What to Invest in
It may seem like everyone’s pulling out of the current stock market, and there’s little wonder why: The grim economy is causing many investors to flee. For those close to retirement, the market’s drop is indeed scary. But for the young, there’s rarely been a better time to get started. With decades to go before retirement, you’ll be able to ride out the storm and bring in plenty by the time you quit working for good. Here, a closer look at how to get started now for future dividends.
Do your research. Does your company offer a 401(k) plan? (Don’t know what that is? Start here.) If it does, you should be taking advantage of it to the fullest. These plans are designed to take a certain amount out of your paycheck each month and put it toward long-term investments. You won’t be taxed on this money until you withdraw it. Another great benefit is that many employers will also contribute to your plan. Some match dollar for dollar up to a certain amount, while others give a percentage of your contribution. Essentially, this is free money for you to put toward retirement. Talk to your employer to make sure you’re setting aside as much as you can each year.
The next step is to look beyond the 401(k). Do you have a money-market or savings account? If not, look into starting one. Then consider other investment options: mutual funds, stocks, bonds, an investment portfolio, etc. If you’re having trouble grasping the investment concept, gather as much information as you can. Investopedia.com offers a tutorial for beginner investors (others to try: Motley Fool, Investing 101). Then talk to a financial adviser about investing.
Diversify your portfolio. To play it smart, you’ll want to divide your money into a few key categories: stocks, bonds, mutual funds, cash, and even real estate. Each of these areas can then be divided into different risk levels, ranging from high- to low-risk options. The various industries that you invest in can have an impact too. With a variety of investments, you’ll safeguard yourself against market slumps.
While the exact stocks you choose are a matter of personal preference, be sure to research a company before you invest in it. Many smart choices can be found on the Standard & Poor’s 500 Index, which contains the stocks of 500 large-cap corporations in the United States. The old phrase “Buy low, sell high” applies to today’s market. Invest in a solid company, and your money will grow along with it.
Consider spiders. In addition to getting individual stocks in the S&P 500, you can purchase shares of an exchange-traded fund (ETF). One of these, the Standard & Poor’s Depositary Receipts, or SPDRs (pronounced “spiders”), gives smaller investors a chance to get the same performance as the S&P 500. They trade like other stocks, so they can be sold quickly or held long-term. Read more here.
Up-and-coming small businesses may have high potential, but also contain high risks. Eco-friendly companies are currently a popular choice among many young investors. While these firms contain great potential, you’ll want to read up on a company’s background before making a final decision. Check out the financial information in addition to the green values of the company.
If you hire someone to help you, be sure to check the fees involved before signing up. And if you decide to go on your own, get some practice first. You can go to websites that let you “invest” thousands of virtual dollars into the stock market. A few to try: Investopedia.com’s Simulator, Virtual Stock Exchange, and Investing Experience.
Note the time factor. There’s a huge difference between starting to invest in your 20s and starting in your 40s. The sooner you get started, the longer your money will have to grow. And with time on your side, your money will have decades to increase, and even double. When retirement finally does roll around, you’ll be ready.