Investment Lesson #1

I think one of the hardest things about saving and investing is the pace of it. I don't know how many times I heard my dad say, "If I only had $10,000 to invest..." We all think that way sometimes, at least those of us who grew up hand to mouth like I did. $10,000 seemed like an impossible sum of money. I remember my mom saving $3,000 to put into an IRA (which they lost most of, selling when it hit $500 and putting it all into bonds) and it was like, wow, $3,000!

Saving takes patience. Investing, it seems, also takes patience, except more of it. I now have $150 in my investment account, but I can't make my first trade until I hit $350. Ho, hum. I'm waiting. I want to live on mac and cheese and put half my paycheck in so I can get started. I'm ready! To invest! Now!

Yet even I, as the greenest of green investors, know this is not the way to do things. It is best to start slowly and approach with caution. I have a deferred compensation account with a little money in it (now almost $3000 between two accounts) and it has gained, then lost, then gained again. I know this is how it works (by the way, I made $135 last quarter -- yippee!). Plus, I hardly know what to invest in yet.

So this is lesson number one, according to all the books I've looked through to date:

Invest in What You Know
Reading this was a huge relief, because pretty much 90% of investing is what I don't know. Maybe 95%. I've been looking around at what I use and know ... Target? New Balance? Eddie Bauer? It is surprisingly easy to find products that I know and use that can be invested in. Next is the hard part:

Research the company so you know it
Sure I "know" about Hormel chicken, but is it a company I want to invest in? What about Cargill? Is it publicly traded? What are their labor practices? Are they conducting shady deals in Mozambique or supporting schools and small farms? Sometimes things aren't what they seem; Cargill, on the one hand, is big, evil agribusiness. On the other hand, they are doing an amazing job of helping African farmers by paying a fair trade amount for cotton. It's a mixed bag.

Predict the Future
Ha ha ha, just kidding. Nobody could predict the future to see if a company would be profitable, but there are some red flags that crop up when you stay familiar with the business world. For example, Starbucks offers benefits to part-time workers, and is expanding quickly. Coffee is an extremely profitable business. But, I am thinking of the downside too -- Starbucks products are high-calorie items, so they could run into the same issues as McDonald's and other fast-food restaurants, with impending lawsuits for misrepresentation. They are also very aggressive, and some people see them as predatory. So, by reading what is happening in the business world, I can make an educated guess as to possible problems that can effect a business.

Invest in what matters to you
In my mind, a business that provides a good product and is fair to their workers is probably going to keep expanding and doing well. I feel better about investing in that kind of business, and after all, it's my money. I want to spend it on what I want, and that includes investing in companies I think are doing good business and contributing to the community. Maybe that's the woman and mother in me, but who cares? I might make a quick profit on some unknown company that provides a product unknown to me, or I might lose my shirt. I'd rather reward the companies that matter to me and to my life.

Take your time
This is the hardest part for me. I have been saving so aggressively, I overdrew on my checking account. I want things to happen, and I want them to happen now! But saving and investing is not a race. Most investments lose money from time to time. I am in it for the long haul, and losing $29 to the bank in overdraft fees is not the way to make money! I am learning the lessons the hard way. It's like dieting, but for your checkbook; slow and steady wins the race. I am trying to let go of my parents' ideas on money and save that $10 or $20 when I can. Maybe it will be this summer before I can invest, but it certainly gives me plenty of time to research my favorite companies and decide what I want to buy.

I am reading books and subscribing to financial RSS feeds. Hopefully, when I do invest, I can do so wisely. And, if when I lose money, I can't blame myself (a woman's curse!) but can step back and say I did my best...and hope for a better quarter next time.