Investing in Your 20s & 30s For Dummies Book

Introduction 1

About This Book 1

Conventions Used in This Book 2

What You're Not to Read 2

Foolish Assumptions 2

How This Book Is Organized 3

Part I Understanding Investing Terms and Concepts 3

Part II Preparing Your Investing Foundation 4

Part III Beginning Investments 4

Part IV Advanced Investments 4

Part V The Part of Tens 4

Icons Used in This Book 5

Where to Go from Here 5

Part I Understanding Investing Terms and Concepts 7

Chapter 1 Making Sense of Your Investing Options 9

Growing Your Money in Ownership Investments 9

Sharing in corporate growth and profits: Stocks 10

Profiting from real estate 11

Succeeding in small business 11

Keeping Money in Lending Investments 12

Understanding Risks and Returns 13

Understanding risks 13

Managing risks 14

Making sense of returns 16

Where to Invest and Get Advice 17

Finding the best fund companies and brokers 17

Finding an admirable advisor 19

Chapter 2 Using Investments to Accomplish Your Goals 21

Setting and Prioritizing Your Shorter-Term Goals 21

Accumulating a rainy-day fund 22

Saving for large purchases 23

Investing for a small business or home 23

Saving for kids' educational costs 24

Investing short-term money 24

Investing in Retirement Accounts 25

Understanding retirement account perks 25

Grappling with retirement account concerns 26

Taking advantage of retirement accounts 27

Surveying retirement account choices 28

Company-based retirement plans 28

Individual Retirement Accounts 30

Annuities: Maxing out your retirement savings 31

Selecting retirement account investments 32

Assessing Your Risk-Taking Desires 32

Chapter 3 Setting Your Return Expectations 35

Estimating Your Investment's Returns 36

Money market funds and savings account returns 36

Bond returns 37

Stock returns 38

Real estate returns 40

Small-business returns 40

Compounding Your Returns 41

The value of getting a few extra percent 41

Considering your goals 43

Chapter 4 Minimizing Your Taxes When Investing 45

Understanding Investment Taxes 46

Tracking taxation of investment distributions 46

Determining your tax bracket 47

Devising tax-reduction strategies 48

Reducing Your Taxes When Selling Investments 49

Weighing nontax issues 50

Tuning in to tax considerations 51

Determining the cost basis of your shares 52

Selling large-profit investments t 53

Handling losers in your portfolio 54

Selling investments when you don't know their original cost 54

Part II Preparing Your Investing Foundation 57

Chapter 5 Laying Out Your Financial Plans 59

First Priorities: Paying Off High-Cost Debt and Building a Safety Reserve 60

Paying off high-cost consumer debt 60

Establishing an emergency reserve 61

What About Paying Down Other Debts? 62

Assessing student loans 62

Considering paying down mortgage debt 64

Sorting Out Your Financial Plans 65

Considering your investment options and desires 66

Assessing your savings rate 67

Investing regularly with dollar cost averaging 68

Knowing the Impact of Investing for College Costs 70

Paying for college 71

Considering educational savings account options 73

Investing money earmarked for college 73

Securing Proper Insurance 74

Chapter 6 Starting Out with Bank and Credit Union Accounts 77

Understanding FDIC Bank Insurance 78

Investing in Banking Account and Savings Vehicles 79

Bank checking accounts and debit cards 79

Savings accounts and certificates of deposit 80

Negotiating with Bankers 82

Feeling Secure with Your Bank 83

Evaluating any bank 83

Protecting yourself when banking online 86

Exploring Alternatives to Bank Accounts 87

Credit union accounts and benefits 87

Brokerage accounts 88

Money market mutual funds 89

Chapter 7 Managing Money Market Funds 91

Defining Money Market Mutual Funds 91

Making sense of the appeal of money market funds 92

Understanding the drawbacks of money market funds 93

Understanding Money Market Fund Holdings 94

Protecting and Accessing Your Money in Money Funds 95

Protecting your money 95

Accessing your money 96

Using Money Market Funds in Your Investment Plan 97

Shopping for the Best Money Funds 98

Understanding traits of leading money funds 99

Naming good money funds 100

Alternatives to Money Market Mutual Funds 102

Part III Beginning Investments 105

Chapter 8 Getting Your Slice of Capitalism with Stocks 107

What Are Stocks? 108

How (And Why) You Can Make Money with Stocks 109

Understanding the importance of corporate profits 110

Making sense of how you profit with stocks 111

Timing Your Stock Buying and Selling 112

Following market indexes 112

Using price/earnings ratios to value stocks 114

Avoiding temptations and hype 115

Getting past the gloom 116

Sidestepping common investing minefields 117

Highlighting How to Invest in Stocks 118

