How to Invest Smarter in Six Steps

Investing smarter in six steps sounds impossible to many people. With our economy being unsure, jobs being unsecured and money being tight, you’re probably thinking that investing now is impossible when you are barely making ends meet. This article is a guide to help you invest smarter with what you have.

Difficulty: Moderately Easy

Instructions

1. Pay Yourself First. Don’t fool yourself into thinking you will pay yourself “next week”. If you wait to pay yourself, something will come up and there won’t be anything left over by the end of the month.

2. Put Time On Your Side. The sooner you start investing the less effort it will take to reach your goal. Just $100 a month at 6% interest can turn your $1,200 a year investment into $16,388 in just 10 years. If you are fortunate enough to get 10% interest in 10 years your $1,200 a year investment is now $20,484. Do the Math. Over 10 years you are putting $12,000 into your investment but you will have $16,388 (6%) to $20,484 (10%). That’s an earning of $4,388 (6%) to $8,484 (10%) in just 10 years that you didn’t have to do anything (except invest). In 20 years, that same $100 investment will be $46,204 (6%) to $75,937 (10%).

3. Beware Of The Silent Thief. Although you may think investing all of your money in so-called safe investments sounds like a good idea, be careful. CDs and Money Market Accounts as well as other fixed-income investments often don’t keep pace with inflation. When this happens, your purchasing power drops even though you are making money. To prevent inflation from eroding your savings, diversify your investments to include those with the potential to rise faster than inflation.

4. Use Dollar Cost Averaging. Basically this is where you buy more stocks when the price is low and fewer stocks when the price is higher. For instance: If you buy 20 shares in January for $5, 10 shares in February for $10, 6.67 more shares in March for $15, and 10 shares in April for $10 the average cost per share comes to $8.57. When you invest the same amount no matter what, you’ll be buying smart. When prices are low, you will buy more stocks for the same amount as when they are higher that you pay for fewer stocks.

5. Use Asset Allocation. Again it comes down to diversifying or spreading your investments among different types of asset classes. This spreads the risk around and reduce the overall volatility of your portfolio. Because there are no guarantees when investing, a financial advisor can be beneficial in establishing the right mix for your goals.

6. Make Taxes Work For You. Here are a few moves to help you get a tax break from Uncle Sam. 1. Invest for retirement through your company (401K), Traditional IRAs and Roth IRAs. 2. Education savings incentives like Coverdell Education Savings Accounts and 529 College Savings Plans. 3. Other tax opportunities such as Custodial Accounts

Tips & Warnings

• If 10% is good enough for God's Tithe, than 10% should be a good guide for your savings.

[harvard]

on 11/23/2009 Great financial advice. When your outlay is larger than your income than your upkeep becomes your downfall. Saving anything is better than saving nothing. Rainy days are a `coming my friend. Prepare. Thank you.

[jenng]

on 11/17/2009 GREAT ARTICLE ON How to Invest Smarter in Six Steps 5*

[joycetmann]

on 11/9/2009 Great investment tips. "Pay yourself first" has always been a favorite of mine. In today's global economy, real estate makes for a great hedge against inflation. Thanks! 5*

[evgnspaces]

on 11/2/2009 Nice summary of how to invest - in 6 steps.

[shenandoah]

on 10/31/2009 Good advice, well thought out and nicely written.