If you've maxed out your 401(k), have a fully funded emergency account, and are prepared for bigger, upcoming purchases, you may want to consider investing in the stock market.
After all, there are several compelling reasons to invest in stocks, financial journalist Andrew Tobias explains in the updated version of his 1978 investing classic, "The Only Investment Guide You'll Ever Need.""Unlike bonds, stocks offer at least the potential of keeping up with inflation," he writes, and, "Over the long run — and it may be a very long run — stocks will outperform 'safer' investments," such as bonds, CDs, and money-market accounts.
That being said, investing is always a risk. If you decide to go this route, consider "the most sensible way for most people to invest in stocks," as summed up by Tobias in the 10 points below:
Only invest money you won't need for a long time
Little, if anything, is guaranteed when it comes to investing.
You could earn money or lose it, so if you'll need quick access to liquid cash in the short term, you probably won't want to invest.
"Only invest money you won't have to touch for many years," Tobias emphasizes. "If you don't have money like that, don't buy stocks. People who buy stocks when they get bonuses and sell them when the roof starts to leak are entrusting their investment decisions to their roofs."
Don't time your investments
People have a tendency to "shun the market when it's getting drubbed and venture back only after it has recovered," Tobias explains.
However, "It is precisely when the market looks worst that the opportunities are best; precisely when things are good again that the opportunities are slimmest and the risks greatest."
In short: Don't get overly excited when the market is judged to be healthy, and remember that bad things aren't obvious when times are good. As legendary investor Warren Buffett likes to say, "You only find out who is swimming naked when the tide goes out."
Invest periodically — not all at once
Rather than rushing to buy hundreds of shares when you're convinced the stock is going to take off, invest a portion of your paycheck in the market each month, Tobias recommends.
"Diversify over time by not investing all at once," he says. "Spread your investments out to smooth the peaks and valleys of the market. A lifetime of periodic investments — adding to your investment fund $100 a month or $750 a month or whatever you can comfortably afford — is the ticket to financial security."
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