How do I Invest in Money Market Accounts?

Money market accounts are a type of savings account that holds its money in a mutual fund, investing and reinvesting it in an attempt to keep the price per share as close to $1 as possible. You earn money with a money market account through a revenue sharing system, with the fund holder paying a portion of the interest they earn to the account holders. Money market accounts are often used to hold uninvested money and dividends, though you can invest wholly in the money market fund that your account is part of as well.

Step 1

Shop around at banks and brokerages in your area and online to find money market accounts in which to invest. Find the current average interest rate the accounts offer and whether there is a minimum investment amount required to open an account. You should also ask whether there are penalties for withdrawing money or a limit on the number of withdrawals you can make in a month.

Step 2

Compare different accounts based on average interest paid, account minimums and perks offered by the account such as debit card access or easy access to other investment opportunities. Consider whether the accounts offer higher interest rates when you have larger amounts held in them or if they feature a single rate regardless of your investment. Narrow down your choices until you find the money market account that will earn the most money without subjecting you to unnecessary restrictions.

Step 3

Visit the bank or brokerage that offers the money market account you want and tell a teller or broker that you want to set up an account. You'll need a photo ID or other proof of identification to open the account, as well as an initial deposit equal to or greater than the minimum deposit for the money market fund. The teller or broker will help you fill out the account application and will set up your money market account for you.

Step 4

Make regular deposits into your money market account to keep your balance growing. If your job offers direct deposit options, talk to your boss to see if you can get a portion of your paycheck deposited directly into your money market account. If you have an investment portfolio, deposit any dividends you earn into your money market account if you don't have them automatically reinvested into the stock or bond that generates them.

Step 5

Review your account statement each month to keep track of the performance of your money market account. Invest money from your account into stocks or bonds periodically, especially when the interest rate for your account is dropping. Deposit money earned from stock sales into your account until you reinvest it so that you'll keep earning interest on it. Keep money flowing into your money market account, but don't be afraid to take money out when you find investment opportunities that will earn more than your current interest rate.

How do I Invest in Stocks With Little Money?

In fact, unless you're really hurting, there is really no reason why you can't invest at least a little money each month. Logistically, the options exist to make it so. And, there are many investment firms and plans willing to take just a few bucks off of your hands on a regular basis.

Step 1

Open an online brokerage account. While some firms require cost-prohibitive minimum initial investments, others use low or no minimums to get an account started. And it's not just the primarily online brokers, some big-name, traditionally brick-and-mortar brokerages let you in with as little as $100.

Step 2

Invest in no-or-low fee products through your brokerage account. If you are only investing $50 or $100 a month, it makes no sense to plop down $5 to $20 in commission each time you buy a stock or other equity. Some online brokerages, however, offer at least some products commission-free. For example, many brokerages have a list of preferred mutual funds, including their own if they run any, that you can get into for no fee. You won't be picking individual stocks; instead, you'll get an assortment of them if you buy into a stock mutual fund. Some companies specialize in small-time investors, charging a relatively small monthly fee to cover a certain number of monthly trades.

Step 3

Enroll in a Direct Stock Plan (DSP) or Dividend Reinvestment Plan (DRIP). These plans allow you to get in with no or a low initial investment and small -- usually between $15 to $100 -- monthly investments. DSPs allow you to purchase stock directly from the company of interest, while DRIPs require a middleman or plan administrator. It's not always the case, however, DSPs and DRIPs generally require you to own one share of the company's stock before getting into the program. You can get this one share through your above-mentioned brokerage account or via companies that specialize in selling you one share of stock to facilitate DSP or DRIP enrollment. Once in, you can reinvest dividends in more shares of the company's stock.

Step 4

Buy a stock mutual fund directly from the fund family. Often, when you go to buy a mutual fund from your brokerage account, you run into high minimum initial investment amounts, often $1,000, $2,500 or more. In some instances, you can go to the mutual fund's website to open an account. Some funds waive or reduce minimum initial investments if you agree to an automatic monthly investment plan.

How do I Invest Money in the Bank?

If you are looking for a risk-free way to invest your money and help it grow, the answer might be as close as your local bank. Banks offer a number of investment options, including insured products like certificates of deposit, money market accounts and savings bonds, as well as more volatile choices like stock and bond mutual funds. Choosing the right options for your needs can allow your money to grow without undue risk.

Step 1

Check the Federal Deposit Insurance Corp. (FDIC) coverage status of the bank by visiting the FDIC website (see Resources). As long as the bank is fully FDIC-insured, your certificates of deposit, savings accounts, checking accounts, money market accounts and other bank instruments are insured up to $250,000. This FDIC coverage does not extend to investment vehicles offered by the bank, such as mutual funds and stocks. Always get a clarification on FDIC coverage before investing in any product offered by your bank.

