We invest because we want to make money with our money and because we want to accomplish a goal like security in retirement or college tuition for our kids. How we go about investing makes all the difference between success and failure. So, you will want every step in your investing journey to make financial sense. Thus, the first steps for investing do not necessarily include picking stocks to invest in. Rather the first step is to assure your near term financial security. Put enough money into a bank account to cover three months of expenses in case you lose your job. Then decide how you want to invest your $25,000 or whatever you have to invest. Then consider saving up to buy a home, either a house or an apartment. We have written about the beauty of the tax deduction on interest paid on your home mortgage and how, except for an IRA, has no equal in the investing world. Pay for where you live and build equity as you go.
Investing for the Long Term
The US stock market has, over the long haul, has provided the best returns of pretty much any investment vehicle. However, the market has its ups and downs. Money invested at a steady rate over the years you will see a ten percent return on you money. Some years will do worse and some years will do much better. A safe and wise way to do this is to invest a set amount every pay period, month, or quarter in your chosen stock of stocks. With this approach you will not pay excessively for buying in a high priced market and will get stocks for relatively cheap in low priced markets. This way you also avoid falling prey to the twin demons of fear and greed that routinely plague investors.
Best Investments Today
Much too often the stocks that get the most hype are those that have recently soared in price. This means it is commonly to late to invest in them and obtain the greatest benefit. Rather one would like to find solid, well run companies with excellent cash flow which are currently, for whatever reason, undervalued. In this regard we saw an article in Morningstar about the 10 best companies to invest in now. Their list includes Campbell’s, Clorox, Roche, Ambev, Bristol-Myers-Squibb, Coloplast, Brown-Foreman, GSK, and Constellation Brands. It also include one Chinese stock, Yum China Holdings. They note that Campbell’s is selling for roughly half of what they consider to be fair market value based on earnings and prospects for cash flow. The rationale for investing is that you will eventually see your investment double when the market comes to its senses and prices the stock correctly. Also, if the economy does get worse, consumer stocks are commonly a good refuge! They make similar arguments for every other stock on their list. Ambev, Brown-Foremen, and Constellation Brands are also undervalued according to Morningstar. In addition, folks who sell beer, wines, and other spirits are generally good investments when the market falters as their sales are typically not badly hurt during a recession.
S&P 500 Last Five Years
When to Hold on to Cash
It is impossible to anticipate every market opportunity far in advance. As such it is useful keep part of your portfolio as cash such as a money market fund or short term CDs. Then when you spot an expected opportunity you will have the wherewithal to take immediate advantage of it.
Pay Attention to Distressed Companies
When a company has difficulties its stock price commonly suffers. It is often useful to investigate why the company got into trouble and to develop a sense of whether or not they will recover and how soon. When you pay attention like this you can often buy the stock at a substantial discount to its eventual “recovered” price!
Return on Investment to Expect on $25,000
When you invest, what will the return on your money be? A reasonable rate of return on stocks over the years is ten percent. The return on investment for starting off by paying off your credit cards is closer to twenty-five percent. Keep a reasonable ten percent In mid when choosing investments. When you follow investment tips with promises of riches at the end of the rainbow substantial risk always comes at the same time. What you do not want to do when starting off investing your twenty-five thousand the last thing you want to do is lose all of your money on a poorly chosen investment.