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Financial independence,
step 5: Use money to make money
Bankrate.com
By taking the preceding four steps, you have built
an excellent foundation for your future. Once you've gained control
of your financial affairs, investing is the next way to make many
of your dreams financially possible.
The magic of compounding
The sooner you are able to start the better. The simple magic of
compounding interest is a powerful thing. Essentially, the one necessary
ingredient to making money is time. So the sooner you begin, the
more time (and money) you'll have. If you want to be somewhere better
in the future, you have to put the money into it now.
You have many choices to make when it comes to investing.
The first one is how involved you want to be in your investing program.
In these days of self-directed retirement plans and
online stock-trading Web sites, you can handle your investing yourself.
It's exciting and keeps you in control of your financial future.
Keep in mind, educating yourself about investments is vital. This
is no time to get silly or reckless. You've worked too hard to get
control of your money to throw it at an investment product you don't
understand.
However, if your interests in life do not include
numbers and stock market analysis, you can pay someone else to help
your money grow. For your own security, you still need to be aware
of some basics.
Know your willingness for risk. Don't invest money
you're not willing to lose. Of course, no one's eager to lose any
money, but to gain you'll have to risk losing. The reality of investing
is that the higher the potential earnings, the higher the risk.
So be aware of your need for security.
You can contain that risk of loss with some basic
advice:
- Adopt a buy-and-hold investing philosophy.
- Maintain a balanced portfolio.
- Don't bother trying to beat the market.
Using these tactics, you'll win some, you'll lose
some. With balance, you'll win more than you lose and that's the
point of this whole game.
Invest wisely, not beyond your knowledge and capabilities.
Stick with tried and true if you don't have the time or desire to
get more experience. Don't be easily swayed by hot stocks and get-rich-quick
schemes. If you know nothing about investments, get started by putting
your long-term investment money in a no-load stock index mutual
fund. Read Bankrate.com's investment
channel to get started on the road to developing your investment
savvy.
You've heard it before: Knowledge is power. This motto
applies to your finances as well. Whether you're learning how to
budget or studying investing strategies, making the effort to understand
your money will give you the freedom to live your priorities.
Updated:
June 13, 2002
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