About Profitable Investing

My mission in Profitable Investing is to help you earn top returns on your investments, with safety. Whether you're a young person in your 20s just starting a career, or a retiree in your 70s enjoying the fruits of a life's labor, you can benefit from our low-risk approach to wealth-building. It's a philosophy for all seasons of life, so just about anybody can use it.

Our goal is to make 7%–10% per year on our total portfolio over the long pull—often 15%–20% (or more) in particularly good years. At the upper end of our range, you'll double your money every seven years or so! More importantly, you can expect to chalk up those gains safely—without the nerve-wracking volatility so many investors needlessly accept.

If you're an income-oriented investor, you'll be delighted to know that about a quarter to a third of the profits we make go right back into your pocket as current income. By following our portfolio guidelines, you can look forward to earning ample income (to meet your living expenses in retirement, say) while your principal keeps growing (to offset inflation).

Of course, if you don't need current income, you're welcome to plow your dividends and interest back into your investment accounts, compounding your wealth. That's what I do with my income checks as they roll in. So do thousands of Profitable Investing subscribers who haven't yet reached retirement age. As Ben Franklin said, "Money makes money; and the money money makes, makes more money."

Now, let me share the answers to the questions I'm most often asked by new subscribers...

Q: I already own quite a few investments. Should I sell them to buy your recommendations?

A: I don't want you to rush into selling anything. Your very first step is to consider whether your portfolio is properly balanced. Take a quick inventory of what you own.

Once you've figured out your current asset allocation, ask yourself how it compares with our Total Return Portfolio weightings. A complete rundown of the Total Return Portfolio can be found on page 7 of every newsletter issue. Generally, I aim for a mix of about 65% stocks, 35% bonds, give or take 10%–15% depending on market conditions. You can always find a live version of the Total Return Portfolio on our Web site, complete with my current asset allocations.

Our asset weightings work well for a broad swath of my readers who are looking for growth plus safety. If you're like my "typical" subscriber (age 45–65, or even a little older), you'll probably feel quite comfortable with our prescribed mix of stocks and bonds. But remember, I'm not trying to squeeze you into a mold. You can shape your own portfolio to be more aggressive or more conservative than my recommendation.

If you find your current holdings way out of line with my recommended portfolio allocations, you may need to make some adjustments. With our percentage weightings as your guide, gradually sell off your laggard investments in each category (utilities, growth stocks, bonds, etc.).

Replace your poor-performing deadwood with stocks and bonds—or mutual funds—that I've selected for you in our own Total Return Portfolio. I define "deadwood" as any investment that hasn't lived up to the hopes you had for it over the past two years or more. I believe in being patient, but in my experience, investments that don't straighten out in two years are seldom worth waiting for any longer.

Q: If I send you my portfolio, could you give me more specific advice, such as what to sell or hold?

A: I wish I could, but first, it's against SEC regulations, and second, it's not prudent for either you or me to practice private portfolio analysis by mail (or modem!). I would need to know too many facts about your private situation, not just your portfolio holdings. But please do send me your general investment questions. I devour all your letters and answer as many of your specific questions as I can, especially those about investments I've recommended. In fact, you'll notice that I answer dozens of subscriber letters each year in print issues of Profitable Investing and many more on the Web site.

Send your questions to me using our contact form. Please understand that I get hundreds of emails every week and cannot answer them personally, but my staff and I do read them all and answer as many as we can. If you don't receive an answer, don't worry. We have read your question and may be considering it for a future Journal or issue of the newsletter.

Q: How can I get started if I've got less than $10,000?

A: Begin with a good "balanced" (combination stock and bond) mutual fund such as Vanguard Balanced Index (VBINX; 800/662-2739, $3,000 minimum), which I track in the Niche Investments portfolio. This low-volatility all-weather fund has closely tracked our model portfolio over the years. I suggest using this fund for the first $5,000 of your portfolio. For best results, I suggest smoothing out your cost by investing the same dollar amount at regular intervals in the fund(s) of your choice. (Please note that you may purchase VBINX directly from the fund at no sales charge, but brokers may impose a transaction fee; visit Vanguard's website to learn more.) Then, once you've got this diverse foundation laid, start adding individual stocks to your portfolio by using the top Total Return Portfolio picks in each month's letter.

Many of these companies sponsor low-cost "direct-purchase plans" (DPPs) that allow you to buy stock—including your first share—directly from the issuer, bypassing brokers. (For an extensive listing of currently available DPPs, visit Computershare's search page.) Remember, for safety, I suggest you invest no more than 2%-3% of your wealth in any single stock. For best results, reinvest your dividends and make extra investments in all your portfolio stocks on a regular basis. The bigger the base, the faster your wealth will grow.

Q: What if I have up to $50,000 to invest?

A: Our model portfolio (that is, the Total Return Portfolio) is designed so that we can all play on the same field as the big-time investors. Wherever possible, I try to include a no-load (no sales charge) mutual fund that will do basically the same job as the individual stocks, bonds and other investments that I recommend.

If you've got less than $50,000 to deploy, you may find it convenient to "plug in" a couple of our mutual fund alternatives in certain parts of your portfolio. You can find some recommendations in the Mutual Fund Alternatives sections of the Total Return Portfolio. For example, if we're allocating 25% to Growth & Income Plays, you might fill that slot with a well-regarded fund like Vanguard Value Index (VIVAX; 800/662-2739, $3,000 minimum). Vanguard's ultra-low expense structure, with no sales charge or redemption fee, makes VIVAX an ideal vehicle for thrifty investors of all ages and sizes.

