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How To Get Rich With The Stock Market Over Time

December 14, 2012 by Karl 2 Comments

Savers who place money on deposit in a savings account will do well, over the long term, to merely keep pace with inflation. Investing in government bonds is hardly likely to make a fortune: governments may not be very adept at controlling spending, but they can’t be seen to give money away, either. Investing in precious metals can give great returns, but there is no income to be earned and price volatility is a problem too often ignored.

That leaves the stock market as the only viable alternative to financial freedom and long term wealth. Many investors shy away from the stock market, viewing it as no more than a rich man’s casino. But it doesn’t have to be that way. Taking a disciplined approach to stock market investing can produce returns unachievable elsewhere.

Here are ten steps to follow if you want to get rich by investing in the stock market.

Learn to select stocks to invest in

There are many different ways to pick stocks, ranging from fundamental analysis – examining a company’s balance sheet, earnings potential, and prospects for the future – to the technical analysis of share price patterns. You don’t need to be a mathematical genius to do either proficiently, but you do need to learn the craft and be consistent in approach.

Have an investment strategy

Selecting the stocks to buy is only a part of the equation of successful investing. The success of an investment portfolio will rest on the strategy employed by the investor. Risk needs to be managed, entry and exit points adopted, and costs of dealing borne in mind. Some investors select stocks, buy them and then hold for the long term. Others have a more active outlook, willing to buy and sell shares regularly as loss limits are reached or price targets hit. Set an investment strategy, but be flexible to adapt to the needs of the time.

Use dollar cost averaging

It is tempting to invest a lump sum in one trade, at a single moment. Certainly, if the trade proves correct then such an investment style can make healthy profits very quickly. But stock prices fluctuate on a daily basis, and this means they fall as well as rise. By investing over a period of time – drip feeding investment cash into the market – an investor takes advantage of the times when stock prices are down as well as up.

This process is known as dollar cost averaging, and is a recognized way to smooth entry levels and price volatility of an investment portfolio. By investing regularly, perhaps monthly, a trading discipline is achieved and a more active approach to portfolio management naturally taken.

Diversify your portfolio

Though it may be difficult, and costly, to spread investments across a number of stocks or business sectors when you first start investing in the stock market, doing so when it is financially viable to will help the longer term performance of your portfolio. You should consider holding shares in more than one company and more than one business sector. This helps the winners outperform the losers, and takes advantage of the changing economy and its effect on business.

Keep abreast of news

Information is power. By following the news particular to the companies in which you have invested you will better understand your investments and make more considered buying and selling judgements  This also stands true for the industries in which you are invested, and general economic situation.

Regularly monitor your portfolio

As well as keeping up-to-date with current news that affects your stocks, also ensure that you know how your portfolio is performing. Measure against a benchmark, for example the S&P 500 index, and take remedial action if necessary. Monitoring your portfolio should go hand-in-hand with your investment strategy, and will form part of your investment discipline.

Conduct an annual investment review

Once a year, you should undertake an in-depth review of your portfolio. Consider how your stocks have performed, against their peer group and the wider market, and also review expectations for the economy and business sectors moving forward. For example, if a weakening economy is forecast, then perhaps a rebalance of holdings toward a more defensive mix will be required.

Reinvest dividends

Reinvestment of dividends can be an expensive process, particularly when an investment portfolio is smaller and absolute dividends low. However, if these dividends are saved in a separate interest bearing account, then as part of your annual review they can be reinvested. This will buy more shares on which further dividends will be earned. Using a dividend reinvestment strategy compounds growth over the longer term, and is a key to portfolio performance.

Don’t feel you have to follow the crowd

There is safety in numbers, but following the crowd will not help you outperform it. Indeed, the likelihood is that you will buy after the optimum time to buy, and sell when many others already have. By conducting your own research and selecting your own stocks to buy and sell, your portfolio will be unique to your individual needs and requirements. Just because everyone around you thinks ABC is a good investment, doesn’t mean it is.

Invest tax efficiently

Wherever possible, look to hold your investments in tax efficient accounts, such as IRAs, Roth IRAs, or a 401(k). Understand how tax is levied on capital gains and on dividends, and if necessary employ the services of an accountant to help with tax planning.

In Conclusion

Investing in the stock market isn’t risk free. Stock prices move up and down and are affected by changing economic and investment conditions out of the control of company management and the individual investor. But over a long investment time frame and with a well-considered investment strategy that includes risk management, a stock market portfolio can prove not only profitable but an enjoyable way to manage your future wealth.

