1. It is difficult for fund managers with years of experience to beat the market so why not just invest in S&P 500 index funds or whole market index funds with low fees. Investors will beat out actively managed funds most of the time.

2.Fire your full service broker that charge really high fees or a percentage of your assets. If your paying 1.5% on $100,000 your paying $1500 per year in fees. This means that you will have to make 1.5% more on your money to just break even before inflation. Get a low cost broker like Ameritrade or Etrade.

3. Dollar cost averaging can help smooth out the roller coaster that is investing. Invest fixed amounts of money over a period of years to invest more when the market is lower and less when the market is higher.

4. Escape taxes by investing in municipal bonds. Municipal bonds pay lower rates, but they are tax free from state and federal taxes if you buy municipal bonds from in-state issuers.

5. Save for college in a 529 college savings plan. The sooner you start saving in this account the sooner it starts to earn tax free returns for your child’s future.

So, your ready to start investing. You have your high interest debts paid down (or off) and you have your emergency fund setup that can pay for 3-6 months worth of expenses.

Dollar-cost averaging is a simple concept. You invest fixed dollar amounts on a fixed time schedule regardless of price into an investment.

An example of how it is done:

Let’s say that you set aside $100 per month to invest. The market goes up and down all the time, that $100 will buy less shares when the price is high and more shares when the price is low. Using the dollar cost averaging strategy, you’ll invest that $100 regardless of what the price is so you don’t have to keep up with all the daily fluctuations of the stock market. Your investing plan will be on autopilot and will do that for you. At the end of a year, you will have purchased more shares at the lower price and fewer shares at higher prices.

The alternative plan is to have a lump sum and invest it all at the same time. By doing this you don’t get the advantages cost averaging.

No one can predict what the stock market will do. If the stock market declines throughout the year then you will end up with more shares, but they will be worth less. If the stock market goes up then you will end up with fewer shares, but they will be worth more.

Most experts recommend that if you have a lump sum to invest it as soon as possible to take advantage of the potential returns. This assumes that you have a lump sum to invest.

Dollar cost averaging will allow you to get into the market in a small way without getting killed by an extreme downturn in the market.

If you have a lump sum to invest then you can compare the two plans, but for the average person the dollar cost averaging method allows you to take advantage of a strategy that will hopefully net you great returns over the long run.

When you need your money short term, think in terms of a money market. You can make some interest and still have access to your money when you need to. These types of accounts are great for emergency funds.

Checkout the rates in your area:

Bankrate

Checkout this blog for rate information:

Daily Banker

I currently have a money market and it is slowly paying less and less interest. I started at 4.75% interest and it dropped to 4.410% on January 1st and it reset again on January 22nd to 3.928%. The interest rate reductions are killing my return on investments. It is time to start looking for another account.

You want to retire some day and you would like to have 1 million dollars to do it. Here are some calculations of what it would take at ages 25, 35, 45 and 55 from Kiplingers Magazine.

If you start saving $286 per month at age 25, assuming an 8% average annual return, you will have $1 million by age 65. Having forty years to work with is helpful.

If your 35 and you want to reach one million by age 65 you need to save $671 per month.

If you have no savings at 45, you’ll need to accumulate $1,698 in your portfolio every month to meet this goal. If you have $50,000 set aside for retirement, your monthly contribution will be only $1,298. With $100,000, a 45 year old can likely start retirement with $1 million by saving $861 per month.

If you have no savings at age 55 then it would take $5,466 per month to reach 1 million.

Obviously, reaching this goal is more difficult the later you start. Why wait that long start as soon as you can.

See Kiplingers full article here:

NEW YORK (CNNMoney.com) The Federal Reserve cut a key short-term interest rate by a half-percentage point Wednesday, its second significant cut in just over a week, as the central bank tries to combat the growing risk of a U.S. recession.

U.S. stocks, which had been slightly lower ahead of the announcement, surged on news of the rate cut.

The federal funds rate, an overnight bank lending rate that affects how much interest consumers pay on credit cards, home equity lines of credit and auto loans, was cut to 3.0% from 3.5%. The rate had stood at 5.25% only four months ago.

The discount rate, which is what banks pay to borrow directly from the Fed, was also cut by a half-percentage point to 3.5% on Wednesday. The cut was made at the request of nine of the 12 Federal Reserve district bank presidents from around the country.

The Fed cut both rates by three-quarters of a percentage point in an emergency move on Jan. 22.

Full Story

Checkout this calculator to find out how long it will take you to become a millionaire.

Based upon how much you have, how long you will save and at what rate, and find out when your nest egg will hit 7 figures.

Money Magazine’s Millionaire Calculator

Rule of 72:

Rule of 72 is a little tool that gives you the amount of time that it takes your money to double based on an interest rate.

Here is how the tool works.

If you divide your interest rate into 72 you will get the amount of years it takes to double your money.

Example: 5% interest into 72 gives you 14.4 years for your money to double at 5%.

Disclaimer and Example:

This tool provides an approximation, not an exact amount.

For instance if you take $1 and compound it yearly for 14.4 years at 5% you will get $2.02 dollars. It is a good rule of thumb for figuring out how your investment will do.

My Take on Index Funds:

Index Investing mutual fund has as a primary objective to match the performance of a particular stock index such as the S&P 500 index or the Dow Jones Industrial average . Checkout this book The Little Book of Common Sense Investing on the advantages of mutual funds written by John C. Bogle the Founder and former CEO of the Vanguard Mutual Company.

The advantages of index funds are:

1. Index Funds minimize costs. A typical fund company produces a construct portfolio out of the stocks in a chosen index like the S&P 500. The fund is passively managed, with changes being made only to fine-tune the fund’s performance to match more closely the index’s results. No highly paid stock analysts are needed. The alternative is an actively managed fund, which is more expensive. Typically expense ratios of an index fund ranges from 0.15% for U.S. Large Company Indexes to 0.97% for Emerging Market Indexes. The expense ratio of the average large cap actively managed mutual fund as of 2005 is 1.36%.

2. The index funds eliminate the investors need to spend too much time picking stocks or worry too much about returns. You can be fairly assured that your performance will match the overall performance of the market index you select. Funds usually get rebalanced once or twice per year.

3. The index funds have lower turnover of the securities by the fund manager thereby reducing the chances of capital gains taxes. Selling securities may result in capital gains tax charges, which could be passed on to fund investors. Because index funds are passive investments, the turnovers of stocks are lower than actively managed funds thereby reducing costs.

A highly recommended Index Mutual Fund company is The Vanguard Group, Inc. They have some of the lowest cost index funds in the industry.

Investopedia Says:
Investing in an index fund is a form of passive investing. The primary advantage to such a strategy is the lower management expense ratio on an index fund. Also, a majority of mutual funds fail to beat broad indexes such as the S&P 500.