Step 2

Decide what types of investments you are interested in. Choosing bank products that are FDIC-insured keeps your money totally safe, but the returns will not be as high as riskier investments like mutual funds. Banks sell not only guaranteed investments but riskier ones as well, and it is important for customers to know the difference.

Step 3

Request a rate sheet from a teller at your bank. The rate sheet is a list of all the accounts at the bank, both deposit accounts and loan products. The document lists the current interest rate on all those products.

Step 4

Compare the yield on liquid investments like money market accounts and savings accounts to less-liquid choices like certificates of deposit. The rates on CDs tend to be higher than either money market or savings accounts, especially if you are able to keep your money tied up for a number of years. You need to weigh the benefits of a higher rate against the inconvenience of not having ready access to your cash.

Step 5

Discuss any additional investment options with an account representative at your bank. Ask for full disclosure of any fees and expenses, as well as any commissions involved in the sale. If you are interested in mutual funds, you might be able to find less-costly investment options by working directly with a low-cost no-load mutua- fund company.

How to Invest Money at a Young Age

The old saying "time is money" is absolutely true when it comes to the world of investing. Time value has a powerful effect on investments, so those who begin investing even small amounts while they are young have a huge advantage over those who invest considerably more later in life. Successful investing for young people isn't rocket science, but like virtually every other endeavor in life, you have to have a plan.

Step 1

Make a budget. It is hard to get where you want to go if you don't know where you are. A budget gives you a snapshot of where you are financially. Take a sheet of paper and divide it in half. On one side, list all of your income for the month. On the other side, list all of your expenses for the month. Hopefully, the total amount of your income exceeds the total amount of your expenses. Now that you know where you are financially, you can start your investment plan.

Step 2

Open a savings account. The first rule of investing is "pay yourself first." Determine how much you can afford to save from every source of income, whether it is a paycheck or your monthly allowance. Take that amount first, and deposit it in an interest-bearing savings account. Most banks offer low- or no-fee savings accounts for young people and students, and the money you deposit will earn compound interest. This means that not only does your deposit earn interest, but the interest earned by your deposit also earns interest. Every time you make a deposit into your savings account, you are giving yourself a pay raise.

Step 3

Increase your rate of return. Set a goal for your savings that is sufficient to cover three to six months of your living expenses. Once you have achieved that goal, it is time to begin increasing the rate of return on your additional savings. Bank money market accounts typically pay more than passbook savings accounts but usually require a larger initial deposit. Bank certificates of deposit typically pay more than money market accounts but usually require the deposit to remain in place for an extended period of time.

Step 4

Explore equities. Equities represent ownership in real property. The stock market is a common source of equity investments. Each share of stock represents a proportionate ownership of the underlying corporation. Equity investments provide investors with a greater opportunity for increase through price appreciation and the payment of dividends. They also involve a greater degree of risk than savings products that are insured by the federal government. The best investment advice when it comes to equities is don't put all your eggs in one basket. Rather than purchase single stocks, consider buying shares of a good-quality mutual fund. These pooled investments offer both diversification of investments and professional management.

Step 5

Plan for retirement. Investing is a long-haul process. Money you put in savings should be readily accessible, but you should be able to leave the money you use for investing alone for at least five years. Consider putting a portion of your investment money into a tax-advantaged retirement account such as a standard individual retirement account (IRA) or a Roth IRA. This will allow your investments to grow faster because the funds inside these accounts are not subject to current income taxation. Keep in mind that funds placed into these types of accounts incur a significant tax penalty if they are withdrawn before you turn 59½ years old.

How to Recover Lost Money in an Investment

Any time you make an investment, there's a chance you may lose money. This can happen from bad investment performance, your investment company going bankrupt, or outright fraud. When you lose money in an investment, you might be able to recover it, but it depends on why your investment went sour.

Investment Losses

Investments are a balance between risk and return. Risky investments like stocks pay a much higher return than bank accounts. Unfortunately, these investments can also tank big-time. If you lose money from bad investment performance, you should reevaluate your current strategy. Were your losses from bad choices or were they from a market downturn? Stocks in general may sometimes lose money during a short period but make up the losses plus much more over the long run. If you think your investment choices are still sound, don't panic and wait for the market downturn to end. Your stocks should eventually rebound and recover your lost money.

