90% of people have no clue. I mean if you ask someone about investing, they can of course tell you their definition of what a stock is, what a mutual fund is, and so on and so forth. But......do they really know how it can help them? Or more importantly, which stock or fund to buy? The answer is a resounding NO!

My goal is, like I said before, to get you interested by hopefully giving you an inside glance into my thought process and my commentary on market conditions.

With that said, let's get started, and good luck.