HOW TO INVEST
This is not as much about what type of investments to use, but more how to make sure you don't get "Madoffed" by someone. He got many people's life savings. You do not what this to happen to you.
This is also not meant to be the "all you need to know about investing". These are just basics. If you have questions, Paul is happy to answer them if you contact him by email.
These are some tips on how to avoid scams and ripoffs.
First, if you don't understand it, don't buy it. If you are interested in buying even if you don't understand it, make sure you check with someone about it.
If you get an unsolicited phone call, do not bite, most of these calls are from scammer and they have no mercy, even to the elderly.
Mail solicitations are also often a bad source as are email.
In any case if you get contacted, do not give out any information. Many of these guys are very good at getting what they want from you.. they are con men and will keep at you until you say "YES". At that point they have you.
You can contact Paul here with questions as he is quite knowledgeable about these things. He had a series 7 license and sold securities for a few years.There is no charge for this, unless you want some real research done.
What should a regular Investor do?
As a rule most investors should only use mutual funds or ETFs (very similar to a mutual fund). I prefer that you use 'no-load' mutual funds, but if you find a good broker, then using load funds to compensate them is OK, but make sure they disclose what their charges are up front.
You can do very well with some of the low cost brokerage houses. These are Charles Schwab, Fidelity and Vanguard. All of these can provide you with the types of accounts you might need, such as IRA, ROTH IRA, personal accounts (what I call taxable accounts as what happens in these accounts is taxable on a current, not deferred basis) and Education IRAs (Coverdales or 529)
All three of these firms have people to help you get started and to give you help and advice as you go along.
Personally, I don't like the big brokers as they tend to give the little guy poor service. If you have big bucks, then they are fine, but if you have less than a couple of million in the market, they are not as good for your financial health as a rule.
Banks sell investments .. note the word 'sell', they don't really manage your investments and my experience with banks is that they often sell the wrong product to their customers due to the influence of commissions.
What type of mutual funds and ETF's should you use? Well, the best way is to diversify between perhaps six of them. More diversification than this is usually not beneficial. In todays world you might want to have something like the following percentages in your portfolio.
US Large Caps 25%
US Small Caps 25%
Euro stocks 15%
Gold ETF 10%
Emerging Market ETF 15%
China ETF 10%
An option for the US stocks might be the Russell 2000 index.
I currently have EEM and FXI as my emerging market and China ETFs. I also own a lot of individual stocks, but I have the time and experience to manage these. Most investors do not have the time to devote to this. If you want to invest in individual stocks, then do your reading and watch the shows on TV. Jim Cramer is a bit hard to watch at times, but he often gives good advice. There are other shows too. Suze Orman tends to give decent advice, but I think at times she is too conservative, but then again in investing being conservative is not a bad thing.
Everyone needs insurance. You have to have car insurance. You should have a homeowner's policy if you own a home. Rental insurance might be a good idea if you have a lot to lose in the event of a fire or theft.
Health insurance is a big topic these days and having at least a policy to handle catastrophic illness is a very good idea.
Long term care insurance once you hit 50 or so is not a bad idea. It does cost quite a bit, but with the cost of nursing homes today, one year in a nursing home might just pay off all the premiums.
A good idea, but as a rule you should only buy term insurance. Whole Life/Universal Life, etc are just ways for you to get less than desired death benefit and a savings account that usually does not perform well. Term insurance is cheap and you can get top rated companies to buy from. Often it is not pushed by salespeople as the commissions are low.
One of the worst investments a person can make is to buy a variable annuity. They have steep commissions (8% is not unusual), surrender values that mean if you need the money you can't get it all for often 7-8 years and as a rule lousy investment performance.
This product is sold .. not bought .. they stress the deferred tax angle, but in reality, it is not all that good. Annuities get taxed as ordinary income when you take it out. This is usually much higher than capital gains taxes.
NEVER PUT AN ALREADY DEFERRED ACCOUNT INTO AND ANNUITY. If you are rolling over a 401K account, don't let them have you put it into an annuity as it is already tax deferred and you have so many better choices.
There are times that a FIXED annuity can be a good idea, but VARIABLE are almost never a good idea. You will get arguments from the insurance industry on this, but listen to some of the experts such as Suze Orman (TV show) or Bob Brinker (radio show) and you will hear them agree on this subject.