Table Of Content

Business & Economics/Personal Finance/Investing Making Everything Easier!™ 6th Edition 6th Edition Get sound guidance Open the book and find: g and proven investing n nve s t i advice from Eric Tyson (cid:129) Time-tested investment strategies I I (cid:129) Help on choosing investments n Investing For Dummies arms novice investors with Eric Tyson’s that match your goals time-tested advice, recommendations, and the latest insights (cid:129) The 411 on investing in gold and v and strategies to wisely invest in today’s market. You’ll get commodities coverage of all aspects of investing, including how to develop e (cid:129) What economic indicators are and manage a portfolio; invest in stocks, bonds, mutual funds, (and how they work) s and real estate; open a small business; and understand the (cid:129) How tax law changes affect your t critical tax implications of your investing decisions. investment strategy i (cid:129) Investing 101 — get a crash course on what investments are, how n (cid:129) Practical tips for investing in a each type is different from the others, and what you can reasonably down market expect to earn from them g (cid:129) Ways to overcome common (cid:129) Get street smart (Wall Street, that is) — understand what the psychological investment financial markets are, how you can participate in them without obstacles losing your head, and ways you can use them to start growing your fortune (cid:129) Be your own boss — discover the benefits of starting a small business or stay behind the scenes and try your hand at investing in someone else’s small venture Learn to: (cid:129) Know your sources — find out why many investment “gurus” aren’t really experts and get a trusted list of resources and authorities (cid:129) Develop and manage a portfolio Go to Dummies.com worth listening to ® for videos, step-by-step examples, (cid:129) Invest in stocks, bonds, mutual how-to articles, or to shop! funds, and real estate (cid:129) Open a small business $21.99 US / $25.99 CN / £16.99 UK Eric Tyson, MBA, is an internationally acclaimed and bestselling personal ISBN 978-0-470-90545-6 finance author, lecturer, and adviser. He is dedicated to teaching people to manage their money better and to successfully direct their own investments. Eric Tyson, MBA Bestselling author of Personal Finance For Tyson Dummies and Mutual Funds For Dummies Get More and Do More at Dummies.com ® Start with FREE Cheat Sheets Cheat Sheets include (cid:129) Checklists (cid:129) Charts Apps (cid:129) Common Instructions Mobile (cid:129) And Other Good Stuff! To access the Cheat Sheet created specifically for this book, go to www.dummies.com/cheatsheet/investing Get Smart at Dummies.com Dummies.com makes your life easier with 1,000s of answers on everything from removing wallpaper to using the latest version of Windows. Check out our (cid:129) Videos (cid:129) Illustrated Articles There’s a Dummies App for This and That (cid:129) Step-by-Step Instructions Plus, each month you can win valuable prizes by entering our Dummies.com sweepstakes. * With more than 200 million books in print and over 1,600 unique titles, Dummies is a global leader in how-to information. Now Want a weekly dose of Dummies? Sign up for Newsletters on you can get the same great Dummies information in an App. With (cid:129) Digital Photography topics such as Wine, Spanish, Digital Photography, Certification, (cid:129) Microsoft Windows & Office and more, you’ll have instant access to the topics you need to (cid:129) Personal Finance & Investing (cid:129) Health & Wellness know in a format you can trust. (cid:129) Computing, iPods & Cell Phones (cid:129) eBay To get information on all our Dummies apps, visit the following: (cid:129) Internet www.Dummies.com/go/mobile from your computer. (cid:129) Food, Home & Garden www.Dummies.com/go/iphone/apps from your phone. Find out “HOW” at Dummies.com *Sweepstakes not currently available in all countries; visit Dummies.com for official rules. 20 Rules for Successful Investing (cid:2) Saving is a prerequisite to investing. Unless you have wealthy, benevolent relatives, living within your means and saving money are prerequisites to investing and building wealth. (cid:2) Know the three best wealth-building investments. People of all economic means make their money grow in ownership assets — stocks, real estate, and small business — where you share in the success and profitability of the asset. (cid:2) Be realistic about expected returns. Over the long term, 9 to 10 percent per year is about right for ownership investments (such as stocks and real estate). If you run a small business, you can earn higher returns and even become a multimillionaire, but years of hard work and insight are required. (cid:2) Think long term. Because ownership investments are riskier (more volatile), you must keep a long-term perspective when investing in them. Don’t