You are not alone. I spent over 20 years as a stock broker and financial planner, and most of my clients felt the same way. Here's a real simple investor guide that highlights how to invest and keep things simple, so your money works for you without stressing you out.
You must diversify your investments, since there is no one perfect investment. Some of your money should be invested someplace safe, like in the bank. Keep your cash reserves that are earmarked for emergencies there if that makes you comfortable. You never know when you might have a health problem; lose your job and so on.
Now let's talk about the money that represents your future security. This includes the money that you might already have that needs to be put to work, plus what you can put aside on a regular basis. Where do you invest this money?
This is the hard part for most people, because they simply do not know how to invest. For the long-term goal of retirement take advantage of IRAs and 401k plans if they are available to you, because they offer tax advantages. Now we get down to the real issue of how to invest ... which investments to go with when investing for your future.
Four different basic investment types should be included in your portfolio. These are: cash equivalents or savings products, stocks, bonds, and alternative investments.
The first of these four are safe investments like savings accounts, bank CDs and money market mutual funds. This basic investment category pays the investor interest, and your principal is fixed.
Stocks are variable investments and fluctuate in value, so there is risk involved. At the same time, this is where you can really get ahead when investing for your future. Over the past 40, 50, 60 years stocks on average have produced average returns of about 10% a year vs. about 3% for savings products and cash equivalents. You can pick your own, or simplify things by investing in stock mutual funds.
Bonds pay a fixed interest rate that is normally higher than you can get from savings products or cash equivalents. Their price fluctuates, so there is risk involved. Few average investors select their own bond issues to invest in. Instead they simply invest in bond mutual funds.
Alternative investments include real estate, gold, oil, basic materials and other tangibles.
This investment type can produce higher returns and there is risk involved, as they fluctuate in value like stocks do. These are good alternatives to hold because they sometimes go up in value when the stock market is falling. Alternative investments can work to offset the risk of holding stocks. The simplest way to invest in this basic investment type is with mutual funds.
As a basic investor guide ... by owning all four of the above types of investments you can invest for your future and make your money grow while keeping risk at a moderate level.
What's the simplest way to invest in all four areas? If you noticed, mutual funds are available for all the above. You can cover all of the bases by simply opening a mutual fund account with a major mutual fund family. Plus, you can usually get started with only a few thousand dollars or a couple hundred a month.
James_Leitz
0 comments:
Post a Comment