You don't have to be good with numbers or a motivated market watcher to handle your investments. Just follow a few basic rules:
- Simple is best.
Money you intend to keep invested for 10 years or longer belongs in stocks. Yes, there are thousands to choose from, but all you need to do is put 70 percent of your money in a single broad stock index fund that buys into big U.S. companies with a global presence. The remaining 30 percent belongs in an international index fund. Sure, you can add more to the mix—but with two simple moves, you'll have a fully diversified portfolio of stocks.
- Keep costs low.
To make the most of your money, I recommend sticking with mutual funds that don't charge a commission when you buy or sell. Another important cost is the annual expense ratio that all funds levy on shareholders. Look for funds that have expense ratios below 1 percent. If you can handle the $3,000 minimum initial investment, I like the low-cost Vanguard Total Stock Market Index Fund and the Vanguard Total International Stock Index Fund (vanguard.com; 877-662-7447). Another good option is the T. Rowe Price family of funds; you can start with as little as $50 a month (troweprice.com; 800-541-6066).
- Contribute consistently.
The key to making money is to stay invested. People often panic when the markets go down and sell off their stocks—but then they aren't in the game when the markets are doing well. The best decision you'll ever make is to commit to a steady investment program. No matter what the markets are doing, keep funding your investments. This is called dollar-cost averaging. That's what you do with a 401(k) or 403(b); you regularly add money every few weeks. Sometimes your money will buy fewer shares (when the market is higher), and sometimes it will buy more shares (when the market is lower). If you're saving for the long run, it's actually a good thing when the market is down because the more shares you have, the more you can potentially make when markets rise. And over time—decades, not months—the markets rise more than they fall.