Talk to me about investing...

[Aura_Kitten]

My high school economics course consisted of learning what a checkbook was.


Talk to me about stocks, investing, and all associated other things. (Please start with the bare essentials: definitions of all associated terms... I can't really research everything on my own because none of the language makes sense to me yet! Like, the Dow index. What is it, really?? I know when it goes up it's "good" and when it goes down it's "bad" -- er, or is it???? )

What's it all about?
Is it all a gamble or is there a way to invest that doesn't carry a huge risk with it?

And finally, do you have any advice for a young person (mid-20's : ) if they want to get started preparing for a livable future...?

[MaddieMay]

I'm counting on others to answer all your questions because this is a quick post, but just wanted to congratulate you for thinking about your future. Here's a quick piece of advice that hopefully others will expand on:

A Roth IRA invested in mutual funds is a great way to go. You can invest $4,000 a year and there are great tax benefits. You can also choose the company-DH and I have completely seperate ones we invest in. You can pick funds that carry more or less of a risk-DH and mine vary, but overall they've all done really well. The key is to always think long term. DH loves to tell me "We lost xxx thousand dollars today" or "We gained xxx today." I prefer just to think about how much I will have thirty or forty years down the road.

[mightymoo]

If you are starting out with very little clue, I would recommend buying a basic book on it. I don't have a recommendation, but I'm sure others here do. Suze Orman has a book on getting started with a small amount of money I know.

In general Risk = Return (how much you make off your money) Higher Risk = Greater Potential for Higher Return, but also greater potential for higher loss. There are "risk free" investments - ones where you are guaranteed a specific rate of return and barring total bank and FDIC/government failure you are going to get your money. The problem is these have a very low rate of return. They barely will outstrip inflation.

In reality you balance you risk by having some money in lower risk investments, some in medium, others in high. Even in the higher risk categories, like stocks, you balance the risk by not putting all your eggs in one basket - you don't invest 100% in one company, or in one sector (area) of the market, like high tech. When do you this, this means if one company or are of the market tanks, your portfolio isn't dragged down with it.

[velochic]

Investing is such a broad topic and there is always more to learn. I can try to help you get started by answering some of your first questions.

The Dow (Dow Jones Industrial Average) - With the thousands of stocks and bonds on the market, you can't pick just one to determine if the investing world is doing well (a Bull market) or doing poorly (a Bear market). Dow Jones is a market indicator of a sample of all the big stocks in the market. Those that they have picked are the biggest, strongest companies in the United States market. Those big companies are called "blue chips". There are 30 of those. This index is one of many, many indicators about how the overall American economy is doing. There are many other indices that track how other parts (called "sectors") of the stock market is doing. There is one to track how small companies are doing (the Russell 200 index). One to track technology stock, etc. A good one to keep your eye on in investing is the S&P 500 (Standard and Poors 500) because it gives a good overview of nearly the whole stock market.

Stock - purchasing a piece of a company. You are an owner of that company... along with several other million people. You get to share in the profits of the company and get to help pay when the company isn't doing so well.

Bond - you are loaning your money to a company and (just like a bank), you are getting paid interest for them to use your money.

Most new investors should look at investing in Mutual Funds (heck seasoned investors should too, but that JMHO). M

Mutual fund - a collection of stocks in one single investment vehicle that allows you to invest in several companies all at once without buying those individual stocks or bonds. This allows you to "diversify" (spread your money among many investments to protect you against losing a lot of money all at once).

I love Eric Tysons "...For Dummies" series. Personal Finance for Dummies, Investing for Dummies, Mutual Funds for Dummies. It might say 'dummies', but it has really great introductory information. I have all 3 in my library.

[nylecoj]

Here's some more things to think about:

1) Someone mentioned risk earlier, which is extremely important. If you are not comfortable with large swings in your daily balance, high risk is not for you. Of course, over the course of time you have more gain potential in a riskier account.

2) Diversifying. You don't want all your assets locked up in bonds, or stocks. You want a healthy mix of both depending on your risk factor. For me, for instance, I want to retire in about 30 years, and I'm okay with a decent amount of risk. So right now, my portfolio is about 85% stocks and 15% bonds. To futher diversify, make sure you are invested in a broad spectrum of companies, both in and out of the United States.

3) Rebalancing. Stocks and bonds have an inverse relationship, meaning that if stocks are doing well and you are gaining money, your bonds are generally not doing well and you will be gaining in the % of stocks that you own. To fix this, you need to periodically rebalance your portfolio.

