I would like to start investing right away?
Posted by admin in Finance Tuesday, 18 October 2011 00:26 6 Comments
I want to start investing. I want to know how i can invest long term for 3 years and short term. How can I do this? Can I invest only $20-50? Where do I invest and what do I invest in?
**if someone can give me a phone number to text or email so we can talk about it that would be well appreciated! Thank you.
Right away is not a good investing strategy. Successful investors spend hours, days, and years learning all about the world of investing before losing their money. Start by reading “Investing for Dummies.” Good luck!
I recommend you read a couple books on investing before you start buying stocks. Unless you’ve already done that.
Don’t rush into doing anything.
Start with some basic books to teach you the fundamentals. Two excellent reads are The Complete Idiot’s Guide to Investing, and Investing for Dummies. You can probably find them in your local library. Before doing anything, make sure you have enough in savings in case things go south for at least 6 months.
You need to learn also some important concepts in investing, such as dollar-cost averaging and compound interest – two of your best friends to make money for the future.
Hopefully that’s $20 – $50 out of each paycheck and not just a one time investment of $20 – $50.
You are right to start early, the value of every dollar invested now is worth a lot more than what you’ll be investing later in life. The premise that you can catch up later because you’ll be making more later simply doesn’t hold neither does the premise that you can afford to take high risks when young because you can make up for the losses later. The value of what you invest now is not only worth more than what you will be investing in the future but as a percentage of your current net worth is also much higher so if anything you should be more protective of what little you are starting out with then later. For one, whatever investments you make now will be held the longest and will be most likely to have to endure setbacks both to the economy and personal setbacks as well, if anything the investments that you make early on should be more conservative to defend against the setbacks that it will encounter while the investment latter in life can afford to be more aggressive. Indeed the common wisdom of aggressive when young and shifting to a more conservative stance as you near retirement does little to allocate your assets by risk and return but does increase the costs of investing as you would have to periodically unload investments in favour of new ones with less risk. You would do better to simply start conservative and periodically shift your contributions to increasingly more aggressive investments while holding on to the prior conservative investments.
Warren Buffet once said that his greatest loss was a $10,000 loss early in his investing career, the opportunity value of that loss must now be in the billions. You must resist the inclination to undertake excessive risks.
We all take excessive risks, it’s our very nature. This is because it doesn’t matter to evolution whether or not we individually survive so long as some of us survive hence the risks that we naturally gravitate towards almost ensures our individual failure because it maximizes the probability of someone in the population being successful. If you as an individual want to succeed, you have to resist your natural assessment of reasonable risk and seek a more objective measure of risk. Mathematically, there is one that almost assures individual success, that of maximizing the geometric mean of outcomes proposed by Daniel Bernoulli in his 1738 paper “Specimen theoriae novae de mensura sortis (Exposition of a New Theory on the Measurement of Risk)” and rediscovered as an application of Claude Shannon’s information theory (the foundation of modern telecommunications) by John L Kelly’s 1956 paper “A New Interpretation of Information Rate”, Bell System Technical Journal 35: 917–926. Such a mathematical approach is not perfect but helps as a guideline against your natural inclination to assume excessive risk.
Three years is not long term and $50 isn’t much for most forms of investing. You should probably start out with government bonds which are available for as little as $50 and start laddering them. When it’s enough to open a brokerage account, you deposit all the bonds in the brokerage account and apply for margin.
Hopefully by then you’ll be making more money so you start making monthly contributions to your equity part of your portfolio by researching for undervalued stocks of company’s with a solid business model (hopefully you will have read a few books by then) and start your equity contributions by buying undervalued stocks and rebalance once a year using the margin secured by the bond ladder and adjusting the reinvestment ratio slightly to compensate so that the margin is returned over a period of a few years (the readjustments should eventually even out especially if you make the adjustments to restore the margin over a decade. The margin secured by the bond ladder allows you to take advantage of the bargains presented by market downturns effectively acting as a ratchet or one way valve in your portfolio. The optimum for portfolio growth is actually 50% bonds and 50% equity, although most people would consider that to be a moderate portfolio and consider a 100% stock portfolio to be higher growth, the 50/50 actually does have a higher likely growth than the 100% portfolio which only has a higher potential. Indeed the mathematical long term outcome of 100% at risk whatever the odds is an eventual total loss.
