The solution comes through leveraging high yield savings accounts. This post will explain how to maximize the returns on portfolio cash without fees and with great ease.

Why Sitting in Cash is Healthy

The biggest advantage to sitting in cash is the peace of mind it offers. During the bull market of the late 1990s every investor was considered a pro, but during a bear market investing is stressful and profits are hard to come by.

Sitting in cash is a temporary solution that gives investors a well deserved break. Utilized especially in personal investment accounts (typically retirement accounts hold long term mutual fund positions) it is a great strategy for the short term.

High Yield Savings Accounts Offer Liquidity and Speed

One very important reason to use a savings account over CDs (certificate of deposits) or bonds is for the liquidity. Just like a regular checking account money can be deposited and withdrawn at any time.

Another great feature of a high yield savings account is that electronic ACH transfers can be setup directly from an online stock broker account. This means that with a click of a button and more importantly for free, funds can be transferred back and forth between any broker account and savings account.

Ways to Maximize Returns

Two great high yield savings accounts that I personally have listed below. The reason I don’t use one exclusively is only because one is a joint account I use just for vacation savings while the other is where I hold any extra portfolio cash temporarily:

With an Orange Savings Account from ING DIRECT, account holders earn a variable 3.00% Annual Percentage Yield on savings every day, with a level of flexibility, freedom, and security they simply can’t find at other banks. Benefits include no minimum deposit, no hidden fees or service charges, and 24/7 account access.

The E*TRADE Complete Savings Account features unbeatable yields, with no minimums or fees in the structure. Opening an account is quick and easy, and only takes a matter of minutes.

Things to Remember

Sitting in cash when the market is difficult to navigate is very healthy. Alongside peace of mind by leveraging a high yield savings account any investor can have guaranteed returns.

Setting up a high yield savings account and linking it directly to any stock broker account will allow free electronic ACH transfers to be used which means no fees and only positive results.

Leveraging high yield savings accoutns to maximize the return on cash is a temporary solution that can be taken advantage of numerous times without hassle.

When trading stocks online always make sure to choose a broker that offers only flat fee trades.

Flat fee trades are commissions that remain the same regardless of what stock order the investor uses or size of the order that is being placed. This means that a 5,000 share limit buy order of a stock trading at $.50 has the same commission rate as a 100 share market order of a stock trading at $100.

Some well known brokers that offer flat fee trade commissions are TD Ameritrade, Scottrade, Etrade, Zecco, and TradeKing. The trend to offer flat fee trade commissions is becoming increasingly popular and typically the only brokers that don’t offer a flat rate are the smaller less known brokers.

How Other Brokers Scam Investors

Most of the time investors only see the base price per order advertised and think they have a great deal on their hands. It is only after placing their first few stock trades online and they receive their statement that they were charged more than what they originally thought.

Here are a few examples of how investors can get scammed by not utilizing flat fee trades (prices hypothetical but relative to what some brokers actually charge):

1. All trades OVER $3 cost $5 per trade, and any order under $3 costs $5 per trade + $.002 x number of shares – This means a 10,000 share order of a $1 stock would cost $25, not $5.
2. All market orders are $4, but any limit and stop orders cost $4 + $9.99 per trade – A limit or stop order would cost $13.99 in this case, not $4.
3. All orders are $6.99 for maximum 100 share order. Any larger order costs $6.99 + $.003 x number of shares, add $9.99 per stop or limit order – A 2,000 share stop order in this case would cost $22.98, not $6.99.

While these types of scams are becoming less and less common as the industry progresses it is important for investors to really look into every offer before diving in. When stock trading online always use flat fee trades.

More Stock Trading Tips:

• Stock Trading Tip #4, Minimize Portfolio Diversification
• Stock Trading Tip #3, Avoid Premature Celebration
• Stock Trading Tip #2, Learn to Talk Percentages
• Stock Trading Tip #1, Take Profits By Selling Half Your Position

Consider only investing in a small number of stocks to minimize portfolio diversification and concentrate on the best picks possible.

Depending on how much money an investor has set aside to invest in the stock market, their portfolio as far as number of holdings should follow this general diagram:

• <$4,000 = 1 stock
• $4,000 – $10,000 = 1 – 3 stocks
• $10,000 – $20,000 = 1 – 5 stocks
• $20,000 – $500,000 = up to 6 or 7 stocks
• >$500,000 = 10 – 15 depending

Concentrated Returns

One reason investors should hold less stocks and not more is simply because of focused returns. One stock having a 10% day worth 20% of a portfolio is a stronger return than a 10% move on a stock that only makes up 5% of a portfolio. All investors should follow rules though and minimize losses to stay in good hands. Cut losses to an average of 5 – 8% using stop loss orders and let the runners run.

