Now as much as I endorse using ETFs as the cornerstone to your portfolio, I acknowledge that there is a demand from a few of you to use financial newsletters as a guide for your portfolio.
Realize that no stock picking newsletter or option picking newsletter has a golden key to profits, nor should any newsletter recommendation ever make up more than a very small portion of your portfolio.
Remember, they are not showing you their secret formula for a reason.
But if you understand the risks and are committed to doing this, here are 10 unbreakable rules to follow before choosing a financial newsletter: 1.
Look for or ask to have a free trial.
A free trial is helpful in determining what you see, what you get, and is it for you.
If they are that good, a few days to a month of free service is not going to kill them 2.
Look for or ask for prior trades.
If you decide to purchase a newsletter, you want to know if they are good.
If they are not willing to give you proof of recent prior trades (and not just the winners, but all trades), be wary.
a.
Long term past performance is the NUMBER ONE consideration for your choice.
If you can't readily identify the month to month or year to date performance for several years, forget it.
b.
Be sure that their formula hasn't changed too much over time, which can significantly distort performance c.
Look at their performance during rough times too.
This will give you insight how they handle the bad times as well as the good, and should signal whether you can stomach this.
3.
If you choose to use a newsletter, allocate only a small portion (less than 5% total in my opinion) of your total portfolio to its recommendations.
This amount should be no more than what you can afford to lose, and nor should you ever skip to another newsletter with another 5%.
Draw a line in the sand.
- Read the disclaimer that these newsletters mention before purchasing.
They are written not only for their protection, but for yours as well.
4.
Look to see if the newsletter covers both sides of the market (long and short).
If a financial newsletter only goes long, then it's telling you their systems are set up for bull markets.
If so, find out how they handle bear markets or trendless (flat) markets.
5.
Ask if they have an email alert system.
Getting emails is a lot easier than going to their site every day.
Some newsletters even offer an auto trade service, by which your discount broker trades the financial newsletter recommendations on your behalf without you physically putting in trades every time.
Be warned! Most brokers don't allow this feature not only because of their potential liability, but they also don't want their clients losing money with some half baked scheme.
Auto trading is only for those who have a previous long term relationship with the newsletter, and can afford to take those risks.
6.
If you can, perform online research of the newsletter to read independent reviews.
Bear in mind that some independent reviews tout others in place of, so there are not really independent.
7.
Costs for financial newsletters can range from $50 to $150 a month.
Don't pay for more than a month unless you have had an existing relationship and proof that the newsletter works for you.
And if you are not making at least what you are paying, cancel them immediately.
8.
Read their cancellation policy.
If you can't get your money back or a prorated portion within a few days or by the end of the month, don't sign up.
9.
Fraud warning: There are some so called "financial experts" who are paid by companies to push their stock.
They submit newsletters or spammed emails glorifying a stock.
Never trade off of a spammed email.
Never trade off of a newsletter that is paid to push a stock.
Filtering out all bulletin board or penny stocks eliminates 90% of these.
- Another hint of these fraudulent newsletters is promising you a certain percentage, or worse, glorifying a percentage through 408 testimonials.
A few testimonials are fine, but if you feel that the only thing pushing a newsletter are the testimonial returns, be very wary.
10.
These days, their newsletters should be able to be accessed online.
Your newsletter of choice should have a phone number, email address and physical address for you to contact them in case of a problem.
In fact, you should contact them with a few questions before you start using their service, and see what their response time is.
Slow or no response to your query can signal potential danger.
Following these tips will hopefully filter out many of the financial newsletters that are simply not worth the aggravation.
Don't become tempted by over stimulating yourself with outstanding past performance.
I, too, can put together a list of wonderful returns that may or may not be true.
Remember that it is easier to sell shovels than dig for gold.
This is good reason to follow the entire list of rules to catch yourself before you lose time and money.
I am always interested in hearing your opinions, reviews or thoughts.
Are newsletters worth the paper they are printed on?