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Don’t rush too quickly into creating a portfolio. If you owe a lot of credit card debt, no amount of investing is going to help you get ahead.
Write down a list of every debt you owe, whether or not repayment is in your personal spending plan. Make concrete notes about balances and payment terms.
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Before investing any money, you should be able to answer the following questions about each debt:
- How much do I owe?
- Is this an installment debt (like federal student loans) or a revolving debt (such as a credit card)?
- What is the annual interest rate?
- How much do I pay each month?
- Can I pay more toward my debt than I am at this time?
- How long will it take to pay off this debt?
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Why Debt Consideration is Important
If you’re paying off a credit card with a 12 percent interest rate, you need to focus more on that aspect of your financial life before making intense investments. Many credit cards and loans have even higher interest rates. Investing is risky, and even on a great day you will likely never earn enough yields to justify slowing repayment of debts with interest rates.
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Now that you either followed the advice about paying off more debt or still want to get started despite a debt load, you need to also consider how you want to invest.
Most beginning investors will want a brokerage account through companies such as Fidelity, Scottrade, or E*TRADE. You have dozens of options, both local and online. However, your choice may depend on how much money you have to invest. Some companies and account types would like to see at least $2,500.
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Investing for Retirement
Every investment portfolio should have an Individual Retirement Account (IRA) or 401K. David Bach, author of “Smart Women Finish Rich" and “The Automatic Millionaire Workbook," suggests placing 10 percent of your income into such an account. If your work doesn’t offer a 401K, check with your preferred investment broker about a Roth or Traditional IRA. Your decision will depend upon whether you want to take tax deductions now or later. You can set up automatic withdrawals from your checking account to fund your retirement accounts and usually other investments.
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Choosing Stocks, Bonds, Mutual Funds, and the Like
This is where an investment advisor or stockbroker can come in handy, as this is a complex field and greatly depends upon your assets and how much risk you’re willing to take. If someone tells you an investment is “risk-free," you should run away from them. No investment is risk-free; if you’re intolerant of potentially losing everything than you probably should not be investing in stocks at all.
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The Art of Research, Research, and More Research
Check the stock markets regularly, using your newspapers or the Internet. Listen to your gut. If you don’t trust the future of the American economy, consider investing in overseas stocks and mutual funds. Read, read, read about your preferred areas of investment. Don’t buy a bunch of blue chip stocks if you don’t understand that field. Above all, have fun learning and investing. Nothing in life is guaranteed, but taking informed risks may reap you a number of rewards beyond financial gain.