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You should start investing as early as you can. For instance, if you invest $1,000 in a low expense mutual fund retirement fund, it may well be worth $2,000 in 7 years when you are 26. You will have to invest twice as much at age 26 to match that investment.Standard investment advice is that you should invest in a diversified mix of stocks, bonds, and money market funds.

If you are like most people you will invest part of your money aggressively in stocks, and part conservatively in money market funds and bond funds. However, some young people will go all stocks, and some very conservative people will go all money markets. The links below have on-line questionnaires which will give you an idea of how to do “Asset Allocation,” determining how much to put in each type of investment.

You want to buy a diversified portfolio of stocks as individual stocks are too risky. Highly knowledgeable people can buy a properly balanced portfolio, but most folks have a difficult time balancing things on their own. They will misbalance their portfolio by buying all small stocks or all growth stocks, or some other misbalanced assortment of stocks. Back in 2000, Some people bought all Internet stocks; they got burnt when they all crashed together. You have to diversify across industries. Unless you know what you are doing, it is best to buy mutual funds that will diversify for you. Buy no-load, low cost funds. Mutual funds should have expense ratios of less than 0.4%.

I like index funds. Because of their broad diversification, you are less likely to have a dramatic drop in value. They also have the lowest management fees. For stock funds, I like putting ~70% of one’s money in the Vanguard Total Stock Market Index Fund. and ~30% in the Vanguard Total International Stock Index Fund. The Vanguard Total Bond Market Index Fund is good for a bond fund. The Vanguard Target Retirement funds can be a good all-in-one stock and bond funds for an IRA. (If you have less than 3,000 dollars, you’ll have to use the Target Retirement Funds) There are many different opinions out there on what the best mutual funds are. Read the links below and form your own opinion.

Once you have stared investing, you need to keep adding money on a regular basis. Many funds allow you to set up automatic investment programs that take a set amount of money out of your bank account each month.

If your company offers a 401K plan at work, try to invest the most you can. The money grows tax free, and some companies will match your contribution. Investing in a mutual fund IRA is also a good idea. If you have children, you may want to consider a 529 plan or other college savings plan that grows tax free.

If you have high-interest debt, like credit cards, it is best to pay this off first before trying most of the investment ideas above. You should also have 3-6 months of salary saved up as an emergency fund in a bank or money market fund before trying more risky investments.

I will warn you that there is a tremendous amount of stock investing books and websites that teach stock investing strategies that don’t work. Particularly bad are people that teach “technical analysis” systems that sound impressive, but don’t work.

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