When you vigorously manage your money, you have
the prospective to make more of it. That is what investing is all about. If you
reason that investing is for nerdy, accountant types, think again.
Step 1: Take your financial image
to see how much money you have to play with. In finances, work comes before
play. First, take care of your daily living expenses. Pay down your debt and
build up a backup fund that preferably contains six months of living expenses.
Then you'll be ready to invest.
Step 2: Take a good and honest
look at yourself to determine how you should invest. If you are the worrying
type who would obsessively check your portfolio every day and stress about it,
you perhaps want a safer investment. Choose a mix of stocks and bonds, or maybe
sticking with mutual funds, which are pooled funds of thousands of investors.
Step 3: You should decide whether
you are going to make use of a full-service broker or a discount broker.
Full-service brokers do offer advice on selecting what investments to buy, but
it is the more expensive way to go. You will save money with a discount broker,
but you have to do your own legwork, researching companies on your own.
Step 4: Differentiate your
portfolio. You want a lot of variation in your closet, and your portfolio
should not be any different. Asset allocation, or diversification, is dispersing
your money around to different investments. You will be limiting your risk
without sacrificing potential gain.
Step 5: Purchase shares at steady
intervals with a static dollar amount. This is called dollar cost averaging and
benefits you by taking away any speculation and guessing. Because you are continuously
investing the same dollar amount, you may be buying more shares at one time and
less at another, depending on the market. Making consistent investments often
works better in the long run than if you tried to time the market.
Step 6: Update your portfolio frequently,
such as quarterly or annually. As you or your broker selects an appropriate combination
of investments, you want to make sure the sizes stay the same. Over time, some
investments probably will grow faster than others. Your stocks may increase,
leaving you with a greater percentage of stocks in your portfolio than you
want. You can sell those and buy new assets that keep in line with your
original portfolio mix. Or you can keep the extra stocks and buy more of the
under-weighted investment category.
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