I've been meaning to start saving up and investing for a while now, but I've always put it off because I didn't think I made enough money. I'm making about $20,000 a year and am going to night school to prepare myself for a better job, but in the meantime I've decided that I really should be putting some of my money away. I don't have a huge number of expenses, but it seems like whenever I am able to build up some money in the bank, I end up spending it on something frivolous. So I'm thinking that investing would be a doubley good way of saving money. I'm not so much looking for an investment banker on the board to walk me through the entire process, but just a few links to information that I can research on my own. I'd google this up, but there is just so much information out there that I really don't know where to begin. And it's hard to know who to trust out there. But this board has always been a great resource for getting help, and I have a lot of trust in this community. Just maybe a couple links about which online or offline firms are the best for a guy with somewhat meager means. And a couple of links about different types of accounts that might be good to look into (IRA's, DRIP's). And maybe some links about what kind of investments would be the safest (Blue-Chips? Bonds? Fannie Mae Funds?). I'm looking to make some very safe investments at the startup until I get the hang of things. Anyway like I said, I'm not looking for somebody to give me all of this information. But a point in the right direction would be greatly appreciated.
Can you do a 401k through your job? That would most likely be the cheapest/best alternative. If not look into a ROTH IRA.
Like Rockets Red Glare said, you should participate in your companies 401k if you have one. The next step is to max out your Roth IRA for the year which for 2005 is $4,000. I would use a Vanguard no-load mutual fund in the IRA, and invest a specific dollar amount each month into it. Investing the same amount of money per month is called Dollar Cost Averaging which automatically turns you into a good invester because you are buying more shares when the fund is low, and buying less when the price is high. http://www.fairmark.com/rothira/ http://beginnersinvest.about.com/cs/newinvestors/a/041901a.htm
Here's a link to the Vanguard site's fund page: http://flagship3.vanguard.com/VGApp/hnw/FundsStocksOverview
I highly recomend that you read the following article keeping in mind that we are in the third year of a bull market: The point? When people used to ask Jessie Livermore, who got filthy rich by shorting everything on Black Tuesday, for market advice he would always tell them to figure out which way the market's heading. It seems really simplistic, but is the best advice of all. You haven't exactly picked the best time to start. Keep that in mind. Be really careful and really selective. One place you can start getting general info is http://www.investopedia.com. They even have a mailing list that you can sign up for for free where they will send out "investing basics" or definitions of common terminology as well as more complex info. Another place where you can get some really good easy to understand technical info is from http://www.investors.com which is the website for Investors Business Daily. Keep in mind, however, that they have a very specific aggressive and narrow stratagy that (I find) to be a bit crazy, but the general info that they provide on assessing the value of a stock and examining the technical details has quite a bit of merit. (The newspaper's stock stratagies are a bit like the politics of their newspaper which are virulantly right-wing. Approach their advice as you would the analysis of someone briliant with fiercly partisan politics; there are golden nuggets of wisdom buried in what they say, but like gold mining, there's alot of dirt that you need to sift through to find the gold.) Their strategy involves finding growth stocks that are shooting up during a bull market which are way overvalued and dumping them before they ineviatably crash and then riding bear markets out by staying in cash. This is a bit like playing chicken or russian roulete in that you have to be paying such good attention, your timing has to be great and you have to be reading the system so correctly under the terms of their rules or else you get burned. They also have a nice section (that I think you can access for free) called "the big picture" that lets you get a general idea of what the market seems to be doing. A gem of wisdom that I keep close to my heart is that I pulled from reading some of the IBD guy's stuff can be paraphrased as follows - It doesn't mater where you want the market to be going, it doesn't mater where you think the market should be going, and it doesn't matter where the experts say the market is going. All that maters is where the market is going, and the market will tell you if you look closely where it is going. I have a couple copies of one of the IBD founder's books. He's a bit of a shameless self promoter, and I get another copy every time I renew my subscription to the paper. I'm not sure whether he really believes all the B.S. he shovels about empowering everybody or whether he's just trying to create more suckers with enough knowledge so that they can hang themselves for the more sophisticated investors like himself. In any case, the book is filled with wonderful, easy to understand info, provided you don't follow the "rules" but just draw from the generalizations. I'd be happy to mail you a copy or give you a copy or whatever if you'd let me know how to get it to you. Another good place to aquire general knowledge is by watching CNBC any time after about 6 AM and before roughly 5 PM. They used to have a great show, Louis Rukeyser's Wall Street on Fridays at 6PM, but Lew, crust old codger who was wonderfuly cynical about the investing industry, became sick last year and now seems to have retired. In the event of any sort of comeback or even some spinoff with the host who filled in for the second half of last year, I'd highly recomend watching it religiously. (Background for the above, Definition of Value Investing, Technical Analysis, Shorting, Bear Market, and Bull Market.) Finally, I wouldn't suggest either Freddy Mae or Freddy Mac, as they're both completely screwed and surounded with scandal from accounting issues. Bonds in general are not doing that well, and the general impression I get is that you should stay away. I am not an expert there, however, so if you'd like to persue the concept a bit more I'd suggest seeking out any of the books by Bill Gross, who is the main bond guru for Pimco who do bonds and bond funds. Gross has written extensively on bond investing and is generally accepted as one of the top guys around in that field.
