Feeling down in the mouth? Dejected at the thought of what you've done with your financial future? Envisioning a hardscrabble future?
Well, buck up, friend! Things are not as bad as they seem. You can do better.
Are you drowning in debt?
If you owe money to creditors, know that you're not alone. In fact, 37% of consumers have non-mortgage debt north of $10,000.
Still, you can dig out from under debt. This article will introduce you to people who have paid off as much as $100,000 and even more in credit card debt -- without declaring bankruptcy.
And make sure you do that before you invest. Because even if you earn a healthy 10% to 15% on your investments, you're losing ground if you're paying 20% or more in fees and interest to a credit card company.
No debt, no savings?
If you're debt-free, now is the time to start saving and investing. A good rule of thumb is to aim to sock away at least 10% of your income, though the closer you are to retirement, the more you might want to sock away, since your time is limited.
On the other hand, it's a good idea to save as much as you can even if you're young, since your earliest invested dollars have the longest time to grow and can be the most effective.
That said, start by establishing an emergency fund, equal to a few months' expenses, and keep it in short-term liquid options such as CDs.
Just savings?
Now, you say you have a bunch of money in the bank that you'd like to invest for the long run? If you're earning a paltry 3% or so, it's time to upgrade! Of course, since the stock market can tank and stay tanked for several years, invest only money you won't need for at least three to five years.
Once you've identified money for the market, the simplest way to get started is via a broad-market index fund, such as S&P 500 (500 of America's biggest companies) or the Wilshire 5000 (almost every public company in America). Both indexes include huge companies such as ExxonMobil (NYSE:XOM) and Microsoft (NASDAQ:MSFT), but the latter also holds smallish ones such as LoJack (NASDAQ:LOJN) and Nautilus (NYSE:NLS).
Only an index fund?
Here's some good news: If you're invested only in a broad-market index fund or two, that can actually be all that you need. It's not a poor choice at all, and it's the best choice for those without the time, interest, or energy to try to do more. Even master market-beater Warren Buffett has recommended it for most individual investors.
Still, if you want to try to do better than the overall market (which has average annual returns of around 10% over many decades), you can. Simply seek out some top-notch managed mutual funds.
While the vast majority of funds managed by Wall Street wizards fail to do as well as index funds, there are still some great funds out there. Consider, for example, Bridgeway Aggressive Investors 1 (BRAGX), which sports average annual returns of nearly 18% over the past decade, and almost 21% over the past three years. Its top holdings recently included Apple (NASDAQ:AAPL), AT&T (NYSE:T), and Research In Motion (NASDAQ:RIMM).
Although the Bridgeway fund is closed to new investors, many other great picks will welcome your money and work hard to grow it over the next decade or more. For help in zeroing in on some of the best funds out there, I encourage you to try our Motley Fool Champion Funds investing service free for 30 days. Its fund picks are beating the market by some 13 percentage points, and its model portfolios can help you decide which funds are right for you. Click here for all the details.
And that's how you can start from anywhere ... and do better.
Longtime Fool contributor Selena Maranjian owns shares of Microsoft, which is a Motley Fool Inside Value recommendation. The Motley Fool isFools writing for Fools.