invest money in such investments unless you plan to hold them for a minimum of five years, and preferably a decade or longer. (cid:2) Match the time frame to the investment. Selecting good investments for yourself involves matching the time frame you have to the riskiness of the investment. For example, for money that you expect to use within the next year, focus on safe investments, such as money market funds. Invest your longer-term money mostly in wealth-building investments. (cid:2) Diversify. Diversification is a powerful investment concept that helps you to reduce the risk of holding more aggressive investments. Diversifying simply means that you should hold a variety of investments that don’t move in tandem in different market environments. For example, if you invest in stocks, invest worldwide, not just in the U.S. market. You can further diversify by investing in real estate. (cid:2) Look at the big picture first. Understand your overall financial situation and how wise investments fit within it. Before you invest, examine your debt obligations, tax situation, ability to fund retirement accounts, and insurance coverage. (cid:2) Ignore the minutiae. Don’t feel mystified by or feel the need to follow the short-term gyrations of the financial markets. Ultimately, the prices of stocks, bonds, and other financial instruments are deter- mined by supply and demand, which are influenced by thousands of external issues and millions of investors’ expectations and fears. (cid:2) Allocate your assets. How you divvy up or allocate your money among major investments greatly determines your returns. The younger you are and the more money you earmark for the long term, the greater the percentage you should devote to ownership investments. (cid:2) Do your homework before you invest. You work hard for your money, and buying and selling investments costs you money. Investing isn’t a field where acting first and asking questions later 0011__99778800447700990055445566--ffffiirrss..iinndddd ii 77//2222//1111 99::1166 PPMM works well. Never buy an investment based on an advertisement or a salesperson’s solicitation of you. (cid:2) Keep an eye on taxes. Take advantage of tax-deductible retirement accounts and understand the impact of your tax bracket when investing outside tax-sheltered retirement accounts. (cid:2) Consider the value of your time and your investing skills and desires. Investing in stocks and other securities via the best mutual funds and exchange-traded funds is both time-efficient and profit- able. Real estate investing and running a small business are the most time-intensive investments. (cid:2) Where possible, minimize fees. The more you pay in commissions and management fees on your investments, the greater the drag on your returns. And don’t fall prey to the thinking that “you get what you pay for.” (cid:2) Don’t expect to beat the market. If you have the right skills and interest, your ability to do better than the investing averages is greater with real estate and small business than with stock market investing. The large number of full-time, experienced stock market professionals makes it next to impossible for you to choose individ- ual stocks that will consistently beat a relevant market average over an extended time period. (cid:2) Don’t bail when things look bleak. The hardest time, psychologi- cally, to hold on to your investments is when they’re down. Even the best investments go through depressed periods, which is the worst possible time to sell. Don’t sell when there’s a sale going on; if any- thing, consider buying more. (cid:2) Ignore soothsayers and prognosticators. Predicting the future is nearly impossible. Select and hold good investments for the long term. Don’t try to time when to be in or out of a particular investment. (cid:2) Minimize your trading. The more you trade, the more likely you are to make mistakes. You also get hit with increased transaction costs and higher taxes (for non-retirement account investments). (cid:2) Hire advisors carefully. Before you hire investing help, first educate yourself so you can better evaluate the competence of those you may hire. Beware of conflicts of interest when you consider advisors to hire. (cid:2) You are what you read and listen to. Don’t pollute your mind with bad investing strategies and philosophies. The quality of what you read and listen to is far more important than the quantity. Find out how to evaluate the quality of what you read and hear. (cid:2) Your personal life and health are the highest-return, lowest-risk investments. They’re far more important than the size of your financial portfolio. Copyright © 2011 Eric Tyson 0011__99778800447700990055445566--ffffiirrss..iinndddd iiii 77//2222//1111 99::1166 PPMM Praise for Eric Tyson’s Bestselling For Dummies Titles “Eric Tyson For President!!! Thanks for such a wonderful guide. With a clear, no-nonsense