Wednesday, September 16, 2015

Smart Advice on How to Invest


Many people ask for advice from friends, co-workers, family members, strangers and their financial planners about how to invest.  Many people panicked during the 2008 recession and 2010 government shutdown and recent market crash. Many were forced to spend all or a large portion of their retirement money or moved their retirement money to a savings account or CD.  

This was the wrong move to make. You must keep your money invested during the ups and downs of the stock market.

Every investor has different financial goals and objectives and should work with a financial planner to assist with meeting your goals.  Financial planners have expertise in how to survive the ups and downs of the stock market and can provide the best advice and if and when you should move your money. Here are some practical steps to help you invest your money.

  1. Get your finances in order - Pay down debt. Create an emergency fund 9-12 months. Get insurance. Set financial goals, set a retirement date. Plan for your estate. This will free up cash that can be used for investing.
2.      Define a strategy - Determine the goals you want to achieve. Identify whether you want to invest in small caps or big cap stocks, emerging stocks, etc.
3.      Research - Research the stock price history, executives, and annual report. Learn everything about the company before you invest.
  1. Create a plan - Develop a clear plan where you are now and where you want to be financially. 
  2. Identify your style - Take time to develop your personal investment philosophy.
  3. Mentor - Get an investing mentor. Get advice from someone in your social circle who has an extensive financial portfolio you would like to emanate.
  4. Asset Allocation - Decide on an asset allocation to help balance risk and reward by allocating a portfolio’s assets according to an individual's goals, risk tolerance and investment outlook.
  5. Diversify - A well-diversified portfolio limits your exposure to risks so that your investments have time to earn real gains.
  6. Companies - Invest in well-established companies that have name and brand recognition.
  7. Risk tolerance - Identify your willingness to lose money.
  8. Patience level - Identify your patience level will determine if you are able to wait for returns to generate income based on long-term growth.
  9. Fees - Research the fees that you will be charged when investing such as commissions, management fees, cost of operating the fund, etc.


  1. Buy low, sell high – Buy when the market is experiencing turmoil. When the market bounces back, you will have achieved great gains.
  2. Review - Review your portfolio each time you receive a statement. You asset allocations may have changed and you may have experienced more risk than anticipated. This can be corrected by rebalancing your portfolio.
  3. Dollar Cost Averaging – Buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. This results in buying shares for a cheaper “average” price and earn a greater return than if you buy a large amount of shares at a single price.
  4. Dividend reinvestment plans (DRIPs) - Allows shareholders to purchase stock directly from a company with only minimal costs or commissions. This is a great way to earn money especially if you only have a small amount of money to invest.
  5. 401Ks/403b – Participate in your employer’s 401K retirement plan especially if they offer a match.
  6. IRA/Roth IRA/SEP/SIMPLEEstablished by individual taxpayers, that are allowed to contribute 100% of compensation up to a set maximum dollar amount. Contributions to IRAs may be tax deductible. Roth IRAs contributions are not tax-deductible.
  7. Exchange Traded Funds (ETFs) – Purchase specific exchange trade funds, which are similar to mutual funds but are traded like a stock. ETFs allow you to own a single investment that includes a large number of stocks, but also provides diversification.
  8. Automatic Investing Plans – Online brokers allow customers to buy individual stock or money market accounts. There is no minimum investment and you can invest any amount.
  9. Hedging – Try to offset a possible loss in one security by investing simultaneously in another security likely to move in the opposite direction and could substantially lower your risk.
  10. Real Estate Investment Trusts (REITs) - Mutual funds for real estate, you can invest in a bundle of properties that consist of:  real properties (equity REITs), mortgages or mortgage-backed securities (mortgage REITs), or combinations of the two (Hybrid REITs).

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