|DIY investing: What you should know and understand|
Monday, 01 October 2012 00:00Written by Andrea Theisson
No-one Cares About Your Money As Much As You Do
Independent, self-directed investors need to remember to be their own advocate.
Do not just follow the tipsters, but do your own homework. Follow the course for your personal risk-tolerance. This may be Conservative, Moderate, or Aggressive. There are many general calculators to assess your bravado in the investment world, including Yahoo Finance, Bloomberg.com, Suze Orman, etc.
As you decide which level of risk you want to live with, you find a direction in the type of investments – The Conservative investor will be comfortable with CD’s, Bonds, Income Funds, Treasuries and maybe some gold coins. The Moderate Investor might venture into Mutual Funds, ETFs, bump-up CD’s, and value stocks while the Risk-Tolerant folks tend to go into Sectors, Growth and International Funds, individual stocks, art and antiques, and real estate, which used to be very conservative. Keep bonds, stocks and international proportions to fit your age, more conservative as you get older. Read the prospectus for each fund. Ask questions if you do not understand anything before you invest.
Also, read everything you can about investing – try to pick up the financial magazines like Money, Kiplinger’s and Smart Money, or study them at the library, along with the Wall Street Journal. Know how to read the listings. Watch CNBC, listen to Bob Brinker’s Moneytalk on the radio. Join an investment club to educate yourself. Financial Advisors can charge a huge amount, so try this on your own unless you have over $100,000 to invest.
It’s OK to invest in things that you understand and love – just find the most stable company or funds with a low cost. Vanguard Funds tend to be some of the most diverse with the lowest expense-ratios. No-loads are best, and dollar-cost averaging, or investing a little money, regularly, into a Mutual Fund, is a good way to start, but not good for ETF’s, which trade like stocks and should be a lump-sum investment. Find an online investment company to deal with that has clear instructions, a handy phone-line with real people, and a website with all the information reported. Shop around for fees, and choose according to how often you will buy or trade stocks or invest in funds. Remember that brokerage firms are profiteers, so take their recommendations with a grain of salt.
Keep cash reserves according to your needs.
If you have dependents, you should have at least 6 months liquid-reserves, insurance, and a 529 plan for college expenses. If you are near retirement, you should try to own your own home as soon as possible after your mid-40’s. Do not gamble with your savings, but maintain some diversity. By the time you are 60, you should have about 35% of your investments in stable-value funds, shifting to 50% by the time you are 70.
ROTH IRA’s are great, better yet if you start them while you are younger. Don’t hesitate to “harvest your tax losses” at the end of the year, if necessary to balance profits. Consider the tax consequences of everything you sell, watch the short-term investments, and ask a lot of questions of your tax accountant. Always consider your tax-advantaged accounts if you have to re-balance. Check over your investments at least quarterly and make changes or tax-planning as needed. Long-term investments and tax-deferred venues are most economical.
Most importantly, learn to be comfortable with your decisions and your money. It may seem overwhelming, but you will learn. It’s your money!