Monday, 3 June 2013

Best Investment Strategy For Most People

The best investment strategy for most people is to KEEP IT SIMPLE. Don't complicate things when investing money or you'll likely feel uncomfortable and lose interest. Here we offer a simple solution for both choosing investment options and asset allocation.
The best investment options for most people who want simplicity: index funds. You don't need to worry about fund performance since these are mutual funds that track a stock or bond index. Plus, the cost of investing money is low if you go with a major no-load fund company.
The other half of the investment strategy equation is called asset allocation. To keep it real simple, you will be investing in three different types of mutual funds: stock index funds, bond index funds and money market funds. How much (what percent of your total investment assets) should you invest in each?
Best investment strategy for most people: 50% to stock index funds and the rest split evenly between bond index funds and money market funds. Investing money with this asset allocation puts half of your money at risk in an attempt to make greater profits. The other half is safer and pays interest in the form of dividends.
Your bond fund will generally pay more interest, and you will benefit when interest rates are stable or falling. When interest rates rise expect losses in any bond investment. Money market funds, on the other hand, benefit when rates go up and rarely (if ever) fluctuate in value.
If you want higher safety put more money in your money market fund than in your bond fund. For greater income in this safer half of your portfolio, invest more in your bond fund. Otherwise just go with our original asset allocation above.
Now, you know how to set things up. But to have a complete investment strategy you need to manage things over time. We'll keep this simple as well.
Don't let your allocation numbers get out of line as time goes by. If you started investing money with 50% in stock index funds and the other half evenly split as suggested ... keep it that way. At least once a year review your progress and your percentages. Move money around when necessary.
For example, you see that your stock fund accounts for only 45% of your total vs. your original allocation of 50%. Move money from your other two investment options to get back on track.
Why I call this the best investment strategy for most people: It's easy to set up and implement; and you can make better returns than many investors without the risk of taking huge losses like many do in a year like 2008.