Company Bankruptcy

You can also lose money if your bank or investment firm goes bankrupt. The Federal Deposit Insurance Commissioner (FDIC) protects regular bank accounts. If your bank goes bankrupt, the FDIC insures up to $250,000 of your bank deposits. Contact the FDIC to reclaim your lost money. The government also insures brokerage accounts with the U.S. Securities Investor Protection Corporation (SIPC). This agency insures covers you for up to $500,000 of funds lost to bankruptcy. Note that the SIPC only protects against your firm going bankrupt, not against your regular losses in the stock market. Unless you get an adrenaline rush from living dangerously, make sure your bank or brokerage are covered by FDIC or SIPC.

Inappropriate Financial Advice

Financial advisers like insurance agents and stockbrokers have a legal obligation to serve there clients properly. They are not allowed to recommend products that don't fit your situation. For example, a stockbroker should not recommend risky stocks to a retiree who cannot afford to lose money. If you lost money because you were misled into buying inappropriate investments, you can file a complaint with the Securities and Exchange Commission (SEC) or FINRA, the Financial Industry Regulatory Authority. If these agencies agree with your claim, you may get your money back and your adviser may lose his license. Once again, this only applies against misleading or improper advice. If you ask for risky stocks and you lose money, you're out of luck and can't file a claim.

Illegal Investment Schemes

Investors also lose money from outright fraud. Criminals set up illegal investment schemes, like Ponzi schemes, to steal money from investors. If you lost money from a fraudulent investment, you should contact a financial attorney. She will review your case and determine what options you have to recover money. You may be able to reclaim money from the criminals or the government may create a fund to return your money. Each situation is different and a financial lawyer helps you find the best solution.

How do I Raise Investment Money?

Investments should be made with money you don't expect to need in the foreseeable future. That's because the securities markets fluctuate over time and if you need to access that money to pay bills or purchase a car, you may be forced to sell out of your investments at a market low, losing money. It is not easy to save money to start a serious investment portfolio. It involves keeping a careful budget and putting away a small amount weekly or monthly until you have enough to invest. Alternatively, use services such as Sharebuilder.com, that allow you to invest a small amount in stock at regular intervals and grow your portfolio through these "odd-lot" purchases over time.

Step 1

Make a list of your monthly fixed expenses and a list of your quarterly, semi-annual and annual expenses. Compare these to your income. A bookkeeping program such as QuickBooks is useful for analyzing your income and expenses because it shows percentages spent on various categories of expense. Your bank may have such a service.

Step 2

Analyze where you spend your money. Chances are you will be surprised at how much you spend beyond your fixed expenses for rent, utilities and commuting. You can't cut back on the fixed expenses, but it is likely that you can trim enough out of your discretionary expense to save 5 or 10 percent of your income for investing.

Step 3

Set up an automatic withdrawal from your bank account. This can be done easily online or through your bank branch, and the money can be deposited in a savings account, in a bank investment account or with an outside brokerage firm.

Step 4

Accumulate your money in a brokerage firm that allows you to purchase odd-lots of stock or put your cash in a money market account. Check the fees involved, particularly for the purchase of odd-lots, as they can be quite high at some firms while others charge you a small fixed transaction fee.

Step 5

Make use of dividend reinvestment plans (DRIP). It is always a good idea to start out investing in conservative, dividend-paying stocks such as utilities and certain corporations. They will allow you to automatically have your dividend income reinvested in more shares of stock for little or no transaction fee. Over time you can painlessly accumulate a large amount of stock.

How to Invest in Gold

Whenever you buy gold, the first rule of thumb is dollar cost averaging -- putting a fixed amount of money towards gold every month regardless of the price. For the average investor, this strategy spreads risk out over time and lessens the downside.

Most money managers advocate anywhere from 3%-10% in gold. More bullish managers recommend an allocation as high as 20%.

Gold is protection, insurance against inflation, currency debasement, and global uncertainty. Here are four ways you can invest.

1. Gold Bullion

Buy physical gold at various prices: coins, bars and jewelry. Some of the most popular gold coins are American Buffalo, American Eagle and St. Gauden's. You can store gold in bank safety deposit boxes or in your home. You can also buy and sell gold at your local jewelers. Other companies like Kitco.com allow you to store gold with them as well as trade the metal.

When you buy gold coins or bullion, avoid big premiums. You want to buy gold as close to the spot price as possible, or a 10% premium at most. The higher the premium, the higher the gold price will have to rise in order for you to profit.

Coins typically come from the national mint, where they are made and sold at a 4% mark up -- the retailer's margin is 1% to 3%.

To calculate the premium of a gold product, subtract the spot price from the price you are being quoted, divide that number by the spot price and multiply by 100.

