Investing For Beginners – Free Investment Articles and Tutorials

We’ve all seen the movies and read the books about the lucky person who suddenly inherits a bucket full of money or wins the lottery. The plot always involves the problems the newly coined millionaire faces with his riches.

But receiving a big cash bonanza isn’t as uncommon as one might think. It can easily happen to you. If you are one of the 76 million baby boomers born between 1946 and 1964 who participates in a 401(k) or other retirement program, you may find yourself with a six-or seven-figure cash settlement upon retirement.


Or you may share in an inheritance: the government estimates that inheritances, which stood at $110 billion in 1995, will reach $340 billion a year by the year 2015. You also could find yourself with an insurance or divorce settlement.

Like the hero in the movie or book, you will discover that along with the windfall will come responsibility. If you are like most people, you’re unsure about dealing with large sums of new-found cash.

Because money windfalls are now more a part of our every day lives, this booklet provides five valuable tips designed to make your windfall decision-making process easier and more profitable.

1. Do keep a cool head.

Don’t freeze-up, panic or let your emotions rule.

It would be nice if we were born with a money management gene that went into full gear whenever we were faced with making money decisions. But we’re not. However, understanding what your options are with regard to investing your money is doable at any age or stage in your life. It just takes a little help.

Don DuPree, a 50-year-old electrical engineer from Massachusetts, recently changed jobs and has $50,000 in his 401(k) plan that he’s got to decide what to do with. “Joe construction worker doesn’t know anything about this stuff. He’s busy building buildings,” says DuPree.

Receiving a large sum of money can be stressful. A Forum for Investor Advice survey found a surprising number of people have feelings of anxiety and even guilt in this situation, with the anxiety increasing in proportion to the amount of money involved.

A financial advisor can help by explaining the investment process to you, giving you materials to read, discussing your options, and guiding you on the path to a solid financial plan.

2. Do handle your windfall money carefully.

Don’t go on a spending spree.

Before you go house hunting or buy that new sports utility vehicle, stop and think. What are the consequences of a shopping spree? If you change your mind about the car, you may not get your money back. It depreciates the moment you drive it off the lot.

Also, money from a 401(k), for example, is usually best placed into another qualified retirement account, such as an IRA, or you could face penalties and taxes or endanger your retirement.

While you might use some money from an inheritance to pay bills, go back to school, or finance your child’s education, you should also consider investing a part of it for your own future. In what form did you inherit the money? Was it in cash? Stocks? Real estate? Should you leave it alone or make changes?

The best way to handle the money responsibly is to consult a professional – immediately. Arranging for a thorough review of your financial situation by a professional financial advisor is your best move at this point.

The Forum survey of large payout recipients showed that 77% invested either all – or at least more than half – of the money.

3. Do know your limitations.

Don’t forget: do-it-yourself investing takes time and knowledge.

Some people who invest on their own are very successful at it, usually because they have a passion for investing. But not everybody has the desire or interest to learn about investing. It takes a great deal of time: some effective do-it-yourselfers say they spend 20 to 40 hours a week on their investments.

Moreover, it is very easy to fall into the market timing trap when investing on your own. And, that’s a sure way to lose money. A little knowledge can be a dangerous thing if you try to operate on your own – especially when you are dealing with a windfall.

The Forum’s survey showed that 59% of people who received large cash payouts consulted professional advisors because they knew the advisor had the experience they lacked in dealing with that kind of money. The average payout in the survey was $87,000, and the money didn’t just go to wealthy and experienced investors. Nearly half of the recipients (48%) had household incomes below $50,000 a year.

4. Do invest for the long-haul.

Don’t confuse short-term saving with long-term investing.

If you want to drive a financial advisor bonkers, cash that big inheritance check and put the money in a safe deposit box. Or, better yet, just put the check in the box. Cash that is not invested is not working for you. It is actually losing you money at the rate of inflation.

“I’ll be receiving a $250,000 divorce settlement next month and am scared to death about what to do with it,” says Jody Hanson, a 42-year-old beautician in West Palm Beach, Florida. “I want to invest it in something safe but don’t have any idea what that should be.”

Investment professionals often suggest placing windfall money into short-term money parking spots such as CDs or money market funds while a long-term financial plan is worked out. But it would be rare for a financial advisor to recommend you leave all of your money in such investments.

A Forum survey found that large-cash recipients who followed the recommendations of financial advisors were more likely to have their money in long-term investments that offer the potential for capital appreciation than those who did not work with an advisor.

5. Do seek professional advice.

Don’t take chances with your money.

Even Warren Buffet consults with financial experts and reads financial reports. If the country’s most successful investor and other Wall Street pros seek financial advice, why wouldn’t you?

Most Americans do seek help in investing – be it from a financial planner, a broker, bank, insurance representative, accountant, or attorney. While some are initially reluctant to consult a professional advisor, numerous surveys have shown they are glad once they did. The satisfaction ratio in the Forum survey was 96 percent. Friends and relatives will often tender advice. But, no matter how well-meaning they may be, chances are they do not have the expertise of a professional. Remember, it’s your money. Why take chances?

What should you look for in a financial advisor? The participants in the Forum survey said the most important characteristics they looked for in an advisor were investment knowledge and experience. This was followed by trust in the advisor and his/her ability to protect the client’s new found assets.

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