Minimize Trade Commissions

Unless trading stocks for free, it is smart to keep commissions to a bare minimum. There are many online stock brokers that can offer you good deals. Especially when there is not a lot of capital to trade with (say less than $10,000), trading smart versus often can save money. On a $1,000 portfolio for example ten trades at $9.99 would equate to $100, or 10% of the whole portfolio!

Keep Things Simple

The last reason investors should want to only hold a few stocks versus many is to keep focused and buy the BEST possible stocks each and every time. Most investors will typically start with a few hundred potential stocks to buy, narrow them down to 10 – 20, and keep narrowing until they have decided on one or two. This ensures the highest probability of success is reached while maintaing that new investor focus.

Avoid premature celebration with unrealized profits, it brings emotions into the game and should be avoided completely.

By signing into a broker account the portfolio summary page can be viewed which reflects the most recent prices of any currently held position. Any profits in these positions are known as unrealized profits because they are not yet permanent (ie the position has not been completely liquidated).

These unrealized profits can be a new investor’s or even skilled investor’s worst nightmare because the psychological effects are immediate. The investor feels great because they are winning, and it can alter what would be disciplined strategy with the stock. “I am up 20% now, just 5% more and I will sell” or “That was only four days, if I hold one more day I will be even better off” are all recipes for defeat long term.

Remember to always sell for a profit, then celebrate.

The arguably toughest part about stock trading is not when buying, but when selling. It is critical for investors to have the understanding that profits cannot be enjoyed until they are actually realized.

Only after the position has been 100% liquidated by placing a stock trade to sell completely do unrealized gains turn into realized profits. It is only at this time when traders have completed the sale that they should celebrate and give themselves a pat on the back for a winner. From there the trade should be analyzed for mistakes and new rules should be made for next time around. Rinse and repeat.

Learn to only talk percentages, not numbers, when speaking of investment results.

Investors should only percentages to relay returns and success. Why? It is all relative to the numbers. For example, an investor who makes $100 in a day from a $1,000 portfolio has a 10% return overall, but that same $100 profit from a $10,000 portfolio is only a 1% return.

Percentage returns are not limited to just a single trade and can be also used to compare monthly, quarterly, yearly, and even multi-year results. The S&P 500 for example is the benchmark of all major financial institutions including mutual funds, hedge funds, etc. When these institutions discuss their yearly returns they always relay their numbers in percentages, not raw numbers.

Correct Lingo: “My overall portfolio last year returned 15% compared to the S&P 500’s 3%.”

Incorrect Lingo: “I made $10,000 last month.”

Percentages are the market standard when it comes to relaying investment results, and if investors want to be heard in a conversation then percentages are the only path to prosperity.

Most investors never consider selling half their stock positions because they simply never thought of it as being a strategic play. When the circumstance are correct though, like for instance taking profits, investors can help themselves effectively make more money trading stocks.

Learn to consider selling half a position in a given stock as a part of a short term investment strategy.

The typical investment strategy involves simply “buying stock xyz, holding stock xyz, selling stock xyz for a profit.” This is wonderful if holding for long periods of time (6 months or more) and the investor wants to sit through all the price swings, but the experienced trader knows otherwise.

The most common ways to implement selling half a position into an investment strategy include:

• selling half to take profits off the table
• selling half to minimize downside risk (losing unrealized gains)
• selling half to minimize risk while taking profits off the table
• selling half to take profits off the table, then re-buying the shares at a more competitive price

Selling Half to Take Profits

Especially useful for newer traders who are constantly combating investment emotions, selling half a position simply to take some money off the table can be a very smart play.

Minimize Downside Risk

Seasoned traders know that calculating risk is a huge piece of the puzzle when it comes to investing successfully online. A very simple way to lower risk with an underlying position comes with selling half a position flat out.

Minimize Risk + Take Profits

Hypothetically let’s say an investor is in a stock that just surged 20% in a single day and hit all time price highs. With very substantial unrealized gains now in the portfolio, by selling half the position that investor can seal in some profits and lower overall exposure (minimize risk). A double edged sword.

Take Profits, Re-buy at a Lower Price

A seasoned investor knows and understands how their long term stock positions can fluctuate in price while still remaining in a general uptrend. Just like watching the waves off a beach, by watching a stock over time investors can get a read on the overall price patterns. If they suspect a short term correction is around the corner but still want to maintain a portion of their position they can sell 50% and look to rebuy if the stock drops to help squeeze out some extra profits.