I love those investment commercials with the baby making the trades. I first watched one of those ads during the Super Bowl with the baby making trades and saving his money to buy a clown and then he goes,"but, I underestimated the creepiness factor!"
When you first start out creating a new investment portfolio some good questions to ask your self aren't what's happening in the markets today and where is the next big move coming from? Don't get me wrong, these are always questions that are on my mind,especially lately, but when first starting off you need to take a good hard look at who you are as an investor. You need to determine:
- How risk averse you are--or how much risk are you willing or can you comfortably take on?
- Asset allocation
- Your age
- Other factors such as family obligations and your personal circumstances and goals.
Investors have different tolerance levels when it comes to risk. Some are Vegas gambling churners, who like to get in and get out buying low and selling high with out a care in the world as to market corrections or severe tumbles. Other Investors just want to hold on to their money and play it safe. Other factors should be evaluated in determining how risk averse you are or in many cases should be: your age is a factor and which stage of life that you are in--if you lost a great deal of money in a correction how would that affect you and your family? If you have children, that should be a factor.
Taking your age into consideration is important. If you are young--in your early twenties or thirties with out a family you can afford to take on more risk because you will have the ability to earn the money back over your lifetime if you experience a severe market down turn (make sure that you keep a cash stash for emergencies as well.) If you are on the other side of the coin and retirement is in the not too distant future, you will need to manage your portfolio to avoid risk and move into tax savings and income earning investments.
It could also be a goal trying to safe money for college expenses. If you are trying to save money for college and your children are getting closer to the age where they will be going, you will need to place the money in safe investments like long term CDs or Treasury bonds,that sort of thing.
If you feel that you have a great deal of risk aversion but, you would like to get a more of a return on your investment than what your savings account at the bank has to offer, check out CDs, Treasuries bonds, and Municipal bonds. With Municipal bonds check to make sure that they have aaa rating. Use a mix of 30% stocks, 60% bonds and 10% cash
If you are a conservative investor but, you would like to see growth use a mix of 60% stocks, 30%bonds, and 10% cash.
If you are an aggressive risk taker use a mix of 60% stocks, and 40% bonds
If you would like to take your age into consideration a general rule of thumb is that you take 100-your age and that's the percentage of stocks you should keep, with the rest divided among cash and bonds.
If you don't have an investment broker picked out be careful about who you choose. It's your money and you want keep it safe--you don't want to run into problems down the road. Personally I like to invest with investment companies that have a proven track record of excellent customer care and investment management. I was conducting some investment research in the Library and I came across this one statement that with one of the new online companies, that their investors were fleeing in mass! I probably shouldn't tell you this because that baby is going to come after me in the middle of the night like the Seed of Chucky from those Child's Play horror movies!
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