By following the ten steps above, there is no reason why you should not get rich by investing in the stock market.

Filed Under: Making Money, Stock investing

9 Investing Mistakes You Don’t Want To Be Making

November 18, 2012 by Karl Leave a Comment

You don’t make investing mistakes because you’re smart, right? Um, ok. Whether you’re a veteran with handling savings and investment decisions or new to the investing world, it pays (literally) to learn, and avoid, investing mistakes that so many others have made before you. So, before you buy your first shares of the next Amazon or Google, check out the nine most common mistakes that investors make:

Jumping on an overhyped stock

Hey, big shot! You got in on that Facebook IPO, didn’t you? Wow, you’re a player! Wait – you really did buy shares of Facebook on the first day they became available? Sorry to hear that. If we learned anything at all from the recent Facebook IPO debacle, it’s that the facebook iposmall retail investor should steer clear of any IPO.

In fact, the more media hype that there is around an IPO, the more wary any potential investor should be. IPOs are “initial public offerings” that mark a private company’s debut on a stock exchange, when the company becomes publicly held. For well-known companies, an IPO can garner significant attention (translation: “hype”) from the media. This is bad for you, the small investor, who probably thinks very little about the stock market at any other time. Let the “big fish” play in the IPO sandbox.

If you’re interested in an individual company stock, invest in it for the long term – and wait until the hype (and the share price fluctuation) dies down. By the way, in case you didn’t know: Facebook shares dropped over 25% in their first two weeks of trading. Be very glad you didn’t get in on this particular IPO, hot shot.

Avoiding diversification

OK, so you own some shares in the Acme MegaFund Value mutual fund, and you also own shares in the HugeCorp Growth mutual fund. You think you’re invested in lots of different companies, don’t you? Think again. Check out the companies that your mutual funds invest in, and you might find that there’s some “overlap”: two very different funds with significant chunks of their portfolios in identical companies.

So, read your mutual fund prospectus. Sure, it’s pretty boring (do so when you’re getting ready for bed, and are having trouble falling asleep). Then you’ll know what companies are being purchased by your funds.

By the way, the only time you should have to read a fund prospectus (yawn) is before you invest in the fund for the first time. After that, you might glance at it once every two years or so to make sure your mutual funds are buying companies you like, and avoiding companies that you don’t care for.

Avoiding international opportunities

It seems that half the countries on the planet are involved in guerrilla conflict, drug smuggling, nuclear weapons testing, and counterfeiting Disney DVDs. Still, even with this cynical view, that means that the other half of the countries around the globe are involved in legitimate trade and possibly on the verge of becoming homes to the next Google or British Petroleum.

Avoid investing in countries outside your own borders at your peril. Most economic growth taking place right now is within countries that may have offered risky investment opportunities not long ago. But times have changed, and just because opium poppies are a major cash crop in Afghanistan doesn’t mean that the next superpowered microchip can’t be developed in Brazil or India.

Too much of your portfolio in one company

Do you have most of your retirement portfolio invested in the company that employs you? You dummy! Sell, sell! Well, ok – at least slowly spread out your investment around a few other companies. What happens if you get laid off? Not only will your biggest source of income disappear, but the company you once worked for might be in trouble. Do you want to be invested in that company? Of course not.

Thinking you can outperm the market when your a newbie

Yeah, sure. newbie signYou and every other bloke who opens up an online brokerage account and reads a couple of books about “how to get rich in the stock market”. Trust me, odds are that the folks who write books on this type of stuff are getting rich off of their book sales, not their investing prowess.

Highly paid stock traders with skilled research staffs are going to battle against you, the average small investor. Do you think that even they outperform markets on a regular basis?

It’s possible, but it’s not easy. Usually only the most experienced traders can acheive this consistantly. It’s unlikely that u’d be able to acheive this in your first few months of trading.

Avoiding index funds

Why bother investing in “actively managed” funds at all? Good question. Not only do many actively managed funds fail to outperform the markets (see above), they also tend to charge higher fees. And fees, by the way, can really mess up your portfolio growth over the long run.

It pays to find funds with very low fees, and index funds tend to charge the lowest fees of all mutual funds. Index funds are “set it and forget it” funds, which means that they don’t need an overpaid fund manager to maintain them. If you want to be invested in the markets without thinking too much about which mutual funds you should invest in, then simply invest in index funds. Then go take a long nap or grab a beer.

