Wealth Building: Become Your Own Money Manager: 4 Simple Steps You Need To Know To Manage Your Money

Did your broker let your investments slide downhill in 2008

? Do you think buy and hold is still a good strategy? You need to empower yourself with some basic information about money management and investments. Investing shouldn't be scary, difficult or time-consuming. With the knowledge of a few simple steps you can understand your investments, grow your money, and reduce stress and worry.

Many times I've heard people say that they wished they knew more about managing their own money. The chief complaint heard is that many articles say the average Joe can do it, but no one tells them how to do it.

I'm going to write a series of articles in plain English, and tell you exactly how most people can manage their own money or manage their broker. Don't misunderstand, there is nothing wrong with having a broker, but it's a professional relationship that needs to be monitored. Regardless of who manages your money this article should give you greater clarity about building a portfolio or formulating questions.

My methods are simple and will involve a little bit of study, some easy math, use of a spreadsheet, and a bit of reading. Grab a pencil and paper - here we go!

First, how much do you have to invest? Calculate the dollars you're going to put into the portfolio.

Second, what is your risk tolerance? All investments are risky, even certificates of deposit. CD's return your principal, but considering taxes and inflation it is possible to have a microscopic return over the life of the CD. Have you checked the yield currently offered at your neighborhood bank?

A rule of thumb is the older you are the less risk assumed. If you're in your 20's, go ahead and be more aggressive, but if you're 50, don't go crazy trying to catch up or recoup losses.

For example, an employed 20 something might invest 70% growth, 20% yield, and 10% safe money for a dire emergency. Conversely, a 50 year old that is employed with a tolerance for risk and 15 years until retirement might allocate 40% for growth, 40% for yield, and 20% emergency money.

These are just examples that will give you some ideas. You know when you want to retire, and be honest with yourself regarding risk.

Third, in what instruments are you going to invest? Keep it simple. Understand your investment or don't invest. You might consider exchange traded funds (ETF's). If you don't know what these are, go to a site like Investopedia.com and do a little research. Of course, there are individual stocks, but probably not a good idea unless you've had prior experience. I would suggest that if you want to buy mutual funds get a prospectus and make sure you read and understand how your money will be invested.

Four or five different investments are a manageable number with which to start your program. You're over diversified if you have too many investments. Conversely, too few and your holdings are too concentrated. For starters, jot down four or five ideas you might like to pursue.

Finally, you're going to need to construct a spreadsheet - Excel, etc. If you don't have spreadsheet software, find a notebook that you can use solely for tracking your investments. Some of the columns you'll need are: name of the instrument, date of purchase, purchase price, commission, date of sale, sale price, commission, profit/loss.

This should give you a good start in thinking about managing your money or at least asking questions of your broker.

In the next article I'll elaborate in greater detail about the investments you might consider and diversification. I'll also give you some tips on how to watch your investments. You'll learn how to take action if a directional change occurs in the overall market.

2008 was a horrible year for unprepared investors. You don't need to repeat the experience. Buying and holding, like hoping and wishing, are not profitable investment strategies.

Can you afford not to make this small investment in time to better educate yourself about investing? Your financial future may depend on it.

by: Karen Stanlake

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