Wednesday, March 7, 2012

An Investing Confession

It's "Saving & Investing" day of Women's Money Week, so I thought I would step outside my comfort zone and talk about investing. There are all sorts of saving tips on Fiscally Chic, but nothing about investing. Except that you should do it.

Why? Partially because I find it a tad dry and boring to write about. Traditional IRA vs. Roth IRA? Helpful to some, but snoooooze to me. My biggest excuse is that I find investing a bit intimidating. Particularly picking the right investments.

The market has been so volatile the past few years that I don't want to mess up my retirement. Remember when the market starting tanking in 2008 and AIG went under? We got married that weekend and saw it all over the news while on our honeymoon. Makes enjoying a fruity drink that much more enticing.

Long tangent aside, I know I have a long time frame until I retire, but what if the market tanks again when I'm looking to use that money?

So what have I done? Unfortunately, not much. I'm really good about contributing to my 401(k) through work, and maximizing the employer match, but I need to do better with my investment elections. And yes, I contribute to an IRA, but only around tax time when I need a larger deduction (doh!) It's so easy to set up an automatic transfer to my IRA, but I'm too tapped out by the end of the day to think about it.

Further proof I need an investing intervention? I rolled over a 401(k) from a previous employer to my IRA, and it sat in a money market for close to a year! Sure, it didn't lose value, but it sure as heck didn't make money. I'm kicking myself for not investing during the 2011 stock market slumps in mid-August through early October.

John and I considered hiring an investment advisor, but any additional gains would be eaten up by the advisor's fees. And we're not millionaires (yet...haha), so we wouldn't be getting any special treatment.

We did the next best thing and consulted with a friend who is a CFA. He offered this helpful advice on picking investments:

  1. Buy an investment when it's on sale. I've heard the adage, "buy low, sell high" so many times, but it didn't click until he phrased it as "on sale." So many people want to get in when the market is up and think it will continue to improve. As we've seen the past few years, that's not always the case. Therefore, identify your investment and pounce when the price is down. Then you can sell when the price is through the roof, gaining you a pretty penny.

  2. Ideally, invest in something that pays dividends. These are guaranteed payouts, either a set about per share or a percentage of the share price. So even if the stock price is down, you'll still get something. You can either receive the payout or reinvest the dividends and purchase more stock.

  3. Invest in a company with hard assets: buildings, machinery, hard capital. These assets are more likely to hold their value if the overall market tanks.

  4. As Warren Buffet says, "invest in what you know." We know beer, so we're looking to invest in Sam Adams. You might work in the medical industry and know those trends.

  5. Use free resources like to help you pick investments. They have all sorts of analysis and reports about different industries and investments. Use their ratings (4 or 5 stars) as a guideline whether to invest or not.
Overall, if you're in your 20's and 30's, you're investing for the long haul. There may be slight hiccups in the market, but if you're continuously investing either through your 401(k) or automatically in a brokerage or other retirement account, you should be able to weather the storm. Also, invest with a low fee brokerage service, like Vanguard. That will keep more dough in your pocket.

Now if only the market will go down a little bit so we can buy a few stocks on sale!

Do you have any other investment questions you'd like answered? Or you do you have some investing tips to share?

This post is a part of Women's Money Week 2012. For more posts about Saving & Investing, see Saving and Investing Roundup.
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  1. I hear you. I took investment courses in business school but I still find it much easier to just sign up for a target fund, having the mutual fund advisers do all the work.

    I have started to invest in stocks slowly, utilizing my Roth 2011 contributions only. I read a lot of market news and I have actually done okay going about it this way. Once I feel comfortable managing my own, I will convert by other investments from target fund to stocks.

    Please let us know how you go about investing via your blog!


  2. "Buy what you know" can work for making sure you don't invest in truly stupid companies that don't make any sense. But the downside to buying what you know is that too much of your life may be invested in one sector. If you work in biotech, you'd be buying biotech. But if the whole industry is due for a crash, then a lot of stock is in that sector...and you could lose your job. It's tough to lose a job as it is, without having your investments crashing simultaneously.


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