PeerFinance101 is about sharing your personal finance story so that everyone can learn together. No one-size-fits-all in meeting your financial goals so the idea is that read enough of other people’s stories and you’ll find what works for you. That’s one of the reasons why I run this weekly recap of the best blog advice around the web. The excerpts below are some of my favorite articles from other personal finance bloggers and their perspective.
This week’s recap is a follow-up to our investing basics and beyond post on Monday. We covered the idea of finding your financial destination before setting out and how much risk you really need in your investments.
Lessons Learned from a New Investor
Alexa shares 5 Lessons She Learned as a New Investor on the College Investor blog. The five lessons are a great roundup that will get you started but Alexa’s best advice is what she leads off with, that getting started is half the battle. I see too many people put off investing, maybe waiting to pay off their debt or just keeping all their money in savings, and never end up investing.
- Investing is easier than you think – You can open just about any of the online investing accounts with as little as $500 and most video tutorials to get you started. In fact, the problem may be that investing is made too easy on the platforms. You’ll need to resist the temptation to become a stock trader, buying and selling shares every day.
- Don’t start with Penny Stocks – Alexa bought two penny stocks as her first investments. Learn from her mistake and stay away from the casinos of the stock market. Real investing is about long-term returns, not getting rich quick on a stock tip from television.
- Watch for Fees – Most online investing sites offer relatively low rates for purchases, around $10 to $15. If you’re buying a mutual fund or exchange traded fund, there will be an annual charge for that as well. Start buying and selling your investments regularly and those fees start to add up.
An Investor's Commandments
Andrew offers an Introduction to Simple Investing and a list of Average Investor’s Commandments that make some great points.
- Think long-term and understand that you don’t need to time the market.
- Invest what you can afford – I see a lot of investors get overly enthusiastic about getting started and put every dime into their account. They find out pretty quick that they need some of that money and end up having to sell some investments. Put investing into your budget and treat it like a regular expense.
- Buy what you believe in – is also one of the mantras of billionaire Warren Buffet. It doesn’t mean you have to know how the business is run down to every logistical detail or how the technology works exactly. Invest in products for which you understand the demand and the brands you trust.
- Do your own research – This is a big one. Understand that the shows on television and even many of the websites offering advice make their money off entertainment and drawing visitors, not necessarily from producing sound financial advice. It’s fine to get an investment idea from these sources, but back it up with your own research before you buy.
- Set it and Forget it – The buy-and-hold approach continues to be the best and easiest strategy for most investors. Don’t worry about timing the market and don’t worry about your portfolio’s value on any given day or even month-to-month.
Protecting Your Short-term Money
While investing is about reaching your long-term goals, Jeff Rose helps readers decide where to put their short-term money with some safe investment options. The article could be one of the most important you read for investing.
I see a lot of people make plans to make a large purchase like buying a home. They’ve saved most of the money but it’s still a few months or even a year before they can buy. What do they do with that money in the meantime? Too many people keep it in their regular investors and that means stocks. Too many people have to put off those plans or never get to buy their dream home because the market takes a tumble before they withdraw the money. Any money that you are going to need over the next year should be placed in safe, short-term investments.
- Savings accounts and Certificates of Deposit (CDs) are going to be your safest options but will probably not offer much for return.
- Short-term U.S. Government Bonds are also a relatively safe investment and shouldn’t lose too much value if interest rates rise.
- Municipal Bonds are issued by local governments so a little riskier than those issued by the federal government. Again, the issue here is that you need to focus on bonds that mature in a few years or less. Bonds lose some of their value when rates increase but those with only a short time left do not lose as much. Buying bonds that mature before you need the money ensures that you will not have to worry about interest rate risk.