The financial service industry is not exactly geared to somebody who’s not Daddy Warbucks. If you’re a small investor, it seems like you have nowhere to turn. But there is hope!
Consumer Reports has published its new ratings of investment companies. The 10 choices below are tops in the magazine’s survey of more than 70 firms that are used by small investors.
Read more: How much money do I need to retire?
This is the cream of the crop for small investors
Of course, it almost goes without saying that before you can really think about investing, you’ve got to go back to basics.
First, you have to spend less than you make so you have some money left over to invest. That’s not something a financial planner can help you with. But Clark can! So where do you find the money to invest? It all starts with budgeting.
Here are some additional ideas to help you save more and spend less:
- Switch up your grocery routine
- Find a low-cost cell phone provider
- Brew coffee at home
- Negotiate lower bills
- Re-shop your auto insurance
Second, you can also check Clark’s investment guide when you’re doing your research. It has advice for everybody from beginners to advance investors, no matter whether you’re ready to start investing for the first time or you’re looking to take a step up to the next level.
Whatever you do, just be sure to stay away from commissioned salespeople like those at a full commission stock brokerage house such as Merrill Lynch. They don’t have what’s called ‘fiduciary duty’ to you under the laws of the United States. In plain English, that means they’re free to put you in inappropriate or unsuitable investments to score themselves more money on commission.
Worse yet, they can charge up to 1.5% in typical management fees. Clark want you paying .1% or less.
If you’re paying anything more, you should seriously consider only contributing at work up to the company match. After that threshold, any additional money you save for retirement should be done in an IRA or Roth IRA outside of the workplace.
Remember Clark’s 3 Ds of investing
Clark has long said he’s dull as a person and as an investor. While we wouldn’t agree with him on the former, we can certainly agree on the latter.
Clark’s portfolio favors index funds such as a total stock market index, a small cap index, an international index and an emerging market index, among other various tax-exempt bonds because of his income bracket.
What he doesn’t do is try to chase the next hot stock pick or the next investing trend that’s supposed to make you a million bucks. No fancy stuff like futures, options, derivatives, etc!
By keeping it dull, he protects his capital and lets it grow for the long haul.
A broad portfolio with both domestic and international investments is best for long-term growth.
Diversification is the key. You have to spread your money out to lower your risk. A lot of people make the mistake of taking all their money and putting it into a stable fund or a guaranteed fund. Those options may sound like a sure thing, but they basically tread water.
Clark prefers that you have money in a total stock market index as a ‘go to’ kind of investment. That’s where you own little pieces of thousands of companies. If one sector takes a hit — say, technology stocks, as they did during the ‘dot com’ bust — your whole portfolio isn’t blown to smithereens because you’ve spread your money out across multiple industries.
Sure, diversifying is not as ‘sexy’ as putting all your money into a single company and letting it ride. But investments should be about long-term security, not the dazzle factor.
Dollar cost averaging
By making regular contributions monthly in equal amounts, you are doing what’s called ‘dollar cost averaging.’ That’s just a fancy way of saying you’re not trying to time the market.
In months that the stock market is going down in value, your money buys more shares. In months that the market is climbing, your money buys a smaller number of shares, but the shares you already own are worth more.
Dollar cost averaging is a way to pace your investing so that you’re buying shares when prices are low, high or in between.
Over time, putting money in this way reduces the possibility you will panic and either sell or stop investing; it keeps you steady as you go. And staying in the game makes you more money in the long run.
When the Dow Jones Industrial Average dropped to 6,547 in 2009, a lot of investors had their willpower tested. Those who didn’t sell out and kept putting in their $50 or $100 each pay period saw big gains on those shares when the Dow surged back. Today, the Dow is sitting at over 18,000!
No one knows what the markets will do in the future, but putting cash in every month in equal amounts really cuts your risk.
Read more: Clark’s investment guide