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Golden Rules of Investing

Whether you have $10 or $10,000 to start your savings program, here are some basic rules you'll want to follow.

Set Aside A Rainy Day Fund

Try to set aside at least six months' living expenses in an insured savings account for emergencies such as job loss, illness or accident. One simple way to make a habit of saving is to arrange for an automatic payroll deduction with your employer (if it is offered). The money you invest can come from discretionary funds, meaning money you do not need to rely on for emergency spending. It's money you may be able to risk, after you've paid your immediate debts and created an emergency fund.

Insure Yourself Adequately

The amount and type of insurance you need depends on your age, health, income and number of dependents, and any coverage you have at work. Most people insure their life, health and property, but don't provide enough protection for one of their most valuable assets: their earning power. Have you included disability/unemployment insurance in your insurance portfolio?

Use Tax Advantaged Savings Plans

Open an IRA, SEP or KEOGH plan, or participate in your employer's 401(k) plan. The interest (or dividends) earned on these accounts is tax-deferred. That is, you don't pay federal taxes on the interest you earn on these accounts until withdrawal.

Determine Your Investment Goals

The goals you set and the time-frame to achieve them are important in determining the amount of risk you can take. Longer-term investors can usually afford to take greater risks, whereas those with shorter-term goals must usually be more conservative.

Investigate Before You Invest

No matter how much you are investing, be certain you understand the investment. Is it insured? Is the return guaranteed? Is your principal protected? Can you get to your money if you need it? Make sure you know what you're getting into before you hand over your money.

Diversify Your Investments

Most people can't afford to put all their eggs in one basket -- they diversify their investments in order to limit their risk. For example, while they may have some of their money in alternative investments, they also have a significant portion tucked away in insured bank savings products.

Stagger Maturity Dates

To cushion against interest swings, vary the maturity dates of your time deposits. This will allow you to take advantage of favorable changes in the market, while at the same time providing some protection against rate drops. And you'll have access to your money at regular intervals.

Be Patient!

Regardless of what you may hear, no one gets rich overnight. When you have established your investment goals and strategy, stick with them. Keep an eye on short-term results, but don't lose sight of your long-term objectives.

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