Here are a few simple steps you can take to get moving on a plan to invest for your future. No matter how much or how little money you take home, the trick, if there is one, is to begin. Educate yourself about the mechanics of investing and look for help. This is a choice. You should choose to get wealthy.

• First, investing is different from saving. You save for short-term goals, like buying a new car. You invest for the long haul, to meet goals like retirement or college for your kids. The more time you have until you need the money, the greater the risk you can assume.
  
• Favor mutual funds over individual stocks. The advantage of funds is that they pool your money with thousands of other people and buy dozens of stocks (or bonds or a combination). That diversification is the key to reducing risk.

After you have mastered the fine art of fund investing, you might be motivated to move into individual stocks. Personally, I have never felt the need or the desire, but there are arguments in favor of investing in stocks rather than funds and many people have done quite well by it.

• Plan to stay in a fund for at least five years. If you’ve done your homework and selected quality funds, they will recover from the normal gyrations in the stock market if you have the patience to wait. Take a buy and hold approach to mutual fund investing.

Know what you are buying. Just because one of the funds you own has under-performed the general stock market doesn’t mean it’s a dog. You may hold a small capitalization fund at a time when large caps are leading the way; or you might be getting above-average gains from an international fund while your S&P index fund is lagging. This is normal. Don’t panic. 

• Use dollar cost averaging. What’s that, you ask? It means investing a fixed amount every month. That way, you buy more shares when the fund’s price is low, fewer when it’s high (share prices change daily). Dollar cost averaging also establishes a discipline for investing.
  
• Diversify your portfolio. After you have a basic stock fund or two, look at investing additional money in small-company, international, balanced, value or income funds. Because segments of the world economy do not perform in lock step, diversification helps ease the swings among market sectors.
  
• Watch for hidden costs. Select no-load funds with no 12b-1 marketing fees and low expense ratios. Loads are fees charged by the investment company managing the fund. They pay for advisors’ commissions, advertising and other costs. Expense ratios are the basic costs incurred by the managers in buying and selling the stocks held within the fund. They may range from as little as 0.2 percent to as much as 6.5 percent, so be careful. Costs eat away at earnings and reduce total return.
  
• Don’t invest in anything you don’t understand. Heating oil futures, derivatives, foreign currency exchange rates and other exotic investments can separate you from your money. As a rule, if you can’t explain it to your children (or your children can’t explain it to you), don’t invest in it.

—DK

Back to Your Money:

• The age of financial self-dependence