Everyone wants to know what the next hot stock will be. What they all fail to realize is that investing isn’t about picking the right stocks at the right time. Investing isn’t sexy like those jerks on Wall Street portray it — in fact if you want to lose lots of money very quickly you have two choices: go to Las Vegas or invest in the “hot stocks” on the street.
The vast majority of my investment portfolio is tied up in mutual funds. I have, at most, 5% of my investments tied up in individual stocks. Why? Because picking stocks is risky and (if you’re going to do it the right way) requires a significant time investment. I prefer to use my time for projects that are guaranteed to provide me with a return (monetarily or otherwise), not those that are almost guaranteed to lose me money!
“A mutual fund is a professionally managed type of collective investment that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.[1]“
The Wikipedia definition is a great way to describe what a mutual fund is, but its definition isn’t really important. What is important is that you know how to make mutual funds work for you. After all most of us could care less what a mutual fund is. We only care about how they can help us build wealth.
Here’s the bottom line: Investing in mutual funds will help you build wealth and become financially independent.
How do I get started investing in Mutual Funds?
You’ve got two choices when it comes to investing in mutual funds. Manage them yourself or have a “professional” do it.
Either of these choices is better than doing nothing at all (or leaving your money in a savings account and calling it an investment — high yield or not it’s stupid if you’re younger than 40). My advice? Manage it yourself. It’s easy and will require a few hours a year of your time at most. If you are too nervous to do it yourself then find yourself a financial adviser. If you’re military (or inherited your membership from someone who is) you could also call USAA for free financial advice. If you’re comfortable with managing it yourself read on.
Here’s what you do to start investing in mutual funds:
- Choose a fund with Vanguard or T Rowe Price (choose an index or target fund).
- Set up automatic investing (take it right out of your paycheck if possible).
- Watch your money grow (but don’t check your balances too often).
The Bottom Line
Putting your money to work for you is how the poor get rich and the rich keep getting richer. Most of us don’t have the time or dedication to spend hours every single week (or month for that matter) researching stocks, transferring money to investments or even paying bills. The bottom line is that you need to invest, you should invest in mutual funds and you need to automate your investing.
Do this and you’ll really start to build wealth. Keep it up and you’ll make it into the Million Dollar Club in no time.