The most frequent question I get is where do I invest my money, and lately, the most common question is what do I do with my invested money. Well, let's start with those who already have invests: be it in a 401(k), IRA, Roth IRA, brokerage account, etc.
Rule #1: Leave it alone!! Now is not the time to become a day trader or realize that you really wanted that mutual fund. For the most part, I would suggest you consider not touching the money and let the markets rebound. Remember your long-term time horizon on this (and ESPECIALLY since you are young!)
Story: I had a question a few months back from a woman who's brother had a Roth IRA. She said her brother had opened his Roth and had invested approx $16,000. Since then, he had lost almost half of it in the current poor financial market. He cashed out his remaining Roth money, and now what should he do with it?
My advice: Leave it alone! Even Donald Trump, Warren Buffet and Bill Gates are losing money in this economy. The S&P 500 (a general stock market index) was down over 38% in 2008. This is the greatest one year loss since 1931. Therefore, if you are fully invested in an S&P 500 index fund then yes, you will too will have a loss of 38% for last year. There's no secret magic pill to get around this. It's just where the market is at this point. Therefore, my advice was to open up another Roth IRA, redeposit the funds (within 6 months) to avoid tax penalties and realize that the market is on sale.
Word of caution: One thing we have learned with this market is the importance of diversification. If you own a single stock or just a few concentrated shares (i.e. profit sharing plans with company stock shares) and you are wondering what to do with it, I recommend you speak with a financial planner about your situation (future post on this coming soon!).
Rule #2: The Market is On Sale! It's like shopping: You wait for the best pair of jeans to go on sale so you don't buy it at full price! The same applies to the stock market....everything is on sale! Why pay full price (buy high sell low) when you could get a deep discount (buy low sell high)? Therefore, if you have EXTRA cash laying around and want to use it for a long-term (at least 10 years or more) goal, then invest it. If you plan on using the money in the short-term (5 years or less), then the stock market (as we are currently seeing for retirees) is not the best place to be heavily invested. You should look into more liquid investments, such as savings accounts, money market accounts, certificates of deposit, etc etc. It's vitally important to know your purpose/goal for the money and what time horizon you have. This should be the first step before you ever put money into an investment account.
Now, get out there and start looking for your bargain mix of a diversified portfolio which invests in broad varieties and types of businesses. To help you get started, here are a few recommended resources:
Happy Long-term Investing!
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