Not saving enough for an early retirement? Some simple ways investing in stocks can help you get where you need to be.
Whether you’ve been putting money aside since your first job or are a card-carrying AARP member with a lot of catching up to do before you retire, you should probably consider investing some – or more – of your money in stocks.
With interest rates at historical lows, simply saving won’t get you the sort of growth you need to really build your assets. Yes, stocks go up and down and sometimes fall sharply, but look at stock market performance over the past 100 years and you’ll see a steady upward trend in which even the harshest bear markets appear to be short-lived blips.
While the specific amount you invest in stocks should depend on a variety of factors, from your individual appetite for risk to your investing time frame, most investors can benefit from some of these stock investing tools.
The Basics: Invest in a mutual fund. Mutual funds are, of course, one of the best-known and widely used tools among individual investors and they rightly top the list of practical investment tools for the sheer number of options they offer in terms of amount you can invest, risk level and fee level. When you chose a mutual fund, you can use fund managers’ track records to make an educated decision. Funds also spare you the work of diversifying your investments (although you still may want to diversify among funds), and adjusting the portfolio for shifting market conditions.
The Dip-Your-Toe-In Approach: Invest in a DRIP fund. Dividend Reinvestment Programs, or DRIPs, are aptly named for the process that enables you to invest a little bit at a time … think a steady drip, drip, drip … in a stock you select. Rather than buying a given number of shares, these DRIPs, which are offered by upwards of 1,000 companies, let you invest at regular intervals in amounts that may be as low as $10.
DRIPs are an excellent way to build stock wealth through small, steady increments, and are particularly useful if you want to invest in a high-priced stock but can’t afford to buy multiple shares in a single purchase. With a DRIP, you can start investing in a company for less than the cost of a share of stock.
The Buy-and-Hold: Seek out dividend growers. Particularly useful if you have a limited appetite for risk, dividend stocks tend to be blue chips with a long history of steady appreciation that also return a small amount of cash to investors each quarter. Proctor & Gamble, for example, has paid a dividend for 124 years and increased it for 58 straight years, most recently boosting its dividend by 7% earlier this year.
Dividend stocks tend not to be identified as growth stocks, but they offer the steady guaranteed returns that growth stocks may not. Stock exchanges like NASDAQ publish lists of some of the highest-yielding dividend stocks and Wyatt Research has additional resources on dividend stocks.
For Creative, Conscious Investors: Consider motif investing. This is a new tool that seeks to address the most common concerns investors have, from investing in a sector or cause they believe in, to diversifying their investments and finding a low-cost point of entry. Unlike mutual funds, which typically group stocks by sector or region or risk level, the motif model, which was just introduced four years ago, involves investing in a diversified portfolio around a single concept such as housing, infrastructure or energy efficiency.
The beauty of the motif model is that, rather than sinking investments into a single stock, investors can diversify within the sector they’re drawn to. Investing in energy efficiency, for example, might entail a range of investments, from renewable resources to building materials. And like the DRIP model, motif investing offers a low cost of entry.
Beyond Stocks: Consider a real estate fund. Like actual real estate, real estate funds, which invest in a diversified collection of properties, can be risky. But they also offer strong growth potential and can be a good way of diversifying beyond stocks without actually buying a property. If you don’t own any real estate or are disproportionately exposed in stocks, you may want to consider growing your investments through a real estate fund.
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