Had you purchased a one ounce gold bar at Kitco.com for $1,225.90 -- using a spot price of $1,200 -- the bar has a 2.1% mark-up. This means that the gold price only has to rise 2.1% from spot price levels for you to break even on your investment.

Premiums, though, can mount as high as 75% or more based on the gold item.

To avoid getting ripped off you must establish why you want to buy gold bullion. If you want to own gold as a long term investment, then buy gold as close to the spot price as possible.

If you want to own gold to use as money, if you are a "survivalist" you want to buy a tank of gas with gold as Jon Nadler, senior analyst at Kitco.com says, then you need smaller gold coins like one tenth an ounce and will have to pay the premium.

Nadler's take is that an individual investor shouldn't spend more than a 10% mark up when buying gold, but acknowledges that "everyone has their own threshold."

Where investors also tend to go astray is by buying semi-numismatic or numismatic coins, otherwise known as rare coins, which come with huge premiums that seldom recoup their value.

A good rule of thumb is to leave rare coin buying to rare coin dealers. Nadler advises that consumers interested in rare coins go professional auctioneers like Bowers & Merena orChristie's who have experts on staff and can objectively grade the coins the same way an antique dealer would appraise goods.

If a broker tries to sell you a story with the coin like it's from the "old world and there are only a few thousand in existence" experts advise to go elsewhere.

"Don't confuse investing in gold with the things being sold as gold investments," cautions Nadler. "You want something that tracks the price of gold as close to dollar to dollar as possible."

2. Gold ETFs

Gold exchange-traded funds are a popular way to have gold exposure in your portfolio without the hassle of storing the physical metal. First, you can invest in one of three physically backed ETFs, which track gold's spot price.

The most heavily traded ETF is SPDR Gold Shares (GLD), which saw record inflows as fears ballooned over Europe sovereign debt fears and a struggling U.S. economy. Big guns like George Soros and John Paulson own the stock.

iShares Comex Gold Trust (IAU) is the cheapest ETF with a 0.25% fee.

The newest gold ETF is ETFS Gold Trust (SGOL), which launched in September 2009. This gold ETF actually stores its gold bullion in Switzerland and gives investors access to different types of gold.

For each share of these ETFs you buy, you generally own the equivalent 1/10 an ounce of gold. If investor demand outpaces available shares then the issuer must buy more physical gold to convert it into stock. Conversely, when investors sell, if there are no buyers, then gold is redeemed and the company must then sell the gold equivalent.

Gold is a tool for investors and for traders looking for gold exposure or as a way to hedge other gold positions. The result can be rough violent price action.

Expense ratios can range from 0.25% to 0.50% and your value erodes the longer you hold the shares. The fund must sell gold, for example, periodically to pay for expenses which decreases the amount of gold allocated to each share.

There are also two types of gold stored in the ETFs, allocated and unallocated. Allocated gold is the bullion held by the custodian, big banks. Custodians provide a bar list of all the individual allocated bars daily and are typically audited twice a year, paid for by the sponsor, by an independent party like Inspectorate International.

Unallocated gold relates to authorized participants like JPMorgan or Goldman Sachs who trade gold futures. Futures contracts are often bought if the trustee needs to create new shares fast and doesn't have the time to buy and deliver the bullion. Typically allocated gold far outweighs the unallocated gold and the amounts are tallied each day by the custodian. The ETF also has a set amount of time when it must deliver the physical gold into the vault.

Because you own shares and not the physical metal, precious metal ETFs may be sold short, so two people can own the same "gold" -- the original owner and the investor who is borrowing the shares. Although baskets of shares are allocated to specific gold bars, which can be found in the ETF's prospectus, an investor must share ownership.

Profits made on investments in physically backed ETFs are also taxed like collectibles, at around 28% -- an investor gets taxed as if he owned bullion, when in reality he just owns paper.

There is the possibility of redeeming shares for physical gold, but that arrangement is conducted with brokers and is typically more difficult. Investors have to redeem in huge lots, like 500,000 shares, not really viable for the retail investor.

ETFs are also very controversial. Many complain that investors can't know if their gold really exists. Also, if a bank storing the gold fails, the ETF, aka investor, becomes a creditor.

There are other types of ETFs.

If you want the opportunity of redeeming your shares for gold, another option is Sprott Physical Gold Trust ETV (PHYS), which is a closed-end mutual fund that gives investors the option of trading in their shares for 400-ounce gold bars.

The fund can trade at a huge premium or discount to its net asset value at any time and has higher fees, making it more expensive to invest in. An investor can obtain physical gold on the 15th of every month, although the holder has to make transportation and storage arrangements.

