You want a home of your own, an education for your kids, a comfortable retirement someday and a little fun along the way. These are the dreams we all seem to be born with. To achieve them, we must become investors.
See Also: The Basics of Investing in Mutual Funds
A brilliantly executed program of saving — putting your money into certificates of deposit, money-market funds or savings bonds — can earn 5% to 6% in a good year. With inflation at 3% (some would say that's optimistic) and taxes taking away another 25% or so of what remains, that 5% return quickly becomes about 1.5%. You're going to have to do a lot better than that.
Investing in stocks will help you earn more. The stock market's dismal performance in the decade of the aughts has understandably caused investors to lose faith and lower expectations. But since 1926, Standard & Poor's 500-stock index has gained 10% a year on average.
Over the long term, we think you can reasonably expect an average return of 7% to 9% per year on your investments (see The 8% Solution). You won't make it every year, but that's an achievable range if you plan your approach thoughtfully and stick to your plan.
Successful investors don't jump around from one place to another according to what's hot and what's not. They operate from a plan that's based on their goals, how long they have to achieve them, their tolerance for risk (both financial and psychological), and what they can afford to set aside for an investment program. You want to make money, of course, but you also want to be able to sleep at night. Here's how to do it.
Set Goals and Adopt a Strategy
Decide what you want to save for and how much you need; then, figure out how you'll do it.
Make Investing a Habit
Follow these easy steps to make investing part of your daily routine.
Control Your Risks
Don't invest until you're ready, and don't buy anything you don't understand.