Keeping too much of your portfolio in illiquid investments

What happens when your rusty old clunker finally requires that transmission replacement that you’ve been putting off for the last two years? Homeowner’s insurance won’t pay for the repairs, and you probably won’t be able to cash out of your mutual fund or stock investments in a hurry. So, always keep some cash on hand just for emergencies. Online banks are good for storing money that you might need to transfer to a checking account quickly. It’s normal for a transfer to be completed in two or three business days.

Believing that “the sky is falling!”

There are always a few “gurus” running around yelling: “buy gold and silver because the major world currencies are going to be devalued and the world will end next week!!!” Please. For thousands of years, there have been people running around yelling that the “end is near”.

(Lately, the Mayan Indians are guilty of this, and heck – they aren’t even around any more. Now, that’s influence!) The world won’t end, the sky is still blue (well – usually), and gold and silver probably shouldn’t take up more than 5% of your portfolio.

You’re going to miss out if you avoid buying stocks or mutual funds that invest in growing companies, because you listen to “end is near” precious metals hucksters. The wealthiest folks in the world didn’t get that way by building bomb shelters and stacking gold bars in them.

Failing to consider your own investing personality

Do you like to go bungee jumping? Do you enjoy hanging out with shadowy criminal types who engage in questionable businesses? Or is your idea of a good time a night in front of the T.V. watching “The Bachelorette” reruns?

Take your own personality into account when you choose your investments. Some individuals can handle wild stock price swings better than others, while others like their investments, well – boring. Ideally, you might consider small investments in exciting and “sexy” companies, while keeping big percentages of your portfolio focused on sleep-inducing businesses. And, reconsider your hobbies if “Bachelorette” reruns really are your favorite pastime. You should get out more.

Face it, you’re reading this post, so you’ve learned something, haven’t you? Oh, yes you have, admit it! Click on your RSS feed and add this blog to your list of subscribed blogs. You’ll continue to learn (and slowly build wealth) by becoming a subscriber. You’re welcome.

Filed Under: Stock investing

How Do Mutual Funds Work?

November 18, 2012 by Karl Leave a Comment

If you’re into investing and want to know more about making money in the markets, you probably have asked yourself at one point this question: “What are mutual funds?” You’re not alone, either; mutual funds easily constitute one of the most popular asset classes for investment in the world.

Here, I will tell you what a mutual fund does, how it works, and talk about the advantages of mutual funds and how they compare to other asset classes.

What is a Mutual Fund?

A mutual fund is a collective investment scheme that takes investment funds from thousands of individual investors and pools mutual fundsit together into a pot of money. This pot is then used by a professional fund manager who uses it to buy and sell shares of stocks – or bonds, or commodities, or commercial notes, or other securities.

Put another way, let’s say you want to invest in real estate. You can pick a single home in a city and purchase it. Or, you could pool your money with your friends and give it to a professional real estate investor, who acts as your manager. The manager then takes that much larger pool of money and buys a residential home or two, plus a couple of apartment buildings, a townhouse, a luxury condo, and a couple of office buildings – all located across the city.

You have just created a mutual fund for real estate. In essence, what you’re doing is multiplying your purchasing power and diversifying your holdings at the same time – all while letting a paid professional do the dirty work of investment for you.

How Are Mutual Funds Valued?

The main way a mutual fund is valued is based off its net asset value(NAV), which is calculated by taking the number of shares of the fund that are out in the market and dividing them into the total value of the fund.

Before we go further, though, it’s important to understand the difference between the two different types of funds: open-end funds and closed-end funds.

An open-end fund is a mutual fund that issues shares based on demand. As long as people want shares of the fund, they will be issued – and as long as people want to sell their shares, the funds will buy them back. Most mutual funds are open-end funds.

A closed-end fund is one in which there is a limited number of shares. These are actually very much like stocks, in that they are traded on stock exchanges, except that these are actively managed by professional advisors.

Since open-end funds are what we think of when we think of “mutual fund”, and are the most common type of mutual funds, we’ll focus on that type. The value of an open-end mutual fund is calculated by dividing the value of the assets held by the mutual fund by the number of shares outstanding (i.e. NAV). NAV changes based on the underlying value of the assets in the fund’s portfolio.

NAV is the price at which you can buy shares of a fund. You profit from a mutual fund either by the difference between your purchase price and the sale price of the shares you buy and sell, respectively, or by dividends generated by the fund.

