This investing guide is geared toward investing for beginners. As such, this investing guide will keep it simple starting with the best investment in 2010 for the new investor or anyone who is not real confident when it comes to investing. Later we put together a model best investment portfolio.
For the new investor who wants to keep things real simple yet participate, the single best investment for 2010 and beyond is a moderate-risk balanced mutual fund. These funds go by various names like asset allocation, lifecycle, and/or target retirement funds. All of them make life easy for the new investor by offering a balanced portfolio of stocks, bonds, and safe money market securities.
Investing for beginners is then simply a matter of picking a balanced fund that fits your risk profile: conservative, moderate, or aggressive. Traditionally, these funds have moderate investment portfolios where the investor is about 60% invested in stocks with the remainder in the other two investment areas, mostly bonds. Conservative versions will be heavier in bonds and the money market, and aggressive funds could have you 80% or more in stocks.
A glance at the fund literature will show you how they intend to invest your money. I suggest that the new investor go with a moderate balanced fund, plus a money market fund for added safety and flexibility. Money market funds are the safest type and pay interest in the form of dividends. For example, if you have $10,000 to invest consider putting $6000 or $7000 in a moderate balanced fund and the remainder in a money market fund of the same fund company. You are now a moderate conservative.
Should the new decade start out poorly for investors in general, you’ll have $3000 or $4000 in dry powder that can be moved to the balanced fund when stock and/or bond prices are lower. Meanwhile, it should be safe. Now, let’s expand our investing guide keeping our focus on mutual funds. Balance will be the key to investing due to several uncertainties: the future direction of interest rates and inflation, the value of the U.S. dollar vs. other currencies, and questionable growth in the U.S. economy.
To deal with the above future uncertainties, here’s a model best investment portfolio that diversifies even further. The following are all types of mutual funds, which makes investing for beginners as simple as possible. First we list the fund type, followed by what it invests in and a suggested investing guide for asset allocation (what % of investment assets to put there). Remember, stocks are also called “equities”.
Moderate Balanced (stocks and bonds) 50%
Money Market (safe income securities) 25%
International (foreign equities) 10%
Gold (precious metals stock) 5%
Natural Resources (oil, energy sector) 5%
Real Estate (real estate equities) 5%
TOTAL 100%
In the above portfolio 25% of your money would be safely invested earning interest. About 20% would be in bonds, which are in the balanced fund. The rest would be in stock investments, spread out across various stock sectors.
If you are a new investor and want to test the waters with caution, I suggest going with a moderate balanced fund with a money market fund for backup. For the more adventuresome types… at least look into the other types of funds in the above portfolio. If you truly want to keep it simple, the single best investment for most people over the years has been a balanced fund where professionals manage a portfolio of stocks and bonds for you.
Such a fund should be the single best investment in 2010 and beyond as well. Stocks are your growth engine; and bonds pay relatively high interest in the form of dividends. This balance creates a portfolio with a moderate level of risk.