WHY INVEST?
WHAT IS INVESTING? Simply put, investing is putting your money into something that you believe will grow in value over time. The best known examples of investing are stocks, bonds (individually or in Mutual Funds), CDs (certificates of deposit), real estate and land, interest bearing accounts (savings or checking accounts), insurance, precious metals and "rare objects" (antiques, coins, stamps, art, etc.), though there are many others.
WHY SHOULD I INVEST? As the old saying goes: "The person who fails to plan, plans to fail". Trust in yourself to have your own best interests at heart. Job situations can change. Political sentiment varies from year to year. The economy swings through cycles. As we get older, our ability to sustain a living wage may decline, while our costs for health or medical services or products increases. Will Social Security still be there for us when we retire? Maybe we want to put our children through college or start a business of our own. And, of course, we would all like to retire comfortably. These are all reasons to invest.
HOW DO I GET STARTED? First you must decide what you are investing for (retirement, college, business?)...how much money you will need from your investments ($10,000, $100,000, $1,000,000?)...when will you need it (1 year, 10 years, 40 years?)...and what kind of risk you are willing to take? Lower risk investments (such as bonds or CDs) give lower returns, while higher risk investments (such as stocks) tend to give higher returns. Knowing these things, you can decide where best to place your money for the highest returns within your time-frame and risk level.
RESEARCH, RESEARCH, RESEARCH!!! This cannot be stressed highly enough! Don't be afraid to ask questions. Don't be afraid to dig through financial reports. You must do research! A "hot tip" overheard at the water cooler is not research. There is such a vast supply of research available, and so much of it is free...on the internet...in magazines, financial papers or books available at the library...on TV and radio. We have provided plenty of links to quality investing sites to help get you started. For the first time investor we would highly recommend visiting The Motley Fool, a web site of, by, and for investors, and going through their "Fool's School", or Morningstar's investors school online [Must sign up, for free, to enter, and then you can win free prizes for passing certain levels], CBS Marketwatch's "Getting Started In Investing" online course, or Money 101 from CNN & Money Magazine. Check out all three. They're free. In investing, as in almost everything else in life, the more you know, the better. Knowledge is gold!
ADVICE: Although you should "listen" to the experts (upgrades, downgrades, ratings, and "we think this stock should go to..."), don't rely solely on this. Many of these so-called "experts", or the companies that they work for, have a stake in the companies that they are pushing...perhaps even MILLIONS of dollars invested in them...and that means that they may be giving biased reporting...they may say "BUY" this or that company, when in fact, they have a major stake in it, and are just hoping to recoup their losses or make a huge profit. In fact, there are ongoing lawsuits regarding this very issue! So how do you decide what to invest in? Do you frequent any particular companies, stores or restaurants, or buy certain "brand name" products? Are there hundreds or thousands of shoppers buying thousands or millions of dollars of their products? How is their service, guarantees or warrantees? Are they clean, efficient and courteous? How is their selection of products? How do you "feel" when you are at their store, or when you buy their product? How you "feel" is very likely the same way many others feel. Do you feel that you were cheated, or was this a bargain? Is it likely their sales will increase or decrease because of any of this? Another thing to consider: Are you trying to out-guess the "market"? If everyone else is selling a stock, maybe they know something you don't. Maybe you should take your profits and sit on the sidelines for a while. There is a saying: "The Market will make fools of us all". It may. Pick good companies and stay with them for as long as they are making you money. You are the final arbitor. If you don't feel secure, you can always place your money in CDs or Federal bonds paying 3 - 5% or so. Though it's not a lot, it's guaranteed safe.
SALESMAN OR BROKER? Mark Twain once said, "A stock broker is a person who carefully invests your money...until it is all gone". Something to consider ANYTIME any "commissioned" broker or agent recommends something is this: Why are they pushing this so hard? Is it really YOU they are worried about, or are they thinking about THEIR commission? Insurance salespeople typically get a 50% commission on a new "whole life" insurance policy sale. So much money is eaten up by commissions, in fact, that it often takes 10 years or more before there is any actual value in the investment portion of a typical "whole life" policy. Do you actually need life insurance? Then perhaps you should buy "term" life insurance, and invest the money that you save in other "real" investments. Commissioned stock and Mutual Fund brokers typically get 5% for selling or "churning" (repetitive buying and selling) stocks or selling you a "loaded" Mutual Fund. Is that in your best interest...or theirs?? Do you care about them, or your money, your future? Think about it! Did you know that the ONLY difference between the fees on a "loaded" verses a "no-load" Mutual Fund are the sales commissions? The person who sells you a "loaded" fund is a salesman, not a broker. They have NO influence whatsoever on what stocks or bonds are in the fund. They are there to sell you something and make a commission. Will they volunteer this information? NO! Will they put it in writing that they are not doing this? NO! Read those past few sentences again. While this information will upset or even anger your salesman/broker, it is absolutely true! If a broker or salesperson does right for you, gives you good advice, and YOU make money, then they have earned their commission. If they sell you junk or "churn" your portfolio in order to make a big, fat commission, then you should fire them and look elsewhere. This is something that you need to know in order to make better decisions.
NEXT! Once you have some basic knowledge about what investments are right for you, check out some of our links. The Internet has changed investing from what was once the arena of "old money", or phone calls to or from your broker or agent, and made it accessible to the "common person", you and I. Stock trading is now fast, inexpensive and easy. You can easily shop around for the best bank CD rates, bond prices, brokerage costs or insurance quotes from around the country. You can even buy investment real estate, antiques and rare coins or stamps online. Of course, if you prefer the human touch, you can shop for prices online, then seek a local broker, agent or dealer, armed with the knowledge of what the costs should be. Again, knowledge is gold!
DIVERSIFY!! This is one of the most important things to know. Most investments go up in value over time, this is true. But there are cycles and trends in the economy...and fads. NEVER invest everything in one place...if you don't remember anything else, remember this! Many of the "Dot.Coms" of 1999/2000 that were $150, $180, $250 per share are now either under $10, under $1, OR BANKRUPT!!! And more recently, ENRON. Literally BILLIONS of $$ were lost to these debacles. Don't get caught up in this sort of "fad investing"! Invest in companies that have proven track records, growing earnings and profits, and solid business plans. And there are no magic formulas for what percentage of your investments to put here or there. Do what feels comfortable to you. In general though, if you have a long time to invest (over 10 years), then you should consider "growth stocks" (companies that pay little or no dividend, and instead, re-invest their profits into research & developement, or into buying out other companies to increase their growth potential). And if you are nearing that point where you will be needing your money (5 years or less), then start placing more of your assets into things that may have little or no growth, but pay a dividend (income) AND guarantee the return of your initial investment: (CDs, Federal Bonds, etc.).
Do your research, and the rest is up to you.
Investor Basics
What Is? The Dow Jones Industrial Average, NASDAQ, S&P 500, Russell 2000, Wilshire 5000, FTSE 100, Hang Seng, Nikkei 225.
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