Money Management for the Middle Class: Investing
You're going to be working for a long, long time if your plan for having money at retirement is based on putting leftover cash in a glass jar under the bed.  Yet, many people don't look at what they could be doing with their money to help grow wealth and achieve a state of financial certainty (ie. all bills paid) without having to maintain employment.  The key is to be able to gain a return on investment of money.  Just as everything else works in finance, investing will ultimately be as successful as your risk tolerance and ability to hold true to a dedicated plan.  If you decide that the best way to grow your fortune is to buy and sell baseball cards, figure out how to do that and stick to it.  Just...don't really expect me to think that's the best thing you could be doing with your money.  Here are a few tips and ideas about investing that could help the average person better manage their financial growth.

Debt is the Same as a Negative Investment
It would seem like the best choice in a given situation would to be to always choose the investment opportunity that has the best Risk:Reward ratio, but what happens when you have debt, and possibly significant debt?  You have to consider interest on debt to be the same as interest on an investment.  If you are in a situation where your debt rate is significantly higher than your investment rate (and for most credit cards, this is very true), paying off a 22% loan will save you more money than investing in a 10% interest investment over the same period of time.  I can't argue with the fact that delaying an investment to pay off debt will impact your time-value of money (also known as your future worth);but, I must stress that debt always comes with a defined window.  You will have to pay off your debt at some point, and unless money pops out of the air for you, paying it off early will control your loss.  Yes, your earnings will not be as great as they could be, but your loss will also be mitigated while you also avoid entering a situation where your debt is greater than your capacity to pay it off.

For low interest items, and particularly debts that have tax advantages (such as your house and school loans), it is not as critical to pay off debt before investing; therefore, you will need to make value judgements regarding your ability to gain on positive investments versus your ability to pay off negative debt.  For credit cards, store loans, and the like, always attempt to pay these off prior to making investment choices.

Of Course, a 401k is somewhat of an Exception
The key to a company or government sponsored savings plan is that most will give you a matching contribution for money that you set aside before you pay income taxes.  A 401k or 403b investment account gives you two financial benefits in one package: free money and a lower tax amount (and possibly lower tax rate!).  Always, ALWAYS, contribute to a 401k type plan at least the minimum required to receive your employer's full investment match.  If you have additional funds available to save, strongly consider increasing your 401k contribution up to the pre-tax maximum before investing in other places.  There are worse strategies than maximizing your tax benefit, but bear in mind that you are only as diverse as your 401k options should you choose to do this.

Why does a Roth IRA make me think of Van Halen's golden years?
If and when you do decide to diversify your types of investment, a strong candidate for additional investment is a Roth IRA.  The concept of the Roth is basically the opposite of a 401k account - instead of delaying tax until the point when you withdraw from the account, a Roth is taxed when deposited while it is untaxed on withdrawal.  This means that a Roth account does not get taxed on any of the interest that you earn over the life of the account.  If that life is...say 30 years, you can have a substantial amount of investment growth that is tax free.  

The drawbacks to a Roth account are that the amount you can invest is currently limited to a smaller amount than other investment accounts and because it is taxed on entry, your principle amount that will grow interest is going to be less than if you invested an equivalent amount in a tax-deferred account.  At the current taxation rate, this is somewhat a wash of which is better between a tax-deferred acount and a Roth account with a slight edge to the tax-deferred acount.  However, most financial advisors agree that there is no way we can continue on the current taxation rate for investments; it is almost guaranteed to go up in the future.  As the taxation rate increases, a Roth account will become far more attractive than other investments.

Should I "Just Say No" to Stocks?
Well, the answer is not necessarily.  Single stock picking has its own challenges, not the least of which is volatility (that's a big word for "your investment can lose value") in the market.  Typically, a single stock is going to greatly outperform a Fund, but that applies both to it's gains and losses.  If you have a stock that you OMG, MUST BUY, go ahead and do it, but consider it to be the same or worse than your riskiest fund picks in the rest of your portfolio.  I'd urge you to consider not making stocks your full portfolio, of course.

When picking stocks, choosing stocks that have consistently paid dividends should be strongly considered.  Dividends will give you investment money (which you can either withdraw to spend or re-invest) without decreasing the number of shares you have purchased.  Because share quantity is as important if not more so than share value, keeping your quantity of shares stagnant while increasing your investment value will be of great benefit to you.  This becomes even more of a positive factor in a retirement scenario.

Allocation
The very first time you setup an investment portfolio, you will want to diversify the type of investments you make to protect yourself from negative impacts.  These could include decline in dollar value, increased cost due to regulatory issues, market changes, recessions, etc.  If you have all of your money in real estate funds when something happens like a sub-prime mortgage collapse, your investments will feel the full negative impact of the losses realized by those funds.  If you were only invested in government bonds at the time, you may not take heavy housing losses, but you aren't exactly burning down the bars with great interest returns.

The key is to put yourself into enough risky situations for your tolerance level without exposing yourself consistently to the same type(s) of risk.  If you want some oft-ignored areas to include in your risk portfolio, consider Gold exchange-traded funds (ETFs), international ETFs, global allocation, small-caps (target companies with low capitalization - 250M to 1B), and at the time of this post, large-cap equity funds (since they've tanked for so long, the odds of their value increasing in the future is great).

Re-allocation
One of the worst things you can do with your investments is to leave them alone.  Untouched, your worst investments will continue to not make as much money as you'd want (or even lose money) while your best investments will grow more than your other investments and change your market exposure.  After a period of time in this mode, you will become heavily leveraged only in your best investment areas.  Should the market change or new negative impacts come up, the impact to a heavily leveraged account could be very costly.  

By rebalancing the allocation back to your original plan for your risk tolerances, you will lock-in profits gained in overperforming accounts and increase your share value in underperforming accounts.  At the same time, you will experience no greater risk than what you signed up for in the first place.  Bear in mind that your risk tolerances should also change while you get closer to retirement, and therefore rebalancing will be a good way for you to evaluate how much risk you want as you go through your career.

Try to rebalance your allocation at least once a year, but no more than quarterly.

What else is there?
Well, the more I go through writing these, the more things I find I want to talk about...things like Paying It Black, Emergency Funds, and how to lower insurance premiums.  I have missed just putting up simple mundane posts, though.  I rather felt like I needed to get all of this out of my head before I talked about the latest Meganisms I've enjoyed.  From here forward I'll probably intersperse normal life posts and posts with the MMMC header (and money tag) for anyone that might want to follow or track this.  Thanks if you found any of this useful, and ask questions if you have any.  I don't have all the answers but I do so love to talk.