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Editorial

Invest wisely, set up emergency fund

Nowata Star of Nowata, Oklahoma

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If you had $1, 000 to invest, what would be your best choice?

Eileen St. Pierre, Oklahoma State University Cooperative Extension personal finance specialist, said if you do not have an emergency savings account, your $1, 000 should definitely go to starting that account.

"Investing is a lot more than picking that one stock that's going to shoot through the roof and allow you to retire at 30, "St. Pierre said.

"Investing is a process that helps you achieve your financial goals."

The first step in investing is determining what ^our finan-cial goals are, such as making a down payment on a house, having a secure retirement or funding your child's college education. St. Pierre said for the average investor, the easiest way to build assets is to save consistently.

"Set aside a certain amount of money each month to fund your financial goals, "she said.

"Have the money automatically withdrawn from your checking or savings account by your investment company if you don't think you will be disciplined enough to do it yourself."

If the money is for your retirement, have the money taken directly out of your paycheck and put into your 401(k), 403(b) or 457 plan, taking advantage of any employer match.

This type of investing is called dollar cost averaging and will help you avoid having to time the market when buying securities, St. Pierre said.

It is also important to know how long you will need to invest your money to achieve your financial goals. This will help determine the types of securities you choose for your investments.

"For a short term goal, safety of principal is most important so you would invest the money in a low-risk investment like a money market account, sacrificing some return, "she said.

"On the other hand, if you're saving for retirement, you will need to earn a high enough return to offset inflation and rising medical costs and make sure your money grows enough so that it lasts. This will require investing some part of your retirement portfolio into stocks."

Determine how much risk you are willing to take on to reach your financial goals. Stocks are riskier than bonds and bank CDs, but we expect to earn a higher return on stocks to compensate for that risk.

St. Pierre said that is the tradeoff. If you are not willing to take on enough risk in your long-term investment portfolio, you may fall short of your financial goal. Then you may have to save more and/or lower your expectations.

It is important to have a diversified investment portfolio. Hold enough different securities so that if one performs badly, it will not drag down your entire portfolio.

"This doesn't mean you won't lose money, but diversification can, help minimize your losses, "she said.

'The average investor can build a diversified investment portfolio a lot cheaper using mutual funds or exchange-traded funds than buying individual securities."

A mutual fund or an ETF holds a large number of securities, so when you buy i nto the fund, you will own a share of all the securities.

It is important to understand what types of securities the fund invests in and the total cost of your investment including mutual fund fees or ETF trading commissions.

"Everyone has the capability to be a successful investor, "St. Pierre said.

"Remember investing is a disciplined process. Take your time and make educated decisions.You're certainly welcome to make the glamorous investment that promises to make lots of money quickly. Just be prepared to lose it all."



Copyright 2010 Nowata Star, Nowata, Oklahoma. All Rights Reserved. This content, including derivations, may not be stored or distributed in any manner, disseminated, published, broadcast, rewritten or reproduced without express, written consent from SmallTownPapers, Inc.

© 2011 Nowata Star Nowata, Oklahoma. All Rights Reserved. This content, including derivations, may not be stored or distributed in any manner, disseminated, published, broadcast, rewritten or reproduced without express, written consent from DAS.

Original Publication Date: September 15, 2010



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