What Types of Funds Are There?

Within open-end funds, there are several types of mutual funds, including:

  • Stock funds: These are the most common types and feature bundles of stocks either in one industry or sector or spread across several.
  • Corporate bond funds: These are funds that invest in corporate bonds, which have lower returns on average than stocks but aren’t as risky.
  • Government bond funds: These funds invest in bonds and notes issued by governments, including the U.S. Treasury. These tend to be the safest funds in the world.
  • Junk bond funds: Also known as “high-yield bond funds”, junk bond funds invest in bonds that have very high yields, but are very risky – and are more vulnerable to downswings in the economy than other bonds.
  • Municipal bond funds: These funds invest in municipal bonds, which are bonds issued by cities and local/state governments. Income from these funds are tax-free, which means you can generate higher returns than other types of corporate or government bonds.

Within stock funds, there are several types:

  • Value funds: These funds invest in stocks that are determined to be undervalued, i.e. currently priced below what they normally should be as judged by the underlying financial strength of the companies represented. Commonly, these are either companies that have had their stock prices beaten down by the market but otherwise are sound, large, and here to stay, or stocks with low price-to-earnings ratios or price-to-book ratios.
  • Growth funds: These funds invest in stocks that generate higher-than-average earnings and are growing rapidly. You gain more return than with value funds at times, but you also are exposed to more risk.
  • Income funds: These funds invest in stocks that generate income through dividend. If you want steady, fairly-predictable income, these are your best bets. You can have income produced while also enjoying appreciation in your assets.

You can also find blend funds which combine two or more types into one tradable asset.

How Much Does It Cost to Trade Mutual Funds?

Investing in mutual funds does cost money. With stocks, you pay commissions or flat fees. With mutual funds, you also pay management fees and expenses. Trading stocks with discount online brokerages is generally viewed as less expensive than investing in mutual funds.

One way to avoid this is to find no load mutual funds, which are funds that have no transaction costs. Let’s say you have $1,000 to spend. You choose a load mutual fundthat charges a commission of 5%. You will pay $50 either on the front end or out of your profits for this fund, meaning only $950 is actually used (if it’s a front-end fee).

A no load fund would use the entire $1,000 amount. These are typically used because the investment company that owns the mutual fund issues shares directly, instead of going through intermediaries. If you want to avoid paying a broker or advisor who selects mutual funds for you to choose from, no load mutual funds are the way to go.

Generally speaking, it is better to find mutual funds with the lowest fees and expenses possible. Statistical analysis has shown that load mutual funds do not outperform no load mutual funds. In fact, one study has indicated that no load mutual funds actually outperformed load mutual funds from 2000 to 2002.

Why Invest in Mutual Funds?

The main reason most people turn to mutual funds is diversification. To get the same kind of diversification (i.e. risk mitigation) from a single mutual fund, you would typically pay more to get a basket of individual stocks that accomplishes the same thing. Plus, you’d have to keep up with dozens of individual stocks instead of one, convenient investment vehicle – the mutual fund.

Mutual funds are also great if you have no interest in picking stocks or are not good at it – and many traders aren’t. Plus, if you don’t have the time to play the stock market, a mutual fund will more than adequately suffice. Mutual funds, furthermore, are preferable for beginners who want to get into investing but probably shouldn’t jump right into picking stocks and letting the dice fly.

Finally, mutual funds are good for those who want professionals to pick and manage the assets.

Of course, there are three drawbacks to a mutual fund. The first is cost. Mutual funds are more expensive than individual stocks because they incorporate fees and expenses that are more than your typical stock trade commission.

The second drawback is that you lose control over what assets go into your mutual fund, whereas with a stock portfolio you and you alone have control.

Finally, the third drawback is how mutual funds are priced. The price of a stock changes in real time throughout the day. The price of a mutual fund isn’t assessed until the end of the trading day, with the fund’s closing price. This takes away the real-time trading aspect of stocks. One way to avoid this is to consider trading exchange-traded funds (ETFs), which are mutual funds that trade like stocks.

Mutual funds can be powerful assets to have in your portfolio. Ask your financial advisor for more information.

Filed Under: Stock investing

Dividends vs Stock Repurchases/Share Buybacks

November 14, 2012 by Karl 1 Comment

Both dividends and stock repurchase schemes are ways that a company can boost the returns of its shareholders. However, whilst it is reasonably easy for an investor to understand how the payment of a dividend rewards him, many find the mechanism of stock repurchases more complex, especially when it comes to their benefits to shareholders.

