The Magic of Investments
I envy people who actually understand all the ins and outs of investing and who have no fear when it comes to their investments.
Obviously, for these folks, it's a science and a "business" that they've studied and learned about to the point where they feel secure about what they invest in and when.
For the rest of us, who pretty much blindly invest with companies like Edward Jones and hope and pray for a positive outcome (and income I might add), it can be a little scarier because we truly don't know what we're doing.
Especially the older people get, the more they look to their retirement and wonder if anything that they've invested in will actually pay off!
Then you take a thing like the recession and an economy that the bottom has dropped out of and you definitely think investing is not for the fainthearted.
So what's the common person who knows little to nothing about investing to do?
Well, there are some tips and things to think about but realize that no matter what type of investment you put your money into, it's a risk.
Some are more calculated than others. Some forms of investing are super high risk and could end like many people's sad stories in the past few years where they lost everything....but then again, if you're a slow and steady plodder, you may turn out of this mess okay because you hung in and your investments were less risky.
PLANNING YOUR FUTURE IS ESSENTIAL
Knowing your game plan.....how long before you want to use your investment money...is key to any good plan of investment. Are you going to be investing for a short period of time? For instance, do you want to retire in 5 years or are you young enough that you can invest for a longer period of time?
Traditionally when you have a longer period of investment to look forward to, no matter what the market does and no matter what the downtrend is, your investment capital is going to recover because it's only a matter of time before the market turns back upward.
If, however, you're on the shorter term investment plan, meaning you plan on retiring in a few years, you may have a bit of trouble getting that money back right away if you've invested in riskier types of investment like stocks.
Long term investing is able to withstand the so-called periods of bad returns. Short term investors are not afforded that luxury because time is in this case money.
For instance, if you want to use the money from your investments within the next 5 years or so, avoid individual stock purchases or mutual funds that are stock-based.
Still further, if you want the money in the next 3 years, don't invest in the above at all, and add bond mutual funds to the list. Also stay away from real estate investment trusts which will drop if interest rates increase.
Don't feel that there are any options left if you're on the short term plan?
Not so! You can purchase
individual bonds or CD's that have a life of less than 3 years, you can put
your money into a savings account, or you can put it into a money market
fund. You can also invest in securities such as TIPS, which are treasury inflation protected securities, though you should hold those for at least 5 years to get the most bang for your buck.
The reasoning here is....the shorter time period in which you need your money, the less risk you want to take.....or should take!
People with retirement way off in the distance can afford the luxury of taking risks and waiting for higher returns that probably will come eventually!
Investing is a tricky business and not always understandable. Many people freak out when the market starts to tank and immediately close their accounts and pull their money out.
That's the worst thing that they can possibly do because frankly, they've already lost money but they lose even more when they pull the money back out and walk away with penalties, etc.
They also stand to lose much more over the long term and had they let the money sit, it eventually would have recovered.
Investment Tips and Strategies
While playing the lottery won't cost MOST people a lot of money, it's not
an investment strategy. Don't bank on
winning it to realize your financial dreams. (Although spending some every week or month on it isn't going to upset the apple cart and who knows?)
If you do nothing, you stand to gain nothing at all. Investing in something is better than investing in nothing. Just evaluate according to long term or short term investing strategies and don't take chances with your money.
The stock market is probably for the young (unless you really know what you're doing). It seems to be way too unstable and frightening for people that are older or people who are new to the dance.
There is no shame in investing in bonds and CD's when you need to realize your returns in a matter of a few years.
Investing late in life is better than never investing at all. You never know until you try it and playing it safe can net you returns!
If your employer has a 401(k) plan, make SURE you're invested in it. It's like getting money for free and you
don't want to turn that down! If there is a plan in place and your employer matches it dollar for dollar, you have yourself a little nest egg.
Remember too that inflation can be a huge threat to long term investments while rising interest rates are bad for bonds.
Do your best managing your investments and unless you're a daredevil, don't take chances with your money. But don't panic because the trend is going down. Chances are, it'll bounce back up and things will even out.
Don't be afraid to speak with investment brokers and counselors but keep in mind that their advice is biased based upon their desire to get you to invest more and in the way that is profitable for them!
Look at different options and see if your portfolio for investments meets this criteria which is recommended for most middle-class Americans....90% safe investments and 10% risky investments. If you're older or nearer to retirement, those numbers should be the same if not all invested in safer investments such as CDs and bonds.
As in all things, make up your own mind and decide if a little risk is worth taking or if you just want to play your investments safe. After all, it is YOUR money!
There are many people giving advice out there but I know myself and I know that I tend to be conservative in all things. I prefer to plod along with the end in sight but on the other hand, some people do really, really well with taking more risks.
Again, it's up to each individual investor how much to put out and how much to gamble with. If you have any input to this tough subject though, please leave comments for us all to learn from....no specific stock tips but just overall opinions on how to invest!
Dave Ramsey on Retirement Investment
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Anilvk from Dubai on September 16, 2011:
Its an informative hub for multifaced investment plans. Your opinion on my hub on investing in gold is solicited
Audrey Kirchner (author) from Washington on January 14, 2011:
Thank you, Hanna!
Hello, hello, from London, UK on January 13, 2011:
Great hub. Well written and good advice.
Audrey Kirchner (author) from Washington on January 12, 2011:
Thank you, Simone~! Hope it helps.
Simone Haruko Smith from San Francisco on January 12, 2011:
Lovely tips and tricks! You've got me thinking about my financial future now @_@
Audrey Kirchner (author) from Washington on January 11, 2011:
Yeah~~~ Women I love...don't get excited BJ and Om - but that's how I feel, too. After we work so bloody hard for our money (I'm going to break into song here and be right back....) I totally don't want to risk throwing it away. I've had so many yahoos try and tell us we need to be doing this and that but I'm all about staying 'inside the lines'.
Thanks BJ and Om - you have great philosophies and thank you for adding to my hub and confirming my 'old lady' ideas....I try and save stress for dealing with my kids and family!
Om Paramapoonya on January 11, 2011:
Great hub, Audrey! I do like CDs and bonds. They're stress-free ways to invest. The stock market is just not for me. I don't think I have enough adrenaline for it.
drbj and sherry from south Florida on January 11, 2011:
My father had a saying that I never paid much attention to until I grew up and realized how very smart he was. When it comes to investments, he said, "The greater the return, the higher the risk."
In other words, if you have money to invest, put it into CDs. The return (interest) may be low currently but your principal is safe (guaranteed by the FDIC). Buy stocks or bonds and your return (dividends) may be higher but your entire purchase is at risk.