Easy-To-Use Investment Strategies
- Alan Lavine and Gail Liberman
If you're like most families, you don't have time to manage your investments. The last time you tried, you probably lost money because you failed to stay on top of the financial markets.
Whether you invest in stocks, bonds or mutual funds, there are some easy ways you can invest and build your wealth over the long haul. Here are several investment strategies that take no more than one hour a year of your time!
Dollar cost averaging is one of the best ways to invest to meet your long-term goals. You invest regularly in a stock fund through thick and thin. Whether you are saving for your child's future education, your retirement or for a vacation home, this is a low-risk way to invest.
How can anyone who works hard for a living find the time to predict the direction of the financial markets when the pros can't do it? Research shows that most investment advisory newsletters failed to outperform the buy and hold on the stock market over the long-term, according to the Hulbert Financial Digest.
The answer: Forget about timing the markets. Over the long haul, dollar cost averaging has served investors well. For example, if you invested $100 a month over the past 10 years in the Vanguard Index 500 fund, a fund that tracks the performance of the overall stock market, the money would have grown to over $21,000.
Tip: Increase your monthly savings each year to keep pace with inflation.
To get started, you can establish an automatic investment plan with a mutual fund group. You money is electronically taken out of your checking account and invested in the mutual fund monthly.
If you have $1,000 to invest in a mutual fund company's money market fund, you can arrange to have money swept into other mutual funds each month.
The Constant Dollar Investment Plan is another easy and effective way to invest. It's an automatic way that tells you when to buy low and sell high. All you need is a stock fund and a bond fund or money fund. Make sure that you have the same amount invested in your stock fund at the beginning of each year. Say you start with $10,000 in your stock fund. At the end of the year, the stock fund is up to $12,000. You would take your $2,000 profit and sock it away in a money fund. But if the $10,000 dropped to $9,000, you would take $1,000 out of your money fund and invest it in the stock fund.
Portfolio rebalancing can help build your wealth with less risk. First, diversify your mutual fund investments among stocks, bonds and money funds. If you want, also include international stock- and bond funds, and an aggressive stock fund.
The next step: Rebalance your fund holdings once a year. For example, say you invest 60 percent in stocks funds, 30 percent in bond funds and 10 percent in money funds: Every year, you would realign your holdings so that you have the same mix.
You can also invest in mutual funds that do this "portfolio rebalancing" for you. These types of funds are called "asset-allocation mutual funds." Major fund groups, like Fidelity Investments, Vanguard and T. Rowe Price have asset-allocation funds.
Pension fund-style investing. If you have an account with a brokerage firm or mutual fund, consider investing in bonds. Then have the interest income invested in a stock fund. This is a low- risk way to invest in stocks. Dollar cost average into a stock fund with the monthly, quarterly or semiannual interest income from bonds or bond funds.
Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).
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