Investment strategies made easy: here's how to overcome your fears of the market and invest like a pro - includes excerpt from book and related article on 'Getting Started in Stocks' author Alvin D. Hall

Black Enterprise, March, 1994 by Alvin D. Hall, Carolyn M. Brown

"What is the best way to invest in stock?" and "Do I really have to read The Wall Street Journal every day?" These are two of the questions asked most frequently by beginning investors. The answers, especially to the first question, often surprise many people interested in the stock market. There is no perfect or best investment strategy for everyone. Even among the strategies used most frequently by beginning investors, some are only more or less speculative than others. And the frequency with which a person must follow the market - that is, read the financial news - is a function of the speculative characteristics and time frame of an investment. Usually the more speculative and short-term the strategy is, the more closely it must be followed.

Here are some of the most common beginning investment strategies. The strategy that you choose should be in keeping with your investment objectives, financial means and risk tolerance. Additionally, consider how often you want to read or monitor the financial news.

BUY AND HOLD

The merits of buying high-quality stocks and holding them for the long term are rarely addressed. Yet this strategy can produce substantial returns, without your having to read the financial press every day or even every month.

Historically, the stock market has moved upward, continually increasing in value over time. Clearly, there have been market crashes (1929), market breaks (1987) and market corrections (1989) when the prices of all securities plummeted precipitously. Following each decline, however, the market recovered and moved still higher. Anyone who owned shares or a portfolio of stocks that reflected the broad movement of the market has seen their value steadily increase through the highs and lows of the market. By simply being in the market during a period of sustained growth, such as the 1980s, an investor would have seen his or her net worth increase. The buy-and-hold strategy puts you in a position to profit from this long-term upward trend of the stock market.

Selecting the stocks to buy and hold is somewhat more tricky. Look for stocks of companies that have a high degree of financial strength (including good profit margins), are industry leaders or pacesetters in product sales and development and are taking steps to improve their current market share and ensure long-term growth. The stocks that meet this description are generally blue-chip stocks (except those that have lost their luster, like Chrysler), income stocks (particularly shares of public utilities and telephone companies) and established growth stocks. A typical conservative, income-oriented investor might place more money in income stocks, while a slightly more aggressive, although still conservative, investor might invest more in established growth stocks. The key factor is that the stocks in these categories have the potential to increase in price and pay higher dividends over the long term. For an investor who buys and holds, these features certainly increase the likelihood that the strategy will be successful.

One particularly beneficial aspect of the buy-and-hold strategy is the compounding effect that a dividend reinvestment plan can have on your return. Many companies offer their shareholders such a plan. Instead of receiving dividends in cash, you can direct the company to use the money to buy additional common shares for You. Shortly after you buy a company's stock, you will receive a package of information from the shareholders' relations service department of the corporation. This correspondence welcomes you as a shareholder and invites you to participate in the company's dividend reinvestment plan.

Dividend reinvestment offers small investors an easy way to build wealth. It works best when the company has a solid history of dividend payments and steady price appreciation.

Dividend reinvestment plans do have some disadvantages, particularly in the area of taxation. First, dividends are considered taxable income to the investor in the year in which they are paid out, even if they have been used to buy additional shares of a company's stock under a dividend reinvestment plan.

Second, the investor must keep records of the market price at which each additional share is purchased. If a person sells only some of the shares acquired through dividend reinvestment, different tax rules apply. A tax specialist should be sought for advice in this and similar situations. Despite these complex tax implications, dividend reinvestment plans provide a convenient and easy way for investors, particularly small investors, to build ownership in a company over a long period of time.

Indeed, the buy-and-hold strategy is largely passive, but it should not be thought of as a synonym for what some people jokingly call the "buy-and-neglect" strategy. Investing by neglect - buying small amounts of different stocks, throwing the certificates in a drawer and forgetting that you own them - has been known to provide some investors (or, depending on the degree of negligence, their heirs) with surprising gains, but profits from this strategy are more the apocryphal exception than the rule.