Hello, Jaye here again. Today I would like to discuss how to invest in the market. If you have been following the savings advice outlined in this blog, you now have a pot of money to invest. So what do you do now?
First things first- have a heart to heart with yourself about your investor type. Be honest. Are you really an aggressive investor, or does the thought of seeing losses in your account make your stomach turn? Stocks and mutual funds do not go straight up, and you can expect short-term losses from any investment. If you are a conservative investor, do not buy the hot tech IPO that just hit the market. Do not buy on your cousin's stock tip, or "play" penny stocks. Pick investment vehicles with a proven investment record, and look at bull market performance (2003-2006, 2009-2010) and bear market performance (2000-2002, 2007-2008). Do the gains justify the losses? Make investment choices based on a long-term view, not just the stock with the highest return last year.
The next consideration for investors is research time, interest, and know-how. Do you enjoy knowing how things work and digging into the company balance sheets or looking at technical charts? Are you really going to spend 5 hours a week researching your stocks? If yes, then open an investment account with low trading costs and a large investment universe and trade away. If you are a hands-off investor with better things to do in your day than track the market, consider using a balanced mutual fund whose manager will change the asset mix based on market conditions. One of my favorites is Permanent Portfolio (PRPFX). There are a lot of them out there, so do your homework before choosing one, and be sure to re-evaluate every so often.
Finally, be systematic with your investing. Put new money in on a regular basis to dollar-cost average into the market. Reinvesting dividends also allows you to catch the market at regular intervals.
Happy investing!
Jaye Weiland, CFP®
Disclaimer- I own shares of PRPFX
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