Investing 101: Build Wealth with the Money You Have

Investing 101 (iStockphoto)Investing 101 (iStockphoto)You have taken the reins of your finances; you feel more in control. It's time to look at possible investments, and make your money work for you.

Shine Latina sat down with personal finance adviser Andrés Gutiérrez to unravel the world of investments and learn how take advantage of financial opportunities.

Why aren't more Latinos investing?

No family investments: When it comes to minorities like US Latinos, Gutiérrez believes that they don't invest because they have never been exposed to it. "Latinos are very entrepreneurial; the moment they hear about a business opportunity, they want it. This is the type of venture that gets passed from one generation to another, but, when it comes to investing, they have never seen anyone in the family doing it."

That "get rich quick" mentality: Besides not having precedent of investments in the family, Latinos tend to buy into short-term wealth. According to Gutiérrez, products that promise to double your money in six months or to make you rich in 30 days appeal to the Latino "lottery" mentality.

Start with "Baby Steps"
"Investing is like putting up the frame of a house," says Gutiérrez. "You can't do the frame without a foundation. You should only invest money when you have gotten rid of debt and have a solid emergency fund."

If you start investing without an emergency fund, life needs will kick in and either you'll get in debt again, or cash your 401k or mutual funds. The following "baby steps" must be done in the right order for your investment plan to work, according to Gutiérrez:

1. Create a budget, and stick to it.
2. Become debt free on everything except the mortgage.
3. Build an emergency fund (saved money that you don't touch except for emergencies) starting immediately with $1,000. Then, build the fund based on your 3-6 months income. For example, if you make $5,000 a month, you'll need to have an emergency fund of $15,000 to $30,000 of untouched money.

See Gutiérrez's 2-step plan for getting rid of debt

Easy guide to investing

RETIREMENT: Invest 15% of your income toward retirement--6% in a 401k with matching company contributions and 9% in a Roth IRA. If the 401k does not receive matched contributions from your company, then the full 15% goes into a Roth IRA, a tax free investment.

COLLEGE: Parents must get rid of debt, build a solid emergency fund as well as a retirement fund BEFORE they start putting money towards a college account.

• The best way to invest for college is through an ESA or Education Savings Account. A good financial planner will help you decide how much to pay into the account according to your children's ages.
• Gutiérrez does NOT recommend the 529 plan which is prepaid tuition: "[The 529 plan] goes only with present rate of inflation and does not take into consideration how much a college education will cost 10-15 years from now. You are basically buying classroom hours and nothing else, so there's no true return on investment."

BUY OUT MORTGAGE: Paying off your mortgage is not as much of an investment as it used to be, but it will free up a good portion of your budget.

PORTFOLIO: Once your retirement and college funds are set, you can take the money previously used for your mortgage, and use it to diversify your investments. Our financial expert recommends building a "growth allocation" portfolio divided into the following four categories:

1/4 Growth: Invest into mid-size mutual funds by companies that are still experiencing growth and re-invest their money.
1/4 Growth and Income: Invest into the biggest companies in the world (IBM, General Motors, Coca-Cola, etc). They are distributing their earnings, also known as sharing dividends.
1/4 International: Invest in solid international companies (i.e. Toyota) or international commodities (i.e. Brazilian minerals).
1/4 Aggressive Growth: Invest in small companies that have a lot of room to grow. These could be a new small tech start-up or the vendor of a new medical device.

Financial expert Andrés Gutiérrez is the host of "The Andrés Gutiérrez Show" and creator of Paz Financiera. A successful entrepreneur and small-business owner, Andrés Gutiérrez knows what it's like to start with nothing and build lasting wealth. After hosting a San Antonio financial radio program and appearing frequently as a financial expert on the Telemundo television network, Andres joined Dave Ramsey's team in 2009 to bring the message of Financial Peace to the Spanish-speaking community.

Follow Andrés:
Twitter: @elshowdeandres

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