Personal Finance 101: Start Investing

Investing is not gambling, but many people treat it with fear, excitement and apprehension like they are playing a game of chance. They act under the assumption that an investor was born with money and understands rules that are not known by anyone else.

While it is true that some of the biggest risks hold the largest gains, you can take a controlled and planned approach. There is nothing wrong with a long term reasonable gain on an investment.

Question: It seems so complicated, how does someone start investing?

Answer: In fact, it is easy start investing, without taking giant risks, and with a plan in place. The key is "3D Investing"; Diversify, Dollar Cost Averaging, and Determination. Need motivation? Use The Investing Calculator to determine your future value with compound interest.

• Diversify: One of the greatest ways to instantly diversify is through the use of ETF's (Exchange Traded Funds). These investment instruments act like a mutual fund, but trade like a stock. One share actually represents a multiple of companies, and some ETF's even represent a whole sector of the market or the entire Stock Market itself. Talk about instant diversification!!! But buyer beware, as all ETF's are not created equal, so research before you make a decision. A sound methodology is to diversify across Asset Classes instead of buying ETFs or stocks all in the same class (example: ETFs that only focus on stocks are riskier than a mix of stocks, bonds, and money market instruments).

• Dollar Cost Averaging: By investing over regular intervals, rather than all at once, you can help prevent yourself from falling into the trap of buying high and selling low. Since you invest in say, 1 share a month for 2 months, instead of 2 shares all at once, you actually purchase a stock at its average price, rather than risk catching a stock at its highest price. Imagine if you bought 2 shares of stock at once for $100 a share and the price drops to $75. You will lose $50. But if you bought 1 share in the first month at $100 and 1 share at $50 the next month, your average cost is $150 and you would break even, and if the price rises to $85 you would be making money. However, if you didn't dollar cost average and the price rose to $85 you would still be $30 in the hole.

• Determination: One of the most difficult aspects to finance is managing emotion. When investing, you have to keep emotions aside and focus on staying rational, doing your research, and sticking to a long term plan for success.

Now that you understand the 3D Investing Strategy, start investing with as little as $100 today.

Disclaimer: thepersonalfinancecenter.com is not liable for any investing losses an individual may have. In short, do your research and make decisions with a plan in place!