PRISM: Prioritizing Your Goals

Buy Guidelines for Stocks: Income and Momentum

Reflect 

We mentioned in the previous lesson, adhering to well-defined buy and sell rules is a great way to build a successful portfolio. We've customized our buy and sell guidelines for different types of popular investing styles such as value, growth, momentum and income. 

In this lesson, we'll provide guidelines for the last two styles: momentum and income. These buy and sell guidelines are there to help you create your own set of buy, sell and hold rules that fit your individual goals and needs. 

Dividends provide portfolio income, which can be viewed as a sign of underlying fundamental strength.  

Here are some dividend growth and yield metrics (as of March 25, 2021) you can use to set income rules:  

• Dividend Growth 12-month: 4.8% (highest 60%)  
• Dividend Growth 5-Year: 5.5% (highest 60%)  
• Current Yield (%): 1.9% (highest 80%)  

Investors who want to focus on stocks that fall under the "Momentum", will seek out stocks that are outperforming in terms of price return.  

Here are some momentum rules you can use:  

• 26-Week Relative Strength of at least 70% (used by Value on Move-PEG With Estimated Growth screen)  
• Trading within 90% of 52-week high (used by O'Neil CAN SLIM Revised 3rd Edition screen)  
• Weighted four-quarter relative strength rank of at least 61% (equivalent to an A+ Investor Grade of B or better) 

These guidelines for momentum and income stocks will serve as a basis that you can use when creating rules about which stocks you will consider buying, holding, or selling.   

And if you've already created your own buy and sell rules for stocks, this is a great time to compare your list with ours to see if you're missing out on anything important. 

Now, it's your turn to put your knowledge to the test with our discussion activity of the week. 

Participate 

For this lesson, we challenge our members to compare their own buy rules with AAII's suggestions. We want to hear what the differences are and how you will use these to select which stocks go in your portfolio.   

For this activity, please review the attached checklist PDF and answer these four questions: 

1. In your own opinion, what is the most important rule to follow/create for knowing when to buying a dividend-paying stock? 
2. What is the most important rule to follow/create for knowing when to buying a dividend-paying stock? 
3. Looking at your own list of buy and hold rules for momentum and/or income stocks, as well as the AAII "best practices," which ones were similar and which ones were different? Let us know the comments below! 
4. If you don't focus on momentum or income styles of investing, why is this the case? Please share your preference below. 

Now, we want to hear about your findings. Let us know in the comments below! 

Download the "Selecting and Managing Your Investments" worksheet 

Download the "Buy/Sell Rules for Stocks" checklist PDF 

Questions about coursework, webinars, worksheets, etc.? Drop your inquiries in the discussion below. We're happy to help! 

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Jenna Brashear
AAII Community Manager
Chicago, IL
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