Investing for Beginners
The stock market scares many people. Something about the frantic pace of cash moving unnerves people. They fear losing their money. Before they even lose their money, they're scared because they do not know how the system works. Most people thought they understood the stock market, but the last decade and the last two years debunked those beliefs.
Does that mean consumers should lose faith in the stock market? In the long-term, a balanced stock market portfolio yields returns that cannot be matched elsewhere. Those gains over 20 and 30 years create wealth for many people. As the economy improves, the stock market will return to being the premiere place to achieve the biggest financial return on investment.
Yet in the meantime there's plenty of ways to invest before you throw yourself in with the bulls and bears.
Save and be prepared
Before people invest, they should have six months income stored away in a savings account. This guarantees that if they lose their jobs or lose money in investing at any point, they can still pay their bills for a period of six months while they find a new job. As well, it gives them six months to wait for the market to rebound from short-term losses without having to pull their money out on a moment's notice.
The best way to save is to find a high-yield savings account, preferably with at least a 4 percent return. Many local banks offer these rates, as do many online savings banks.
Buy stocks, be wary
The stock market is not the safest place for your money, but it does offer the best reward, but only to people who stay in it a long time and have patience to move their money only once it's seen successful returns. Understand there is risk. Don't ride the high and low's of the daily, weekly market. Look at months, and even more so, years, to gauge success.
Retirement
Invest in a retirement account, whether it be a Roth IRA or a standard IRA. They offer tax-deferred benefits that allow you to invest in your future and watch your wealth grow without taxes. They help you prepare long-term for your future. Find one with a good rate of return. 401(k) program are another great alternative if your job offers one.
Start small, be safe
Money market accounts, securities and bonds offer a great way to invest with less risk. The returns are often less as a result, but they tend to be more stable. With money market accounts, you're investing, much like you would a saving account. Government bonds deliver guaranteed returns, but currently the returns are so low, it's not worth it. That should change over the next decade.
Mutual risk, mutual support
Mutual funds are typically the safest way to go. Mutual funds are pools of stocks, bonds, securities that people invest in as a whole. The premise is if stock declines, then your money is not in just stocks, so the whole mutual fund should not go belly-up. That happened with several during the recession, but isn't expected to continue.
The big boys
When you finally invest in individual stocks, know yourself. Know what you can afford to lose. Only invest what you can afford to lose, anything more and you'll be kicking yourself. So will your spouse. Don't dwell on losses, learn from them. Learn from your mistakes. Balance low-risk investing like mutual funds with stocks, so you're never too low or too high.
The key is to remember money doesn't grow on trees, but the stock market does have seasons. Be prepared to wait out the seasons, spring, summer, fall and even winter, before you see returns.