approach to . . . investing for the long haul, Tyson’s book says it all without being the least bit long-winded. Pick up a copy today. It’ll be your wisest investment ever!!!” — Jim Beggs, VA “Eric Tyson is doing something important — namely, helping people at all income levels to take control of their fi nancial futures. This book is a natural outgrowth of Tyson’s vision that he has nurtured for years. Like Henry Ford, he wants to make something that was previously accessible only to the wealthy accessible to middle-income Americans.” — James C. Collins, coauthor of the national bestsellers Built to Last and Good to Great “The organization of this book is superb! I could go right to the topics of immediate interest and fi nd clearly written and informative material.” — Lorraine Verboort, Beaverton, OR “Among my favorite fi nancial guides are . . . Eric Tyson’s Personal Finance For Dummies.” — Jonathan Clements, The Wall Street Journal “In Investing For Dummies, Tyson handily dispatches both the basics . . . and the more complicated.” — Lisa M. Sodders, The Capital-Journal “Smart advice for dummies . . . skip the tomes . . . and buy Personal Finance For Dummies, which rewards your candor with advice and comfort.” — Temma Ehrenfeld, Newsweek “You don’t have to be a novice to like Mutual Funds For Dummies. Despite the book’s chatty, informal style, author Eric Tyson clearly has a mastery of his subject. He knows mutual funds, and he knows how to explain them in simple English.” — Steven T. Goldberg, Kiplinger’s Personal Finance Magazine “Eric Tyson . . . seems the perfect writer for a …For Dummies book. He doesn’t tell you what to do or consider doing without explaining the why’s and how’s — and the booby traps to avoid — in plain English. . . . It will lead you through the thickets of your own fi nances as painlessly as I can imagine.” — Clarence Peterson, Chicago Tribune “Personal Finance For Dummies is the perfect book for people who feel guilty about inadequately managing their money but are intimidated by all of the publications out there. It’s a painless way to learn how to take control.” — Karen Tofte, producer, National Public Radio’s Sound Money 0011__99778800447700990055445566--ffffiirrss..iinndddd iiiiii 77//2222//1111 99::1166 PPMM More Bestselling For Dummies Titles by Eric Tyson Personal Finance For Dummies® Discover the best ways to establish and achieve your fi nancial goals, reduce your spending and taxes, and make wise personal fi nance decisions. Wall Street Journal bestseller with more than 1.5 million copies sold in all editions and winner of the Benjamin Franklin best business book award. Also check out Personal Finance in Your 20s For Dummies and Personal Finance For Seniors For Dummies. Mutual Funds For Dummies® This best-selling guide is now updated to include current fund and portfolio recommendations. Using the practical tips and techniques, you’ll design a mutual fund investment plan suited for your income, lifestyle, and risk preferences. Home Buying For Dummies® America’s #1 real estate book includes coverage of online resources in addition to sound fi nancial advice from Eric Tyson and frontline real estate insights from industry veteran Ray Brown. Also available from America’s bestselling real estate team of Tyson and Brown — House Selling For Dummies and Mortgages For Dummies. Real Estate Investing For Dummies® Real estate is a proven wealth-building investment, but many people don’t know how to go about making and managing rental property investments. Real estate and property management expert Robert Griswold and Eric Tyson cover the gamut of property investment options, strategies, and techniques. Small Business For Dummies® Take control of your future and make the leap from employee to entrepreneur with this enterprising guide. From drafting a business plan to managing costs, you’ll profi t from expert advice and real-world examples that cover every aspect of building your own business. 0011__99778800447700990055445566--ffffiirrss..iinndddd iivv 77//2222//1111 99::1166 PPMM Investing FOR DUMmIES ‰ 6TH EDITION by Eric Tyson, MBA Financial counselor, syndicated columnist, and author of six national bestsellers, including Personal Finance For Dummies®, Real Estate Investing For Dummies®, and Mutual Funds For Dummies® 0011__99778800447700990055445566--ffffiirrss..iinndddd vv 77//2222//1111 99::1166 PPMM Investing For Dummies®, 6th Edition Published by John Wiley & Sons, Inc. 111 River St. Hoboken, NJ 07030-5774 www.wiley.com Copyright © 2011 by Eric Tyson Published by John Wiley & Sons, Inc., Hoboken, NJ Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permit- ted under Sections 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748- 6008, or online at http://www.wiley.com/go/permissions. Trademarks: Wiley, the Wiley Publishing logo, For Dummies, the Dummies Man logo, A Reference for the