Investing is a lifelong process

The sooner you start, the better off you may be in the long run. It's best to start saving and investing as soon as you start earning money, even if it's only $10 a paycheck. The discipline and skills you learn will likely benefit you for the rest of your life. But no matter how old you are when you start thinking seriously about saving and investing, it's never too late to begin.

The first part of a successful lifelong investment strategy is a disciplined saving habit. Regardless of whether you are saving for retirement, a new house, or just that extravagant dining room set, you will need to develop rigid savings habits. Regular contributions to savings or investment accounts are often the most productive; and if you can automate them, they are even easier.

Your investment decisions: the primary influences

Once you begin saving on a regular basis, you'll soon have to decide how to invest the money you are saving. Regardless of what financial stage of life you are in, you will have to decide what your needs are and how comfortable you are with risk.

Your goals: growth or income

What do you need the money for? The answer to this question will help to determine whether you want to put your savings into investment products that can potentially produce income for you, or that concentrate on growing the value of your investment. For instance, a retirement fund does not need to produce income until you retire, so your investing strategy should generally focus on growth until you are close to retirement. After you retire, you may want to draw income from your investment while keeping your principal intact to the extent possible.

Your tolerance for risk vs. your time horizon

All investing involves a certain amount of risk. How well you tolerate price fluctuations in your investments will need to be balanced against your targeted rate of return in determining the amount of risk your investments should carry.

If you plan to hold an investment for a long time, you will probably tolerate more risk because you have the time to potentially make up any losses you may experience early on. For a shorter-term investment, such as saving to buy a house, you probably want to take on less risk and have more liquidity in your investments.

Four strategies for everyone to consider

Everyone lives his or her life differently, and everyone has complicated emotions about money, so investment decisions are highly personal and unique to each person. But some basic rules apply to most investors.

1. No matter your life stage, you should probably always have a cash reserve in a money market fund* or traditional savings account or CD. This gives you liquidity for emergencies.
2. Also, if you can tolerate even a little risk and a relatively long investment horizon, you should probably always have some portion of your portfolio in stocks to help protect your savings from being devalued due to inflation.
3. Another good idea is scheduling annual reviews of your investments with a financial professional, whether you think you need to or not. This habit will keep you up to date on your investments and help spot potential problems in your investment strategy.
4. Finally, every investment decision should include tax considerations. Investments can be taxable, tax-deferred, or tax-advantaged. You should be aware of the taxable status of your investments and take that into account when setting up and reviewing an investment strategy. Consult your tax advisor for specific questions.

*An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

Investing for life's stages

Even though people's views on investing and money are different, throughout their lives, most investors face some similar situations. Where are you in your life cycle? How close you are to retirement certainly affects how you invest your retirement money, but what about other life stages that aren't so closely related to age?

Let's say you are 40 and just now having your first child. You will need to decide how to balance your financial situation to account for the additional expenses of a child. Perhaps you will need to supplement your income with income-producing investments. And don't forget that your child will be entering college right around the time you are ready to retire. In this situation, your growth and income needs most certainly will change, and maybe your risk tolerance as well.

Life's milestones: opportunities to review your investments

When you get your first "real" job:

• Start a savings account to build a cash reserve.
• Start a retirement fund and make regular monthly contributions, no matter how small.

When you get a raise:

• Increase your contribution to your company-sponsored retirement plan.
• Increase your cash reserves.

When you get married:

• Determine your new investment contributions and allocations, taking into account your combined income and expenses.

When you want to buy your first house:

• Invest some of your non-retirement savings in a short-term investment specifically for funding your down payment, closing, and moving costs.

When you have a baby:

• Increase your cash reserves.
• Increase your life insurance.
• Start a college fund.

When you change jobs:

• Review your investment strategy and asset allocation to accommodate a new salary and a different benefits package.
• Consider your distribution options** for your company's retirement savings or pension plan. You may want to roll over money into a new plan or IRA.

**Keep in mind that withdrawals made prior to age 59 1/2 are taxed as ordinary income and may be subject to a 10% federal penalty.

When all your children have moved out of the house:

• Boost your retirement-savings contributions.

When you reach age 55:

• Review your retirement fund asset allocation to accommodate the shorter time frame for your investments.
• Continue saving for retirement.

When you retire:

• Carefully study the options you may have for taking money from your company retirement plan. Discuss your alternatives with your financial professional and tax advisor.
• Review your combined potential income after retirement and reallocate your investments to help to provide the income you need while still providing for some growth in capital to help beat inflation and fund your later years.

Keys to your investment success: discipline and professional guidance

One of the hardest things about investing is disciplining yourself to save an appropriate portion of your income regularly so that you can meet your investment goals. And if you're not fascinated with investing, it's probably also hard to force yourself to review your financial situation and investment strategy on a regular basis. Establishing a relationship with a trusted financial professional can go a long way toward helping you meet your investment goals.