5 Step to work in the Investment

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					5 Step to work in the Investment
1. What Is The Purpose Of Your Investments? An Investment Plan Needs A
Main Purpose

Investments must be chosen with a main goal in mind: safety, income or growth. The first
thing you need to decide is which of those three characteristics is most important. Do you
need current income, growth so the investments can provide income later, or is safety your
top priority?

      To determine which is most important, read Investment Basics: Safety, Income or
       Growth.
      If you are 55 or older, before you create an investment plan, your need to make a
       retirement income plan. Your retirement income plan will become the foundation you
       build your investment plan upon.

2. When Will You Need To Use The Money? An Investment Plan Needs A
Time Frame

Establishing a time frame you can stick with is of the utmost importance. If you need the
money to buy a car in a year or two you will create a different investment plan than if you are
putting money into a 401(k) plan on a monthly basis and won't need to use the funds for
fifteen years or so.

In the first case, your primary concern is what the account will be worth in a year. In the
second case, it is irrelevant what the account is worth in a year; of greater importance is
positioning the account for growth so it is worth more fifteen years down the road.

      To see how much investment returns can vary over short time frames verses long ones
       see Rolling Index Returns.
      If you don't have much time, see 5 Steps To Take Within 5 Years of Retirement.

3. Do You Understand Investment Risk? An Investment Plan Needs To
Account For The Level Of Risk You Are Comfortable Taking

Some investments entail what I call a level five investment risk; the risk that you can lose all
your money. These investments are too risky for most people.

One easy way to reduce investment risk is to diversify. By doing so you may still experience
large swings in investment value, but you can eliminate the risk of a complete loss.

      Gain an understanding of investment risk and expected returns in How To Classify
       Investment Risk On A Scale of 1 to 5.

4. How Much Money Do You Have To Invest? Your Investment Plan Needs
To Specify How Much You Will Invest, and How Often
Many investment choices have minimum investment amounts, so before you can lay out a
solid investment plan you have to decide how much you can invest. Do you have a lump sum,
or are you able to make regular monthly contributions?

Some index mutual funds allow you to open an account with as little as $3,000 and then set
up an automatic investment plan starting with as little as $50 a month which would transfer
funds from your checking account to your investment account.

If you have a larger sum to invest, obviously more options are available to you. In that case
you'll want to use a variety of investments, so you can minimize the risk of choosing just one.

      If you have a lump sum to invest, and you're trying to figure out how much to put in
       what type of investment, see How Much Of My Money Should Be in Stocks vs.
       Bonds.
      If you're planning for retirement and you're not sure how much to invest, walk
       through the steps in 4 Steps To Determine How Much To Retire.

5. Have You Made A List Of Available Investment Choices? You Can't Create
A Good Investment Plan Until You Understand The Choices Available

Too many people buy the first investment product presented to them. Better to lay out a
thorough list of all the choices that meet your stated goal. Then take the time to understand
the pros and cons of each. Next, narrow your final investment choices down to a few that you
feel confident about.

				
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posted:6/9/2011
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