To decrease the odds of your
investments getting clobbered at the same time, you need to put your money in
different type of investments such as cash, bonds, stocks and real estate. You
might want to consider investing in a mutual fund, which are diversified
portfolios of securities such as stocks and/or bonds. You buy into the
mutual fund, which in turn pools your money with that of many others to invest
in a vast array of stocks and/or bonds. Diversification reduces the
volatility in the value of your whole portfolio (all of your investments).
You can achieve almost the same rate of return that a single investment can
provide with decrease fluctuations in value of your portfolio. Diversification is
not an ironclad guarantee against loss. No matter how much diversification you
employ, investing involves taking on some sort of risk.
This book
covers all aspects of investing, from stocks and bonds to real estate and
collectibles. Tyson points readers towards investments that actually work
and raises warning flags about strategies you should avoid.
Asset Allocation: Looking back the last
century, it's no secret that stocks have outperformed most financial
instruments. If you plan to have an investment for a long period of time,
then their portfolio should be comprised mostly of stocks; however, if you
don't have this kind of time, you should diversify your portfolios with
cash, bonds, money market, real estate and so on. Asset allocation is how
you spread your investing dollars among different investment options to
balance risk and create diversification.
The main principle of asset allocation is that the older you get, the less
risk you should face. Although stocks and real estate offer you
attractive returns, they can and do declines in value from time to time. Money
market and bond investments are good places to keep money that you need to use
sooner. Bonds can also be useful for some longer term investing for
diversification. Determining the proper mix of investments in your portfolio
is extremely important. Deciding what percentage of your portfolio you should
put into stocks, mutual funds, and low risk instruments like bonds and
treasuries isn’t simple, particularly for those reaching retirement age. But a
useful rule of thumb for dividing or allocating money between stocks and bonds
is to take 100% and subtract your age. The resulting percentage is the amount
you invest in stocks, the rest you invest in bonds. If you want to be
aggressive and can stand the risk, use 110% and if you want to be conservative
use 80%.
Dollar
cost averaging is a process in which you invest your money in equal amount on
a regular basis, such as once a month, regardless of the share price. For
example, if your have $20,000 to invest, you can invest $2,000 a month until
it's all invested. More shares are purchased when prices are low, and fewer
shares are purchased when prices are high. The cost per share over time
eventually averages out. This reduces the risk of investing a large amount in
a single investment at the wrong time. There is a saying in investment world
"buy low, sell high". It's easier said than done because buying low and
selling at the peak is impossible (unless you can tell the future, I know I
can't).
DCA is also good for investors who doesn't have a lot of money at the
start, but can invest small amounts regularly. This way you can
contribute as little as $50-100 a month to an very low cost investment like an
index fund. Keep in mind that dollar cost averaging doesn't prevent a loss in
a steadily declining market. DCA can also cause headaches with your taxes when
its time to sell (except retirement accounts). When you buy an investment at
many different times and prices, then when you sell blocks of the investment,
it gets confusing and complicated.
Spend less than you earn! People who spend every penny
they make usually end up going broke.......
Take enough risk on the money you save! Playing safe by
putting your money under the mattress or in a savings account
will not make you wealthy..
Remember that.....Fully one-fifth of humanity, some 1.3 billion people,
struggles to survive on less than $1 per day. About 40% of
humanity survives on less than $2 per day. More than a billion
people around the world will go to bed hungry tonight. Life
expectancy in some 32 countries is less than 40 years. If you
have a few extra dollars in your pocket (you don't have to be a
millionaire to make a difference), please share some of your
financial good fortune with others who are in great need.
Think About It... Being in the 'now' brings a freedom, unlike living
in the past or in the future, which is a kind of imprisonment.
This isn't a kind of a denial where you pretend life doesn't have
problems. Life is full of problems, but most of those stresses
and failures are reliving old hurts or worrying about future
concerns. -- Carl Honore
When you 're diagnosed with cancer, you start to
bargain with God: "Let me get through this, and I'll take better
care of myself. I'll get my priorities in order. I'll learn to
live every day to the fullest." Isn't it sad that you have to get
sick before giving yourself permission to live life to the
fullest? -- Robert Schimmel
Look at Life in different & Positive ways
