If you don't want to become one of the financial casualties of American society, you need to invest. Even a modest level of savings can put you among the elite investors in the U.S.: 57% of Americans have saved less than $25,000 toward their retirement, and 28 percent haven't reached the $1,000 mark, according to the Employee Benefit Research Institute.
In this fourth lesson, we'll take a look at two of the main tools you'll need, and how best to use them.
Tool 1: The Right Investment Account
Opening an investment account can seem intimidating, but it doesn't have to be. The key thing to remember is that the companies involved that want your business will do everything in their power to make it as easy as possible for you to get started.
If you have to pick a single account to use for your investing, make it a brokerage account. Brokers give you access to individual stocks, bonds, and exchange-traded funds, as well as slightly more sophisticated investments like options and futures. Most brokerage companies also offer mutual-fund trading on their platforms, giving you all-inclusive access to just about every type of investment you'll want to start out with.
The easiest way to open an account with online brokers is to fill out an application through their websites. But companies will also let you download and print out paper copies or send you an application in the mail if you prefer.
Don't let the size of those applications scare you. Brokers are required by the SEC and other regulators to gather a lot of information, but it's very unlikely that you'll get turned down for an account.
If you only want to invest in mutual funds, you can go directly to most mutual-fund companies and buy shares from them yourself. You'll need to fill out a separate account application for each fund company, but it closely resembles the brokerage-account paperwork. After a while, filling out these sorts of forms becomes second nature when you want to expand your portfolio.
Tool 2: The Right Resources For Unearthing Smart Investments
Discount brokers used to leave you largely on your own in choosing investments, but now, even low-cost brokerage firms offer a variety of different resources to help you find promising investments. They include:
Screeners. These tools let you select certain desirable characteristics, such as high dividends, attractive valuations, or low expenses, and then give you a list of investments that meet your criteria. From there, you can do further research to whittle down your list.
Third-party professional research. Some brokers have arrangements with outside investment analysts who provide their proprietary research to certain brokerage clients. The wider the range of research offerings, the more complete a picture of a prospective investment you'll have before you decide to buy or sell.
Corporate financial information. Every investor has access to company financials, both through the company's investor relations department as well as by looking at SEC filings. But some brokers make it easier for you to access and use that information, providing a more uniform presentation format and combing through detailed fine print to dig out key facts to consider.
Alert systems and automated trading. Increasingly, brokers will let you set alarms that will inform you when a stock price reaches a certain level or when important news comes out about a stock you own. A few more-sophisticated brokerage platforms allow you to arrange to have orders automatically placed to buy or sell investments if certain pre-set conditions you select occur.
Mobile access. Recently, being able to access accounts on a smartphone or tablet has become indispensable, and the best brokers are keeping up with technology by improving their mobile trading platforms to allow access from anywhere.
At first, the sheer volume of resources available will leave you wondering where to begin. But don't feel like you need to take advantage of every offering you have.
Instead, in selecting a broker to work with, glance at these research tools with the goal of deciding which ones you'd be most comfortable using in the future. From there, making an informed choice will be a lot simpler.
One Step at a Time
Dealing with all the paperwork involved in setting up investment accounts can seem like too high a hurdle to overcome. Researching thousands of potential investments to find the best ones for your portfolio can seem downright impossible.
Yet by taking these processes one step at a time, you'll find yourself working through them before you know it. Then, you'll be able to move forward with your investing and start the journey toward reaching all of your financial dreams.
This childhood favorite is a lot more than theme parks and cartoons. With ABC and sports powerhouse ESPN under its corporate umbrella, Disney is a media giant. Over the past decade, it bought Pixar and Marvel Entertainment, and Disney's recent pickup of Lucasfilm will give the House of Mouse access to the blockbuster "Star Wars" franchise for years to come.
As a Starbucks shareholder, seeing lines around the corner for coffee will put a smile on your face. Consumers still seem happy to spend big money on its java, and its new growth initiatives are aimed at expanding its sales of juices, tea and baked goods, too.
IBM may be best known for its computer hardware, but the company has diversified to become a one-stop shop for IT services, and IBM has enjoyed better profits as a result of that strategic shift. As it gets more involved in the hot cloud-computing area, look for even more opportunities ahead.
You may drive by the biggest U.S. energy company's gas stations every day, but the oil giant's operations go well beyond the pumps around the corner. ExxonMobil's extensive global oil- and gas-exploration operations are leaving no stone unturned looking for new sources of fossil fuels. Owning some ExxonMobil stock lets you profit from those high prices you've been paying at the pump for so long.
Apple products may never seem to be available at a discount, but Apple's stock is a relative bargain these days. With shares more than 25 percent off their recent highs, some analysts fear that Apple's best market-cap growth may be behind it. But with the latest iPhone, along with new products in its iPad and Mac lines, Apple has bright enough prospects to lure value investors into looking closely at the stock.
With dozens of consumer products bringing in upwards of $1 billion in annual sales, Procter & Gamble is a household name around the world. Investors will especially like P&G's dividend record: 56 straight years of payout increases, giving shareholders consistent, reliable income.
Johnson & Johnson is ubiquitous in medicine cabinets and hospitals everywhere, thanks to products from Band-Aids and Tylenol to high-end medical equipment and pharmaceuticals. Plagued by recalls in recent years, J&J nonetheless has an impressive dividend yield of 3.5 percent and has given long-term investors half a century of annual dividend increases to boot.
Beverage giant Coca-Cola has the No. 1 brand in the world, and it's made the most of it by expanding across the globe to find new growth opportunities. Sales in North America have been less than stellar, but with emerging economies increasingly interested in the kinds of consumer products that the developed world takes for granted, Coke has huge potential to become as widely consumed around the world as it is domestically.
Warren Buffett may be in his 80s, but the Oracle of Omaha is still a force to be reckoned with in the investing world. With the company's recent decision to repurchase shares near their current price, new shareholders can feel confident that the stock's a good value right now in the eyes of at least one renowned investing guru.
Best-known for innovations like Post-it Notes, 3M is actually a massive conglomerate doing business in defense, health care, and electronics as well as office supplies. With its 2.5 percent dividend yield and 54 years of consecutive annual payout increases, shareholders will like the way 3M treats them.
This beverage company's name may not be familiar to you, but if you drink even occasionally, you certainly know its brands: Guinness, Johnnie Walker, Smirnoff, Captain Morgan and many, many more. This British alcohol giant has some of the strongest brands in the world and has been expanding across the globe in search of new growth opportunities. In a recession-resistant business, Diageo is a powerhouse.
McDonald's has been the king of fast food for decades, but the company has also been nimble, getting into smoothies and premium coffee at exactly the right time. The stock has historically done well during tough times, so owning it gives your portfolio some protection from a possible downturn.
Dubbed "Whole Paycheck" by many, Whole Foods has nevertheless captured a loyal customer base with its organic food and other healthy offerings. The stock isn't cheap either, but with plenty of untapped growth potential, Whole Foods is worth paying a little extra for.
Now you have a baker's dozen strong options to choose from, so get 2013 off on the right foot by putting your money to work. The stock market will have its ups and downs this year -- as it does every year -- but over the long haul, stocks have a great chance of outperforming the minuscule returns you're getting from your savings accounts and CDs.