Ever since the 2007-2008 financial crisis, beginning with wild market swings and then morphing into a housing bubble and subsequent crash in home values, people in the United States and around the world have been rethinking their investment strategies. If no markets are safe, you are probably asking, Where should I invest my money? The proliferation of new investment products, often peddled by unscrupulous sales representatives, only adds to the confusion.
The first question to ask is, when will you need the money? If you’re in your twenties and want to start saving for retirement, your strategy will be completely different from that of a saver already close to retirement. And if you’re saving for a child’s university education, then your decision will differ, depending on whether the child is three years old or already seventeen.
Now, as before, there is no quick fix — there are no surefire get-rich schemes. A financial planner or broker who promises outsized returns on an investment — say, 10 percent or more — is a snake-oil salesman. Slow and steady wins the race; plan to invest a fixed portion of your income — as much as you can reasonably afford, without excessively compromising your quality of life — on a regular basis. The best investments are usually low-fee; you want most of your earnings to be reinvested into your account rather than paid out in fees and commissions.
If you have fifteen years or more until you need the money, keep a good mix of stocks and bonds, most easily through low-cost mutual funds offered by quality firms such as T. Rowe Price and Vanguard. Invest directly with these (or other) investment houses, by going to their websites; there is absolutely no need to purchase Vanguard funds through a broker or other third-party, because then you’ll only pay additional fees. Vanguard offers a great range of so-called index funds, which spread your money over a broad segment of the market. Try to diversify so that you hold stocks in both large companies and small companies; and in both “growth” companies, which reinvest profits in their own growth, thus promising capital gains, and “value” companies, which return more of their profits to shareholders, thus promising dividends. Also, particularly for American investors, don’t ignore international stocks — again, consider one or two broad-based mutual funds that specialize in international markets.
If you are closer to retirement, then focus more of your investments in bond funds or individual bonds. U.S. treasury bonds don’t earn much these days, but if you “ladder” — purchasing a portfolio of bonds with different maturity dates, then purchasing new bonds of the same duration as older bonds mature, you can minimize your exposure to inflation risk. Remember, bond funds can lose money, as fund managers routinely sell bonds before their maturity dates if they believe the transaction will be beneficial overall; holding individual bonds is safe if you hold the bond to maturity, but if you’re only earning 3 percent on a twenty-year bond and lending rates rise to 5 percent and above (ushering in higher inflation), your investment won’t be very attractive.
And, if you have extra money to invest, consider investing a fraction of your portfolio in a specific sector that you’re comfortable with, such as utilities, real estate, or energy. Don’t make big bets in any one sector, and again, for most savers, investing through mutual funds is easiest and safest.
Listen to advice only from reliable sources. Money magazine and SmartMoney magazine are both objective, respected sources of information for personal investors; both have extensive websites. Another online source of good information is Morningstar; access to premium information requires paying a nominal fee, but it’s worth it if you intend to do serious research.
In sum — don’t try to outperform the market! Those who manage to do that are lucky rather than smart. Save steadily over the long term in low-fee investments, and chances are you’ll come out ahead.
An investment calculator can be a wonderful tool if you are contemplating investing but are not sure which scheme will give you the best financial rewards. With so many companies now advertising on the internet, it is easy to gain access to a great many investment opportunities.
Many companies who are available to handle your investments will feature an investment calculator on their website. These are usually easy to use and will give you an idea of what return you can expect if you put your money with them. The calculator is there to help you get a clear picture of what you can expect back after a certain length of time. There are many variables which you can enter into the equation and all of these can be taken into account when calculating the results.