Submitted by Jen Jones on Sat, 03/06/2010 - 12:31am
Successfully coming out of bankruptcy is a financial rebirth. As you move on from your financial setbacks (and you will), you will be better prepared to build a healthy fiscal future. Part of that, or better stated, a huge part of that, will involve how you make decisions regarding money. It would be understandable, for example, to simply save everything in a conservative money market (savings) account or maybe drop a small bit of your monthly income into a 401k. Both options are solid and should be considered part of a comprehensive investment strategy.
So if bankruptcy has changed the way you handle money and it's time for you to start moving forward building responsible, long-term wealth, consider the following investment tips:
1. Stocks have consistently outperformed all other investment methods.
Since literally before the Great Depression, the best asset class in which to have money invested for the long term is the S&P 500. The "Standard & Poor's" 500 is basically a group of stocks from 500 common large-cap companies. "Large Cap" is another way of saying very big, publicly traded companies. Remember though, stock investing carries risk, so we strongly encourage you to consult a professional financial planner.
2. For the short term, stocks can be dangerous.
You know that whole day-trading craze? Yeah, well ignore it. Don't try it. Those E-Trade babies are witty but they're not talking to you. Trying to make money on stocks with brief holding periods is rarely a healthy investment strategy. Stocks are better when held for the long term. Allow the ups and downs to happen, and don't panic. And again, talk to an experienced professional.
3. Inflation can hurt long-term investments.
Inflation is just another way of explaining the general increase in the price of consumer goods. Movie tickets going from $1.25 to $9.50 is an example of inflation. If you buy stocks this year at a certain price and next year inflation erases, let's say the average of about 3.2 percent of your dollar's worth when you bought those stocks, suddenly your investment isn't worth as much. In other words, every year, a dollar buys less, so what portion of a stock you could buy for a dollar has become smaller. Thus, this is exactly why you want to hold retirement accounts for as long as possible, so they eventually outpace inflation as the market goes up over time.
Like a buffet restaurant? Good, now take the same approach with your investing. Don't just buy stocks or just buy bonds. By spreading your money around, you reduce risk. As one investment falls another may rise. This is where your financial adviser can really help, as too much diversification can slow growth, so let them arrange for you a solid variety of investments that will still grow your money.
5. Pay attention to earnings.
As you get used to this investing thing and want to start making recommendations to your planner, watch a company's earnings. A lot of things can impact stock prices but over the years, there has been no better indicator of stock performance than earnings. If a company makes more, it's stock will follow.
In summation, we can't express enough the importance of working with a legitimate, certified financial professional when it's time to invest. You're uncle or spouse's brother doesn't count. Even if they have an E-Trade account.
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