Michele Cagan - The Everything Investing Book: Smart strategies to secure your financial future!

THE
EVERYTHING
INVESTING
BOOK
RDEDITION

Dear Reader,

Its scary to even think about investing when the markets are in meltdown mode, like the recent severe financial downturn. Weve become all too familiar with words like recession, crash, and foreclosure. Giant financial corporations have simply disappeared. Its enough to make you want to stick all of your money under your mattress. Im here to tell you: Dont be afraid to invest!

Heres why: You cant build wealth without investment, no matter what the markets are doing today. The key is to create a solid plan and follow it, and carefully search out investments that will keep your portfolio growing. Sounds impossible, but it isnt; in fact, its pretty simple when you take time out to learn about the wild world of finance and investing.

Thats what this book is all about. Inside, Ill tell you everything you need to know to build a profitable portfolio. From understanding the inner workings of Wall Street to figuring out how to ladder your bonds to choosing the best combination of mutual funds, this book will guide you toward wealth and prosperity.

Wishing you success,

Welcome to the EVERYTHING Series!

These handy, accessible books give you all you need to tackle a difficult project, gain a new hobby, comprehend a fascinating topic, prepare for an exam, or even brush up on something you learned back in school but have since forgotten.

You can choose to read an Everything book from cover to cover or just pick out the information you want from our four useful boxes: e-questions, e-facts, e-alerts, and e-ssentials. We give you everything you need to know on the subject, but throw in a lot of fun stuff along the way, too.

We now have more than 400 Everything books in print, spanning such wide-ranging categories as weddings, pregnancy, cooking, music instruction, foreign language, crafts, pets, New Age, and so much more. When youre done reading them all, you can finally say you know Everything!

Answers to common questions

Important snippets of information

Urgent warnings

Quick handy tips

PUBLISHER Karen Cooper

DIRECTOR OF ACQUISITIONS AND INNOVATION Paula Munier

MANAGING EDITOR, EVERYTHING series Lisa Laing

COPY CHIEF Casey Ebert

ACQUISITIONS EDITOR Lisa Laing

SENIOR DEVELOPMENT EDITOR Brett Palana-Shanahan

ASSOCIATE DEVELOPMENT EDITOR Elizabeth Kassab

EDITORIAL ASSISTANT Hillary Thompson

EVERYTHINGSERIES COVER DESIGNER Erin Alexander

LAYOUT DESIGNERS Colleen Cunningham, Elisabeth Lariviere, Ashley Vierra, Denise Wallace

Visit the entire Everything series at www.everything.com

THE
EVERYTHING
INVESTING
BOOK
3RD EDITION

Smart strategies to secure your financial future!

Michele Cagan, CPA

To Ethan,
the most important person in the world.

Copyright 2009, 2005, 1999 by F+W Media, Inc.
All rights reserved.
This book, or parts thereof, may not be reproduced
in any form without permission from the publisher; exceptions
are made for brief excerpts used in published reviews.

An Everything Series Book.
Everything and everything.com are registered trademarks of F+W Media, Inc.

Published by Adams Media, a division of F+W Media, Inc.
57 Littlefield Street, Avon, MA 02322 U.S.A.
www.adamsmedia.com

ISBN 10: 1-59869-829-X
ISBN 13: 978-1-59869-829-9
eISBN: 978-1-44052-109-6

Printed in the United States of America.

J I H G F E D C B A

Library of Congress Cataloging-in-Publication Data
is available from the publisher.

This publication is designed to provide accurate and authoritative information with regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

From a Declaration of Principles jointly adopted by a Committee of the
American Bar Association and a Committee of Publishers and Associations

Many of the designations used by manufacturers and sellers to distinguish their products are claimed as trademarks. Where those designations appear in this book and Adams Media was aware of a trademark claim, the designations have been printed with initial capital letters.

This book is available at quantity discounts for bulk purchases.
For information, please call 1-800-289-0963.

Contents

Acknowledgments

Special thanks to Meira Cagan (my mom), whose help got me over the final hurdles. I also want to thank my editor, Lisa Laing, who made every obstacle disappear and helped me make this a much better book.

Top Ten Things to Do Before YouInvest $1

Pay off every penny of credit card debt. Youll earn sky-high (18 to 22 percent!) returns just by paying your credit card balance in full rather than making the minimum monthly interest-laden payments.

Build yourself an emergency fund. Start a separate bank account for this purpose alone. It should have enough money to cover at least three to six months of living expenses.

Set up and follow a household budget. Keep track of where your money comes from and (even more important) where its going.

Set clear financial goals. Whether you want to save for a new car this year or retirement twenty years from now, you need to know why youre investing.

Determine your time frame. How long your money will be working for you plays a key role in designing the best portfolio.

Know your risk tolerance. Investing can bring about as many downs as ups, and you have to know just how much uncertainty you can comfortably stand.

Figure out your asset allocation mix. Before you start investing, know what proportion of your portfolio will be dedicated to each asset class (like stocks, bonds, and cash, for example).

Improve your understanding of the markets. That includes learning about the big picture, such as the global political and economic forces that drive the markets and affect asset prices.

Set up your brokerage account. Whether you decide to start out with a financial advisor or take a more do-it-yourself approach, youll need to have an open brokerage account before you can make your first trade.