What Should You invest in?

Deciding among the plethora of investments is a heady and hazardous task. Small mistakes made early can affect your results significantly. A mistake in what you invest in and when can cost you your comfortable retirement.

If you are young you are incredibly wise to apply this knowledge now to take advantage of the time you have. Starting now gives you time to use compounding interest and allows for mistakes to be corrected with less impact on your final sum for retirement. If you really do well and apply yourself you can easily retire early. Then you can do whatever you want!

In this article I will discuss some of the most popular investments and what you should avoid when putting your money in them.

CDs
CDs are the easiest form of investing. They are the easiest because you can get them at almost any bank and your money is already there. All you have to do is say you want to buy a CD, sign some paperwork, and off you go. Banks make it this easy for a reason. They make a killing off of you that you could be making somewhere else. Most CDs return a yield of 3% to 5% in our current, healthy market. That will fluctuate along with interest rates. T

The unfortunate part about CDs is the horrendous rate of return. No joke. If you get a average 3% out of your bank then after taxes and inflation you are actually losing ground. That is to say, don't invest in CDs. Yes they are easy but they are not liquid and get low, taxable yields.

One reason most people invest in CDs is for the liquidity. One way to get complete liquidity (checkbook access) from your invested money is a Money Market.

Money Markets
Do your research in this sector. For keeping money liquid and constantly returning a 5% yield you can't beat a money market. If you need to keep large amounts of money liquid then a money market is the way to go. I like the Genworth Interest Plus money market a lot because it has no fees or expenses, has checkbook access, and gives a great rate of return. For keeping money liquid in an IRA your just can't beat a money market.

Mutual Funds
Mutual funds are great for returning a predictable yield, are rated by the Nationaly renown mutual fund company, Morningstar, and can have proven track records from their fund managers.

One word of caution though. Mutual funds can have some hefty fees tied to them that your broker or advisor will NOT tell you about, no matter how cuddly you are with them. Make sure you ask to see a complete Morningstar report on the selected fund. When you get this report look for expenses.

There are management expenses. These are called expense ratios. These can run all the way up to 2%. An acceptable expense ratio would be close to 0.4%. Don't accept anything over 1.5% because there are plenty of funds that return excellent yields for low expense ratios.

The next trap is the 12-b fee. These are fees imposed by your manager on a yearly basis for "managing" your money. Since most mutual funds are held for the long term this is ridiculous. A good investment manager will not charge you 12-b1 fees. An average 12-b1 fee will run around 0.25%.

Then there are loads. If you are young an uncouth investment manager will suggest funds that are heavily front loaded. This means there is an up front fee for buying that fund. It also means you start out at a loss. A typical front load is 5.75%! That means your fund needs to grow 5.75% before you make a dime. It's a ripoff. Don't buy funds that have a loading, either front or rear. There are a great many good funds that don't charge loads. You should not stay with an investment manager if he recommends heavily loaded funds. The reason he will recommend these expensive funds is because he gets paid from the sale.

Understand that your investment advisor needs to be well compensated IF they bring you a good yield on your money. However, most advisors will not bring you a consistent, safe, and high yield. What they will do is charge these fees:

1. 12-b1 fees (0.25% on average)
2. Expense ratios (mutual funds)
3. Loads (mutual funds)
4. Account Fees (these may be simple account maintenance fees and range up to very specific trade fees)

Stocks
This one can get you in a lot of trouble if you don't take the time to educate yourself. However, with some time well spent learning about value investing from a business perspective you can turn a handsome profit. A great example is Warren Buffet who made 33 billion dollars from $100,000.

The essentials of buying stocks can be summarized into these few points.

1. Buy a company that has constantly made significant amounts of money on the profits.

2. Buy a company that has a consumer monopoly that couldn't be taken away with a zillion dollers. A few examples come to mind like, Hersheys, Coca Cola, Google, Wriggly, and any others who have a firm position in their market.

3. Buy a company with a low price to earnings ratio. The way to determine this is to divide the price of the stock by the earnings per share. All of that information is readily available on the net.

4. Don't buy a company just because the price has been going up or you think it will go up. Invest only in good solid companies and you will reduce your risk to a minimum.

5. If the stock takes a dive don't be the first one to jump ship. If you don't manage to sell your stake in the company before a correction occurs then sit it out. Most corrections are nothing more then stockholders letting their emotions run their money.

6. Be alert and be detached. Don't follow the crowd.

7. Don't take stick "tips" from websites or people unless the company meets the prerequisites laid out above. If you do take tips you are putting yourself at their mercy. It is most likely you will be extremely disappointed and that relationship will be damaged.

Be greedy when others are fearful and fearful when others are greedy.

What goes up must come down.

Buy LOW sell HIGH.

Sell before the market corrects and buy after it corrects.

Don't get caught by a plunging market with your hand in the money bag.

Investment Advisor
Do your research and get a good advisor. Try to get an advisor with a fiduciary agreement. This is a special kind of advisor that is required by law to give you information that helps you first. Most investment advisors like Schwab, Edward Jones, Davidson, UBS, and more have obligations to their broker first, themselves second, and you third. Having a fiduciary manage your money can mean the difference between keeping your money and watching it grow or giving your yields to the brokerage and your advisor.

Don't rely on an emotional tie with your advisor to keep him honest with you. The majority of happy investors are being lied to and robbed blind by their nice investment advisor. And I do mean that all those investment firms I listed above engage in those practices. LOOK AT THE NUMBERS! with investing, the numbers are all that matter. If you are getting a satisfactory rate of return, not paying much in fees (less then 2%), and can easily understand the investment choices your advisor has made then you should stay. Otherwise, find another advisor.