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New Year’s resolution: Start investing

Jan. 1, 2016 CNN Money

About half of Americans own stocks. They understand the secret to getting wealthy and financially healthy.

The U.S. stock market has been on steroids. It’s gained about 200% since 2009. The rich (and many people in the middle class) have figured out that you can make money without getting off the couch.

You can do it too.

As many CNNMoney articles show, people can become millionaires by saving and investing. Here’s how to get started in 2016.

1. Enroll in your 401k plan at work
If your company offers any sort of retirement plan, get in it. It’s a painless way to save and invest. Your company will automatically deduct money from your paycheck and put it into an investment fund for you.

Even better, most companies actually give you extra money as an incentive to enroll. So for every $1 you put into your retirement account, they will kick in 50 cents or $1 too. (There’s usually a limit to the company’s generosity, but ask your Human Resources department to help you set it up so you are taking advantage of all the money the company is willing to give you.)

In terms of how to invest your 401k, if you just want to set up an account and forget about it, put your money into a “Target Date Fund.” It’s based on your age. In your 20s and 30s, these funds have a lot of stocks and very few bonds. As you get older, the funds readjust to have more bonds and fewer stocks. They do all the adjusting for you to keep you on track for retirement.

If you’re willing to do more research, you should consider selecting which stock and bond funds to invest in yourself. This takes more time, but if you are smart about it, you can sometimes pay lower fees and have better returns than the Target Date Fund.

2. Invest your ‘extra’ cash
Did you get some money for Christmas or Hanukkah or a work bonus? Ask yourself if you REALLY need to spend it on a new smartphone/Star Wars toy/drone. Imagine how much happier you’ll be if you used it to make even more money.

Since 1925, stocks have had an average return of 10.2% a year. (It’s 5.7% a year, on average, for U.S. government bonds). Most people’s salaries don’t go up nearly that much every year.

The general rule is to only put money into stocks or bonds that you are willing to lose. It’s very likely that you will make money over time, but it could take 5+ years for that.

Look at your savings. Calculate how much you need to live for a few months if the worst happened. Maybe that’s $5,000 or $20,000. That’s the “rainy day fund” that you should not invest.

But if you have more money — such as that work bonus or holiday cash — consider investing it.

The simplest investment is buying stock in America’s 500 largest companies. (Think Apple, Google, GE, etc). It would be a burden to have to buy 500 stocks, so instead you can just buy one fund like SPY (SPY) that owns all the stocks in what is known as the S&P 500 index. (Translation: America’s 500 biggest companies.)

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