Are you a novice investor? There was a time that I didn’t know what a mutual fund was, or what was truly meant by diversification. Over time I read books, news articles, and financial blogs to gain an understanding of how to invest for my future. I used to think that being smart with your money meant saving a set amount from each paycheck and keeping spending habits within check. While that is certainly a big part of it, so is investing! Making sound and diversified investments is what allows you to pay for your child’s college, to purchase a new home, and most certainly to prepare for a comfortable retirement. So I decided to take the guess work out of investing and lay out some simple investing rules for the average person.
First, take advantage of dollar cost averaging! This means you shouldn’t be trying to time the market. Invest a set amount of money each month, regardless of where the DOW or S&P might be at that moment. At any time it could go up or down, no sense in driving yourself crazy trying to time it just right.
Diversification is key! Just as you need to hold cash, you also need mutual funds, blue chip stocks, dividend paying stocks, and ETF’s. The younger you are the more aggressive your investments should be, and vice versa as you get older and closer to retirement.
Online brokerages beat brick and mortar one’s every time. Seriously, consider how much less overhead exists for online brokerages. They pass these savings on the consumers. That means lower transaction fees, lower account fees, and even additional benefits like free wires and ACH’s. These are benefits that the big brokerage houses simply can’t afford to compete with. I switched over years ago and haven’t looked back.
Incorporate the best of both worlds, dividend paying mutual funds! I love dividends because they are a built in passive income stream. I also love mutual funds because they keep you well diversified with a portfolio of stocks. If you put the two together it’s just the perfect marriage of investments. You might want to pay attention to what dividend paying mutual fund you purchase, it should have experienced good performance over the past several years as well as having low fees.