There are also two other ETFs to consider. Market Vectors Gold Miners (GDX), a basket of large-cap mining stocks. and Market Vectors Junior (GDXJ), a group of development-stage miners. They both have market caps of $150 million or more and have traded at least 250,000 shares per month for six months.

3. Gold ETNs

If you want more risk, try exchange-traded notes, debt instruments that track an index. You give a bank money for an allotted amount of time and, upon maturity, the bank pays you a return based on the performance of what the ETN is based on, in this case the gold futures market. Some of the more popular ones are UBS Bloomberg CMCI Gold ETN (UBG), DB Gold Double Short ETN (DZZ), DB Gold Short ETN (DGZ) and DB Gold Double Long ETN (DGP).

ETNs are like playing the futures market without buying contracts on the Comex. ETNs are flexible, and an investor can trade them long or short, but there is no principal protection. You can lose all your money.

4. Gold Miner Stocks

A riskier way to invest in gold is through gold-mining stocks. Mining stocks can have as much as a 3-to-1 leverage to gold's spot price to the upside and downside.

Gold miners are risky because they trade with the broader equity market. Some tips to consider when picking gold stocks are to find companies with strong production and reserve growth. Make sure they have good management and inventory supported by either buying smaller-cap companies or by maintaining consistent production.

Global gold production has been declining since 2001, only recently experiencing more juice, and big miners keep their gold reserves flush by buying or partnering with small-cap companies, which are in the exploration or development stage.

Many investors make the mistake of buying small gold miners that are in the exploration phase with no cash flow. Picking among these stocks is like buying a lottery ticket, very few companies actually strike gold and become profitable. Even fewer become takeover targets.

With gold prices high, gold companies can make more for every ounce of gold they produce, but their net profits depend on their cash costs; how much it costs them to produce an ounce of gold. Those factors vary from company to company and are subject to currency issues, energy costs and geopolitical factors.

Adam Graf, director of emerging miners for Dahlman Rose & Co., models 50 companies on a forward basis using forward curves. "On a theoretical basis, if gold moved up $100 an ounce, what does the change in the current value do based on what the forward looking cash flow should do."

Another factor to consider when picking gold stocks is how quickly the company will benefit from higher prices. Randgold Resources (GOLD), a miner in Africa, is almost 100% correlated to gold prices. CEO Mark Bristow says that the company benefits from gold prices in almost two days.

You also have to buy the right amount of gold stocks. J.C. Doody, editor of goldstockanalyst.com, bets on 10 gold stocks because it allows him to take some risk with explorers or junior miners as well as get the safety from a major.

"Frankly there aren't 30-40 stocks in the gold space worth buying," says Doody who would rather be heavily invested in 10 than over invested in 2 and under invested in 40. "If you've got too many the best you're going to be is a mediocre mutual fund and if you have too few you're just taking on too [much] risk."

If you do go the gold stock route, you have to be prepared for the rollercoaster ride.

Leverage swings both ways so if the gold price drops 10%, gold stocks can plummet 20%-30%. Investors often get too spooked too fast and wind up selling out of gold stocks at the wrong time.

"It inhales and exhales 20-30% at least once or twice a year," says Pratik Sharma, managing director at Atyant Capital who urges investors to not get spooked by volatility. "Ultimately what you have to realize 5-6-7%... these things are meaningless when you have a sector that moves 20-30% several times a year on the downside."

Where to invest in 2012's 2nd half

What would you do if you earned a year's pay for six months' worth of work? Would you pocket the money and run? Or stick around hoping for another outsize check? That's the dilemma facing investors now. Since the start of the year, the Standard & Poor's 500 Index ($INX -1.66%) has returned nearly 8%. That matches or beats most forecasts for all of 2012 and approaches the U.S. stock market's long-term record.

Here's the dilemma for prognosticators: Just when many (including us) determined that their targets for 2012 had been too conservative, a series of surprisingly tepid economic reports cast doubt on the strength of the recovery, one of the foundations for this year's rally. For the record, we believe a springtime hiccup in stock prices was a pause in a continuing upward, albeit moderate, climb. We now think that U.S. stock prices could return 12% to 15% this year, putting the Dow Jones industrial average ($INDU -1.52%) in the neighborhood of 13,800 and the S&P 500 index at about 1,425.

Considering that the indexes were within shouting distance of our target in early May, our prediction could turn out to be overly cautious -- again. Or it could be that any gains at all from recent levels will be hard-won in a choppy market. You can make a case for either scenario.

