A Simple Reminder
You’ve probably heard these fundamental rules over and over. At a time when
everyone seems to be giving up on the market, it’s time to “Play it Again,
Go beyond saving
After accounting for inflation and taxes,
money kept in savings accounts may preserve your purchasing power, but it
doesn't really grow. To achieve your long-term financial goals, you need to
invest your money in such vehicles as stocks, bonds, or mutual funds.
Think long term
Investing is different from short-term saving for things such as the down
payment on a car, cash you'll need in the near future belongs in a safe place,
like a savings account. However, money you won't need for at least five to ten
years or longer has time to ride out the inevitable ups and downs of the market
and should be invested for income and growth.
Learn the basics, keep it simple, and have patience
The key to making the most of your money is to invest small amounts
gradually and sensibly over time. Don't invest in anything you don't understand;
leave complex and high-risk investments such as options, futures, commodities,
and limited partnerships to the pros. Likewise, keep your expectations
realistic, use common sense and don't expect to get rich quick.
Don't put all your eggs in one basket
Experts recommend investors diversify and practice asset allocation. This
simply means dividing your money among different types of investments. This
helps protect against loss and increases your chances for making money.
Diversifying works because different types of investments tend to move in
different cycles some may go up while others go down. Others may move in the
same direction, but not at the same time or speed.
It pays to start investing early
Investing small amounts each month may not seem like a lot, but if you start
socking it away early, let's say when your in your twenties, it will translate
into big dollars down the road. A key reason: Your earnings have time to
compound over the years.
For example, let's say you invest $2,000 a year starting at age 25 in a tax
deferred account which earns a 10% average annual return. At age 65, you'll have
accumulated a total of $885,000. Compare this to if you had waited to begin
saving until age 35: Your nest egg would total only about $329,000. That $20,000
you didn't save between the ages of 25 and 35 ends up costing you $556,000!