How to Invest

Build your emergency fund. If you don't have such an account already, it's a good idea to focus your efforts on setting aside three to six months' worth of living expenses just in case — hence, an "emergency fund." This is not money that should be invested; it should be kept readily accessible and safe from swings in the market. You can split your extra money every month, sending part of it to your emergency fund and part of it to your investments.

• Don't tie up all of your extra money in investments, unless you have a financial safety net in place; anything can go wrong (a job loss, injury, illness) and failing to prepare for that possibility is irresponsible.

1. Pay off any high-interest debt. If you have a loan or credit card debt with a high interest rate (over 10%), there's no point in investing your hard-earned cash. Whatever interest you earn through investing (usually less than 10% a year) won't make much of a difference, because you'll be spending a greater amount paying interest on your debt.

   • For example, let's say Sam has saved $4,000 for investing, but he also has $4,000 in credit card debt at a 14% interest rate. He could invest the $4,000 and if he gets a 12% ROI (return on investment — and this is being very optimistic) in a year he'll have made $480 in interest. But the credit card company will have charged him $560 in interest. He's $80 in the hole, and he still has that $4,000 principal to pay off. Why bother?
     
   • Pay off the high interest debt first so that you can actually keep any money you make by investing. Otherwise, the only investors making money are the ones who loaned it to you at a high interest rate.
2. Write down your investment goals. While you're paying down any debt and building your emergency fund, you should think about why you're investing. How much money do you want to have, and how soon? Your goals will affect how aggressive or conservative your investments are. If you want to go back to school in three years, you'll want to play it safe with your money. If you're saving for retirement decades from now, you can afford to roll the dice a bit more. In short, different investors have different goals. These goals affect their investment strategy. Are you looking to:

   • Hold your money in such a way that it grows at a rate just above inflation?
   • Have money for a house down payment in ten years?
   • Build a nest egg for retirement many years in the future?
   • Build a college fund for a child or grandchild?

   Determine whether you want a financial planner. A financial planner is a "coach" who knows the playbook. They know what plays to call in different situations and what outcomes to expect. While you don't need a financial planner in order to invest, you'll quickly realize that having someone who knows market trends, studies investment strategy, and can thoroughly diversify a portfolio is a very good person to have on your team.

   • Expect to pay your financial planner either a flat fee or a percentage (1% to 3%) of your investment. ^[1] If you invest $10,000, expect to pay about $300 annually for an advisor's help. If that seems like a lot to shell out for advice, realize that a good financial planner can help you make money. If an advisor takes 2% of your portfolio but helps you make 8%, that's a pretty good deal.
   • Be aware that many top financial planners will accept only clients with substantial
     
     
     http://www.wikihow.com/Investportfolios.