Your Money_ The Missing Manual - J. D. Roth [137]
Mutual fund companies
If you plan to invest on your own—whether instead of or in addition to investing through your company's plan—contact the mutual fund companies directly instead of going through a broker. Three of the larger no-load (Keep It Simple) mutual fund companies are:
Fidelity Investments. http://tinyurl.com/FID-ind, 800-FIDELITY
T. Rowe Price. http://tinyurl.com/TRP-ind, 800-638-5660
The Vanguard Group. http://tinyurl.com/TVG-ind, 800-319-4254
If you're just starting out, you should probably pick one company and stick with it; that'll make things easier because you'll be able to track all your investments in one place.
The main hurdle you'll have to clear when using a mutual-fund company is the minimum initial investment. Most mutual funds make you contribute $1,000–$5,000 (or more) to get started. For example, the Fidelity Four-in-One Index Fund mentioned earlier (All-in-one funds) has a $10,000 minimum investment, but don't let this discourage you. Minimum investments are often lower if you make them through a retirement account, like a 401(k) or Roth IRA. If that's not an option, use a targeted savings account (Targeted Savings Accounts) or a CD (Money market accounts) to accumulate the cash. Before long, you'll have enough to buy your mutual fund.
Minimum investment requirements create another problem, too: When you first invest, you probably won't be able to afford every fund in your target portfolio. So you may have to start with just one fund instead of jumping right into your plan for three or eight, but that's okay. When you're just beginning to invest, your contributions are far more important than your asset allocation (Know Your Goals). So don't sweat it if you can't get your target asset allocation perfect right off the bat.
The most important step is to actually get started investing. If you pay yourself first (see Get in the game) and make investing a habit, you will be able to fund your future.
Make it automatic
After you've set up your investment account, it's time to remove the human element from the equation to make sure you don't sacrifice 6.5% to the behavior gap (Being on Your Best Behavior) or forget to send your investment check every month. To do that, make your investments automatic.
If you're investing through an employer-sponsored plan, you're all set—the money is automatically deducted from your paycheck. You should be fine if you're investing through a major mutual-fund company, too: Most of them offer a way to set up automatic monthly transfers from your savings account to your investment account. Some discount brokers allow this, too.
For a detailed discussion of how to automate your investing, pick up a copy of David Bach's The Automatic Millionaire.
Conduct an annual review
After you've opened your account and set up automatic investments, take a break—a long one (you've earned it!). Ignore the financial news. Don't check your investments every day (or even every week). Resist the temptation to buy and sell stocks frequently. Re-read the section on investor behavior (Being on Your Best Behavior), and then leave things alone. When you can afford to, increase your monthly contributions. And once, at the end of every year, take a couple of hours to review your investments and your IPS (see Know Your Goals).
During the year, some of your investments will have higher returns than others. For example, if you started the year with 60% in stocks and 40% in bonds, you may find that you now have 66% in stocks and 34% in bonds. What's more, your goals may have changed, or you might discover you can't stomach as much risk as you thought you could (this happened to a lot of folks in 2008).
At the end of the year, rebalance your portfolio, which simply means shifting money around so your assets are allocated the way you want them to be. Doing this