When you actively manage your money, you have the potential to make more of it. That’s what investing is all about. If you think investing is for nerdy, accountant types, think again. According to MSN Money, more and more Generation Yers -- those ages 18 to 26 -- are into managing their investments compared with earlier generations. You can do it, too.
Take your financial picture to see how much money you have to play with. In finances, work comes before play. First, take care of your daily living expenses. Pay down your debt and build up an emergency fund that ideally contains six months of living expenses. Then you'll be ready to invest.
Take a good, honest look at yourself to determine how you should invest. If you're the worrying type who will obsessively check your portfolio every day and stress about it, you probably want a safer investment. Choose a mix of stocks and bonds, or perhaps sticking with mutual funds, which are pooled funds of thousands of investors. If you are the more aggressive type, you can go lighter on the cash and bond side and heavier on stocks.
Decide whether you are going to use a full-service broker or a discount broker. Full-service brokers offer you advice on selecting what investments to buy, but it's the more expensive way to go. You'll save money with a discount broker, but you have to do your own legwork, researching companies on your own.
Diversify your portfolio. You want a lot of variety in your closet, and your portfolio shouldn't be any different. Asset allocation, or diversification, is spreading your money around to different investments. You'll be limiting your risk without sacrificing potential gain.
Purchase shares at regular intervals with a fixed dollar amount. This is called dollar-cost averaging and benefits you by taking away any speculation and guessing. Because you are always investing the same dollar amount, you may be buying more shares at one time and fewer at another, depending on the market. Making regular investments often works better in the long run than if you tried to time the market.
Update your portfolio regularly, such as quarterly or annually. Once you or your broker selects an appropriate mix of investments, you want to make sure the proportions stay the same. Over time, some investments probably will grow faster than others. Your stocks may increase, leaving you with a greater percentage of stocks in your portfolio than you want. You can sell those and buy new assets that keep in line with your original portfolio mix. Or you can keep the extra stocks and buy more of the under-weighted investment category.
- You can invest through your workplace 401k, or you can open a Roth IRA. You can invest at your bank or credit union by purchasing certificate of deposits. Or you can invest online, but online investing requires some education and research.
- When you want to buy or sell stock, you typically specify the number of shares you want to buy or sell. With a mutual fund, you typically specify a dollar amount.
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