Investing in stock mutual funds and exchange-traded funds 119

Picking your own stocks 120

Researching individual stocks 121

Final thoughts on stock picking 123

Maximizing Your Stock Market Returns 124

Chapter 9 Securing Investment Income and Principal with Bonds 125

Defining Bonds 126

Understanding bond issuers 127

Considering credit (default) risk 129

Making sense of bond maturities 130

Using Bonds in a Portfolio 131

Finding uses for bonds 131

Comparing other lending investments with bonds 133

Guaranteed-investment contracts (GICs) 134

Private mortgages 135

How and Where to Invest in Bonds 137

Choosing between bond funds and individual bonds 137

Investing in Treasury bonds 138

Investing in non-Treasury individual bonds 139

Evaluating individual bonds that you currently hold 140

Chapter 10 Investing in Funds: Mutual Funds and Exchange-Traded Funds 141

Understanding the Advantages of Funds 142

Maximizing Your Chances for Fund Investing Success 144

Understanding the importance of performance and risk 145

Examining fund management experience 146

Keeping costs down 146

Understanding and using index funds 147

Understanding exchange-traded funds: Index funds that trade 148

Creating and Managing a Fund Portfolio 150

Identifying the Best Mutual Funds and ETFs 152

Investing in the best ETFs 152

Picking the best stock funds 153

U.S. stock funds 155

International stock funds 155

Balancing your act: Funds that combine stocks and bonds 157

Finding the best bond funds 157

The dangers of yield-chasing 159

Recommended short-term bond funds 160

Recommended intermediate-term bond funds 161

Recommended long-term bond funds 162

Considering Alternatives to Investing in Funds 163

Your own online fund 163

Unit investment trusts 164

Brokerage managed accounts 165

Hedge funds for the wealthier 165

Part IV Advanced Investments 167

Chapter 11 Seeking Shelter and Appreciation in Real Estate 169

Comparing Owning a Home to Renting 169

Weighing financial considerations 170

Considering costs and your time frame 171

Deciding when to buy 172

Figuring Your Home-Buying Budget 173

Getting your financial house in order 173

Determining your down payment 174

Doing lenders' calculations 175

Assessing consumer debt 175

Determining homeownership tax savings 176

Shopping for Your Home 177

Understanding your housing options 177

Researching communities 179

Checking out and valuing a home 180

Investing in Investment Real Estate 181

Understanding real estate' investment's appeal 182

Sizing up real estate investment options 183

Real estate investment trusts 184

Residential housing 184

Land 185

Commercial real estate 187

Conducting real estate investing research 188

Assessing employment vitality 188

Evaluating the realty market's health 188

Valuing property and financial projections 189

Chapter 12 Taking Your Talents to the Small-Business Arena 191

Investing in Your Career 191

Deciding to Start Your Own Business 193

Weighing your options 193

Entrepreneuring at a company 194

Turning a Business Idea into Reality 194

Drawing up your business plan 194

Plotting to leave your job 198

Financing your business 199

Considering Small-Business Investment Options 201

Buying an existing business 202

Investing in someone else's business 202

Chapter 13 Exploring Other Investment Vehicles 205

Considering Gold and Other Precious Metals 205

Contemplating Collectibles 208

Understanding the allure of collectibles 208

Seeing the realities of collectibles and their returns 209

Considering advice on buying collectibles 210

Understanding Annuities and Cash-Value Life Insurance 211

Availing yourself of annuities 211

Considering cash-value life insurance 212

Part V The Part of Tens 215

Chapter 14 Ten Things to Know About Investing Resources 217

Get Educated to Discern the Best from the Rest 217

Beware "Free" 218

Understand the Influence of Advertising 218

Value Quality over Quantity 219

Know How to Check Out a Resource 220

Beware Hype and Exaggeration 221

Don't Assume Quoted Experts Know Their Stuff 221

Investigate Gurus' Claims 221

Don't Believe Investment-Newsletter Claims 222

Check Out and Keep Up with My Favorite Resources 223

Chapter 15 Ten Essential Tips for Investing Success 225

Regularly Save and Invest 5 Percent to 10 Percent of Your Income 225

Understand and Use Your Employee Benefits 226

Thoroughly Research Before You Invest 226

Shun Investments with High Commissions and Expenses 227

Invest the Majority of Your Long-Term Money in Ownership Investments 227

Avoid Making Emotionally Based Financial Decisions 227

Make Investing Decisions Based on Your Plans and Needs 228

Tap Information Sources with High Quality Standards 228

Trust Yourself First 229

Invest in Yourself and Others 229

Index 231