You've gotten by on a good looks and charm for long enough. People aren't going to buy you free drinks forever. It's time to get serious and prepare for the future. Whether it's college for the kid or the dream of living the good life in retirement, you need a long-term investment plan. The great thing is that you don't have to be loaded to invest money. In fact, long-term investing comes in many flavors and doesn't necessarily require much more than $50 or $100 a month.
Fund your workplace retirement plan to its limit, if you're lucky enough to have one. Whether its a 401(k), 403(b), 457 plan or something else, put in as much money as your plan allows, particularly if your employer matches your contribution. The money that goes from your paycheck to your workplace retirement plan comes out before the federal government levies taxes on your earnings so you're not only investing for the long-term, you're legally short-changing Uncle Sam.
Open an IRA. After you top off your workplace plan, choose between a Roth or traditional IRA. You can even open up one or more of each. Study the differences. As IRS Publication 590 explains, you can deduct traditional IRA contributions from your taxable income, however, the IRS might not offer this option if a workplace retirement plan covers you or your spouse. While you cannot deduct Roth contributions, you can access them at anytime, tax- and penalty-free. You might make too much money for a Roth. Since IRS limits regarding traditional IRA deductions and Roth IRA eligibility and contributions often change and vary by based on your situation, refer to Publication 590 or consult your financial planner or tax advisor for specifics.
Invest in the stock of companies that not only pay dividends, but also have a history of paying them and increasing their dividend year after year. As Stephen T. McClellan argues at the FT Press, a blog of the Financial Times, sticking with dividend-paying stocks over the long term helps mitigate the risk of investing. If the stock price falls, at least you have dividend income to help offset the equity's decline. And put this in your pipe: McClellan points out that, as of 2010, dividends have accounted for over 40 percent of the stock market's total return for the past 80 years.
Give somebody else the reigns. Invest in a mutual fund, which is a portfolio of stocks, bonds or other investments managed by a professional money manager. You can get quite fancy with mutual funds, given the specialization in the industry. Be cautious about placing a bet on a fund that invests in some niche, like precious metals or short-term mumbo-jumbo mortgage debt. You're in this for the long haul, after all. Seek out funds that hold a broad range of investments in stable, yet relatively fast-growing companies like McDonald's and Apple with exposure to so-called emerging markets such as China and India. Online mutual fund screeners, such as Morningstar's, help you narrow down the playing field.
Put it in cruise control. Whether you're in an IRA, have a brokerage account, own a fund directly from a mutual fund company or you got yourself into a Ponzi scheme, invest regularly and automatically. Stay the course. By sending in as much as you can afford, methodically, every week or every month, you buy more shares when prices are low and fewer when prices are high. Over time, this discipline ought to pay off.
- In just about every instance, you can easily get away with investing $50, or even less, per month. Many brokerages, mutual fund companies and other types of investment firms do not require a minimum initial investment or they are willing to waive the minimum for investors who commit to a regular schedule of automatic investing.
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