Invest Your Dollars Wisely Without Fear

Are You A Nervous Wreck?

No matter where you go it is impossible to avoid the dreadful banter regarding the economy.  The television is loaded with reasons to be fearful of your life coming to an end, because of the falling market.  It’s no secret that one reason for this is due to the upcoming election.  After all, both sides have only a little time left to convince you that they are the one that is going to make everything all better. (Just lay back, dry your thumb, and prepare to be coddled.  Oh, and here is your free Government pacifier!)

The economy has definitely slowed down, and at this point no one knows where the bottom is.  Grocery prices are up, gas prices climbed and finally have started to ease up, and you have likely experienced some financial discomfort.  After paying attention to what people around me are talking about, I am convinced that most people have no idea how to invest.

They only know what others are doing and they try to mimic their actions hoping for good results.  I read in a book that by the time you hear about a “great” investment, it is already too late.  Some people try to time the market, and those are the people that are crying the loudest right now.  I’m no expert but I do know that day trading is not recommended!

Right now people are scared to death about their “investments”, so they’re running around like a chicken with their head cut off, trying to get the best answer about where to move their money.  After all the sky is falling, and if you don’t move it you will lose it all, right?  WRONG!  The truth is that an investment is something you have to be willing to leave alone for at least 5 years.  If you try and move it every time the market shifts you will be frantic and stressed out constantly.  Stop it!  Calm down, and find out why you should not be so worried.  However, if you have your money in single stocks or bonds, perhaps you should consider moving them.

Why Should You Calm Down?

97% of the 5 year periods in the market have made money, while 100% of the 10 periods have made money. Do you understand what that means?

It means that you should invest your money for the long term, then go spend time with your family and enjoy life.  The market WILL recover.  I recently read a blog that suggested you move your money to a Money Market account, CD’s, Treasury Bills, or U.S. Savings Bonds.  While these methods are EXTREMELY low risk they also have EXTREMELY low gains.  This is not good advice.

When you invest you have to take into consideration the effects of inflation.  You need to out perform inflation for it to even be worth it.  Inflation runs roughly about 3%-4%, and then you have taxes to pay on your gains.  To come out ahead you need to make at least 6% on your money.

Are You Ready To Invest?

Before you start investing you must ask yourself if you are ready to invest.  I am a firm believer in the Total Money Makeover and think that if you are going to invest, you need to wait until you have done some things first.  This means you need to have eliminated all of your debt, and have 3-6 months of savings set aside before you can even start.  Prepare yourself to invest so that you can leave it alone.  Investing isn’t something you do until you “need” that new TV, or have to have that new car.  It is something you do to make your retirement a stress-free experience, change your family tree, and of course enabling you to give a lot of it away.

The most important thing for you to know when investing is that you should ALWAYS understand what you are investing in.  Do not blindly follow advice no matter how much you think you can trust someone.  Learn for yourself!  Know and understand why you are putting your money here or there.  Stop freaking out every time you watch the television and they continue to cry about how the market dropped again.  It will recover, and when it does, if you have your hard earned money in the right places, you will benefit eventually because of it.  Learn where those places are!

Factors To Consider When Investing

  • Risk – Usually the more risk you are willing to take the better your return.  (High risk does not guarantee a great return, hence the term risk.)
  • Inflation – Is your investment going to out perform inflation rates?
  • Taxes – How are taxes handled on your investment? Is your investment tax-deferred?  (Ex. Roth IRA’s and 401K)
  • Fees – What are the fees you will be charged for advice, management, transferring, or withdrawal?  Is your investment fee-based (annually) or upfront load (one-time fee)?
  • Rate of Return – What kind of track record does the investment you are considering have? (go back 5, 10, 15 and even 20 years to see)
  • Control – Are you in control of your investment? Are you able to move it if you want to? (Your adviser should be able to explain to you why he recommends an investment, and you should understand what you are investing in.)

Do you know someone who is freaking out?  Are they being led by other scared broke people?  Send them to Enemy of Debt to gain some peace of mind.  Thank you!

About Brad Chaffee

4 Responses to “Invest Your Dollars Wisely Without Fear”

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  1. funkmofunkmo says:

    Great article/ blog. If I want to gamble I will go to Vegas or Atlantic city.If I want to invest, I will do mutual funds and will follow Dave Ramsey’s formula for investing in them.

  2. Ruth says:

    This is a brilliant article! I think the best thing you say is “The most important thing for you to know when investing is that you should ALWAYS understand what you are investing in.” That’s so true and something very few people pay attention to. I recently read The Big Gamble, all about investing and speculating and how to tell the difference, and it was a real eye opener that anyone learning to invest should read first.

    • Brad Chaffee says:

      That is a GREAT book Ruth! Sorry I didn’t respond to your comment earlier. I forgot to come back and respond after I approved it. Anyway, thanks for stopping by and thanks for letting us know about such a good book.

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