Updated 03/15/2012 12:01 AM
Stock Market Funds A Wise Way To Bolster Savings
The stock market can be intimidating for newcomers, but experts say there are a number of good ways to get started. NY1's Tara Lynn Wagner filed the following report.
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You may have an emergency fund that could cover six months of expenses, but if that money is in a savings account, it's not earning and it's actually losing its punch.
“Over time, inflation will eat away at how much it can do for you, so if you only saved in cash, you're kind of continually falling behind a bit,” says Annette Clearwaters, president of Clarity Investments.
That’s why you might be better off taking some of the money above and beyond your emergency fund and investing it in the stock market. AnnaMaria Andriotis of Smartmoney.com says your first stop could be the Internet.
“An E*TRADE or a Scottrade, basically—online brokerage firms where you can go and create your own portfolio. Those tend to be the most cost-effective, they tend to be the most affordable. You pretty much set up your portfolio on your own and you choose the investments that you want with fairly low fees,” says Andriotis.
That doesn’t necessarily mean sitting down with $1,000 and saying “I'll take 50 shares of this company and 10 shares of that one.” In fact, experts advise against that.
“I view it as I spend my whole working day, my work week reading investment magazines—I wouldn't pick individual companies for myself,” says Clearwaters.
Instead, Clearwaters says start with mutual funds, which contain a few dozen to a few thousand different stocks, giving you a diversified portfolio. Her pick for first-timers is something called a “total stock market fund.”
“They're very low cost. You're literally getting a little piece of almost the entire stock market in the U.S., so it’s really, I think it’s a great way to get started and get comfortable with how it works,” says Clearwaters.
If you're in the market for a little more guidance, you may want to sit down with a financial advisor, but be careful who you work with. Get recommendations, check their credentials, and find out how they are being paid—whether they’re fee-only or commission-based.
Andriotis's advice is to stick with those who are fee-only.
“If you know that the person you’re speaking to is not about to make money by selling you a product, but they're just telling you that this is a product that we like, that we think works well with your portfolio, then there is a little more in terms of being able to trust them there,” says Andriotis.