I'm new to learning about personal finance. I keep reading stuff like "If you save 1000 a year in 15 years you'll have [this much] assuming you get an 8% return"
How to I find a good return? How do I learn how to investigate stocks? Any ideas? (By the way, don't limit it to 8%, if you know how to get a 15% return, please share!)
2007-01-02 14:06:20 · 5 answers · asked by johnson1232 2 in Business & Finance ➔ Personal Finance
Get ready for the class of 2009! Judging from your questions, you might be able to learn what it takes to accumulate wealth from the stock market over the next couple of years. For openers, you should read as much as possible about investing or even take an evening class on investing at a nearby college. If you do that, you will greatly increase your chances of knowing what it means to grow money at an annual rate of 8% or 15%. I will offer two books that have some of the answers: "One Up On Wall Street" by Peter Lynch and "The First Time Investor" (Larry Cambers and Dale Rogers). If you want to outperform the market, you will eventually need to know how to read market data, such as stock charts. Stocks are your best bet, although they will surely test your tolerance for risk. One rule that can keep you from losing faith in the market is to keep in mind that the higher the return you are seeking, the greater the risk. You would be wise to start at the 8-10% historical range and possibly should start with mutual funds with that kind of track record. Investing in smaller companies - either on your own, or via stock funds that make those kinds of investmens - is the best way to consistently get double-digit returns, year after year. Finally, a respected stockbroker may be difficult to find, but definitely worth thinking about. Don't ever stop asking questions. The best of us are seeking more knowledge about this business. Good luck!
Hawk
2007-01-02 16:43:08 · answer #1 · answered by equityhawk 2 · 0⤊ 0⤋
They usually use 8% because it is close to the long-term return on a balance portfolio of stocks and bonds. As already noted, bonds have returned, on average, about 5% annually, and stocks close to 10%. This seems like a reasonable long-term return.
The simplest way to increase this return is to avoid bonds altogether, and invest 100% in stocks. Over almost any 10-year period, stocks have a better return than bonds (there have been exceptions - the Great Depression being one of them). Peter Lynch is a great believer in this philosophy.
I'd suggest that if you're still at the level of financial intelligence where you ask these types of questions that you don't look for a higher return. There are investments that are likely to return more than 10-15% a year, but they are riskier - for example, REITs, junk bonds, international stocks, stocks on margin. The vast majority of people don't have the time, energy, or interest level to learn enough about financial investments like stocks and bonds to ever do better than the humble index mutual fund, and that's fine. They should spend their time making more money in their chosen professions.
The point of statements like the one you point out are that the best way to make lots of money in the stock market is to START AS EARLY AS POSSIBLE. That's the magic of compounding. Anyone can become a millionaire by investing a reasonable sum (like a few thousand dollars) each year into the stock market for the next 40 years (assuming no major disaster strikes).
Any words you didn't understand here, just type into Wikipedia. Good luck.
2007-01-02 23:11:49 · answer #2 · answered by Anonymous · 1⤊ 0⤋
Broad based index mutual funds such as the S&P 500 and Wilshire 5000 return about 12% over the long haul. There are fluctuations and some years you will lose money but averaged out over the long term that's the return. You can get 8% in a high yield bond fund. You can buy these investments through Vanguard or Fidelity. There are other places but I've found them to be the best. You need 2500 for fidelity and 3000 for vanguard to get started. Start investing and start prospering!
2007-01-03 00:17:08 · answer #3 · answered by Big R 6 · 0⤊ 0⤋
Right now, the best way to get an 8% return would be to have a portfolio split between bonds and stocks. Bonds yield about 5-6% right now and stock have earned about 10% over the long term.
2007-01-02 22:12:12 · answer #4 · answered by nickfromct 3 · 0⤊ 0⤋
Pay off all your credit cards. There is no reason to invest if you have credit cards that you are paying 6%-18%. Buying stock or bonds before paying off credit cards is defienitly putting the cart before the horse. It not sexy but it is true
2007-01-02 22:37:50 · answer #5 · answered by Team Gator 1 · 0⤊ 0⤋