MONEY OBEDIENCE

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Investing in the stock market is one of the pillars of successful long-term financial planning. You can invest in stocks by buying shares directly or by investing some of your savings in a stock fund. It is beyond the scope of this system to advise you on investing in individual stocks, but since I like to keep it simple, I'll briefly make a general comment about stock funds.

Stock funds come in all shapes and forms, and, are often organized as mutual funds. It is almost impossible to pick the best-performing funds year in and year out. A large majority of stock funds do not perform any better than a stock index (like the "S&P 500", a generally accepted measure of the stock market's performance). On top of that, most funds charge you fairly high fees for investing even when they perform more poorly than the common indexes. Having to pay these fees cuts even more into your long-term return.

Fortunately you have the option to invest in so called index funds , which allows you to invest in the "stock market" and also pay low fees. Index funds aim to achieve the return of the "stock market" overall, nothing more and nothing less. If you would like to see how lower fees affect your return over time, please click here .

You can also invest in stocks with low costs by using so-called exchange traded funds (ETFs). Exchange traded funds (ETFs) are funds that are listed on an official exchange such as the New York Stock Exchange. Please click here to read more about ETFs.

I would like to add one final word about investing in stocks via company sponsored retirement plans. These plans often put a large portion of your retirement savings in the company's stock. If that is the case with your retirement plan, it may be a very good idea to sell the company stock periodically and invest elsewhere in the stock market, such as by buying the index funds I just told you about. It is probably less risky for you to hold index funds than company stock just for the sheer fact that your employment and livelihood is already tied to the company. It is not wise to also tie your life savings to the same company. If the company fails, you lose your job as well as everything you have invested there.

The wild movements of stocks may make you nervous. There is a way that allows you to limit your risks and still take advantage of stock price movements. If you would like to find out more about the technique called "dollar averaging", please click here.