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fdgfx
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If you are in the US, open a Roth IRA is the way to go. Everything that goes beyond your initial investment will be tax-free.
I would invest in mutual funds instead of stocks. With only $1000 to invest, the commission is way too expensive. Speaking of mutual funds, dollar-cost averaging (where you buy something automatically at cetain time intervals to reduce the timing risk) an index fund is perhaps the best approach for novice investors. Actually, 3/4 actively managed mutual funds fail to beat the index. Both Fidelity and Vanguard offer excellent no-load index funds.
If you must invest your $1000 in a stock, perhaps using the Sharebuilder is the best way to go. You can open an account with as little as $100 and only pay $4 for the commission, but you can't trade as actively as other online brokers. Diversification is very important in stock investing since there is absolutely no guarantee that a company won't screw up within next few years. Currently, I like Cisco (CSCO), Berkshire Hathaway (BRKB), Coca Cola (KO), Dell (DELL), General Electric (GE), Home Depot (HD), Johnson Johnson (JNJ), Microsoft (MSFT), Pfizer (PFE), Wal Mart (WMT), and Exxon Mobile (XOM).
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Lawrence of Arabia
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of the Gulag Archipelago
Apr 2001
time: 06:36
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quote:
Put it in a Roth IRA. Either put it in a stock mutual fund or a balanced mutual fund, depending on when you're expecting to need the money (if you're saving for retirement, put it in a stock fund; if you might need the money for a car or something, put it in a balanced fund). |
im thinking of doing both of those things - i want some for retirement and some of it for later investments (car, house, whatever.) however, $750 - $100 isnt that much, so maybe ill hold off the retirement part and put it in a balanced fund. how much does that investment grow per year usually?
quote:
I would invest in mutual funds instead of stocks. With only $1000 to invest, the commission is way too expensive. Speaking of mutual funds, dollar-cost averaging (where you buy something automatically at cetain time intervals to reduce the timing risk) an index fund is perhaps the best approach for novice investors. Actually, 3/4 actively managed mutual funds fail to beat the index. Both Fidelity and Vanguard offer excellent no-load index funds. |
what sort of returns would i be looking at with the mutual funds over say a 6 to one year period?
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fdgfx
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quote:
Originally posted by Lawrence of Arabia
what sort of returns would i be looking at with the mutual funds over say a 6 to one year period? |
That depends how the overall market is doing. If you buy at the wrong time, it can take up to 25+ years to just break even. If you time it right, you can double your money in just few years. The problem though is that nobody can consistently time the market right. So the solution lies in dollar-cost averaging where you spread your investment over an extended period.
Here are a few numbers about US stock market returns:
Real Annual Return (after inflation):
1871 - 1925 1.3%
1926 - 2001 2.7%
1946 - 1965 5.2%
1966 - 1981 -4.4%
1982 - 2001 7.4%
After the excess of the late 90s, I believe we are in a pro-longed period of poor returns like the 30s and 70s.
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fdgfx
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In the late 70s and early 80s there was a certain fellow named John Granville who consistently predicted doom for the US stock market. On August 12 1982, after 18 months (the longest one in post WW2 history) of recession, rampant inflation (short term interest rate at 15%), horrendous unemployment (8+%), and rising Soviet threat (reformist Andropov replaced by hardliner Chernenko), he sent out a major sell signal.
The Dow responded by diving 30 points lower (equivalent to a 400 points drop today), but suddenly reversed in late afternoon and closed 20 points higher. 4 days later, the market followed through with a 5% gain and never looked back again until 1987.
Granville kept sending out sell signals until 1986 when Dow reached almost 2000 points from its low of 750 in 1982. People following Granville would have missed out a 166% gain.
The meaning of the story: never follow other's opinions, be they exuberant pumpers or manic-depressive bashers; always do your own research. If you don't have the time or inclination, dollar-cost average into an index fund. Invest into a stock should take far more time than buying a PC.
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fdgfx
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quote:
Originally posted by Lawrence of Arabia
man there are lots of mutual funds out there, and many of them have negative YTD growth (from 2 to 5%) |
This year is difficult. But short-term performance is of no big consequence for mutual funds.
If you are interested in actively managed mutual funds, here is my advice on how to select them.
1. Find out what they invest in: large company or small company stocks, growth stocks or value stocks, US stocks or foreign stocks, stocks or bonds, diversified (all industry sectors) or specialized. A well diversified portfolio may look like the following:
US large company stock fund 30%
US mid-sized company stock fund 15%
US small company stock fund 15%
Foreign stock fund 20%
Bond fund 10%
Real estate investment fund 10%
2. Check the fund's management. I prefer managers with long history of managing the fund. Funds with a revolving door on managers are best avoided. You don't have to worry about managers in index funds.
3. Compare this manager's performance vs the category and the index. Yahoo Finance will list up to 11 years of past performance. I consider beating the category 7 out of 10 years very good.
4. The fund's expense ratio. Anything above 1.5% is not acceptable for me.
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04-03-2005 05:20
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