Fidelity (and many other investment firms) have funds that are managed for you that do all these things automatically. I'm invested in a Freedom Fund that is essentially a large mutual fund manged by many different people. There is a very serious drawback though, and that is that I don't have control in what I am invested in. So, even though I hate Walmart, I could very well be a shareholder there. Bleh. Eventually, I will manage my own funds but I need more time and more education to feel comfortable doing so.

I really hope this helps. Also, Fidelity gave me a lot of information when I was on the phone with them and the call was free.

[Aura_Kitten]

Wow! Thanks for the great information! I think I'm going to need to keep a notebook or something,

* will come back later....

[shelbell]

If you are looking for a totally basic starting point, I found the Motley Fool basic investing concepts/FAQ guide useful back when I was trying to figure out what all this stuff was. It looks like it's changed a bit, but still looks very good: http://www.fool.com/school/basics/ba...m?source=InvAg

[tbone]

Vanguard.com also has some great investing information and tools that can help you determine the best investment strategies to meet your needs.

[Aura_Kitten]

Originally Posted by tbone

Vanguard.com also has some great investing information and tools that can help you determine the best investment strategies to meet your needs.

I thought Vanguard was a neo-nazi site....


ETA ~ now that I've actually *visited* the site, apparently I was wrong.......

[newbymom05]

www.Bankrate.com also has good info.

I've gained a lot of knowledge from reading my newspaper's bzn's section's columnist. Right now I'm loving Scott Burns. He has a great book out about how screwed we all are and what to do about it. He also has a website--you'll have to Google it, sorry I don't have it offhand.

[newbad]

I'm beginning to investgate investing also....... I was wondering if any of you use Vanguard for your investing?? I went to the website, and it appeared good. But would like some personal testimony regarding. LOL Or with any other company on-line??

I sort of want to toy with investing a little. (I already have a 401K set-up through work.) Before I jump fell blown into investing for retirement after our debt is paid off in a few years. Possibly just putting a little bit extra aside now.

[excitedtobeamom]

I have learned a lot from watching Suze Orman every Saturday night. I then look up more information. I am still in the very early learning stages as well.

[Jadzia]

Originally Posted by newbad

I'm beginning to investgate investing also....... I was wondering if any of you use Vanguard for your investing?? I went to the website, and it appeared good. But would like some personal testimony regarding. LOL Or with any other company on-line??

I LOVE LOVE LOVE Vanguard -- I recommend them highly!

I have my (& DHs) Roth IRAs with them, as well as a Rollover IRA, and our emergency fund is parked in a money market fund there.

You just can't beat Vanguard, their funds have the lowest fees in the business. The whole Vanguard philosophy is low cost index funds, buy and hold long term... You can't get more simple then that.

Vanguard fans even have a name: "Diehards" or "Bogleheads" (after Vanguard founder John Bogle.)

If you want to learn more, there is a great webforum at diehards.org/forum. The regular posters at this site are great, very helpful and uber-smart. You can post any questions you have and get some terrific, free advice.

I have been investing in my 401k for years, but in the past year I have gotten really serious about it, opening Roth IRAs, etc. I completely streamlined my portfolio with advice given from the Diehards site and I am paying a ton less on fees now. I used to have so many funds in our 401ks and I never even knew how expensive most of them were (I was paying over 1% in expenses a year on most of them.) Now I have put the most inexpensive available funds in my 401k and round out my portfolio with other asset classes with cheap funds at Vanguard. Everything is so much more efficient now and over 30 years, saving those expenses will be much more money in my pocket.

I have been inspired to save more money now, so I have more to invest.

[tamagotchi]

Vanguard funds tend to be low-cost, but sometimes new investors have trouble meeting the minimum investment requirements. Vanguard also has an annual account service fee for smaller accounts, but this can be waived if you set up electronic delivery for your statements.

Most Vanguard funds have a minimum investment of $3000 or more, and are designed to be used in a diversified portfolio with several other funds, so a typical minimum initial portfolio would be more like $9000-12000. Some of the funds have much higher minimums, and/or penalties for selling within a specified time period, so make sure to read all the information on each fund you are interested in.

If you are starting out with a smaller investment, the Vanguard STAR fund (VGSTX) is a "fund of funds" (holding both stock and bond funds) that offers diversification in a single fund and has a minimum of only $1000.