The Best Way to Invest

Investing in important

Whether you have a few years to go before retirement or many decades, it is important to invest your money wisely. The right investment strategy can make the difference between a comfortable retirement and one where you are just scraping by. No matter what you do for a living or how much money you make, it is never too early to get started on a smart investing strategy.

Things You'll Need

• Spreadsheet program
• Computer
• Financial records

Instructions

1. Gather your financial records to assess where you stand and how much you have invested already. You do not need to include any money in an emergency fund, but you should include any money allocated for long term investments.

2. Determine your tolerance for risk and use it to guide your investment decisions. If you can live with the wild swings of the stock market, you might want to allocate more of your money to stocks. If you would be unable to sleep at night if your portfolio lost 20% or more of its value, it may be best to allocate more to safer investments like government bonds and bank certificates of deposit.

3. Consider your time horizon when investing. If you will need the money in less than five years, there might not be enough time to recover in the event of a bear market. Those short term funds should be invested in assets whose value will not go down--bank CDs and government bonds are both good choices.

4. Look for low cost investment options. Investing in a low cost no-load mutual fund will help keep your expenses low and give you more money to invest. If you choose a low cost index fund you can get your investment costs down below 0.25% per year.

5. Consider investing in a stock market index rather than trying to pick individual stocks. Even the pros have trouble picking winning stocks, so unless you are a superior stock picker it is generally best to stick to the indexes. Look for a low cost index mutual fund that invests in the Standard and Poors 500, the total stock market index or another widely diversified index of stocks.

6. Practice investing before putting any actual money at risk. Track your stocks and mutual funds on paper for a few weeks to a few months while you learn how the stock market works and get used to how volatile it can be. This will give you a chance to try out investing without actually putting your funds at risk. Invest actual money only after you know that you can accept the inherent volatility of the market.

References

• Money Magazine: Investment Tips