Investing for DummiesPosted on September 10th, 2010 William No comments
No, I'm not calling you a dummy! That guy over there, maybe. The one who's investing in individual stocks without doing any research, getting in and out of stocks almost every day, and failing to save a sufficient amount for retirement. You wouldn't do any of those things, would you?
Investing can be pretty confusing; it seems like it would be nice to have a simple guide that says "do this, this, and this, and you'll make lots of money". Of course, if you do see a book that claims to do that, you should run far away; putting money into the stock market is speculation, and there's always the risk of losing money. In the long run, if you follow a smart investment strategy, you will make money; however, nobody can predict how much you'll make or exactly how long the long run will be.
The safest and easiest way to make money in stocks is set and forget: choose a handful of mutual funds that have low fees and meet your retirement needs, arrange to have money invested in those funds each month, and check every year or two to see if your portfolio needs to be rebalanced. Simple, easy, and you'll probably do much better than people who attempt to actively manage their investments.
Never invest money that you're going to need in the near future; money put into investments (particularly stocks) should be placed there with the intention of leaving it there until you're ready to retire. Investing for the short term leads to the danger of having to pull money out during a down market, as well as increasing the number of trades you make, which is generally a bad thing. If you absolutely must have some of your investment income available, consider a series of bonds with staggered maturity dates; in this way, some of your money will become available for use every month.
Find investments that fit your financial needs. In other words, if you want to retire in ten years, most of your money should be in bonds, annuities, and other safe investments! If you're just getting started, on the other hand, and can afford to lose what you're putting in, you should be pursuing more aggressive investments in the hope of a larger payoff. Just remember: there's a big difference between investing aggressively and gambling; make sure you're doing the former and not the latter!
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