how do i start investing
Investing isn't as difficult or as expensive as most people think. Most of us just don't do it well. Here's what we do wrong and how to start doing it right -- with just $100.I'll let you in on a little secret about investing: It's not nearly as hard as you think. And it requires far less cash than you probably realize.However, the fact that most people do it badly might lead a reasonable person to believe that investing is incredibly difficult.How badly do most of us perform? A study by Dalbar, a Boston investment research firm, found that from 1984 to 2002, when the ($INX) grew at an annual rate of 12.2%, individual investors in equity mutual funds saw average returns of 2.6% a year, before taxes. So with the bar set appropriately low, I'm going to show you a method for starting and managing a portfolio that requires very little money (just $100), even less effort, minimizes taxes and transaction fees, and is likely to outperform the vast majority of mutual funds over the long haul. First, let's look at the reasons for the awful performance of most investors. There are as many reasons as there are overpaid CEOs, of course, but here are the primary culprits: A lot of investors believe that there's a right time and a wrong time to invest in stocks, and that it's possible for most of us to predict which is which. That's dead wrong, according to a classic study by William F. Sharpe, Nobel Prize-winning economist and a founder of Modern Portfolio Theory, a widely followed statistical method for minimizing risk while maximizing investment returns. The study revealed that a person who attempts to time the market needs to be right roughly three times out of four to match the performance of a buy-and-hold investor. Given that the market tends to make major moves in response mainly to events, that 75% accuracy rate can be a tough mark to hit, as the dismal record of individual investors demonstrates. This is one consequence of failing to time the market correctly, and it most often results from investors chasing the latest hot stock or mutual fund. Investments with the biggest gains will often suffer spectacular losses as well, leading to panic and a decision to sell at or near the bottom. A portfolio's tendency to rise and fall in dramatic fashion is called volatility, and that's something that should be devoutly avoided by those who like to sleep at night. Most often the product of an accumulating pile of company stock, usually in a 401(k), it also can reflect a poor understanding of different types of asset classes and how they move in relation to one another. Diversificatio
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