Investment Tools & Tips
All investing requires research, careful decision making and asset allocation. While there are literally millions of potential ways to invest your hard earned cash, there are a few helpful tools and tips to make the process easier. Tools include several books and websites while the tips are simply "rules of the road."
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Setting Goals and Risk Tolerance
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When thinking about investing, first consider your goals and risk tolerance. Are you saving for retirement in thirty years? Are you saving for a car in one or two years? If you are saving for a longer period of time, you generally can accept more risk. You can accept a couple down years if the long-term trajectory is upward for a retirement plan. Two well-respected investment books on this subject include Benjamin Graham's "The Intelligent Investor" and Burton Malkiel's "A Random Walk Down Wall Street." These books both take an academic, value-oriented, fundamental viewpoint to investing. They both agree that investments should be made with a long-term perspective in mind, looking for the most undervalued companies and bonds.
Investment platforms
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Once you decide on your goals, the next step is to pick the platform that you wish to use. Many first time investors like to use well-established sites like Fidelity or Schwab that offer easy-to-use interfaces and broad mutual fund indexes. More experienced investors may prefer E-Trade or Scottrade that provide more detailed information on individual stocks and lower fees per transaction.
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Stock vs. Bond Allocation
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Once you have the platform and investment objectives narrowed down, you must decide how to allocate your portfolio between stocks and bonds. Generally the more conservative an investor you are, the higher you want your percentage of bonds to be. Seniors saving for retirement may allocate as much as 20 percent or more to bonds. Young professionals with more risk tolerance may want to allocate only about 8 percent percent to bonds.
Investment Selection
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Once you have chosen your allocation percentage, you must pick the actual stocks or bonds to invest in. For beginners, it is best to choose a mutual fund or exchange traded fund that is managed by a professional. Make sure that you choose a low-fee, well-performing fund in a sector you understand. These mutual funds should be easily identifiable on the trading platform you are using. For more experienced investors, there are a plethora of free sites including the government's Bureau of Labor Statistics (BLS) and SEC's EDGAR filing system with all the disclosures of publicly listed companies to help you make your selection.
Tips from Warren Buffett
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Accomplished investor Warren Buffet invests by only a few maxims. For any investment in a company, he suggests you buy (a) a business you understand (b) that has favorable long-term economics (c) able and trustworthy management (d) and a sensible price tag -- all else,according to Buffet, is secondary. While Buffett has been incredibly canny in being able to determine all four of these components in any given company, it is useful information even for the novice investor.
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References
Resources
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