Disclaimer: I'm not a financial professional. My advice is based on personal experience. Any investment carries an inherent risk. Please utilize common sense and educate yourself before following anyone's financial advice. I mention two specific mutual fund companies in this article. I receive no compensation from either of them for my opinions, and I'm not affiliated with them in any way other than that I invest with them.

Investing can be a complicated business. If you read the Wall Street Journal or CNN Money very often, you can quickly become overwhelmed with all the options and acronyms and financial reports and regulations and taxes, oh my! The thing is, the average middle class potential investor has neither the time nor the inclination to learn all the ins and outs of investing. Most of us would just like to put a little money aside and get a decent return on it.

The following advice assumes that you want to invest some non-retirement money (not IRA or 401K money). Ideally, you should be investing the maximum in a 401K, IRA and/or Roth IRA in addition to any extra money you invest. This article will cover a good strategy for investing that "extra" income.

So, how do we invest without spending half our time researching stocks and reading company financial reports? The best and simplest method I've found is to pick a single balanced mutual fund from a good company with low costs and invest in it regularly every month. Many mutual funds require a very small initial investment. Some don't even require an initial investment at all. They just ask that you commit to investing a little each month.

A balanced mutual fund will invest a portion of your money in stocks and a portion in bonds and other assets. Such a fund can take advantage of good stock performance while being partially protected from stock drops. You'll get a good mix of growth and income. The basic principle is diversification. The more diversified your investments, the less chance that you'll suffer a big loss all at once. Many investors manually diversify their investments. They might buy thirty or so stocks from all sorts of different companies to make sure all their money isn't in a single sector, or they might buy several different mutual funds that cover different sectors. Then they might buy a few government treasuries and some company-issued bonds. Maybe they'd also do a little real estate investing and international speculation. As you can imagine, this takes a lot of time and cash just to get started. A much simpler way to do the same thing is to put your money in a single mutual fund that basically does all this for you with a small initial investment, and it'll all be managed by professionals. Let's look at a few specific options.

I got my start investing with T. Rowe Price. They have an investment program called Automatic Asset Builder. This lets you start with as little as $50/month, which is exactly what I did. I was a student in college with a part-time job and little extra cash. I opened an account with T. Rowe Price and began investing in a stock index fund. If you have zero savings and only a little bit to put back each month, I suggest you do something similar, except I'd recommend a balanced fund with both stocks and bonds as opposed to a stock only fund. Something like T. Rowe Price's Balanced Fund or even one of their "Retirement" funds they have now would be perfect. Retirement funds are cool. They usually have a date associated with them. What you typically do is pick the date for when you expect to retire or take out the money. The fund will adjust its holdings based on that date, becoming more and more conservative as you near the fund's date. All you need to do to start using Automatic Asset Builder with T. Rowe Price is sign up for an account, link it with your checking account, choose a mutual fund, put in how much you want to invest each month, and pick a day for the investment to go in. You can do it all online in about half an hour. Then your investing is on autopilot. You don't even have to think about it. T. Rowe Price is an excellent company with fairly low costs and a good investment record. I've had good luck with them.

Vanguard is another option. Vanguard specializes in various index funds (index funds try to track a particular market's performance rather than trying to beat it - see John Bogle's Common Sense on Mutual Funds for why this is a good strategy). Vanguard offers some of the lowest cost funds on the market, and I believe they're just about the best company to place your money with. The problem is you usually need $3000 to open a mutual fund account with them. If you have it, then that's not a problem. If you don't, you either need to save it up first or begin investing elsewhere. When I started investing, I went with T. Rowe Price and their $50/month plan because I didn't trust myself to save $3000 and leave it alone long enough to invest with Vanguard. You can open your account with Vanguard online just like with T. Rowe Price. When you do, make sure to link it with your checking account and set it to invest a certain amount every month. This autopilot strategy is what you want to do because it will get you in the habit of not even noticing that money is gone. It will invest every month automatically, and soon you'll have more money in there than you thought possible and with minimal pain and effort. Vanguard has several balanced funds that will work for you. They have the retirement funds (they call theirs Target Retirement funds) and also the Balanced Index and especially the STAR fund would be good options. The STAR fund is special because it's the only Vanguard fund with a $1000 initial investment rather than $3000.

There are other good companies out there, but these are the two I've had experience with. Both use a smart, conservative investment strategy and both are low cost. I highly recommend either. Just pick the one that suits your current situation or find another company with a similar investment philosophy and (most importantly!) low costs.

What about taxes? This system makes that easy, too. At the end of every year, you'll get a statement from your mutual fund company that's very easy to read. It will tell you exactly where to record any income you made that year off your investments when you file your taxes. If you use something like Turbotax, you can simply import the data directly from the mutual fund company's website.

The important thing for this extremely simple plan is to pick a good balanced mutual fund so that you get good diversification without the hassle, and that you set your investments to go in automatically. Simple. You don't have to think about it. You don't have to watch the stock market every day or research companies or worry about the bond situation in Europe. You can rest confident knowing that your investments are in good hands and that they are well-diversified. This is the strategy I recommend for family and friends who ask for simple investment advice, so I definitely believe in it. It's not a get-rich-quick scheme, but it works.

If you find yourself floundering about searching for an overall financial life philosophy, I highly recommend Your Money or Your Life. I don't necessarily recommend the investing plan the book espouses, but the overall money philosophy is the best I've seen articulated in any book. Happy investing!

by NDKennedy