Learn how to invest wisely in bonds, mutual funds, and other investment vehicles.
Here is some basic information to get your started:
There are three basic places where you can invest your money:
1) CASH - includes certificates of deposit, money market funds and Treasury bills
2) BONDS - includes mutual funds
3) STOCKS - includes mutual funds
What is Asset Allocation?
Asset allocation simply means that you decide how you will invest your savings among the three basic places. For example, if you are going to invest $100 and you have decided that you want to have 15% in Cash, 25% in Bonds, and 60% in Stocks.
Each time you invest, you would split up your money in the same way.
How Much Should I Put in Each Type of Investment?
Financial planners, brokers and mutual fund companies often give different examples or formulas, depending on a number of different circumstances, including how much risk you want to take and how soon you need the money.
Some rules of thumb:
1) Keep cash reserves equal to 3 - 6 months of your pay for emergencies.
2) If you are saving toward a goal that is:
- --- 1 to 3 years away, put more into cash investments.
--- 3 to 10 years away, put your money into a mix of cash, stocks and bonds.
--- 10 years or more, invest primarily in stocks.