Investing 101

Now that you've begun to save money, you're ready to start looking at how to invest it. First, keep a three to six month emergency fund to cover your family's expenses. The best place to invest that money is in a money-market mutual fund, which you can find at a bank or through a mutual fund family.

A money market fund is akin to a savings account, except that each dollar is called a "share" and you earn dividends, not interest. Bank money market accounts are generally FDIC insured, but pay lower rates than mutual fund family accounts, which are backed by the another government agency. These accounts are completely liquid, meaning, if you need the money, you can withdraw it immediately, with no loss of principal. The risk associated with these funds is minimal.

Your next investment will probably be the money you've put by for your Spousal IRA. This is an investment for the long-term, and investing it in equities, or stocks, or equity/stock mutual funds is usually the way to go, because over the last 70 years, only the stock market has had returns that beat inflation, especially given a long time frame - and you can't withdraw without penalty from an IRA until you're 59 1/2, so you are in it for the long haul.

If you don't understand what you're investing in and what it costs, then don't do it. Investment vehicles don't have to be that complicated, but you need to know exactly what you're getting into. Many Web sites offer a wealth of information on personal finance. Some are geared specifically toward women, like Women.com, a site with an extensive Q&A section co-sponsored by Bloomberg, a respected financial service news provider and iVillage. The latter was recently rated one of the Web's best investing sites by Forbes magazine. Other good sites to answer personal and family finance questions include Microsoft's Money Central or Intuit's Quicken.com site.

One of the best sites for a novice is http://unversity.smartmoney.com, which is essentially the Wall Street Journal for consumers. There are also numerous personal finance magazines and countless books that can help foster your education, so you can learn at your own pace, in your own way.

When that emergency fund socked away and your credit card debt is minimal, you're ready to start investing for the long-term. If you think you are going to need this money within the next three to five years, the stock market is not for you. However, if your time horizon is longer, the stock market has historically outperformed other investments. But as any mutual fund prospectus will tell you, past performance is no guarantee of future results.

Nonetheless, most likely you will be investing in a mutual fund. The initial sum required to open an account can vary widely. For some funds, the minimum can be as low as $25 to $50, particularly if you schedule a monthly electronic funds transfer (EFT) from your checking account to continue contributions at that rate. This is a great way to save, working on the if-you-don't-see-it, you-won't spend it principle.

How do you choose a mutual fund, given that there are at least 8,000 out there? If you are making investment decisions for your spouse's employer-offered 401(k) plan, it's relatively easy, since you'll have less than a dozen choices to research (and the company itself will provide some resources). However, if you're making choices, say, for your IRA or for your children's college fund, you have to start winnowing, quickly. Some funds invest in stocks; some in bonds, corporate or government; some in a combination of both. Some mirror an index like the S&P 500 for stocks or the Lehman Bros. long-term corporate and government bond index. Some specialize in a particular area like health care, technology or the Internet. Some invest abroad.

What you'll need to assess first is your risk tolerance: how important is safety of principal? what about growth? Different investments have different levels of risk involved: a good general rule is, the higher the return you require, the more risk you must be willing to take.

Mutual fund families like Vanguard, Strong and Fidelity sponsor their own Web sites with strong educational components, as well as promotions for their own funds. The king (or queen) of services that independently rates mutual funds is Morningstar. The Morningstar site also has a lot of a special column directed toward women investors. It is meant to have a distinctly different tone from general non-gender specific financial advice; however, the column is still evolving.

If any of this seems confusing, remember to stop and ask questions before you agree to any investment. Shop around. Different mutual funds offer different levels of service and it's important that you find a fund family you are comfortable with. And don't forget - it's your money.