With $5000, there's no way he should be diversified to 25 stocks - the transaction fees will eat up all of his gains. If he doesn't want to do a straight index fund, his options are: 1. Buy a couple of different stocks and hope that he outperforms 2. Go to something like iShares.com and pick a couple of big sector type funds - it takes away the need for company specific knowledge, but still lets someone play broad ideas (Gold, Brazil, Smallcaps, Socially responsible companies, whatever)
Read this book: http://www.amazon.com/Little-Still-...4159/ref=sr_1_1?ie=UTF8&qid=1335383625&sr=8-1 It will explain stocks and investing in simple and plain terms. It will also give you a "formula" which will help you pick some companies out based on a few numbers that usually tell you if they are good businesses, and if they are undervalued or not.
If you can get 5% return (post inflation and taxes), that $5,000 would turn into $13,563 in 20 years (2.71 multiplier) $22,338 in 30 years (4.47 multiplier) $36,792 in 40 years (7.35 multiplier) Behold the power of compound interest!
I agree. He could avoid the transaction costs by signing up with a firm that allows free trades for 60 days. I saw an advertisement for one earlier, I forgot the name of the company though.
I predict them to hit 84 by Q1 2013, they just passed the 10 billion market capitalization and are now a large cap company. Their financials are solid but I predict that there will be a lot of competitors entering their market space and eating away their profits. I also suspect they're a bit of a fad stock and will peak off next year.
I think they are a luxury stock now. Like coach, tiffanys, LV, and cartier. They have a name of luxury where ppl use it as a status symbol. Luxury brands are hard to beat with competition from these lower knock offs. Also a testament to them is that they have 0 dollars in advertisement. Zero. All the money is put back into the company to either better the products or open more stores. Even these large luxury brands spends millions if not billions on advertisement. For them to get so large with no ads is simply amazing. If they were one day finally to put up ads I think that the stock would take off even more. This is truly a grass roots company.
Great call! He should turn on dividend reinvestment as well. The expense ratios on both of those are EXTREMELY low. VEU is at .18% and VTI is at .05%. One note of caution would be to investigate whether the dividends from VEU are going to be subject to different taxes since it excludes the United States. Just buy that in a Roth IRA and don't even worry about it. I think Roth's are excluded from those taxes on foreign dividends.
25 stocks for someone who has $5,000? That's way too much. A **** load of his investment would get eaten up by commissions. 5 to 6 stocks is certainly sufficient. That said the ETF route that No Worries suggested is more than likely better.
Gold is in the middle of a 10 year bull market run. Central banks all over the world have been scooping it up like crazy. It's currently in am intermediary bottoming phase. Doesn't get much more safer than that. Get a few ounces and sit on it until the Dow to gold ratio gets near 1:1 and then swap it for some blue chip stocks.
I mean if you are that confident then just load up on January 2014 $250 strike calls for GLD at 3.50. It's a lot better reward with the same amount of capital. By my calculations, his $5,000 would buy about 14 contracts or the equivalent of 1,400 shares. Then let's do 1,400 times a conservative estimate of a gain of $1,000/share. By my math, that would yield a $1,400,000 gain. 280 times your original investment is a lot better than 8 times your investment with just buying physical gold. Hell, if we do get the rampant inflation like gold bugs predict then that would cause the Dow to shoot up even higher. So maybe my calculations are undershooting what gold would be worth. Maybe gold would actually be worth $25,000/oz. Point being...you shouldn't act nonchalant about gold going up $10,000+/oz and the Dow:Gold ratio will not get 1:1.
Oh and the original reason why I came to this thread was to note that AAPL actually closed above GOOG in price today. I think this was the first time that has happened.
...not if you accept the risk. for me, it is 99% of my individual portfolio... why? because when i bought in at $190, the financials alone covered the valuation. same thing at $240, $300, and $425 - each time i bought in, earnings showed no sign of slowing. is it risky? hell yes. is it dumb? not if you know what you're in for. the name of the game is to make money, not build a portfolio for the sake of counting the line items on your position sheet. building a risk-balanced portfolio is a strategy to make money. going balls-deep on AAPL is also a strategy to make money. hard to say who's wrong or right when i'm looking at 90% returns. i could have easily lost it all, but i didn't think AAPL could do that with its momentum and philosophy.
Yea thats the most important thing is to find something where you can maximize reward and lower your risk. I think that should be the goal of everyone is to find that happy medium. I think a lot of times people investing don't know what they are getting into and when they lose a huge chunk they have no idea why it happened. Oh I just finished a class on investments at UH. I was wondering if anyone has used either the CAPM model or the Farma French 3 factor model for evaluating stocks.
How much longer in a bottoming phase? Gold bugs have been saying it is in a bottoming phase for the past year. I trade metals professionally. I'm not buying gold until it's in the 1400's. If you buy gold now, you will be stopped out before any resumption of master trend.
Dimensional Fund Advisors sells a family of mutual funds based on the 3 factor model. French and Fama are on their board. These funds are only available through advisors. CAPM is load of load of hooey.