What is a stock repurchase?

A stock repurchase program – also known as a share buyback program – is a mechanism by which a company buys back its own share buyback "U Turn"shares.

The company buying back its own shares can do so by either purchasing direct from the market (getting its broker to buy shares on the stock exchange) or it can ask if its shareholders wish to tender their shares at a fixed price.

A stock repurchase program has to be agreed at the annual general meeting, and the agreement will stipulate the amount of the buyback (usually in terms of total value, rather than number of shares) and the period during which the repurchase program may operate.

Why would a company conduct a stock repurchase program?

When a company wants to return cash to shareholders, it can, of course, do so by paying a dividend. However, if the company believes that its shares are undervalued by the market it might decide to undertake a stock repurchase program. The company believes that by taking shares out of the market it will increase the value of the remaining shares.

Often a company will announce the price at which any stock repurchase will take place, and this puts a ‘floor’ under the price of the shares traded on the stock exchange. Understanding how a stock repurchase can help the share price increase, however, is a little more complicated.

The first thing to understand is that the act of purchasing shares does no more harm to a company’s value than paying a dividend. Both methods of returning cash to shareholders take cash off the balance sheet and remove a certain value from the company.

However, in the case of a stock repurchase, because the shares bought by the company are then cancelled, there are fewer shares on the market. The overall value of the company is no different to if the return to shareholders had been made via a dividend payment, but the respective price per share will have increased.

Further, future dividend payments will likely be higher per share, because there are fewer shares for the dividend to be shared between. This will be another push on the share price.

So, share repurchases are a good thing?

This really depends upon the price of the shares and the value of the shares. Price and value are two different things. Just because the company is undertaking a stock repurchase program does not mean the stock is undervalued.

There are many measurements of value, and when considering whether the stock repurchase program is a good event, then an investor should look at ratios such as the price to earnings and fundamentals such as revenue, cash flow, and debt.

Having established the value of the company, perhaps relative to others or in an historical context, the investor will be able to say whether he would reinvest any dividends that would be paid to him, or perhaps commit new capital. If the answer is yes, then the stock repurchase program works in the investor’s favor.

Are there other benefits to a stock repurchase program?

We’ve already discussed the effects that a stock repurchase program may have on the share price, by cancelling stock and seeing the market capitalization of the company supported by fewer shares.

And we’ve seen that the payment of higher dividends will help drive the share price forward.

But there is also a tax advantage for shareholders. If the investor believes that the stock repurchase is being conducted at a good valuation, and would have reinvested his dividends anyway, then he will be gaining because the dividends he would have received would have been liable to tax at his personal rate.

The disadvantage of a stock repurchase program

Instead of buying shares in the market, the company could have paid its investors a higher dividend. This dividend could then have been used in any way the investor cared, including reinvestment, investment elsewhere, and to meet regular expenditure.

When the company buys its own shares, it is removing the capability of the individual investor to make the decision of what to do with dividend cash. Even if the investor would have reinvested, when the company conducts a share repurchase it is deciding when and at what price to do so and the investor has no control over this either.

Dividend payments give the shareholder a wide ranging flexibility of choice, stock repurchase take that choice away.

The attraction of dividends

Most companies pay dividends on a quarterly basis, though some do pay monthly, and this can produce a good regular flow of income for investors.

Those investors who don’t need the income can reinvest those dividends as they please to benefit from a compounding effect. This can greatly enhance investment performance over the longer term.

As a long term investment strategy, investing in stocks that pay a high yield, or those with dividend growth rates above the level of inflation, helps to protect purchasing power against the effects of inflation.

However, dividends are treated as taxable income, and will be liable to tax at the individual’s tax rate.

Stock repurchases or dividends: what’s best?

Stock repurchases should boost the value of shares and mean that dividend payments will be larger on a per share basis in the future. They also negate the tax effect that investors suffer when receiving dividend payments. If they are conducted at a price which would appear to attractively value the company, then most investors would agree that they are good news.

However, for those investors that require income, or want the flexibility to choose what to do with an otherwise higher dividend, the repurchase of shares by the company removes this flexibility.

The choice of whether to stick with the company that conducts a stock repurchase program will depend on the objective of the investment, and the investor’s valuation of the company.

