Invest Your Money
Did you know that almost everyone has the potential to earn a million dollars or more over their lifetime? If you earn $25,000 a year for forty years, you will have earned $1 million. However, if you are like most people, you have no idea how much of the money you earn slips through your fingers unnoticed every year. To keep some of your earnings to accomplish the things that are important to you, you will need to develop a strategy of spending less and investing more toward your goals.
To be a successful investor, you need to understand the basics about stocks, bonds, mutual funds, and cash equivalents. If you don't find a way to put your money to work for you effectively, you'll never be able to reach the financial goals you set.
Saving is essentially just putting money away for safekeeping. Investing is using
your money to produce more money.
Before you even think about investing, you should have some basics in place. If you have credit card debt, get rid of it before diverting money to investments. If you don't have an emergency fund that would cover at least three months living expenses, establish one before tying money up in investments.
Once you have these basics taken care of, you're ready to start investing your money . Don't be intimated by the complexities of the stock market. Forget about gold, futures, options, puts and calls, and all those confusing terms you hear by news analysts. The average investor never deals with them.
Your overall investment objective is to create wealth. You may be saving for a down payment on a house, saving for your kids' college educations, saving for a comfortable retirement or trying to achieve all three.
Each of your financial goals has a time frame that influences your decision regarding the types of investments your choose. The shorter the time frame, the more conservative the investment should be. The longer the time frame, the more aggressive the investment can be. That's why the bulk of your retirement money should be in stocks or mutual funds when you're young and won't need the money for several decades.
How to Invest Money
Diversifying is probably the single best way to reduce the risks of investing. It means, simply, spreading out your money among several investments. That way, if one of them suffers a loss, your entire portfolio won't fall as far as it would if all your money was devoted to that one investment. Diversifying won't guarantee that you'll make money but it will increase your odds.
Asset allocation uses a formula to divide your portfolio among the three main types of investments: stocks, bonds and cash equivalents. A conservative asset allocation might include 40 percent stocks, 40 percent bonds and 20 percent cash. An aggressive asset allocation might include 80 percent stocks, 10 percent bonds and 10 percent cash.
Choosing what percentage to invest in each category depends on a number of factors, including your risk tolerance, your age or how much time you have to invest before you need the money, the current state of the market and what direction interest rates are headed.
Investment Strategies
1. Build a knowledge base. Take time on a regular basis to educate yourself about investments and the factors that affect them. Read, attend seminars and ask a lot of questions. With education and experience, your skills and confidence in your abilities will improve.
2. Understand that some risk is unavoidable. Every investment is subject to some type of risk. Learn the types of risks your investments are susceptible to and options available to minimize them.
3. Use diversification to minimize your risk. Diversification is a way of spreading risk by investing in a number of different securities. Diversification is based on the idea that different investments will perform differently over time. While some are down, others may be up, and together they smooth out the dips.
4. If you are a new investor, start with mutual funds. Mutual funds allow you to participate in the market much like a large investor. They provide a professional fund manager, a large portfolio of investments, and the ability to get into and out of the market at any time.
5. Select investments to meet your goals. Match each goal to the most appropriate investment objective - growth, income or capital preservation. Consider your time frame, risk tolerance level and your current financial situation.
6. Never delegate your financial decisions to anyone else. This is your money and your future. No one else will be as passionate about your money and your future as you are. It is okay to seek advice and help from professionals, but when the time comes to make final decisions, you must accept full responsibility.
Choosing a Financial Planner
