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Investing 101: Best Simple Way to Start Investing Money in Mutual Funds
Today’s new investors can start investing money in mutual funds the simple way, even before they learn to invest money and make investment decisions on their own. In fact, if you start investing in the right funds, you’ll likely do better than many folks who actually think they know what they are doing.
The truth is that if most people didn’t start investing money until they really knew what they were doing, they would never get started. This is not rocket science, yet few Americans actually take the time to learn to invest money. That’s why mutual funds are designed for average or relatively uninformed investors. In other words, these funds are designed for the vast majority of people. For 2014, 2015 and well beyond things should be simpler than ever before for new investors who want to start investing money for retirement and other longer-term financial goals.
Traditionally, the big advantage of mutual funds has been that these investor packages offer professional money management to investors at a reasonable (usually) cost. When you own shares in a mutual fund, you own a very small part of a very large professionally managed investment portfolio. Question: between now and the time when you actually get up to speed and learn to invest money, how do you select a fund?
For 2014, 2015 and beyond it’s a lot simpler than you may think. Most folks do not really understand stocks and bonds, but one of the first things you will learn if or when you learn to invest money successfully on your own, is that you need to be invested in both stocks and bonds in order to have a balanced portfolio. The advantage of balance: long term growth with only moderate risk. The good news is that new investors don’t need to sift through a long list of stock funds and/or bond funds before they start investing money.
Balanced funds are available through most major funds companies. These funds automatically provide investors with a balanced portfolio of stocks and bonds. They are the simplest and best way for new investors to start investing without losing sleep at night. If you find that you are losing money in a balanced fund, you can rest assured of one thing. The vast majority of investors out there (including the big investors on Wall Street) are likely losing money as well. If both the stock market and bond market get hit in 2014 and/or 2015, investors across the board will suffer.
Both stock prices and bond values fluctuate as these securities trade in the markets… and often losses in one of these markets are offset by gains in the other. That’s the advantage of having a balanced portfolio. The traditional asset allocation traditionally recommended by Wall Street: about 50% to 60% going into stocks with most of the rest going to bonds. This simple formula has worked well for investors for over 30 years. That’s basically the same asset allocation traditional balanced funds maintain. So, until you learn to invest money and make your own choices, why not start investing money in a balanced fund to get your feet wet?
Why is it so important to invest vs. simply saving money? And why should you learn to invest money when balanced funds have worked so well for the average investor?
If you have a long term goal (like retirement) you need to put your money to work so it grows. Earning 3% a year it takes 24 years to double your money. If your money grows at 10% a year it doubles in 7 years. That’s why you should start investing.
In 2014 and perhaps 2015, millions of average investors will look back at the gains (of about 150%) in stock funds that they missed out on since early 2009. At the same time, millions more will be holding onto the notion that their bond funds will continue to perform well, as they basically have for over 30 years. Don’t count on either of these trends to last indefinitely. The markets are dynamic and always subject to change. That’s why you need to learn to invest in any market environment.
New investors: don’t be afraid to start investing money in a traditional balanced fund. Start small, and make sure you have a cash reserve to cover financial emergencies in your every-day life. This will get you involved without taking too much risk. Then, dig in and really learn to invest money. Search for “balanced funds” and how to “learn to invest money” on your favorite search engine. There’s plenty of info out there.
What should you look for specifically? Look for a mutual fund under the general category of balanced fund. Then look at the fund description to get a handle on the fund’s asset allocation of stocks vs. bonds. You want a fund with an allocation close to 60% stocks and 40% bonds. Now you’re ready to start investing, with the best time-proven mutual funds around.
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