Active or passive isn't the only approach an investor has to decide.
CDs, index funds, mutual funds, REITs, bond funds, muni bonds — there's a whole lot of investing choices. For our entry into the world of investing, Jill Schlesinger, CBS News business analyst, joins the show.
Erin, from Richmond, Virginia, asks about the best way to invest
Schlesinger: "I love index funds, and there's a lot of different places where you can buy an index fund. Some of the larger companies that offer index funds are Vanguard, Fidelity, and T. Rowe Price ... those mutual fund companies are offering lots of different kinds of funds, but I suggest you stick to the index funds within their fund offerings. You can put just a little bit of money away each month ... for many of these funds it’s as little as $50 or $100 a month."
"An index fund is a mutual fund that goes out and just replicates one of the indices out there in the universe, like the S&P 500, which is [comprised of] 500 U.S companies. It can be an index that represents the Russell 2000, [comprised of] small company stocks. The beauty of an index fund is that it's a passive investment, so they just buy the stuff that's in the index, and the index fund leaves it alone. You're not paying for research ... it's just the index, so the fees for an index fund is way lower than an average index fund."
As interest rates go up, bond prices fall, but what does that mean?
Schlesinger: "If you think about it, [bond rates] went from 1.6 percent at the beginning of May in the 10 year treasury yield ... all the way up to 2.6 percent. It's still really low, but that move within a short period of time is quite sudden. A full percentage move hasn't happened like that since 1994. So what do you do? I'm not a fan of getting out of asset classes completely, but knowing we're in a rising interest rate market, there's a few things you can do to protect yourself. Instead of using just government bonds, you can use a mix of bonds. You can get some corporate bonds, that would help you out. You want to keep your duration to the shorter side, so that instead of lending for 30 years, you can lend for five years, and you might even keep a little bit of cash on hand because as interest rates rise, and bond prices fall, you can buy some bonds at lower prices. But all in all, don't blow out of bonds completely."
To hear answers to questions like how to select a mutual fund, or choosing investments in a 403b, click the audio player above.
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