Sunday, 26 August 2012

How I invest my savings every month

During the last sixty years, a myriad of investment books have explored different approaches to maximizing the return on your savings. Most of those theories have proved inadequate and, a decade after publication, few financial authors want to be reminded of the predictions they made.

Simplicity is another characteristic that is missing in most investment advice. Ideas that are too complicated to implement are as good as worthless. In the field of personal finance, what we need are prudent recommendations that anyone could follow as long as he is ready to exert a minimum of effort.

Rational investors should have a well-defined long-term goal. That objective should be, quite openly, to reach a point when they are able to live from the income produced by their savings. Such goal has motivated generations to put aside part of their earnings month after month.

The great majority of the population cannot afford devoting hours on end to following the markets. What many of us want is to achieve reasonably good results with a minimum of involvement, but without relinquishing control of our assets. No one should trust other people's recommendations blindly.

My suggested method combines four elements that are available to most individuals: a monthly income from their jobs or professions, the possibility to open a brokerage account, internet access, and the willingness to devote a few hours per month to follow their finances.

* Nobody can make for you the commitment to set aside regularly part of your revenue in order to secure your future. This first step is the hardest to take, since frequently, man sees old age too far away. As a general rule, the sooner a person decides to take responsibility for his finances, the better his economic prospects.

* After that, you need to establish the infrastructure to manage your savings. Opening a brokerage account is a straightforward process in most countries, although it seldom takes less than a week. Many brokers accept orders by phone, but you are going to need internet access for the purposes of research.

* The final steps of my suggestion require that you establish an effective system to select your investments and devote a few hours per month to implementing it. An easy method of researching shares consists of identifying some reliable mutual funds that invest in dividend-paying equities and using the internet to look up their portfolios.

You will find the names of well-known mutual funds in any financial newspaper. More often than not, the web pages of those firms indicate which shares they have been holding in their portfolios during the last quarter. If you look up the web pages of a dozen different firms, you can get plenty of ideas about shares that might be worth considering for your personal portfolio.

With those ideas in hand, the last step is checking if they make any sense right now. This is something that you can do by typing their symbol in the web sites of free on-line financial discussion boards and publications, from which there are dozens. Reading several opinions and sources will show you how attractive those companies look as potential investments.

You will need several hours when you go through this process for the first time, but once you bookmark the web sites on your internet browser, your effort will be drastically reduced the following months. No investment system is foolproof, but you might wish to explore this approach, which offers a good balance between effort and simplicity.


[Image by DiAichner3 under Creative Commons Attribution License. See the license terms under]