Note: Make sure you check out the rest of the series on personal investing.

Picking individual stocks may be fun and exciting, but it usually generates a much lower return than simply investing in low-cost, index mutual funds.

Four Options

If you’re going to invest in stocks, you basically have 4 options:

1. Pick Stocks Yourself. You can decide, for yourself, in which individual stocks you’ll invest.
2. Use a Broker. You can pay your stock broker a fee (i.e. commission) to pick stocks for you.
3. Invest in Mutual Funds. You can pay a mutual fund manager a fee to actively select stocks for you. The annual fee is typically 1% – 2% of your investment.
4. Use Index Mutual Funds. Index mutual funds simply invest in most or all stocks in their respective market index. They don’t pick stocks, so fees are much lower, typically 0.05% – 0.50% each year.

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We’ve covered a lot of ground in the Beginner’s Guide to Investing series. However, sometimes the most difficult step is the first one: knowing where to start. In this fifth and final article, I’ll explain an effective, but simple, way to begin investing. Here are the steps we’ll take: Continue reading →

Stocks are risky because they can be highly volatile in the short term. Individual stocks and entire markets can become “bearish”, meaning they can decline significantly in value for a period of months or even years. It’s important to fully understand that risk and appropriately manage it. I’d like to expand on my brief overview of stocks from earlier in this series by examining both the risk and reward of this type of investment.

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In the first two articles of this Beginner’s Guide to Investing series, we looked at some fundamental building blocks for investing:

• Establish a reserve fund for emergencies and pay off your credit cards.
• Determine how much time you want to spend monitoring your investments, when you will need the money, and how much risk you can live with.

Here’s something that might surprise you: most millionaires in the U.S. are everyday people who followed simple guidelines for saving, spending, and investing (for more on this, check out The Millionaire Next Door by Thomas Stanley and William Danko).

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In my first article in this series, we looked at two simple pre-investing steps to take. Before you begin investing, you must also answer these three questions:

1. How much are you willing to work on monitoring investments?
2. When will you need the money?
3. How much risk can you live with?

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So you’ve decided you want to begin investing. Outstanding. Way to go!

This will be the first in a series of five articles to help you get started.

But, before you invest anything at all, there are two pre-investing steps I strongly encourage you to take. Unless you do these things, it will be hard to stay on the investment path.

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