I'm young and I want to invest. What is the best investment to make?

Question

Ok, I am asking all you money geniuses out there. I don’t have a lot of money, but I want my money to make money for me. I need some tips on what type of investments to make. What is the best choice, IRA vs. Roth IRA? Bonds or stocks? What about investments where I can make some quick cash (i.e. short term investments.) Any information that you can provide would be helpful, please help!

Answer 1

Hi,

If I were young, I would be investing in small cap growth mutual funds or stocks. Go here for excellent low cost advice (http://www.aaii.com/aaiiportfolios/commentaries/stockportfolio/200701comment.cfm).

Don't be alarmed at the low cost - it has some of the best financial advice on the Web.

You have lots of time before retirement which means the magic of compound interest will just keep building and building. It really works and if you keep investing every year, in 10 or 15 years you will be surprised at how it mounts up. In 30 years you could be a millionaire which probably won't amount to much in 30 year owing the the ravages of inflation.

And that's the primary reason to keep investing in small cap growth stocks - they will flog inflation to death.

When investing in mutual funds, select the no-load funds only. Do not invest in mutual funds with a "load", an up front commission that you have to pay before when they sell you the mutual fund. Some charge as much as 10% which is a rrip-off. Many studies have shown that the no-load funds do as well as the load funds and sometimes a lot better.

Look at the AAI Shadow Stock Portfolio. I would try and emulate that portfolio if you want to invest in stocks. It was up 25% as of November 2006. The Vanguard Index fund is only up 14%.

AAII has some of the best financial advisers and the cost is very low. They have excellent guides and advice.

You may need a broker so go to e-Trade or Scottsdale who have low commission rates.

Do your own due diligence. Your own ideas are the best. Do not depend on someone else to select investments for you. Learn about investing so you don't have to ask what stocks to invest in.

Be self reliant.

Remember what Emerson said: A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. With consistency a great soul has simply nothing to do.

Find stocks that have steadily rising net profits (earnings), low debt, and good P/Es, lots of cash, companies buying back their stock..

What interests you? Find stocks that pique your interest and passion.

You need fast growing good stocks with good earnings and in good sectors. You need to learn more about the stock market before you even think about investing in it.

The stocks world is divided into 12 sectors such as energy which chevron belongs to. It is next to last in the sectors list today.

Technology is numero uno, but things can change in a new york minute, but within the sector, the fastest growing are computer services, not Microsoft. Then, Electronic Instruments and controls. Next is computer storage devices.

The next hot sector is Healthcare, but heed the warning below. Go here for sectors: (http://clearstation.etrade.com/cgi-bin/Itechnicals?Event=srp&Section=redge&Refer=/redge.html)

The best software is Vector Vest if you can afford it. It has sector investing.

Here is a free Web site for charting stocks: (http://www.incrediblecharts.com/).

First of all, stay away from "professional brokers" and tips coming to you via e-mail or friends and acquaintances. And tips at Yahoo! Answers. And e-mail tips. Do your own due diligence - don't rely on someone else. Read Emerson's essay "Self Reliance.

Hey! They will say anything to get you to buy their junk. If it's too good to be true, it is.

Remember this, they are just sales people trying to sell you what their firm is pushing. They are not security analysts or financial planners, not even financial advisers. Trust me, I know from experience that they cannot be trusted especially with a million dollars. You risk losing it all. A million dollar account is known as a "whale" and they would love to get their greedy little paws on it and suck it dry. They just want to make commissions on what they buy and sell for the suckers, err...clients..

Risk avoidance is the name of the game.

Remember, the harder I work, the luckier I get.

Penny stocks are highly speculative. I would avoid the ones under a dollar a share. For example, Best Buy started at less than $5. So there are some good companies, but it takes a lot of digging to find the good ones. You are looking for companies with good earnings, little debt, low capitalization, and good P/Es. For stocks under $5, very few will meet these requirements.

Stay away from the pharms unless they have patented drugs - do not invest in generic pharms, no growth there.

Check out which business sectors are the most popular and invest in the companies in those sectors. The number one, two and three are: technology, health care, and cyclicals (retail). These change periodically so keep current.

Go here for a list of growth stocks: http://www.thestreet.com/_googlen/newsanalysis/ratings/10345212.html?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA

There are these lists all over the Web - you pays your money and takes your chances.

Watch CNBC, but don't pay too much attention to the talking heads, except for Jim Cramer, the wild man - but he tries to teach you how to invest and has some great advice.

Get Jim Cramer's Real Money: Sane Investing in an Insane World by James J. Cramer

Listen to Jim Cramer on CNBC.com

Go to Clearstation for quotes and tutorials on investing at (http://clearstation.etrade.com/). Sign up is free. Look up a few stocks. Do their tutorials. Check out the sectors.

