If you are not sure how to invest money and want to invest to get ahead, don’t start investing until you know some rules of the road. Few things are black and white in the investing world, but you can avoid major mistakes when you invest by following some simple guidelines.
Get the idea out of your head that investing money and outperforming the markets is easy. Few professional investors have consistently done this in the past 10 years; and 2011, 2012, and 2020 will likely be no different. Your objective when you invest should be to earn better than average returns with only moderate risk. To do this you’ll need to invest in stocks, bonds, and perhaps real estate.
Forget about picking your own stocks to invest in unless you intend to make stock picking a part time job. One poor pick can ruin your year. You can’t afford to NOT make money when the stock market has a GOOD year, which is most often the case. Diversification is the key to investing money and participating in the stock market over the long term. The same is true when expression you invest in bonds. Few average investors can analyze individual bond issues, so they are best off investing in a diversified portfolio of bonds.
Real estate still looked dead in early 2011, but don’t believe that it will never again be a good place to invest money. In the future it is quite likely that 2011 or 2012 will define the bottom in this troubled market, even if (when) inflation and interest rates heat up. When that happens, investing money will be a real challenge for anyone trying to find the single best place to invest. Don’t spend your time or money trying to out-guess the markets and other investors. Instead, put together a diversified and balanced investment portfolio.
How can a beginner invest in stocks, bonds and real estate and at the same time have some money safely tucked away earning interest? You can do this by investing money in just three different mutual funds. Let the professionals pick the stocks and bonds for you by investing in a traditional balanced fund, where about 60% goes to stocks with most of the rest going into bonds. That simple formula has worked for years, so invest most (about 70%) of your investment portfolio there. The other 30% divide equally with half going into a real estate equity fund, and the other half going to a money market fund for safety.
Don’t get distracted when investing money and don’t try to time the markets. Real estate will again come back into favor and interest rates will likely rise in 2011 and/or 2012. When rates go up returns on money market funds will get better. When real estate recovers, you’ll be there. When you invest money in a balanced fund you’ve got stocks and bonds covered. If you invest by the simple guidelines provided here you should be better able to relax. You’ve covered the bases and avoided making major mistakes.