For all the focus on picking a price target and forecasting a return, trying to gauge how much gas the market has left misses the main point. And that is that stocks, particularly in the U.S., still represent good value given the earnings potential and rock-solid finances of corporate America, the reasonable strength of the economy and the competition (or lack thereof) from fixed-income investments. (Treasury bonds, for example, are yielding less than 2% for 10-year debt, and savings accounts and money market funds are paying practically nothing.)

"Whether the market has gone up or down is less important than how it's priced," says Pat Dorsey, the president of Sanibel Captiva Investment Advisers. "We still think equities are reasonably cheap."

The case for stocks

Owning a piece of corporate America sure seems like a good deal. Analysts expect companies in the S&P 500 to log earnings growth of 6% this year and 10% in 2013. At 1,354, the S&P sells for about 12 times projected earnings for the coming 12 months, below the 10-year average of about 14%.

Indications are that as investors become more confident about the health of the economy and corporate finances, they are becoming more willing to pay a little more for stellar company profits. And as price-to-earnings ratios climb, stock prices will climb as well. The crucial question is how long companies can keep the earnings streak going. "Earnings sustainability is something we're paying attention to," says Greg Allison, a portfolio strategist at RegentAtlantic, an investment firm in Morristown, N.J.

Dividend growth is just as stunning. Analysts at Bank of America Merrill Lynch expect S&P firms to boost payouts by an average of 15% this year and 9% next year. "From a micro perspective, at the corporate level, things are still pretty darn good," says Sonders.

It's the macro perspective -- the big economic picture -- that gives investors intermittent fits. After the economy got off to a buoyant start this year, some reports revived fears that it was sinking. Kiplinger's expects gross domestic product to grow a modest 2.3% this year, but push closer to 3% next year -- not bad for an economy that a lot of people thought was headed into another recession at this time last year. So far in 2012, the economy has produced an average of 200,000 new jobs per month. Depending on how many job seekers re-enter the market, the unemployment rate could fall to about 8% this year, from an average of 8.9% in 2011.

The news isn't all good. Politicians are likely to push us to the edge of a fiscal cliff as the end of the year approaches. Unless lawmakers act before the start of 2013, the so-called Bush tax cuts will expire, including the preferential 15% rate on qualified dividends. The temporary payroll tax cut will vanish, along with some jobless benefits. And $1.2 trillion in spending cuts over the 10 ten years will be triggered if Congress can't reach a budget compromise. "We could be in a recession in 2013 if all of those things expire," says Lisa Shalett, the chief investment officer of Merrill Lynch Global Wealth Management. When push comes to shove -- and it will -- we expect a compromise.

Then there's continuing turmoil overseas. A eurozone recession and slowing growth in emerging markets are bad news for growth in U.S. exports, which could slow from 6.7% last year to 4.2% this year, according to IHS Global Insight. High gasoline prices are squeezing consumers, with tensions in Iran threatening to disrupt supplies. But consumers are in much better shape this year than last. The rate of consumer inflation rose from 1% at the start of last year to nearly 4% by last fall -- the equivalent of subtracting three percentage points from household income growth. This year, the trend has reversed, as food and other commodity prices have fallen and gas prices have slowly begun to moderate. The inflation rate should fall to about 2% by year-end.

Meanwhile, housing is bouncing along a bottom, and -- wonder of wonders -- banks are lending again. Bank lending, which was anemic during the first two years of the recovery, has risen steadily over the past year -- a telling sign, says James Paulsen, an economist and chief investment strategist at Wells Capital Management, in Minneapolis. "The biggest thing that's starting to happen is a slow but steady resurrection of confidence in this country," says the bullish Paulsen.

Invest In Yourself

Invest in yourself – introduction

Are you busy looking for success everywhere except the one place you can truly find it? Does life seem like a futile chasing after the rainbow?

One possible reason for this could be that you are not looking for success in the right place. It is not in the environment around us or the circumstances we face that we find success, but in ourselves.

The simple fact is that if you are successful within, in your mind, you will be successful on the outside as well. It may seem too simple thing, but it is something we often forget when the pressures of life surround and overwhelm us. When it comes to making everyday choices it usually does not occur to us.

Like I have said before, your mind is your greatest asset. Like any asset, it needs to be built up and improved continually. Abraham Lincoln said he didn’t “think much of a man who is not wiser today than he was yesterday.” He realised the basic truth that continuous improvement is necessary if one is to be truly successful.

Invest in yourself – knowledge is a huge asset

Knowledge is a powerful asset. It makes the difference between living in abundance and living in lack. The only difference between the managing director in a company and the maid in the same company is their knowledge. The MD knows something the maid doesn’t. That is why he earns a hundred times more than she does.

