Guides To Self Improvement

If you are like me, you have enough to do everyday and following the stock market just doesn’t fit into that schedule. Having a basic understanding of investments can provide you with a nice retirement fund or mutual find account. Below, I will outline the two funds which have provided me with an 11% average return over the last 7 years.

In the year 2000, just before the infamous dot com burst, I opened a 401k through the company I worked for at the time. I head read only a handful of books on investing, but one pattern began to emerge as I read them. One was that small businesses grew faster than big businesses and that about 75% of Americans were employed by small businesses. The other was the track record of the S&P 500 index and how over any 20 year period it had not declined. Great, because long term investment, was the bulk of my investment plan.

Armed with this knowledge, I opted to invest 50% of my 401k in the T Rowe Price 500 index fund and the Russell 2000 index fund.

Since then, the only time I have spent with this investment, is when I look at my statements every quarter. Other than that, it’s running on autopilot and since inception and has increased an average of about $10k a year. And should be well past $ 1 million by the time I retire, not bad for a few hours work.

In an ever changing and uncertain economy and job market, American workers have to become more economically savvy in order to secure financial stability. The Social Security system has been said to have ballooned to crisis proportions leaving many that pay into the program fearing or even expecting that benefits entitled to them will not be available by the time they reach the age of retirement. Fiscally-conscious Americans have taken their financial futures into their own hands by conducting research upon and making smart decisions on investing in assets that they will count on to secure their future. Common investment means consist primarily of 401(k)s, mutual funds, and the stock market.

401(k)s

401(k)s are retirement accounts commonly offered by employers to their employees that enables the employee to invest in the stock market, money market, and bonds spread over multiple separate investments. One of the most appealing aspects of 401(k)s is that they are tax-deferred methods of investments that allow employees to contribute up to a certain monetary amount each year without being taxed on the dividends until they are paid out. 401(k)s can be rolled over with the employee if they leave their job, further adding to the appeal. If the employee decides to withdraw a portion or all of their 401(k) holdings before the age of 59 ½ , they are subjected to a steep excise tax equivalent to 10% of the money withdrawn.

Mutual Funds

Mutual funds are handled by fund managers for investors and are an attractive option for those that prefer to spread their investments over a large area of different companies and commodities. Investors can determine percentages of how much of their mutual funds they would like to be invested aggressively, moderately, and conservatively in order to maintain a level of control. Mutual funds have exploded in popularity in recent years because of the relatively static amount of return that fund managers have been able to supply to mutual fund investors, which can sometimes reach as high as 12% or higher per year. Typically in mutual funds, the fund manager is responsible for all trading of the underlying commodities of each fund and distributes the assets back out to the investors. Naturally, competent fund managers are extremely popular and the risk entailed in mutual funds is many times in selecting the fund managers.

Stock Markets

Stock markets are marketplaces used to trade, buy, and sell a percentage of companies known as company stock. Stock markets can be real structures, such as the New York Stock Exchange or virtual exchanges such as websites that deal with trades. Professional stock traders work feverishly in order to research and speculate on the financial health of companies in order to bring their investors the highest return for their money invested. Stock markets can be highly volatile manners of investments for the casual investor and even seasoned investing veterans since it is wholly unpredictable and so much money is at stake. The stock markets depend on active trading and especially healthy buying markets to thrive and produce a “bull” market. A “bear” market refers to the times that investors are selling more stock than buying, making stock prices plummet. Many investors become what is known as “day traders” and speculate, buy, and sell stock for a living from their own home or office through the use of trading websites. While this has been a highly effective method for many, it is not recommended for casual investors that know little about stock markets and their idiosyncrasies.

The new year usually begins with a hangover, but after that we have resolutions we attempt to accomplish. Some people do go through with what they have set out to do, but most find themselves right back to what they were doing before. Let’s see, some of the common resolutions are diet, exercise, and stop smoking-this last one should have an asterik next to it. You should stop smoking cigarettes, so that in 6 months time after your palate is clean and your addiction is gone you can then start enjoying cigars, more on this in other posts. With that out of the way, let’s get to a resolution that gets overlooked for too many people, investing money in the new year.

Investing money, can mean different things to different people. When I say “investing money”, some might think of adding to your 401 k, others will think of opening up a savings account. Investing money is a strategy that should be taken as seriously as running your own business. Below I’m going to out line how to start investing money.

1. 401 k Plan Retirement

Make sure you are contributing to this, if your employer offers it. If not, then open up a roth IRA with any number of brokerage houses such as t rowe price or merril lynch on line. Alternatively, you could go with a cheaper version of the two, scottrade.com . Investing in a 401 k is basically investing in mutual funds, but with the added benefit of having your employer contribute (free money) to your account. In the end, and I can’t stress this enough, if your company offers a 401 k and you are not taking advantage of it, you are committing the biggest money investment mistake of your life.
2. Investing money in mutual funds

Mutual funds are a great way for lazy investors to make a decent amount of money on their money. As I mentioned above, when you invest, keep in mind that simply because you are investing money into a mutual fund doesn’t gurantee that you will make money. If don’t want the hassle of figuring out where to invest your money, do this; call your broker and tell him you want to put your money into a blue chip index fund and forget about it.
3. Day Trading Stock Online

If your entire porfolio was $100k, I would use no more than $5k for day trading. Actually, what I do is not really day trading , but short term trading. I look around for a stock that has some momentum behind it and invest a month or so before earnings come out. Usually I try to gauge the mood behind the stock, it has so far worked well for me. Although, I only use about $2k for this type of speculation. I say speculation, becuase when you are dealing with stocks in the $1-$2 dollar range, there is literally no rhyme or reason to the company and it is usually in bad financial shape. The hope with these stocks is that enough people think they can make money on a short rise and therefore money gets pumped into it and volume goes up and more people invest, so the price goes up. Watch out though when everyone takes their profit, it will sink 50% in a weeks time. With short term investing, you have to have discipline to take your profit or loss and run. I usually set it at 20 % either way.
Other thoughts:

If you browse through websites dedicated to investing everybody says you should invest money according to your age. The older you get the more conservative you should invest. To me, this really only works for the non-investment thinking person. Why is that? Because it’s not really about age, but about personality. If you are the type of person that looks at their 401k account everyday and starts sweating the moment it goes south, then you need to invest conservatively all your life, not just when your old.

Investing money for the New Year, you should also think about emergency savings account.