Oh, hello. Looking for some sizzling stock tips, are we?
Those of us who don't watch the ticker tape all day may be tempted to take a shortcut by clicking on enticing headlines and heading straight to our broker's website.
Shame on us.
The truth is that there are some shortcuts you can take -- like letting a few trusted analysts excavate the balance sheets of potential investments and present pro and con arguments. But even then, it's your hard-earned money on the line, not theirs. So perform some due diligence of your own to get comfortable taking the plunge.
Chasing hot stock tips and failing to do one's homework aren't the only ways investors handicap themselves. But lecture we won't. We promised you nine hot investing tips, and here they are:
- Do something. Suffering from analysis paralysis? (That's when an investor feels overwhelmed by so many choices that he simply does nothing at all.) There is no guarantee that the market will go up the first day, month, or even year that you invest in it. But there is one guarantee: Doing nothing at all will not provide for a comfortable retirement. Take a baby step today. Which leads us to Hot Stock Tip No. 2...
- Start now. Postponing your investing career is second only to not investing at all on the list of investment sins. You already know that the earlier you start, the better off you are. (Take a look at how compound interest works by noodling around with a few online calculators.) If you're already past those formative 20s (you don't look a day over 32 to us), let's just say, "Better late than never." Now hop to it.
- Pay off your plastic before you plunk down for stocks. If you have money in your savings account and you have revolving debt on your credit card, pay it off. Many credit cards have an annual interest rate of 14% to 21% or more. Let's say you have $5,000 to invest, but you also have $5,000 in debt on your credit cards with an average annual interest rate of 18%. It doesn't take an astrophysicist to figure out that you're going to have to get an 18% return after you pay taxes just to break even on that $5,000. Pay the debt off first, then think about investing.
- Don't invest the wrong dough. There are appropriate places for short-term money that you're actually going to need in the short term. Invest money in the stock market that you won't need for at least three years, and preferably five years or longer. If you'll need your cash next year for a down payment on a house or for the family Caribbean cruise, use one of the shorter-term and safer havens for your cash, such as money market funds or CDs.
- Take the free money. You'd never turn down a dollar if it were offered with no strings attached. That's what you're doing if your company offers a 401(k) or similar retirement savings plan with an employer match and you're not participating. Take advantage of all tax-advantaged, employer-matched savings programs.
- Take a few risks. If you're young, most of your investing dollars should be in the stock market - specifically the index fund. You have enough time to weather any dips in the market and to reap the rewards of long-term gains. Although you may want to transition into bonds later in life as you depend on your investments for income, stocks should make up a large portion of the portfolio of every investor.
- Look both ways before you cross the speedway. Not every investment is for everyone. Even if you're a daredevil, you shouldn't pour all of your money into something that could end up going down the drain.
- Enjoy your hobbies. Don't invest in them. If old comic books, Barbie dolls, and abandoned exercise equipment could be used to fund retirements, do you think the stock market would exist? Probably not. Don't make the mistake of thinking your jewelry, those Beanie Babies, or the lottery will provide for you in your later years.
- Stay put when it makes sense. We believe the best approach to investing is the long-term one. Pick your investments well and you'll reap more rewards over the long term than you ever dreamed possible. Trade in and out of the market and you'll be saddled with fees that chip away at your returns, and you'll potentially miss out on gains that long-term investors enjoy with much less effort.