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Tuesday, July 28, 2009

The Best Time to Invest Money

The best time to invest your money is NOW ... if you understand diversification and dollar cost averaging. Look at it this way. If you don't invest your money, you'll either spend it or earn low interest rates as a saver.

The only way to get ahead is to learn how to invest. This is not as difficult a proposition as most folks believe it to be. Let me explain with some simple logic, in the form of a short story.

At a wedding reception in the early Spring of 2009, a young man named Cameron listened as his much-older uncles complained about their investment losses. "My broker's worthless, and I've lost half my money in stocks in the past year", stated Uncle Ron. "I'm earning less than 1% in interest", declared his conservative Uncle Jack. "My real estate investments are under water", Uncle David added.

Cameron had a thought as he vacated the circle of conversation. He applied simple logic to what he had just heard. He knew that both stock prices and real estate values usually went up. That's why most investors make money in both investment arenas.

If both real estate prices and stock prices are low, it might be a good time to invest money, Cameron reasoned. But he had a few unanswered questions on his mind. First, he did not know how to invest. Second, he didn't have a pot full of money. Finally, which was the better investment ... stocks or real estate? Obviously, no one ever gets rich earning low interest rates.

The next morning Cameron sat down for a cup of coffee with Uncle Jim, who was supposed to know all about this investment stuff. They formulated the following plan.

Cameron would open an IRA with a large no-load mutual fund company, since he wanted to invest money for retirement. He would have $400 a month flowing from his checking account to the fund company. It would be divided equally into four different mutual funds: an S&P 500 Index fund, an international stock fund, a real estate fund, and a money market fund.

This would give him diversification in both stocks and real estate. The money market fund offered a bit of safety and flexibility.

Cameron would keep the value of his four funds about equal. If the value of a fund got out of line with the others, he would transfer money from one to another to even things out. Uncle Jim called this "rebalancing" his portfolio. He would do this once a year.

Plus, he would have dollar cost averaging working for him, since he had a fixed amount of money flowing into each fund every month. If the price of a fund fell, the money flowing into it would automatically buy more of the cheaper shares. If the price rose, he would be buying fewer at the higher price.

Should the stock market and/or real estate market get real cheap, Cameron would have some powder dry to take advantage of the situation. He could move the money in his safe money market fund into the other three funds.

Now is always a good time, if you know how to invest.

courtesy of

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