Get this book: Value Investing: From Graham to Buffett and Beyond (Wiley Finance) by Bruce C. N. Greenwald, Judd Kahn, Paul D. Sonkin, and Michael van Biema.

Another good book: The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of (Motley Fool) by David Gardner, Tom Gardner, and Selena Maranjian

Jim Cramer's Mad Money: Watch TV, Get Rich by James J. Cramer and Cliff Mason

I Want to Make Money in the Stock Market: Learn to Begin Investing Without Losing Your Life Savings! by Chris M. Hart\

Sensible Stock Investing: How to Pick, Value, and Manage Stocks by David P. Van Knapp

Stock Investing For Dummies (For Dummies (Business & Personal Finance)) by Paul Mladjenovic

All About Stock Market Strategies : The Easy Way To Get Started by David Brown and Kassandra Bentley

The Motley Fool Investment Guide and their Web site (http://www.fool.com/).

The Little Black Book of Microcap Investing: Beat the Market with NASDAQ/AMEX Microcap Stocks, OTCBB Penny Stocks, and Pink Sheet Stocks by Dan Holtzclaw

How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition by William J. O'Neil

Trading for a Living: Psychology, Trading Tactics, Money Management by Alexander Elder

Big Trends in Trading: Strategies to Master Major Market Moves (A Marketplace Book) by Price Headley

Extraordinary Popular Delusions & the Madness of Crowds (Paperback)
by Charles Mackay (Author), Andrew Tobias (Foreword) This book talks about the Tulip craze in Holland where people would mortgage their homes to buy Tulip bulbs. Same thing happened in 2001 - 2002 with the Internet bubble that brought the stock market to its knees. The dot com companies were the Tulip bulbs.

Buy Investors Business Daily. It has lots of tutorials and I like it better than the stodgy Wall St Journal.

Money Game by Adam Smith

Common Stocks and Uncommon Profits and Other Writings (Wiley Investment Classics) (Hardcover)
by Philip A. Fisher. Recommended by Warren Buffet who took $100,000 and grew it to $34 billion!

Value Investing with the Masters by Kirk Kazanjian

Valuegrowth Investing by Glen Arnold

The 5 Keys to Value Investing by J. Dennis Jean-Jacques

The Intelligent Investor Rev Ed. (Collins Business Essentials) by Benjamin Graham. Warren Buffet was his student at Columbia.

The Money Masters by John Train

The Bogleheads' Guide to Investing by Taylor Larimore

Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor by John C. Bogle

Why Smart People Make Big Money Mistakes And How To Correct Them: Lessons From The New Science Of Behavioral Economics by Gary Belsky

Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week! by Phil Town . See his Web site at (http://www.ruleoneinvestor.com/). Free sign-up. I got the book at the library.

Listen. You don't have to spend a lot of money on these books - most can be found at your library and those that your library doesn't have they can usually get from other libraries in your state.

Most of these books talk about stock and mutual fund investing, but for a good introduction to other forms of investing Gerald Appel has a great book called Opportunity Investing - How to Profit When Stock Advance, Stocks decline, Inflation Run Rampant, Prices fall, Oil Prices Hit the Roof and Every Time In Between.

First, Break All the Rules: What the World's Greatest Managers Do Differently by Marcus Buckingham and Curt Coffman Not a book on investing, but it's a nice segue into the next book.

Now, Discover Your Strengths by Marcus Buckingham and Donald O. Clifton

Go Put Your Strengths to Work: 6 Powerful Steps to Achieve Outstanding Performance by Marcus Buckingham

Finding your strengths is important when investing. These books teach you to build on your strengths, what you a good at. Everyone is good or passionate about something. Why not get better at what you are good at?

Another good book is: Opportunity Investing: How To Profit When Stocks Advance, Stocks Decline, Inflation Runs Rampant, Prices Fall, Oil Prices Hit the Roof, ... and Every Time in Between (Hardcover)
by Gerald Appel

Most mutual funds do not even keep up the the return on the S&P. That's like 99% of them.

Vanguard Index funds are a no brainer.

A CD is better than a savings account. They range from six months to several years. You cannot touch your money tho until the time limit is up.

Check out this Web site on Direct Investment Plans where you can buy shares directly from companies: (http://www.fool.com/School/DRIPs.htm). Usually no fees and you can buy one share at a time.

Bonds are probably the safest. But they are not for the young. You might try a bond fund. They might return 5 or 6 percent. At 5% a million would return $50,000 a year - not a bad income. Remember, you have to pay taxes on the $50,000.

There are also municipal bonds and the income from them is taxfree especially if you buy them in a state that offers them, but they only pay about 3%, but it's mostly taxfree.

Look into Fidelity sector funds. Buy the top three, then in six months look how they are doing and if not so hot, select the next three that are best. Do this for a few years and you will make lots of money.

