Investing

MSN Money or the Motley Fool has a lot of solid tips for the novice investor.

 

if you are going to be regularly contributing then I would go ahead and get started in the market. I'd look to start up a Roth IRA. you can only contribute 4000 a year (i think) after tax dollars but after 5 years you don't have to pay taxes/penalties on money you take out. pretty big savings there.

 

You have the Internet and amazon.com at your disposal. Read and teach yourself first. Don't trust weirdos on the Internet with your money.

Seriously, go read about investing on sites like vanguard.com, motleyfool.com, etc. Look at reviews of investing books on amazon.com and buy 1 or 2.

 

You should max out whatever you can put into an IRA.

There are different kinds of IRAs available depending on what you qualify for.

You should research the difference between a traditional IRA and a ROTH IRA and see which one you qualify for. You should then max out that account first every year before you put additional money in anything else unless you have a 401K with work. In that case, put money in that.

PS: I think there is a new "ROTH 401K" available out there. You should research that as well.

Are you able to invest in a 401K with work? You should max that out if available, at least to any company matching your work may provide.

Often people get caught up with the returns they are getting and do not notice or invest in the most tax efficient ways. Read about tax efficient investments in addition to your IRA or 401Ks. For instance, municipal bonds and muni bond funds are (usually) tax free. So 4 or 5% interest on those investments is really like earning 7-8% depending on your tax bracket.

Study and read about it. Watch out for the "hot tips" on individual stocks and learn financial fundamentals. Do you know what P/E ratio is? How about EPS? the Beta? Do you understand bonds? Par values? Callable vs Non callable. All the info is out there, look it up.

Also, there is a rule of thumb. Don't invest in individual stocks unless you are investing over $250,000. If you aren't investing that much, go for funds, or beter yet, ETFs. ETFs have lower fees and management costs (usually) than traditional funds, so that may be what you might be looking for. Study those as well.

Figure out what kind of invester you want to be. Does risk frighten you? Are you young? Do you want to play it safe? Ect.

Be in it for the long hall. Diversify and contribute regularly to solid investments and you will succeed. Its a marathon, not a sprint. Don't get swayed by some folks that hit it big on quick trades. You are much more likely to lose your shirt if you try day trading (unless you keep some "play" money seperate for day trading) or trying to hit it big on individual stocks.

Long run. Do you know your Time Value of Money?
CNN money has some good calculators.

Run some numbers with how much you would regularly contribute, at a decent return of investment (say 7-8%/year) for however many years until you retire or need the money.

You'll be surprised how the money adds up if you regularly contribute, earn a steady return (nothing flashy) and stay in long term.

Remember this as well: For as much as you might make on returns, or how much you might want to try to grow your money with investments...by far the best and most successful way to create wealth in America is to SAVE. Sometimes its hard...but save as much as you possibly can when you are young.

That $100 you put in savings and invest correctly at 20 will be $500 in 25 years...or maybe even more.

You make exponentially more wealth the earlier you begin saving and investing in life.

Someone that begins at 20-25 makes double or triple that of someone that begins at 30-35 over their lifetime.

SAVE your money.

 

supermac pretty much nailed it.

also I have to emphasize that you should stay away from trading. I am a professional trader. it takes a lot of time and MONEY to learn how to trade. plus with trading you either got it or you don't and if you don't then you will have wasted a lot of money.

 

you are ineligible for roth ira if you make in excess of $110K per year.

 

If you want to start an online brokerage account, most of them have minimuns of $2000 or so. Some are less. The best thing you can do is read up on the markets on sites like investopedia.com and such.

I've been actively involved with the markets for about 10 years now, and I still learn something new everyday. Its a never ending battle.

 

blue horseshoe likes Anitcote Steel

 

SELL! SELL! SELL!

 

You should be able to set up a meeting with a financial advisor where you bank and get some professional advice. You could always throw it in a 90 day CD or some sort of T-bill while you explore all of your options.

 

You wanna sit on the stock for years? If so buy a big name stock and wait 20yrs, you should be good. Or for 4000 get yourself a beatup 76-82 Corvette, or similiar classic car. Those are good bets and if all fails you def wont lose any money in that kind of investment.

 

The absolute smartest thing you could do with the money is invest it in advancing your education, get an MBA or a PHD.

If you take a real look at the deficit, the under funded pension plans, the exponetial growth of the govenment's entitilement programs, the trade deficit, the real threat of terrorism, the rising costs of energy, business competition with a ruthless dictatorship with little regard for human rights or environmental safety, you have be concerned with the long term ability of the American stock market to grow earnings and that is the only thing that makes it appriciate.

If I were young I would be more focused on active income, increasing my salary or starting a business.

 

Common advice given to someone new to investing is to invest their money in a S&P 500 index mutual fund, such as Vanguard's VFINX. If you are earmarking this money for retirement, open a Roth IRA. Then spend some time educating yourself at your own pace.

You should definitely learn the differences between mutual funds, stocks, bonds, CDs, etc. You should also learn about the fees such as expense ratios, interest, dividends, 12b-1 fees, loads, etc. You should also learn about the different retirement programs such as 401k, 403b, Roth IRA, traditional IRA, etc.

You don't need much to start. Some funds have no minimum, some allow you to contribute like $50 a month electronically.

I second SuperMac's suggestion to SAVE, especially early. I know a couple that has amassed over $1,000,000 in mutual funds in the last 30 years. They have put 2 kids through college, and own their house and two cars. Neither parent has ever made over $36,000 a year (usually much less), and the mother stayed at home to raise kids for 7 years. Neither parent finished college, and neither one is a sophisticated investor.

They accomplished all this by contributing to their 401k/403b plans and IRA, and living on whatever was left. The main thing they avoided was impulse buys and credit card debt.

 

In a nutshell, you invest X dollars for Y months. The bigger X and Y are the more the interest tends to be. You usually do not have access to the money until the maturation date unless you pay a penalty.

One thing you need to do with respect to investing in stocks, bonds or mutual funds is determine what your goal is. You have to be patient and ride out the tough times. For example, a fund may average 10% return over a 5 year period. This could involve losing money during some of that time so my advice is to decide what you truly want.

If you want a reasonably safe (no-risk) investment with higher rates than a savings account, invest in CDs or T-bills and perhaps earn upwards of 5%. The more you want to earn, the bigger the risk.

If you are looking for real long term earnings, you would want to investigate an IRA, possibly a Roth IRA. One advantage to a Roth IRA is that you can retrieve your investment (the actual dollars you put in) without any tax or penalty, so you are not stuck with your decision, but a Roth RIA is made with "after-tax" dollars. An advantage to a traditional IRA is that you can deduct all or part of your investment from the tax year in which you contribute.

 

Why are you investing? What is your goal? A house down payment? Retirement? College for family member? To be rich?

Your financial goal will have a time frame involved. The time frame will dictate how you need to invest the money. For example, if you need the money back in the next ten years, you should lightly in stocks, even if you can tolerate high risk. If you need the money in 20+ years for retirement, go heavy in stock, with exposure in EM, China, Europe, and US small caps (versus just having a SP500 index fund).