For investors who prefer funds over individual stocks, I've put together five separate portfolios of mutual funds, each designed to mimic our main Profitable Investing Portfolio. (See next question.) But even if you're the sort of person who likes to "mix and match" funds and individual securities, I generally recommend that you start with mutual funds. Then add individual stocks and bonds only when you can afford to buy at least $2,000 worth of each security. Otherwise, brokerage commissions will eat you alive. (That said, there are some brokers that offer free trades under certain conditions. Check my May 2014 Issue for more on this; I'll keep you posted with updates.)

Q: I see several other model portfolios besides the Total Return Portfolio. Which one should I follow, or should I invest in more than one?

A: Don't be afraid to mix and match. The main Total Return Portfolio represents the core of my advice. But everyone's needs and interests are different. If you prefer a mutual fund where I've recommended an individual stock or bond (or vice versa), follow your own inclination. It's your money!

The important thing is that your overall portfolio be balanced (between stocks and fixed income) and diversified (not too much in any single stock or industry). As long as you follow that basic rule, you can treat our various portfolios as a delicious smorgasbord. Nibble whatever you like.

I've tailored my various mutual fund portfolios to both mimic our Total Return Portfolio and meet your needs as closely as possible. Our Fund Supermarket Portfolio is made up of funds you can purchase (generally without a transaction fee) through leading discount brokers like Schwab, Fidelity and TD Ameritrade. If you're the sort of investor who values the convenience of trading mutual funds through a brokerage account, yet you're determined to keep fees and commissions to a minimum, this portfolio is for you.

Some investors prefer to do all their business with one no-load (no sales charge) fund family. For these folks, I've created our All in the Family Fund Portfolios. One portfolio draws exclusively from Fidelity funds; another from Vanguard funds; and a third from T. Rowe Price funds.

Finally, with the growing popularity of exchange-traded funds, I've inaugurated our Hassle-Free ETF Portfolio. The index funds that go into our ETF portfolio let you cut your investment expenses to the bone—a major advantage over traditional, actively managed mutual funds.

In all our fund portfolios, I try to make changes as infrequently as possible (no more than three or four "tweaks" in a normal year). Fund investing should simplify your life, not clutter it!

Now, for those of you still looking for a little something "extra" for your portfolio, take a look at the Niche Investments buy list. These are extra investments that go beyond any of our other model portfolios. Use them to fill special niches in your own portfolio—for example, when you need additional income or when you're looking to diversify beyond the core investments I recommend in the newsletter. This is also where I'll keep you updated on past recommendations from outside our model portfolios.

Q: Some of your investments I'm interested in are trading above your recommended buy price. Should I ever pay more than your recommended buy price for an investment?

A: Never say never, but in the vast majority of cases I think you'll do better if you wait for our buy price. My preferred way to build a portfolio is one block at a time. It may take you six months to a year to bring your holdings into line with our model portfolio, but what's the rush? You've spent a lifetime accumulating the savings that you're now investing. You don't want to make any big mistakes. If an investment never comes into our buying range, not to worry—we'll find another to take its place. There's a new train leaving the station every five minutes.

Sometimes, a recommended stock will jump in price immediately after Profitable Investing comes out. Don't let it throw you. In most cases, the stock dips back within a few days. Take a tip from the great cats of the jungle. Watch patiently...then pounce!

Q: Everybody has lots of advice on what to buy, but I seldom see a sell signal. Will you tell me when to sell?

A: Definitely. I pride myself on not losing any of my recommendations down the "memory hole." Throughout the year, I'll give you several of my own recommendations to sell, often at a handsome profit. We'll usually let our profits "ride" for at least a year. This gives us the opportunity to buy more shares during dips in the share price, which ultimately gives us greater profits. And if a recommended investment's future performance is questionable, I'm not afraid to sell it, take a loss and move on to greener pastures.

Every month I update you on all our current portfolio holdings—buy, sell or hold. And you can find my current advice on any "outside the model portfolio" investments featured in the newsletter at the "Niche Investments" portfolio page.

Q: Do you take your own advice?

A: You bet I do. I'm an active, successful investor. By taking my own financial advice, I've increased my net worth 2,500% since 1987. So, you aren't subscribing to a "paper prophet." I invest in as much of my own advice as I can. If I make a mistake, I feel it—right in the billfold!

By the way, I never buy any investment I've written about in the newsletter until you get first crack at it. (See our disclosure for more on this.) What's more, if I place my order through a broker whom I've recommended in the newsletter, I insist on paying the same commission you would—no sweetheart deals.

Q: What is Richard's Journal, and how often do you update it?

A: Richard's Journal is my online market commentary, posted to our Web site two or three times a week. It's designed to give you my take on events that have occurred since the most recent issue. If, say, an earnings announcement or some other news story moves a stock we own, I can immediately brief you on what's happening via an entry in the Journal.

Normally, I update the Journal on Tuesdays and Thursdays. In an exceptionally busy week, though, I may do a third posting one of the other days, and in a quiet holiday week you might find only one post. When you open the Journal page, you can scroll down through the latest month's entries and easily access a full archive via the links provided. Thus, if you consult the Journal just two or three times a week, you'll catch all my advice while it's still fresh.

Best wishes for Profitable Investing!

Richard E. Band

P.S. If you have any additional questions, please feel free to call my Customer Service team at 800-211-8566 or send us an email.