Kindest Personal Regards,

Walt Brown
Site Build It Certified Webmaster
[e-mail]

P.S. This is a life-long learning process. Reading these books and applying the rules to analyzing stocks that may be good It takes time. Be patient and keep reading and listening. Don't be a sucker and follow someone elses advice. Be your own man or woman. Depend on no one except yourself. You can only get smarter and stronger that way.

P.P.S. Internet has lots of good stuff, for example (http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:moving_average_conve
Stockcharts.com is very good and their discussion of MACD is one of the best, barring its originator, Gerald Apple, but now we are getting into Technical Analysis and that is not for beginners. But it is an important factor in finding good stocks that are going up and growing. Remember, tiny acorns grow into mighty oaks.

Answer 2

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Answer 3

You don't provide any information about yourself, so I'll list the ideas I have for young (twenty-something) investors. You'll want to at least Google or Wiki these to figure out if they're right for you.

(1) Your company's 401(k) or 403(b) retirement plan. Do it, as soon as you can -- it's almost always a no-brainer. Find a way to contribute at least as much as is required to get the full amount of your company's match (if it matches your contributions). Don't invest your funds in company stock, though; pick a simple stock fund that has a low operating expense ratio (such as an S&P 500 Index Fund).

(2) Roth IRA. You can invest a few thousand dollars per year and if you don't pay much in taxes now but expect to do much better later in life, this might be the spot for the money you have after you've met the minimum for your company match in the 401(k) or 403(b). Many people will want to fill up their 401(k) or 403(b) completely before starting their Roth because the former uses pre-tax dollars and the latter uses after-tax dollars. In your 20s, invest in stocks -- they'll beat bonds (and just about everything else) over 30-40 years.

(3) Employee stock purchase plan, if they give you a discount and you feel it's a strong company. You shouldn't buy stock in the company you work for any other way, and you shouldn't have more than 10% of your net worth in company stock.

(4) Low-cost funds through Vanguard or Fidelity. These will be after-tax investments that *aren't* necessarily long-term -- you don't have to wait until your 59.5 or older to sell them. Stick to funds like S&P 500 Index, Total Stock Market Index, and Real Estate Investment Trust Index funds. The operating expense ratios should be lower than 0.20%, per year.

Finally, independent of these options, is a home. You should almost certainly want to own your own place, even if it's just a condo or townhouse. If you're buying company stock, you can sell that to make your first down payment (I wouldn't delay your 401(k) in order to make a down payment, though.

"Investments" and "Make some quick cash" aren't very compatible. :-) You can make a quick 5% per year by putting it in a Money Market account; that's something. But at your age you want to focus on the long-term and ensure that your money will be working for you for 50+ years. If you need extra cash, work a few extra hours.

Answer 4

Roth Ira and stuff it as full as you can afford: it's not tax-deductible going in, but you can take out the money you put in later and buy a house, and it's tax deductible money when you retire. Buy stocks that pay dividends and diversify. Also, learn how to save money and live below your means. Read "The Millionaire Next Door" and "How to Buy Stocks Without a Broker." Don't worry about the short-term: it's more risky to invest that way, or it pays too little to matter. Congratulations and good luck!

Answer 5

if I were starting out again, I would buy a house and not sell it when I moved. Better to let it out to pay it's own mortgage and move on.

Turning the question around, the worst investment is to buy a new car every two years and px it at the dealer. Getting a car with a high insurance premium is a complete waste of money. But the very quickest way to throw money away is to get divorced.

Investments - use your special knowledge and that of your close family. Never invest in something you do not fully understand, derivative junk bonds or whatever. Keep it simple.

Answer 6

It takes 2 years for me to study stocks trading before i make money.

Only one book to read, it is "How to Make Money in Stocks" by William J. O'Neil.

When you are ready to open an online account, tradeking trade fee is $4.95, and scottrade is $7. Open Roth IRA account.

If you or others want a good deal, such as 3 free trades from scottrade or 4 free trades from tradeking, pls email me at [e-mail]

Answer 7

I'm in the same boat. I am also young, and would like to invest also. I would suggest that you, first, put your money in a bank, like Wells Fargo or something. Then I would go to Google Finances (or Yahoo) and invest in something like Apple, or Microsoft. It may take a while, but if you save your money and invest about 50 a month, you may have enough to go to college. Who knows?

Answer 8

IRAs are good long term investments. I suggest mutual funds. If you have less than $5000, put it in a high yield savings account until you have $5000, then I would suggest mutual funds.

BTW - real estate right now is NOT a safe investment

go to ingdirect.com and see what things they offer!

good luck!

Answer 9

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Answer 10

if you work, join the investment plan they have, some employers will even contribute to it. if not, try a financial adviser, a bank may have one, also, cd's altho you don't earn a lot are a short tern investment and banks have them too

Answer 11

Best investment is a house.