With the DOW hovering around 13,000 from the mortgage crisis fallout, I felt compelled to give you some investment advice: know yourself; determine your time horizon; and start now.
Know yourself: I’ve had people ask me: What is the best investment? Easiest answer: It depends. The first step to successful investing (notice I’m making a distinction between investing and trading) is knowing yourself. What is you tolerance for risk? During rough times will you continue investing or jump out a third story window? Determining your tolerance for risk sets the stage for all your investments and will help give you a proper mix of investments (stocks, REITs, bonds, etc). I have a high tolerance for risk, which is one of the reasons why I dabble in individual stocks. Hopefully they will boost my return.
Determine your time horizon: Most of my investment advice spans 20+ years, with some exceptions for individual stock trading. If you need a large sum of money in three years or less, then you probably don’t want to buy stocks. Saving money for a down payment on a house, a car, etc means your better off keeping cash in a money market account or short term CD so you’ll have a guaranteed lump sum when you need it. I’d hate to see anyone lose a huge percentage of an investment simply because they failed to realize their time horizon.
Start now: The time value of money is a beautiful thing. According to MarksJarvis, “In order to accumulate $1 million at retirement, you'll need to invest just $20 a week in a simple stock-market mutual fund when you're 19, about a $100 a week if you wait until you're 35, and roughly $300 a week if you delay until age 45, assuming a retirement age of 65 and an average annual return of 10%. (Though 10% is in the ballpark of how the market performed historically over many decades, there's no guarantee that it will continue to do so.)” I’m going to make a distinction here: don’t invest in a simple stock-market mutual fund—use a long term index fund like the Fidelity Total Market Fund, etc. 10% long term may be a stretch—I’d say 8% is more likely. If you want to do better, I’d have 20-30% of your portfolio in foreign investments—possibly more if you have a higher tolerance for risk.