Investing

Figuring out how to invest for the future does not have to be complicated. Start by answering three questions:

1. When will I need to use the money that I am investing?
2. How long will I need this money for?
3. How much risk am I comfortable taking on?

If you are investing for retirement then make sure you save your money in a retirement account (see Investment Vehicles). If you might need access to the money before retirement then keep it in the bank or in a brokerage account. If you will need the money in less then 5 years then avoid investing in stocks or stock mutual funds. If you need the money in 1 year or less then consider a Certificate of Deposit (CD) or a short-term bond fund.

If you are new to investing, follow these steps:

1. Determine the amount you have to invest.

If this is retirement money be aware that it will be locked up until you are of retirement age. So make sure you have an adequate amount in the bank for emergencies. Make sure also that you do not have Credit Card debt (see Debt and Credit section).

2. Determine the time period for the investment.

Will you need this money in 1 or in 3 or in 10 years or later?

3. Choose the appropriate investment vehicle.

If you are not investing for retirement then you need to have the money in a taxable account. If you are investing for retirement read the investment vehicle section (below) to make an informed decision.

4. Choose the financial institution to open an account in.

Here are three brokers worth considering: Charles Schwab, Vanguard, Fidelity, T. Rowe Price. For more on choosing a broker read some reviews:

5. Determine the asset allocation.

As a general rule on investment allocation, the shorter the period of investment the less risk (and potential return) the allocation should have.

6. Choose mutual funds, stocks, bonds, and CDs

Once you have determined the asset allocation. You can now choose specific investments: mutual funds, ETFs, bonds, stocks etc.