Filed Under: Education, Stock investing

How to Invest in Your 20’s

November 7, 2012 by Karl Leave a Comment

Whilst it is a given that investing as early as possible for longer term goals is the best way to build funds for the future, it is often difficult for younger people to do so. They face many challenges that older people do not. Understanding these challenges will help to identify routes to negate them, or at least cut them back as far as possible to enable earlier investment.

Many people in their 20’s are fresh out of college and starting their first job. Increasing amounts of debt are carried by graduates, and this debt has to be supported and serviced by what could be a low first wage.

Whilst the hope will be that the gaining of a degree, coupled with a strong work ethic will lead to a higher than average salary throughout one’s career, there are few companies willing to pay top dollar to the new employee. For this reason, money is often tight and disposable income is spent on pleasure rather than saving for retirement.

Another problem that younger investors face is the lack of experience with money and investing. Financial control is not a subject covered with great conviction in general education. It can take many years, mistakes, and ‘self-education’ to learn control over budgets. The temptation of youth is a financial as well as a moral concern! Learning how to invest, and avoid too-good-to-miss investment scams, is also on the agenda at this time.

Finally, many in their 20’s start relationships, get married, and have children. This is another pull on finances, and the needs of today often outweigh concerns for the future.

The opportunities

It’s not all bad news for though. One of the main advantages of being so young is that of time. An investor in his 20’s has time on his side to learn about investments and different assets. Being technology adept, younger people are more able to focus time on studying, research, and can quickly learn how to use investing and trading tools.

Younger people can also afford to take higher risks with the potential of higher rewards: any losses can be more easily made back the longer there is to do so.

Because the investment time frame is so long, a 20-something investor will need to commit less money now to enjoy a larger pot at the time he needs it. $10,000 invested by a 20 year old will have grown to $70,000 by age 60 if it accrues at a rate of 5% per annum. The same sum invested at age 40 would only have grown to $26,000 at the same rate of growth.

The difference is even more dramatic when it comes to regular investing. For a 20 year old able to invest $1200 each year over a period of 40 years will yield a final fund of $150,000. A 40 year old investing the same amount for 20 years will find himself with less than $40,000. (Again, based on a rate of return of 5 %.)

The solution

Learning to budget and control costs when in the 20’s is the key to successful investing for the future. Whilst it is a dream of many to invest a lump sum, good returns can be achieved by investing little and often, allowing the investor to benefit from dollar cost averaging in his investments. A further benefit of investing this way is that saving becomes part of everyday budgeting: smaller amounts are forgotten as just another expense.

Also taking the time to study markets and investment opportunities will not only make for better investment decisions now, but also in the future.

How to invest

It is important that savings are made toward both longer term (retirement) goals and also for accessible cash in emergencies.

Whilst emergency cash can be deposited and built up in savings accounts, a brokerage account will give the potentially higher returns of stock market investing whilst at the same time leaving funds accessible pre-retirement.

Retirement accounts, such as 401k’s and IRA’s, have tax advantages not available to brokerage accounts. For retirement investment planning these tax benefits will help investments grow more quickly.

Whilst it is likely that portfolios at a younger age will be targeted toward capital growth, young investors should not discount the power of investing in dividend paying stocks and then reinvesting those dividends. Compounded returns can mount up over a period of time.

What to invest in

With fewer responsibilities and time on his side, the 20-something investor can afford to invest in higher risk/ reward stocks. Speculative or high growth companies, perhaps new, smaller companies that are geared towards today’s technological economy can provide great returns (but the investor shouldn’t forget the risks).

Perhaps first, though, with little disposable income available and the high likelihood of a low level of investment knowledge, investment decisions should be left to experts. For this reason, many starting out investors will put money into diversified mutual funds, letting fund managers select value stocks in which to invest. Different funds cater for different risk tolerances, and higher risk/ reward funds are readily available from most providers.

Some investors will broaden their investments through time as financial ability grows; others will find they are happy to remain invested in mutual funds.

To Finish Up

Planning for your financial future has never been more important or relevant. Government support for retirees is likely to reduce over the coming decades, and it will be those individuals who begin the retirement investment process early who will be the winners.

It shouldn’t be forgotten that there are other calls on money throughout your life, and wise investment now will mean less need to borrow in the future at unknown rates of interest. A good investment plan will enable spare cash to grow to fund future college fees for your children, foreign holidays for you, and even build the deposit required for your first home.

Learning to budget and investing early is the key to future financial freedom. While you are young and able to take a more aggressive investment stance, the opportunity for capital growth is at its greatest.

Filed Under: Stock investing

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