Long-term Investing
You have a variety of long-term investing options depending on your risk strategy, age, financial situation, and long-term financial goals. Here are some general rules to consider for long-term investing: Don't invest a lot of money in the stock market that you anticipate needing within 10 years. The stock market investments should be evaluated over a long period of time to guarantee high performance results. By committing your stock investments for the long term, you'll avoid panic selling when the stock market dips or even crashes. You'll be able to ride out the rough spots for greater returns over time.
Free Money
Investing in your company's 401(k) plan is the easiest way to work toward your retirement investment goals. Not only will you be saving for your retirement, you'll also be able to take advantage of your employer's contribution matching program. Most employers reward 401(k) contributions by adding their own contributions to your account whenever you put some of your money in. That's free money for you. Plus, all 401(k) contributions are pre-tax, meaning that you don't have to report them on your yearly tax forms. That could kick you into a lower tax bracket and reduce the amount you owe to the IRS. You will have to pay taxes on the money when you take it out at retirement.
Risk Tolerance
Keep in mind your personal risk tolerance when you're developing your investment strategy. Riskier investments like stocks and stock mutual funds consistently do better over a long period of time than any other investment. However, that doesn't mean that your particular stock or stock mutual fund will do well. If each dip in the market is going to give you heart palpitations, stick with less risky investments such as bonds and CDs. Of course, the riskiest money move of all is to not invest your money in anything. In this case, you're guaranteed to lose money after inflation is factored in.
Dividends
If you want to invest in the stock market, but can't stand the thought of waiting ten years or more to start getting a payout, include dividend paying stocks and stock mutual funds in your investment strategy. A dividend is an amount of money that a company's board of trustees pays out to shareholders on a regular basis. Whether or not a company has a dividend paying investments plan is no indication of how well the stock will do overall. If you decide to go with dividend paying stocks, educate yourself about the tax implications. Dividends are taxable and need to be kept track of carefully.
Individual Investment Accounts
To help reach your retirement investment goals more quickly, you can choose to open individual investment accounts. Even if you've already maxed out your contributions to a 401(k) through your company, you can continue to invest for retirement through an Individual Retirement Account (IRA). You can open an IRA for yourself and another one for your spouse. To open an IRA, visit a financial planner or sign up with an online discount broker.
Short-term Investing
If your investment goals are all short term, avoid riskier investments such as stocks and stock mutual funds. Although stocks do produce the highest interest rates in the long run, they are extremely volatile in the short run. If you are investing with the intention of buying a house in a few years or paying for a high school child's college tuition, stick with safer investments such as bonds and CDs.
Investment Clubs
Start an investment club or join one to learn more about investments, gain access to more investment research, and make like-minded friends. Investment clubs are groups of people who pool their money together to invest in agreed-upon companies. To make the most of this investment strategy, lay some ground rules. You may want to invest only in local companies, only in small companies, mutual funds or any combination of these. Each member of the club should be responsible for finding and reporting on relevant investment information so that you can make more money as a group.
DRIP Investment Strategies
To get the most out of a company's dividend program, enroll in the Dividend Reimbursement Program (DRIP). DRIP investment strategies grow your money more quickly. Every time a company pays dividends, yours automatically goes toward buying more shares. DRIP programs are ideal for investors with little money to invest. To start a DRIP account, purchase as little as one share of stock directly from the company. You'll need to have the share certificate with your name on it to be eligible for a DRIP program. A broker can help you with this.
Asset Allocation
Get a rough idea of an appropriate asset allocation percentage for you by subtracting your age from 100. If you are 35 years old, 35% of your portfolio should be in cash and short term investments such as CDs and money market accounts. 65% of your portfolio should be in long term investments such as stocks and stock mutual funds. Don¡¯t take this percentage to the bank, however. Adjust your asset allocation percentages according to your risk tolerance level and investment goals.