Financial Advice: Part 5: Investments and Savings

part 1: creating a budget
part 2: living with a budget
part 3: fine tuning a budget
part 4: major purchases

Investment/Savings
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- Risk Reduction

1. Don't get involved with things you don't understand
2. Don't risk money you can't afford to lose.
3. don't make a quick decision.

- Diversification

* invest in assets that are not totally dependent on one country's economy
* invest in different industries

- Seven worst investments for beginners

1. Commodities speculation

* the buying and selling of materials for future delivery

2. Partnerships

* limited partnerships - one person is named as the "general" or managing partner; everyone else involved in the investement, which typically involves real estate transactions, are named as "limited" or nonmanaging partners.
* when a property is sold or foreclosed, some or all of the property's previous tax deferments become due and payable

3. Tax shelters

* the purpose is to defer income taxes so that you can use that money to invest
* pay what you owe to the IRS and find a safer way to make money

4. Precious metals

* no market
* investors buy at retail and sell at wholesale

5. Gemstones

* average investor can't tell the quality of gems

6. Collectibles

* if you know about it, or you are in it for just collecting as a hobby, it's fine.

7. Stocks

* only if you don't know what you're doing

- Six best investments for beginners

1. Home

* residential housing has kept pace w/ inflation
* serves a purpose beyond investment
* try to pay a little of the principle each month

2. Rental Properties

* better idea of what you're getting for your money
* you don't need a huge investment to get started
* tenants pay off mortgage in the form of rent checks

3. Mutual funds

* allow small, incremental investments
* provide professional investment management
* allow flexibility through the shifting of funds between a variety of investments
* if you have more than $10k to invest, subscribe to a good fund newsletter

4. Insurance products

* annuities and whole-life policies have been very safe

5. Company Retirement

* tax deferred
* matching funds
* wide array of investment options

6. Government-backed securities

* standard by everything else is measured
* after kids are done with college, get out of risk

- Start early

* utilize the power of compound interest

- Be consistent
- Keep your eyes on eventual goal

* don't panic in bad times or gloat in good times, you're in it for the long haul