Nobody really knows how to invest or where to invest $10,000 or more in 2011-2012 because nobody can predict the future. But you can invest money with an eye to the future with a simple plan consisting of just 5 mutual funds. If you’re willing to bet that America and the free world can prosper beyond the next few years, here’s how to invest your money with a plan.
Let’s say you have $10,000 or more to invest in 2011 and you can invest more money in 2012. We’ll start with where to invest (5 funds) and then move on to how to invest money with a simple plan that only assumes one thing. Our assumption: America and the free world will survive and prosper beyond the next few years. If you don’t believe this, you can invest your money in survival gear and find someplace to hole-up for an indefinite period of time. Here are the 5 funds that, as a package, should work well for you and not require second-guessing. Remember that when you invest money it is rarely a smooth ride and there will likely be bumps in the road ahead.
MONEY MARKET funds are the safest of funds, and this is where to invest money that needs to be both safe and readily available. Money funds earn interest and pay dividends that vary with prevailing interest rates. Their share price does not fluctuate and is pegged at $1 per share. BOND FUNDS feature higher interest income with moderate risk, and they do fluctuate in value. If interest rates go up in 2011 or 2012 this will push their share prices (values) down. You need to be aware of this if you don’t really know how to invest money in bond funds. So go with an intermediate-term high quality fund to keep risk moderate vs. a long-term fund which has more risk.
The other 3 funds are equity (stock) funds and they all have greater risk and share price fluctuation. Here you invest money not to earn interest income, but rather for growth through rising share prices, and secondarily for dividend income. Remember, you have $10,000 to invest in 2011 and you need a balanced portfolio that can produce both growth and income over time. Since broad diversification is the answer to how to invest with a solid plan, I suggest you go with the following equity funds. A large-cap diversified EQUITY-INCOME fund will give you a stock investment in America’s largest companies, and an INTERNATIONAL equity fund will give you exposure to stocks world wide. Add a REAL ESTATE fund that specializes by managing a diversified portfolio of real estate equities, and your investment package is complete.
How to invest or how much of your $10,000 to invest in each of the 5 funds will depend on you risk profile. If you invest an equal amount in each you will be invested 40% in the safer funds and 60% in riskier equity or stock funds. Traditionally, investment advisors have simply recommended 40% to bonds and 60% to stocks for average investors who didn’t know how to invest money. Here we give you more safety on the conservative side and greater diversification on the equity side. If you are more conservative, just go heavier on the money market and bond fund. If more aggressive invest more money in the equity funds.
Let’s say you invest money equally in all 5 funds. Knowing how to invest when you add more money to your plan in 2012 and beyond can make the difference between long-term success and failure. Invest future money to bring all 5 funds back to being equal in value. This means that most of the new money you invest will likely go to the funds that performed the worst and perhaps lost money. That’s a good thing, because you will be buying more shares when a fund’s price is lower vs. when it is expensive. If you only have $10,000 to invest in 2011 and no money to add in 2012 and beyond… move money around once a year to bring your funds back to where they are again equal in value.
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