Guide To Investing

Have you often heard your friends or relatives talking about the gains they had made on their investments? And have you marveled at the ease and confidence with which they discuss the various investments they have made or are thinking of making? You too might have contemplated investing your savings but stopped short of doing so since you were not sure where to begin. You might have felt overwhelmed by the amount of information available about investing and the large number of investment options. You might also have felt intimidated by the risk factor and the conflicting advice from friends. However, all you need to know are a few basics about investing.
To begin with, you must make sure that you have your finances under control. This would mean –

• You have no or very little credit card debt.
• You have an emergency fund that will take care of at least three months of living expenses.
• You are maximizing your contribution to your employer’s 401(k).

If you are already taking care of all the above and are still managing to save some money every month, you are ready to start investing. There are many stock mutual funds that allow people to invest with as little as $500. The next time you get your tax refund or get a bonus, put in that money in some mutual fund. In fact, even if you cannot manage $500 in one go, you may be allowed to skip the initial investment if you allow the fund to withdraw small amounts of $25 to $50 regularly from your checking account.

The next question of course is how do you decide what to invest in. For this, you need to be clear about your financial goals. Are you saving for a house or a college fund? Or are you saving for retirement? Your financial goal will decide the type of investment you will choose. Since stocks are considered the best option for long-term investments, invest in them only if you are ready to wait for five years or more to get a decent return on your money. You will also need to know what your risk tolerance is. If you tend to hide your money under your mattress because you do not really trust your bank, investing in volatile but high return technology stocks may not be right for you. Determine the level of risk you can take so that you can select investments in that risk range.

Most financial experts will suggest that you put your money in a variety of investments so that your risk gets spread and at any point in time, one of your investments is doing well. For beginners, stock mutual funds are a good deal because they carry less risk than do pure stocks. There are many online websites that will analyze different mutual funds and depending on your risk tolerance and financial goals, suggest a few to you.

Once you have chosen a fund that you feel sounds promising enough, fill out the required forms, send in your money and before you realize it, you are an investor yourself.