Investing 101 - Getting Started

Investing can be intimidating because of the perceived and actual risks. I remember my apprehension when I bought my first stock and my first investment real estate. In hindsight, knowing what I know now, I can see the reason for my anxiety. Over time I have developed these foundational principles for how I invest:

Choose a strategy to preserve, grow, or speculate with your investments. I have chosen an approach to mainly preserve with some growth. I started with CDs and expanded to stocks and real estate. CDs are low risk with fixed low growth. Good stocks and good real estate are medium risk, with medium growth. I do speculate with a small portion (1-2%) which is invested in options, one turnaround stock and a small business venture, which are high risk (i.e. gamble) with potential high returns (with luck).

Understand your investment options. I try to learn from others with the knowledge or a professional I can trust. In addition, be comfortable with your allocation of investments. Do not put your money or let your advisor put money into investments that you do not understand or feel comfortable doing. Know the risks. If you use an advisor, remember, it’s your money, and you have ultimate responsibility for the investment outcome. And always remember, if it sounds too good to be true, then it likely is.

Use knowledgeable professionals who provide good value and have reasonable fees. I do not like to pay more than 1.5% of assets for financial advisors or mutual funds to manage my investments. Vanguard is a good mutual fund with low fees, often in the 0.4% to 1% range. Many full service brokerages, such as Merrill Lynch, have programs with management fees in the 1-2% range. I do not have much experience with real estate management firms, but I believe they have fees closer to 5% of rents.

Here are the current posts in the Investing 101 series: Part 1 - Getting Started; Part 2 – Managing Risk Successfully

This is not financial or investing advice. Please consult a professional advisor.

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