As an investment advisor, your best bet is an aggressive growth fund put into a Roth IRA, or a simple IRA if you'd like your money tax deferred for the time being. QQQ or S&P are great index funds with no load, also.
I'm no expert but I can tell you that one thing you MUST do (if your company offers it) is start a 401K and max it out, especially if your company matches. My company only matches 6% but I still contribute 15% of my pay. After a couple of paychecks, you don't even notice the deductions anymore and the company match is basically free money. It's like giving yourself a 6% raise. I went pretty aggressive (80/20) with my funds but I also picked the funds with the lowest expense ratios. Two rules I try to follow are 1) Don't touch the money (including borrowing against it) until retirement no matter how tempting it is and 2) Don't worry about funds going down. From what I understand, people who leave their money alone see the best results later on in life. Again, I'm no expert. I'm just a slob musician but when I retire, I'm going to retire in style. You don't have to be rich to do it, you just have to be smart and save.
I'm going to disagree with Ottoman for two reasons: 1.) The vast majority of us either lack the time or knowledge of the market to try and time when it's good to invest and when it's a bad time 2.) If this is a L-T investment, having one or two down years means nothing. Focus on the L-T gains you will get and the compunding effect. THat's how you make money. Once you realize that you are able to put money aside, invest it smartly and leave it alone. I would not advise people without the time/knowledge to buy individual stocks. That's tantamount to gambling. Buy a mutual fund and let a professional money manager inves the money for you. Most funds are measured according to two characteristics. Large-Cap vs. Small-cap and Growth vs. Value. You can look the two up to get a complete understanding of what they are, but the important part to remember is that Small Cap is riskier than Large Cap and Value is riskier than Growth. That may encourage you to invest in Large-Cap Growth funds, but remember the old matra: More risk brings more reward. Those are the very basics and there are plenty of caveats that should be added, but I wanted to stay brief. You can learn a lot more by reading up at places like motley fool's website, but it may help to keep those principles in mind. And one more thing: For the most part, there is no statistical evidence that fund managers can consistently beat an index fund. But there are a number of indexes and all funds should not be measured against the S&P. Good luck
Generally, I agree about market timing. More often than not it is a really bad idea, but when it comes to the greater macro swings, there is a fairly solid body of evidence that bull markets last between 3-5 years and bears last 6 months to a 1.5 years. There is also a very solid body of evidence that shows that specific sectors tend to do better early in the stock cycle whereas some are better after the Fed tightens rates. While these are not perfect or absolute, to ignore the historical evidence is simply silly. It's not all that hard to do some reading and determine that, say, for the next six months it's a really bad idea to put money in something very cyclical like diesel engine manufacturers or something extremely sensitive to interest rates like investment companies. I'm not suggesting that you can time the swings in the market, but after the swings occur, it's not too dificult to determine how they'll play out if you do some reading. Regarding mutual funds, if you don't want to have to work at it, feel free to invest there as it's definately easier. Given, that you make in the range of $20k, however, I would suggest that based on "hourly rates" it might be more effective for you to learn and develop skills instead of paying someone else to do that for you. Generally, incredibly rich people have someone else to manage their money for them as their time is more valuable. For low wage earners like myself, I have more time to learn than money to pay someone else to make my decisions for me. Read what the Motley Fool guys have to say on the subject of mutual funds, or listen to their radio show. They clearly advocate picking stocks for yourself on the grounds that it's not brain surgery, and there's no need to pay the mutual fund managers the anual fees which they take when they are doing something that you can teach yourself. Advantages you have over fund managers: You are able to open and close your small positions without affecting the entire market while the sheer number of shares owned by funds require them to slowly enter and exit positions. You are able to go completely to cash if you see fit, whereas fund managers are required by their firms to stay with a specific amount of funds (say 80%) in stocks. You are able to adjust your strategy as market conditions dictate, whereas most funds are defined by their strategy, such as small-cap growth fund or technology sector fund or whatever. Advantages fund managers have over you: They absolutely have beter research and information regarding the fundimentals of the companies they are investing in. They have access, generally, to experts in the fields in which the business operate who are able to make evaluations of new products. They (probably) have more experience, and they have a better support structure to evaluate their performance and help them become more effective. In any case, my point here is that you do have some relative advantages over the big fund managers, even though they probably have more over you. Fund managers, however, take money off the top for their services, and clearly don't always operate with the small investor's best interest in mind (see last year's mutual fund scandals). As such, if you believe that you are smarter than the average person, and you are willing to work at it (though for me it's not really work but more an obsessive passtime which I'm compelled to master, as some people spend hours working on their golf swings) then you can possibly do better and have better returns some of the time. But, yes, mutual funds are clearly the easier, safer, and more stable route.