Pick up a few books on the topic by Eric Tyson or William Bernstein. 3 years is not long-term, and money should not be put in stocks if you need to take it out by then. Odds are 50/50 that you’ll either come out way ahead, or way behind. Too risky.
To Start Investing
It takes a long time to learn the stock market and it would help if you read some books from your library and information online. It would also help if you did some practice trading with play money. You can do this by using a watch list in Yahoo Finance > My Portfolio. Just pretend you bought some shares of your choice.
No one can tell what you should invest in the market. You need to decide what’s right for you at the present time. Before you start investing, the first thing you need to decide is what risk level you want to take. CDs backed up by the government has about 3-4% annual return for the long term with a low risk. Bonds or Bonds Funds has about 5-7% annual return for the long term with a medium risk. Stocks or Stock Mutual Funds has about 8-10% annual return for the long term with a high risk and are more volatile than Bonds. A person can make more than 10% annual return with the right investment. Usually the more risk you take, the more return you will have, but not always.
The stock market is basally made up of stocks and bonds. Investment managers pick a group of stocks to make a mutual fund or a group of bonds to make a bond fund. They even put a mixture of stocks and bonds together and call it a Growth & Income Fund.
1- MUTUAL FUNDS: Mutual funds have a group of stocks (could be around 100+) invested in different sectors, and manage by a professional. Managers have lots of schooling for investing in stocks, around 8 years. So I think managers can pick stocks better than I can. There are lots of different kinds of mutual funds and they have different risk level. There are 100s of funds that does not charge any fees to buy it’s shares and they are called Noload Funds. There are also some funds called Load Funds that charge about 5% of your investment. You can make a buy or sell order anytime of the day for mutual funds shares but it will not go in affect until the close of the day. Most funds has trading restriction and you may not be able to trade more than 4 times a year. That’s because it makes it hard for the fund to make a good return if there is to much trading in the fund, causing the fund manager to make more buys and sells and keep more cash on hand. Mutual funds are meant for long term investors.
2- STOCKS: Stocks is more volatile than funds unless you spread you money in several different areas and know witch area will do best. There are 10 stock sectors and over 100 sub-sectors to choose from. Stock trading restriction is only a few days, not like mutual funds. If you own stocks, you will need to keep up with all the company’s business so you don’t get stuck with a bad stock. That could take a lots of time. If a person buys just a few stocks he probably is hoping to make a bigger return but he may be taking more risk. If that’s the case, look at the leverage ETFs that represents a large group of stocks. That could be another choice.
3- ETFs (Exchange Traded Funds): ETFs are like a mutual fund but trades like a stock and that is the main differences between ETFs and stocks and mutual funds. There are some ETFs that represents Index’s. An Index is like S&P or DOW. Index’s operate just like a mutual fund with a group of stocks in deferent sectors, manage by professionals. You can’t buy Index’s because they are not for sell. A company owns them. But you can buy a mutual funds or an ETF that has the same stocks as the Index they represent. There are a lots of different kinds of ETFs for someone to choose from. There are some that represent almost every kind of sub-sector. And there are some that have 1x leverage, some have 2x leverage for aggressive investors, and some has 3x leverage for more aggressive investors. If you wish you had more money to invest, the 3x is like having three times the amount of your money in the market. You will make more in an up market but lose more in a down market. One example; S&P500 1x vs S&P500 3x:
S&P500 1x …… 2010 = +12.8%…..4/29/11 YTD =…+8.4%
S&P 3x (UPRO) 2010 = +36.4%…..4/29/11 YTD = +26.9%
To buy stocks or funds, you need a broker account. You can open an account online or in a broker house and it is free to open. You can find several good discount brokers that charge $8.00 and under per stock trade and no fee on Noload Funds. If you only have a small amount of money to invest, it may be best to start in Noload Funds because of the broker fees. Most broker websites have good research tools. Some popular broker websites are Fidelity, TD Ameritrade, E-trade, Scottrade and others. You need a min. of $500 to open an account in Scottrade and $2,500 for Fidelity. Other sites may very on the min. and you need to be at lease 18 years old. If you not 18, you might could get your Dad to open an account for you.
Self-taught from 24 years of experience. Click my pic if you need more help.