It is what you know that will bring you success. It’s what you don’t know that will cause you to fail. Why then, do some get it so wrong? For example many people look for promotions without acquiring the necessary skills and knowledge they need to be promoted. Many business people are struggling because they just won’t take the time to learn about accounting, marketing and all that goes with doing business. That’s like trying to drive a car without first putting in the fuel.

Invest in yourself – the three percent rule

“Here is a rule that will guarantee your success – and possibly make you rich: Invest 3 percent of your income back into yourself.” That’s great advice from Brian Tracy. Investing in yourself can double or triple your income. It will work for you whether you are employed or in business.

James Attucher of the Financial Times agrees with this advice when he says “The only real way I know to triple your money is to invest in yourself.” He goes on to say that you should invest in your own ideas and your own business. But apart from that you should also invest in your mind.

Invest in yourself – ways to invest in you

There are many ways to invest in yourself. One way is to make it a habit to buy books regularly. Not just any books, of-course, but books that will challenge you and from which you can learn something. Biographies of other successful people, “how-to” books, self-improvement books and professional books such as accounting or public speaking books are examples.

Investing your time and money in learning things such as goal-setting, how to manage your time, how to be more confident and less doubtful, how to be a better speaker, how to adjust your thinking, create new habits and squash bad ones, how to take care of your health, how to focus and so can greatly improve your results in life.

These days books are not the only way to get knowledge, though. We have video, the internet, seminars and workshops on various subjects and even mentoring and coaching programmes. Even watching the right movies can sometimes teach you a thing or two. My favorite business programme, for example, is The Apprentice. It teaches a lot about entrepreneurship in an entertaining manner. Who would have thought that reality T.V could be so educational?

Invest in yourself – the value of self-education

The point is that you determine how and what you learn as well as how fast you learn. Self-education is important beyond the classroom. In the real world self-education matters a whole lot more than formal education. There are plenty of people with a formal education that are still struggling. Isaac Asimovfully supported this in saying that “Self-education is, I firmly believe, the only kind of education there is.” A formal education is good, but only as a foundation. The sad part is that many are stuck at the foundation level. They don’t realise that in order to complete the building they need to invest in some self-education.

Therefore, do not be like them, who were referred to by James Allen as being “anxious to improve their own lives, but are unwilling to improve themselves. They therefore remain bound.” Dreamers realise that there is no better way to improve your life than to improve your mind. The biggest room in the world is the room for improvement.

Knowledge, then, is a powerful asset, and one which you should always be seeking to improve and build upon in the pursuit of your dreams. The Proverbs declare that “through wisdom is an house builded; and by understanding it is established: And by knowledge shall the chambers be filled with all precious and pleasant riches.”

Invest in yourself – conclusion

Become addicted to continuous improvement and increase in your knowledge consistently and constantly. With time, you will inevitably become the person that you desire to be. Then you will no longer have to chase after success. Success will follow you. Your mind will become magnetized to attract success.

You are all you can be. Go on and be it.

Why Smart People Fail to Beat the Market

There are only two ways to beat the stock market in the long-term, net of expenses: one, trade on superior information; two, be lucky. I tend to believe that getting lucky has a much higher probability of working than finding superior information.

Finding superior information is very difficult. It either requires access that other people don’t have, or the ability to analyze public data better than the vast majority of investors. It’s widely known that most mutual fund managers underperform the market, even with the deep and talented pool of analysts they have access too. Once in a while they’ll get it right, but it’s not often enough to make up their cost.

Princeton professor and Nobel Laureate Daniel Kahneman helps explain why people think they’ll guess right more often than wrong in his new book,Thinking, Fast and Slow. The human brain is incapable of creating new information − it doesn’t know what it doesn’t know. To compensate for the unknown, our brains attempt to piece together the best possible story based on what we do know. Sometimes this story is accurate and sometimes not. When we’re right, we think it’s because we’re smart, and when we’re wrong, we think it’s because we didn’t have enough information and there was nothing we could do about it.

Author and money manager Larry Swedroe summarizes why we have a strong desire to believe we’re right all the time in his recent Journal of Indexesarticle, On Magical Thinking and Investing. He cites excellent behavioral finance sources to explain why investors keep trying to out-guess the markets when the deck is so clearly stacked against them. Swedroe labels the need or desire to be an above-average investor as the “Lake Wobegon effect,” named for the popular radio series set in the mythical town of Lake Wobegon, where all the men are strong, the women are good-looking and the children are above-average.