Well my employer doesn't have a 401K plan, and I don't expect to be employed there past a couple of years. But I will be looking into the Roth IRA. If that's the cheapest alternative outside of 401Ks then it would seem like a good fit because that $4000 cap might just be about the max that I'll be able to invest anyway. Ottomaton, you make some interesting points. And maybe in time, if I'm not getting the returns that I'm hoping for, I'll put in some effort to research these investments on my own. But for the time being I'll probably take the safer, less time-consuming route. Thanks to everyone for taking the time to reply.
The only thing I want to add is, if you have credit card debt, make it a high priority to pay it off.
Can you elaborate on it? Is it because most credit cards have high APR? But what about those credit card debts which are locked at very low rates, like 3.99%. I just want to know if there is any reason other than the APR for you to say it.
At 20K you can't save enough to make any difference, hell you'll be lucky to break even over the course of a year. But: 1. Just put whatever cash you can in the bank. Yea I know it doesn't pay anything but at that level of income any emergency expense is going to knock you back to go. A $500 car repair or uninsured illness is always lurking. You need to have your funds liquid so you can get to them without it costing you money. 2. Invest in yourself so you can earn some real money. Night school is admirable but a real degree, from a real school is the best bet to get you started on the road to financial security. Keep your expenses low, live modestly, don't pay any interest (except for a house, it's tax deductable on an appreciating asset, but you need to have 20% to put down, like 20K so that could be a ways off)
I opened an IRA at a company I worked for several years ago. When my division went belly up, I opened a Roth IRA at my bank. Today, I happened to glance at my monthly IRA statement and noticed a signficiant deduction due to "annual costs" What the hell is that? No one ever communicated that I would lose money in my freakin' IRA. I'm pissed!
Contingent deferred sales charge. (CDSC) learn it. live it. love it. Since when is anything in life "free"? No-loads, ha!
I just wanted a "holding area" for the money I invested in my company's 401K after the company went under. I would gladly trade in the ****ty interest they give me to eliminate this deduction. Now I think I'll close the IRA and take the penalty hit, just so that I can have all that cash back.
ottomaton you seem like you pretty much know what you are talking about, but i think he is looking for something much simpler to start out with. i think IBD is an excellent resource if you are willing to be a stock PICKER and not someone who is looking to profit off the longer term moves of the entire market. stock picking also means being able to develop the ability to diversify to different stocks as they come around and being able to sell the stock you pick when it is not performing or when management is not up to par. stock picking is also much more profitable. people who say u can't beat the market are dumb because most of the money in the market is limited in the types of strategies they can implement and they forced to be diversified in the market which will give you a result close to the market averages. there are many other reasons that i won't go into. the best advice m_cable would be to look at buying the russell 2000 index (IWR) and s&p 500 index (SPY) in my opinion and dollar cost average into it on longer term sell offs. i don't think it is important to time the longer term market if you are making sure that you are buying more when everyone is bearish. that is why watching the financial shows on PBS and CNBC are good so you can get a nice contrarian opinion. i don't recommend shorting at all and i don't even think he needs to worry about jesse livermore. so in summation....just get involved with the market. don't worry about timing your initial investment. start with an index fund and then start learning more about individual growth stocks thru resources like IBD. reading the weekend edition of IBD can give you a lot of info that is pretty easy to read. and i'll shut up so i don't ramble on for about 10 more pages.
Yes, it was because of the APR. Most people I know have APRs between 10-20%. Can you tell me which credit card locks you in at 3.99% ? The only thing I can think of is introductory rates and balance transfers, and those rates usually only last 6 months or so. I don't carry any credit card debt, but for a 3.99% APR, I might!
