Chapter 13. Stock Funds: Meeting Your Longer Term Needs

In This Chapter

  • Growing your money in the stock market

  • Investing in stocks through mutual funds

  • Getting some stock fund recommendations

Most stock market investors who don't manage money for a living and who make money do so not because they're pouring over daily market commentaries or are luckier or more clairvoyant than anyone else. They make money by simply being patient and using three simple investment methods:

  • Invest in a diversified portfolio of stocks.

  • Continue to save money and add to investments.

  • Don't try to time the market.

A small number of extraordinary investors — Warren Buffett being a famous one who's frequently in the news — generate exceptional returns. Buffett and these other elite investors do the above three things and have a talent for identifying and investing in undervalued businesses before most others see that value. The good news for you is that you can earn handsome long-term stock market returns without having Buffett's talent. (And, you can some fun and make more money investing with the best fund managers who are able to post above-average, long-term returns.)

People who get soaked in the stock market are those who make easily avoidable mistakes. An investment mistake is a bad decision that you could've or should've avoided, either because better options were available, or because the odds were heavily stacked against you making money. Investment mistakes result from the following:

  • Not understanding risk ...

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