My argument isn’t to make the claim that the market cannot be beaten with analysis. I would never say that. It’s easy to find mutual fund managers who have beaten the market in the past. It’s much harder to determine if a particular manager was lucky or skillful at doing it.

Eugene F. Fama and Kenneth R. French looked into this issue in their working paper titled, Luck versus Skill in the Cross Section of Mutual Fund Returns. Their study focused on U.S. equity mutual fund managers from 1984 to 2006. It’s no surprise that they found that in aggregate, actively-managed U.S. equity mutual funds performed close to the market before costs and below the market after costs. The big question they were trying answer was did the winning managers have skill or were they just lucky?

To answer this question, Fama and French compared the distribution of fund returns to a distribution of simulated portfolio returns formed with randomly selected stocks. Using a bootstrapping technique, they created thousands of simulated U.S. equity portfolios that selected stocks randomly. The range of actual mutual fund returns was then compared to the range of bootstrapped returns. The overlay was very close, which means most actual fund returns were a result of random stock selection and not skill.

There were, however, a handful of funds whose managers outperformed the bootstrapping method after adjusting for costs and risks. These so-called outliers may possess skill, if only they could be identified. Unfortunately, knowing that a manager had skill ex post doesn’t help investors much, because we need to place our bets ex ante, and it’s not possible to determine which managers will possess skill in the future. We only know that some will.

What if we forget about mutual funds and choose a few good stocks ourselves? We often hear that individual investors have an advantage over large institutional investors because we’re able to act more quickly than the institutions and buy stocks that are too small for them to bother with. Do these apparent advantages increase the odds that we can beat the market with a well-crafted portfolio of individual stocks?

Years ago, I enjoyed following the Wall Street Journal’s “Dartboard” contest. This challenge was inspired by Burton Malkiel’s book, A Random Walk Down Wall Street. The Princeton Professor wrote in his book that “a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.”

Here is how the contest worked. The journal’s editors would periodically ask four leading Wall Street investment analysts to submit their single best stock pick. These four picks were matched to four stocks randomly selected by throwing darts at the stock pages of the paper. The eight picks were then printed in the Dartboard column for all to see. Six months later the results were printed.

More than 100 contests took place over the years. They were followed closely by both efficient market believers and non-believers. When the darts won, efficient market people cheered and pointed to the utter uselessness of trying to beat the market. When the pros won, the non-believers hailed the Wall Street analysts. Their skill was proof that stock picking reins superior.

Truth be told, neither method outperformed the market. The raw data did point to the experts as the overall victory, but this was before adjusting for risk. In addition, just the announcement of a new set of picks caused those stocks to jump on the very first day they were traded. People wanted to believe that the experts were expert. The darts had no such guru status and the stocks they landed on had no jump in price.

Enter an academic to provide impartiality to the Dartboard results. Professor Bing Liang of Case Western Reserve University published a paper in the January 1999 edition of Journal of Business titled “Price Pressure: Evidence from the ‘Dartboard’ Column.” He discounted the jump in the experts’ stock picks on the first day because this return wasn’t possible to earn unless an investor had inside information before the WSJ published the picks. He also adjusted the stock picks for the higher risk the experts were taking. Liang’s conclusion was that, “On average, investors following the experts’ recommendations lost 3.8% on a risk‐adjusted basis over a 6‐month holding period.”

There has been, and always will be, a minority set of investors who beat the market. The question is whether their good fortune is a result of luck or skill? The academic data suggests that most outperformance is a result of good luck.

Greek shipping tycoon Aristotle Onassis once observed that, “The secret of success in business is knowing something no one else knows.” Like Onassis, we know there are people in the world that have access to superior information and will make money because of it. We just don’t know who they are, and it may not matter even if we did. Onassis wouldn’t have managed my money even if I did know him.

I don’t have access to superior information. I read the same journals, papers, blogs, and research as everyone else. My advantage is that I know what I don’t know, and unlike most investment advisors, I don’t have to make believe I know more. My portfolio is diversified among low-cost index funds that track the markets.

If you know what I know, or less, then your portfolio should be managed in index funds also. Don’t feel bad about being an index fund investor. Being honest about our skill, or lack of it, releases us from an expensive denial. Index investing is a more profitable investment solution than what the masses of investors who remain in denial will achieve in their lifetimes.

By the way, we’re in good company. Some of the most brilliant minds ever to have walked the face of the Earth have come to the same conclusion. After losing a fortune investing in South Sea Bubble stocks during the early 1700s, Sir Isaac Newton famously confessed, “I can calculate the motions of heavenly bodies, but not the madness of people.” Now, that’s one really smart guy. He would have liked index funds.