- Personal Finance
5 simple steps to get started investing
Where to start investing
So you're ready to invest, but where? Should you buy stocks, bonds, real estate or mutual funds? And how much should you invest? Will you be able to retire? Questions are the starting point to a great strategy. If you don't care enough to ask, you don't care enough to act.
Let's take alook at all the options. Stocks, bonds and mutual funds are the easiest ways to invest, because they require no upkeep. Real estate is a bit more work, but the upside is usually worth the work. Here are 5 steps to getting your portfolio headed in the right direction.
1) Find out if your company offers a 401k match. Every company my wife and I have worked for have offered some sort of incentive. My wife and I have 6-8% deducted every paycheck, and our companies match up to 50% of that. It has been one of the best decisions we've made. We don't even notice the money is gone, because it's deducted before taxes. Here's the point: make it automatic, and in time you'll see the benefits.
2) Now that your 401k is on track, you should consider investing in actual companies, not just mutual funds and 401k's. Again check with your company. Fedex (my employer) allows me to purchase company stock automatically with no fees. I believe Fedex is a great company, therefore I gladly invest 5% of my paycheck in a great company with proven results.If you believe in your employer, find out if you can buy company stock with no fees. Trust me, it saves you $. Brokerage accounts will charge you $7+ for stock trades/purchases.
3) You are feeling good now, but trust me a solid investment portfolio requires more than a few stocks and mutual funds/401k's. The next investment I would recommend looking into is the bond market. There are Government bonds, Municipal bonds, and Corporate bonds to name a few. The risk here is that the government, municipality, or company you are buying bonds from could go bankrupt (like Greece, Enron, GM, etc.) However, the advantage is when you buy the bond you have a guaranteed interest rate for a set term (ie 30 yrs). I know bonds aren't yielding high rates right now, but in 2003-4 our family bought bonds with guaranteed 4-6% interest. Eight years later (2011), those bonds have really started to take off.
4) At this point you may be ready to try some "risky" investments. My goal is to own high risk investments until I turn 40. So for the next 15 years we will continue to invest in a few high rick stocks and mutual funds. There is no real way to advise you on what stocks to buy, but we are still in the midst of an economic downturn. That means stocks are at historic lows. Pick some companies you know will last through a down economy (Pepsi, Mcdonalds, Walmart, Sony, etc.) Don't be afraid to get risky with small amounts of money. You have to know how much you are willing to lose. I designate about 5% of my income to risky investments and 15-20% in solid investments. In the past I have owned shares of Citi, AIG, Fannie Mae, and Ford. Yes, they were risky, but the upside is tremendous on certain "down" stocks.
5) My final advice is to always own some kind of real estate. Owning your own home is always a great decision. It's not cheap, but Real Estate (in the long run) always pays for itself plus interest. You will get burned if you hope to own a home for 2 years and make money. Many "flippers" have gone belly up (and rightfully so) in this economy. Historically Real Estate averages 10% annual appreciation. Think about that, you put 10k down and now your 200k house goes up in vale 20k every year (on average). No, you won't get rich quick. However, more millionaires start in Real Estate than any other industry . Once you won a home, consider owning rental properties. Owning a duplex has been a great source of income for our family. In the long run, we have renters purchasing our house for us.
At the end of the day, there is no silver bullet. Wealth doesn't guarantee happiness. If you aren't happy with what you've got, money won't cure that. Doing what you love is literally the only way to find real Happiness. If you are reading this hoping to get rich quick, I hope by now you realize that isn't the goal of this writing. My goal is to help you understand some basic principles for investing, and having a cushion to fall back on in tough times, or retirement. Your best bet is always a good education and a hard work ethic. Add to that some savvy investing skills, and you'll be on your way to a healthy portfolio.