Ask Colin

I have $5000 to invest. Is it enough and should I buy your book?

Note: The original question referred to my videotaped two-day seminar, which is no longer available. It has long been replaced by my book Building Wealth in the Stock Market which costs $65.

I don't think you should have spent 10% of your investment funds on my videotape when it was available. It simply makes no sense, because you have then to make an 11% return just to get back across the starting line. I am a great believer in education, but it has to be sensible. You need to use free or very low cost sources - libraries, newspapers, cheap magazines, the internet (my web site will help).

In terms of value, you would be much better to subscribe to my members web site, where for $60 per year you can read all of my accumulated articles and columns and ongoing things I publish. The Home page of my website has a link with samples of the members only material.

$5000 is not really enough to trade sensibly with. The main reason people fail is lack of capital, lack of an investment plan and lack of knowledge. Capital is your first problem. It is a problem because you do not have enough to use proper money management, which means you would have to take greater risks in several areas and you would be almost certain to fail.

I think the best course is to be a learning small investor. Buy shares in, say, two really good companies in uptrends and with a good dividend yield (4% or more) and a low PE ratio (less than 12 if you can) and hold as long as they keep going up. With luck, you will get a growth situation and over time enjoy a better return than you would get from a bank. One thing though - beware investing in a bear market such as we have now. Buy what you think is a panic, by all means, so long as the stock looks very cheap. However, I would be inclined to buy one company now and leave the rest in the bank for six months to a year and then invest it too. That is called dollar cost averaging and the idea is that you try to avoid putting all your money in the market at a bad time, by spreading it out. You can only do this to a limited extent with $5000.