Rest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies.com, Making Everything Easier, and related trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affi liates in the United States and other countries, and may not be used without written permission. All other trademarks are the property of their respective owners. John Wiley & Sons, Inc., is not associated with any product or vendor mentioned in this book. LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: THE PUBLISHER AND THE AUTHOR MAKE NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF THE CONTENTS OF THIS WORK AND SPECIFICALLY DISCLAIM ALL WARRANTIES, INCLUDING WITH- OUT LIMITATION WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. NO WARRANTY MAY BE CREATED OR EXTENDED BY SALES OR PROMOTIONAL MATERIALS. THE ADVICE AND STRATEGIES CONTAINED HEREIN MAY NOT BE SUITABLE FOR EVERY SITUATION. THIS WORK IS SOLD WITH THE UNDERSTANDING THAT THE PUBLISHER IS NOT ENGAGED IN RENDERING LEGAL, ACCOUNTING, OR OTHER PROFESSIONAL SERVICES. IF PROFESSIONAL ASSISTANCE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL PERSON SHOULD BE SOUGHT. NEITHER THE PUBLISHER NOR THE AUTHOR SHALL BE LIABLE FOR DAMAGES ARISING HEREFROM. THE FACT THAT AN ORGANIZA- TION OR WEBSITE IS REFERRED TO IN THIS WORK AS A CITATION AND/OR A POTENTIAL SOURCE OF FURTHER INFORMATION DOES NOT MEAN THAT THE AUTHOR OR THE PUBLISHER ENDORSES THE INFORMATION THE ORGANIZATION OR WEBSITE MAY PROVIDE OR RECOMMENDATIONS IT MAY MAKE. FURTHER, READERS SHOULD BE AWARE THAT INTERNET WEBSITES LISTED IN THIS WORK MAY HAVE CHANGED OR DISAPPEARED BETWEEN WHEN THIS WORK WAS WRITTEN AND WHEN IT IS READ. For general information on our other products and services, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002. For technical support, please visit www.wiley.com/techsupport. Wiley also publishes its books in a variety of electronic formats and by print-on-demand. Some content that appears in standard print versions of this book may not be available in other formats. For more information about Wiley products, visit us at www.wiley.com. Library of Congress Control Number: 2011934636 ISBN 978-0-470-90545-6 (pbk); ISBN 978-1-118-11483-4 (ebk); ISBN 978-1-118-11484-1 (ebk); ISBN 978-1-118-11485-8 (ebk) Manufactured in the United States of America 10 9 8 7 6 5 4 3 2 1 0011__99778800447700990055445566--ffffiirrss..iinndddd vvii 77//2222//1111 99::1166 PPMM About the Author Eric Tyson is an internationally acclaimed and best-selling personal fi nance author, lecturer, and advisor. Through his work, he is dedicated to teaching people to manage their money better and to successfully direct their own investments. Eric is a former management consultant to businesses for which he helped improve operations and profi tability. Before, during, and after this time of working crazy hours and traveling too much, he had the good sense to focus on fi nancial matters. He has been involved in the investing markets in many capacities for more than three decades. Eric fi rst invested in mutual funds back in the mid-1970s, when he opened a mutual fund account at Fidelity. With the assistance of Dr. Martin Zweig, a now-famous investment market analyst, Eric won his high school’s science fair in 1976 for a project on what infl uences the stock market. In addition to investing in securities over the decades, Eric has also successfully invested in real estate and started and managed his own business. He has counseled thousands of clients on a variety of investment quan- daries and questions. He earned a bachelor’s degree in economics at Yale and an MBA at the Stanford Graduate School of Business. Despite these impediments to lucid reasoning, he came to his senses and decided that life was too short to spend it working long hours and waiting in airports for the benefi t of larger companies. An accomplished freelance personal fi nance writer, Eric is the author of numerous best-selling books including For Dummies books on personal fi nance, mutual funds, taxes (coauthor), and home buying (coauthor) and is a syndicated columnist. His work has been featured and quoted in hundreds of national and local publications, including Kiplinger’s Personal Finance Magazine, Los Angeles Times, Chicago Tribune, The Wall Street Journal, and Bottom Line/Personal, and on NBC’s Today Show, ABC, CNBC, PBS’s Nightly Business Report, FOX, CNN, CBS national radio, Bloomberg Business Radio, National Public Radio, and Business Radio Network. He’s also been a featured speaker at a White House conference on retirement planning. To stay in tune with what real people care about and struggle with, Eric still maintains a fi nancial counseling practice. You can visit him on the web at www.erictyson.com. 0011__99778800447700990055445566--ffffiirrss..iinndddd vviiii 77//2222//1111 99::1166 PPMM 0011__99778800447700990055445566--ffffiirrss..iinndddd vviiiiii 77//2222//1111 99::1166 PPMM