Our Money Coach, Bill Stanley, stopped by FOX21 Morning News to talk about the first steps we should take when setting up an investment account.
Some time ago, he said he read an article titled “The Big Lie and a Few Truths.”
“The big lie comes from a financial adviser or broker who says: 'give me your money and I'll beat the market and make you rich',” Stanley said.
However, the article listed three truths that he shared with us:
Truth #1 – The higher investment return always is accompanied by higher risk.
Truth #2 – Market timing inevitably results in higher costs, higher risks and inferior long-term results.
Truth #3 – A balanced portfolio that includes real estate reduces risk and improves long-term returns.
Stanley said one of the best concepts for new investors is something called "dollar cost averaging," where you invest a set amount on a regular basis. For example, Stanley set aside $100 on the first of every month, and rode the price fluctuations.
“When you invest periodically, when the price is low, you will buy more; when the price is high, you will buy less,” he said. “Dollar cost averaging works over the long term to increase the value of your investment. As time goes on, you earn more and you invest more.”
Then, Stanley said, try investing $200 each month in year two of your plan.
One of the easiest ways to invest is to set up automatic withdrawals. It succeeds because you don't have to take any action, he said.
For retirement, Stanley suggested the 401(k) investment taken out by our employer. For regular investments, you can arrange withdrawals from your checking or savings account. He said we can even set up a stock purchase program or a dividend investment plan with many companies.
These programs can start with a very small amount, for example a hundred dollars to start and monthly investments of $25.
Stanley said we can set up these investment programs ourselves through our employer or through a brokerage account with a discount broker or an account with a no load mutual fund company.
“Some brokers (such as Scottrade) have local offices where you start by talking face-to-face with someone who is not on commission,” he said. “T Rowe Price, the big mutual fund company, has an office in north Colorado Springs. You can deal with most any company online with telephone assistance available.”
The key is starting early.
Stanley pointed to a recent Consumer Reports study that shows retirees who began saving in the 30s had a net worth at retirement of $1.1 million – twice that of those who started in their 50s. And retirees with seven or more types of investments had an average net worth more than double those with three or fewer categories. Bottom line: Start investing early and put your money in many different places.
Bill Stanley and Money Matters airs every Tuesday on FOX21 Morning News.
If you have a question for Bill, contact him directly: MoneyCoachBill@aol.com