Every Dollar Matters

Investing your money

If your financial goals are like those of Donald Trumps then you are at the wrong place. There is more than one way to invest you money. Many factors weigh in when in comes to investing. Age, income, debt, children, and other factors will all play into the decision you make as to how to invest your money. Ultimately the decision is yours. Also, the responsibility is yours. After all, it is your money. Be wise!

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Are you the type that rarely has money left over at the end of the month to invest? If you answered yes to this question you are not alone. The best advice I can offer you is to treat your investments like a bill. The majority of you would not think twice about skipping your car payment, or blowing off paying you electric bill. What you need to do is to treat investment as a monthly bill. Determine how much you would like to save per month and treat it as a bill. If you think you are still not disciplined enough for this approach you may want to consider a plan where the money is automatically deducted from your checking account each month. 

Before you invest...

Do you have a lot of consumer debt?

My advice would be to pay off or pay down your credit card debt before you begin investing your money. However, if you are not willing to change the spending habits that led to this debt you will just find yourself back in the same situation. If trying to pay down your consumer debt does not seem like an optimal plan for you then consider what you would like to invest per month and allocate 50% of that amount to reducing your consumer debt.

Are you saving for your retirement?

You do not necessarily need to max out your retirement percentages before you invest you money in other things. But, regardless of your age you would be wise to start investing for retirement.

Children bound for college?

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Even if they are pre-school age you can consider them bound for college. A state college can easily cost $12,000 to $15,000 or more per year for room and board, tuition, and other expenses. If you are middle class you can pretty much rule out financial aid. Also, while you may not be able to foot the whole bill do you really want your children incurring a massive debt in student loans before they even get their first job? Putting money away in a 509k plan or college IRA can have tax advantages for you. Also, as the price of higher educations seems to grow at rates that exceed typical annual investment returns it can actually be a pretty good investment. And remember, this is an investment in the future of your children and ultimately in the future

Do you have a savings nest egg?

You should have some cash on hand in a saving account that is readily accessible. This is not so much an investment as it is a stash of cash to help you out when the car needs repair, or the washer breaks down. We try to keep $1000 to $1500 for such emergencies. It will also keep you from having to put these type of "gotcha's" off your credit cards

What should you invest in?

This is a question that does not come with a single answer. The answer really depends on your needs and who is dispensing the advice. Bottom line is that the final decision is yours to make.

What about Annuities?

I have never been a real big fan of this type of investment. These investments tend to be front loaded (meaning you have to wait years to accrue and assets that you can access).

Now, having said all of this, given that interest rates for savings have been close to zero percent for the past seven years these investments can be good in the sense that they typically are going to guarantee you a rate of return of at least 3-4%. When interest rates on savings accounts and CD's are less than 3% I would not rule out annutities as a safe investement.

What about online stock accounts?

These have become very popular. I like to buy and sell my own stocks but you need to realize that this can be a great deal of work on your part. I spend a few hours a week researching new stocks and tracking my stock portfolio. In fact, at one time I was spending so much time doing this that I started to move my assets into mutual funds and stocks that I knew I was going to hold for at least 3-5 years. If you goals are not to spend a great deal of time managing your investments then you would be better served buying a few mutual funds and letting the professionals do the work.

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Most online stock accounts allow you to buy and sell mutual funds but you will need to check into the choices that are available to you before signing up. Ameritrade, Scottrade, and E*Trade are the three big names in online brokerage accounts that offer good research tools and reasonable fees to trade online. There are many others as well. Do your homework! Some things to look for are...

If you decide to invest using an online stock account the following sites can offer you research on stocks. Note that the stock brokerages themselves also offer research tools that you can use.

Yahoo Finance

Marketwatch Big Charts

What about mutual funds?

Mutual funds are a great way to invest. There are many sites where you can research how well a fund has done over the years. You can also diversify your investments with mutual funds as they come in many different shapes and sizes (growth, income, international stocks, tech stocks, stocks and bonds, bonds, money market, etc...).

Mutual funds are run and staffed by professionals whose business it is to buy and trade. Besides buying funds through online stock brokerages you can also buy them directly from the company offering the funds. 

Mutual fund have initial buy requirements, some as low as $100, some as high as $10,000 or more. Some funds will allow you to buy so many dollars or shares of the fund per month. This can be great for those of you that want to invest on a regular basis and treat your investments as you would a monthly bill.

Always obtain and read the funds prospectus before investing. Also do your homework. The following sites have good free research tools for screen mutual funds. 

http://finance.yahoo.com/funds

http://www.mfea.com/

Mutual funds will take an annual slice of your pie. You should not buy a mutual fund that takes more than 1% of your money per year. It is important that you research how much a fund takes in fees.

Finally, all the stock accounts like Ameritrade will allow you to buy and sell mutual funds without paying a transaction fee. Though most require that you hold onto the fund for at least six months.

What about savings accounts and CD's (Certificate of Deposit)?

The answer to this really depends on what current interest rates are. If you can get 3% or more on a CD that does not lock up your money for more than two years you might want to consider this as an investment, particularly if you are looking for a low risk investment.