What to consider before getting into the stock market

All securities are not the same. Some pay dividends, some don't. Some companies are involved in growth industries, some are involved in relatively stable businesses. Some are like the mythical hare - on the fast track - and some are like the tortoise. The investor has to decide whether the tortoise or the hare, dividends or growth, is best suited for his goals.

Before investing in stocks and bonds, says William Lally, president of Hamilton Gregg Financial Service Company, a professional financial consulting firm, investors need to decide if they have sufficient income to be in the market. ''They need to ask if they have enough income to meet their living needs ,'' he says, ''and a positive cash flow,'' or more money entering their checking accounts then leaving it.

In addition, says Dr. Dale Johnson, a professor at the American College in Bryn Mawr, Pa., an individual should invest in stocks and bonds only after establishing what he calls a ''foundation.'' Included in this foundation is home ownership with a reasonable mortgage, a systematic saving plan which is designed to provide emergency funds of three to six months in expenses, and some form of life insurance. Mr. Johnson adds that he would hope an individual ''has some form of retirement plan in place.'' In all, he says, this ''foundation should take up about 15 to 20 percent of the individual's assets.''

If he can afford to invest in the stock market, it might be worth looking at the investment from the tax angle first. In some instances, Mr. Lally points out , a person would be better off investing in stocks, where he might end up with a long-term capital gain instead of dividends. Dividends, after the first $200, are taxed at a maximum of 50 percent, while long-term capital gains on securities (held over a year) are taxed at a 20 percent maximum rate.

If someone decides to invest in the stock market, he has to determine what his risk tolerance is. Alexandra Armstrong, a certified financial planner with Alexandra Armstrong Advisors, in Washington, asks clients to rate their risk temperament on a scale of 1 to 10. ''People can look at what they have done in the past to determine this,'' she notes.

For example, one couple who had previously invested in an aggressive tax shelter listed themselves as ''conservative.'' When queried, they said their experience with the tax shelter had now made them conservative. Ms. Armstrong notes, however, that as the bull market heated up, people generally became less conservative.

Justin Heatter, author of ''The Small Investor's Guide to Large Profits in the Stock Market,'' recommends setting up a portfolio that has many different characteristics. He says in his book (Charles Scribner's Sons), ''In structuring your investment portfolio, you may need a mix of different types of securities which offer different characteristics.'' This mix, he believes, should be determined by an individual's age, temperament, and current and future financial needs. As a starting point, he recommends the following portfolio mix:

Age Percentage invested for: Current Aggressive Income Growth growth 30s-40s 20 60 20 50s-60s 40 50 10 Retired 80 20 --

Mr. Heatter says these are not hard and fast rules, but representative of ''the kinds of allocations I'd aim for, if I could.'' But he adds that only an individual can determine how much ''income'' he needs, and then go out and ''pin it down.''

If income is the goal, probably the best place to be is in the bond markets, or in utility stocks. These stocks don't fluctuate a great deal when the market moves up or down, and can generally be relied on to pay their dividends. Mr. Heatter points out, however, that before investing in taxable securities an individual should examine the yields on municipal securities. Often the yield on these tax-free securities - on an after-tax basis - is greater than that of taxable securities.

For investors interested in current income, Hamilton Gregg, principal in Hamilton Gregg Investment Corporation, registered investment advisers, likes utility stocks of companies providing power in states where the regulatory climate is improved. Currently, he notes, an investor can receive a 101/2 to 11 percent yield in a utility, with the possibilityof capital appreciation. ''A lot of utilities are benefiting from lower energy cost, and have the bulk of their capital spending out of the way,'' he says.

If capital appreciation is the goal, however, Ms. Armstrong says she recommends that a person either buy an aggressive growth mutual fund, or individual stocks with a history of earnings.

When looking at companies, she looks for ones that are small but part of a growth industry. ''I like to see earnings,'' she says, ''and a pattern of earnings growth.'' For example, she likes Children's World (over the counter), which has set up day-care centers in ''upscale markets,'' where both parents are working.

As for mutual funds, she likes to invest in smaller ones, since they can move in and out of stocks more easily. Two of her favorites are the Pioneer 3 Fund and the forthcoming Seligman Communications and Information Fund, a load fund.

Dr. Johnson believes an individual early in his asset accumulation program should consider putting 10 to 15 percent of his investment funds in the high-risk area. ''If you lose it,'' he says, ''it won't destroy your whole program.'' And, he adds, ''I would look for the best growth industries and not just invest to make a quick buck.''

In investing for growth, Mr. Gregg is looking at health-care and high-technology issues, as well as some of the smaller defense companies. ''We're now looking for hot new prospects,'' he states, ''in the high-technology or health-care field where they don't have enormous multiples.''

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