If like me you’re broke too, you’re probably wondering at the investment advice parade that just passes you by everyday on TV. Is there no way that the modestly solvent among us, those of us who make no more than $30,000 a year, can actually put something by for the future?
Any way you think about it, it usually looks like you can’t ever both save, and still remain reasonably well-fed. The mistake that average people like us make when we think about how to put something by for the future, is we overestimate our needs, and grossly underestimate what we can do now.
You’d be surprised how saving your pennies can really add up, and quickly too. And once you learn how to invest, stock market success can be yours too, if you keep at it long enough. And if you try, you can count on the federal government showing a bit of encouragement too.
No, I do understand how truly modest savings can be clinging to the lower middle class. Let’s say that all you can set aside each week is $25. The good stocks, as measured by indexes like Standard & Poor’s, actually put out 8%, seen over a period of time.
So, your $25 a week, over 10 years, could actually bring you at least $18,000, if you just stay the course; and it could get you $22,000, if you happen to have one of the better stocks. All on $25 a week.
But the first steps is learning how to invest, stock market sport is not really advisable Individual stocks are too big for the baby steps you need right now. No matter how well you go about it, just picking one underperformer, can really ruin the work of years for you. What you need, are mutual funds.
The first thing to do, is to go sign up to a proper mutual fund. The problem is, the entry fee to most of them, starts at around $4000. But there are still a few that will accept the real small-timers – people who bring in no more than $25 a month to invest. The only catch here is, that they expect you to do this every single month.
Companies like Hodges Fund, Steward Funds and TIAA-CREF do a great job for the small investor. This spares you learning how to invest – stock market secrets and all. You might think that beggars can’t be choosers and just go with anyone who will actually admit smalltime investor. But you don’t really have to sell yourself short like that.
Morningstar is a mutual fund rating service that judges these investment companies on how much success they have had ever since they got in business, how consistent they’ve been, and how professionally they are managed. Picking their four- and five-star-rated funds, should keep you out of trouble.
However, you need to learn how to read these ratings. Morningstar tries to use its star-based rating system to average out performance. While it does take consistency into account, deeply inconsistent performance can be masked if a company performs wonderfully enough from time to time, in between times that it performs very poorly.
So it would be a good idea if you could actually look through a little bit of your mutual fund company’s history. One part of finding your feet in how to invest – stock market diversification is key. Ten years down the line, you could have a substantial piece of capital. Once you do, you can begin to invest what the bigger boys, diversifying, for the least risk.