Sure there is: buy low, sell high. Seriously. It’s that simple. Even better, do it over and over. No, I mean, like, a formula for, you know, making money? Oh, you mean for, say, trading? Like knowing when to buy what? When to sell?

Of course. There are actually dozens of trading formulas, and their adherents swear by their formula. But some of these formulas requre an understanding of advanced statistical analysis as well as loads of historical data. Of course, there are many sources of free data (details to come).

But there is one technique that’s so commonplace that it’s invisible to most people. I call it “piggybacking”, and it can make you wealthy if you get your timing right. While I worked for a lot of hot tech and info tech companies over the past dozen years, this is not a requirement to knowing about what companies to buy. In fact, insider-trading regulations make it hard for you to legally use your knowledge, unless you plan to job-hop. (I contracted at some of these companies, and was employed at others.) That is, use the knowledge after you leave - in which case it may be too late. [Amongst other reasons, this was mainly why I was unable to employ the technique below.]

The general principle of piggybacking goes like this, in five easy steps.

1. Set a small financial goal. Do not make it too big, if you’ve never invested before. For example, let’s say that you want to build your assets to $10,000 in 3 years time, and have $1-2,000 to start with, and will be investing, say, an extra $500 each month.
2. You cannot buy much in the way of stocks for $1,000, but it is sometimes possible. If you would rather park your money until you have more, you’ll want something that gives you a reasonable interest rate. (See details below, after this list of steps.)
3. Start with a small portfolio of 1-5 stocks at no more than $1,000-5,000 in initial value. (More details below.) If you are investing more than $5,000, there are different techniques you can use. [More in the future.] Or you can divide up your capital into several mini-portfolios and apply the steps here to each one. (But you not want to have to manage too many shares; this requires too much of a time commitment for research.)  Share prices should not be any lower than $10 on any stock. This is because most people will panic. A $1 drop on a $10 share is only a 10% loss. But a $1 drop on a $5 share is a 20% loss. Can you weather the time for the share to increase again?
4. Capitalize on small gains of one stock by selling it, provided the brokerage fees do not eat your gain. You want to only do this for pre-tax net gains (after fees but before taxes) over $100, preferably $200. If you have 5 stocks and two are up in value of at least $100 each, you might consider selling both. The idea is to capture small gains without getting into the habit of doing this so often that brokerage fees eat your gains.
5. Reinvest all of the proceeds into another stock, or even park the money very short-term into a CD or GIC as appropriate. (Or look into Zopa or Prosper, which offer peer-to-peer community-financed loans online.) If you park the money, make sure that you reinvest into an appropriate stock soon.
6. Repeat steps 4-5 until you’ve reached your financial goal.

Do not assume that you can do all this in one year or less, unless you have a lot of guts, and time to watch the market news. There are always exceptions. When I was doing computer consulting for a large mutual fund company in 2000, one workmate’s father invested in a relatively small but international tech company whose share price had dropped, due to some news, to under $7. The man lived in the city where the company was headquartered, but did not work for it. But he had “city spirit” and invested about $1300. The stock had previously shown it’s value, and he figured it would go back up. It did, and he had $2200 in about 6 months time. (He decided not to sell though, the last I heard.)

Now if you are you looking for a place to park your money between stock purchases, you have a few choices. One is in mutual funds, which might be risky, or a money market fund. Both choices can be a headache when it comes to tax time and filing. An easier option that is also more convenient is an online savings account. Consider one of the higher-paying online savings accounts: see Ing Direct, HSBC Direct, or Emigrant Direct.

At the time of this writing, all three of these pay roughly 4% - nearly 8 times that of a regular bank savings account, at least in the United States. They are also very liquid, and do not penalize you for early withdrawals like some comparable investment options. And as I’ve written before, your deposits are insured with the FDIC (Federal Deposit Insurance Corporation) for up to $100,000 per SSN (Social Security number). In Canada, several banks, including Ing, offer similar online savings accounts that are insured by the Canadian equivalent of the FDIC, the CDIC. These online savings accounts are a safe stopover for your liquid assets.

Tags: investment, wealth, online savings acounts, money market funds, ing direct, emigrant direct, hsbc direct