The basic basics of why and how to invest

The goal of investing is to not lose money. If you are saving money but hiding it under your mattress or earning well below one percent interest in a savings account, you may lose money because the value of your cash may not keep up with inflation.

Investing money based on the time when you need it is a good way to not lose money. Don’t invest in something too risky if you don’t have much time. But if you have a long time until you need the money, don’t invest in something too conservative or you may miss out on reasonable earnings. Here are some good rules of thumb:

Three approaches

If you have one or two years to invest before you need the money, put that investment into short-term bonds. These are one- to five-year loans to a government or corporation. You may earn roughly two to three percent interest per year.

If you have a few years before you need your savings, invest in intermediate-term bonds. These are loans ranging from five to 10 years. You could earn roughly three to six percent interest per year.

If you have five years or more before you need the money, invest more of your savings in stocks. A stock is a partial ownership of a publicly owned corporation, such as Apple or Proctor & Gamble. You could earn eight to 10 percent a year; some years much more, some years less...and some years you may actually lose money. Remember, stocks are a long-term investment—not something in which you should invest if you're sure you'll need the money within a year or two.

Not just one investment

You need diversity. Don't just own one bond or part of one company (what if one of those loans or companies go bad?). So invest in what's known as a "mutual fund." This is a fund managed by a company that invests your money for you in a wide range of similar investments. This gives you diversity. You can invest in a mutual fund that invests in variety of short-term bonds, or intermediate-term bonds or stocks.

You may wish to examine the company Vanguard – it offers a short-term bond index fund, a total bond fund, and a total stock fund. A mix in each of these funds is a good start. If you have lots of time before you need your saved amount, you may wish to put more money in stocks and less in bonds, or vice versa. Note, Vanguard's minimum to invest is $3,000 per fund.

Other excellent mutual fund companies include T. Rowe Price and Fidelity, which each offer funds with minimums of $2,500. There are also other great mutual fund companies, but I just happen be both familiar and impressed with these companies.

If you don't yet have the minimum to invest in a mutual fund, you can invest in an ETF, which stands for "Exchange Traded Fund." An ETF is a partial investment of a mutual fund. Each share is typically less than $100. So for the price of an individual stock, you can own the diversity of a mutual fund. iShares is the dominant player in ETFs, but you can also purchase ETFs through mutual fund companies.

If you live outside the United States, you can see what these mutual fund companies offer for you. If you would like to stay local or not risk losing money in currency exchanges, you may wish to look on your bank's website. It should offer investment choices such as a basic bond mutual fund or stock mutual fund.

(Full disclosure: I invest with Fidelity and T. Rowe Price. I am not paid by these companies or connected with them in any other way)