Beginner: Stocks or Mutual Funds?

Question

I am in my mid 20s, and have always been curious about how to invest and how stocks or mutual funds work.

I have thought of putting my money into the bank for a GIC... but they don't make you a lot of money and the interest rates are highest 3%-5%, and you can't move your money around.

A few questions:
1. If I wanted to invest as a beginner, which would have the most potential in having a higer return in the LEAST amount of time, stocks or mutual funds, or some other type of investments?
2. How much money should I invest?? I don't have tens of thousands of dollars at my age, but I do have some money saved up.
3. Should I go to a company? A broker? Or do it myself by reading and researching online??

Thank you :)

Answer 1

Congratulations on getting started. It’ll help you more than you know!

Your first dollars should be spent on getting educated on investing. You don't have to train to trade them professionally, but we are talking about your future here. So the more you learn, the more it'll help you! So let's start there.

You ask a very broad question, so be prepared for a pretty long answer. Just take it in chunks!


How to invest depends on what you already know. We'll assume that you're beginning since you say you've got no clue!

A good primer is How to Make Money in Stocks by William O'Neil. You can get it cheap just about anywhere. It’s widely available new or used.

Another good one is one of Jim Cramer's books like Real Money (he’s got a few).

But books will only get you so far. At some point, you'll also want to get at least a little training. There are some great education companies if you want to make the investment. Investools.com or optionetics.com are both very good companies as is tmitchell.com

For free, you can start by visiting thestreet.com and investopedia.com. That'll get you a pretty good primer so at least you'll understand what the markets are and what a stock is, etc.

If you get a chance, watch Mad Money on CNBC. Don't trade any of his picks until you track many of them over time. Just use the show to get you to understand some basics and get a feel for the market itself.

Next, subscribe to something like Investorsbusiness daily or something like that that can help you identify good stocks.

Once you understand stocks, go to 888options.com. It's a website that'll help you understand options (what they do, how they work, etc). You don't need to trade them, but the more you know, the more you'll see how options can really be the safest way to invest (once you're educated).

For discipline (which is crucial to successful trading), probably Trading in the Zone by Mark Douglas or Mastering the Trade by John Carter

I know that’s a LOT to absorb. Just take it one step at a time for now. Start with a book or two to give you an idea of where to begin. Take your time, and let it seep in.

As you get up to speed, you should papertrade to practice (highly recommended). This should help reduce your losses in the beginning as you get used to buying/selling.

You can practice for free on almost any reputable broker site (optionsxpress, scottrade, thinkorswim, etc). And yes, you can definitely deal easily online.

Start slow, then as you figure things out, you can buy more shares.

Congrats again on getting started. You asked several things, so If you have any new questions or any that I didn't address, please let me know.

Hope this helps!

Answer 2

A few answers:
1.As a beginner, if I were you, I would open a brokerage account with someone that offers online CDs, in addition to muuals, ETFs and stocks. While you are learing about the market, put half your money in laddered CDs and the a forth in a bond fund and a forth in an index mutual fund. As you Cds mature, you can decide what you're next move will be, depending on the market economics.

2. I can't tell you how much to invest, but with the strategy above, you will average around 7-10 percent with not too much risk. As you learn more about the market by going to your public library and browsing thru the investment books, you will become more confident and should be more willing to take additional risk and the associated higher profit potential.

3. Two companies I would recommend that give you the capability to buy CDs on line at competitive rates are Fidelity and Schwab. Both have excellent research tool and training classes and materials. Both have no load, no fee mutual funds and offer the capability for you to ladder your CDs. When your CD come due, you can then choose your next move; i.e., buy another CD, put more in MFs, buy and ETF, or bond fund, or stock mutual fund.

Best of luck to you.
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Answer 3

If you invest 2,500/year and earn the AVERAGE stock market return of 12%/year you will be a millionaire in 35 years. In other words, buy SPY, an exchange traded fund.

Avoid individual stocks like the plague. You can lose 30-70% of your money overnight even on quality stocks. You have it MADE as long as you START NOW.

It doesn't get easier to save money when you have a house note, two cars, and kids in college,

Years IRA Value
20 180,131
21 204,247
22 231,256
23 261,507
24 295,388
25 333,335
26 375,835
27 423,435
28 476,747
29 536,457
30 603,332
31 678,232
32 762,119
33 856,074
34 961,302
35 1,079,159
36 1,211,158

Answer 4

I think that a beginner and anyone with less than at least $25,000 (US) should start with mutual funds. You need to know more to invest successfully in individual stocks, plus you need to have at least five and preferably ten or more to be diversified so you don't lose everything if one company fails. To buy that many stocks, you need a substantial amount of money. (Well, you COULD buy 5 shares of each stock and accompish that with only a few thousand dollars, but the commissions would then be a high percentage of your investment, which makes it harder to be profitable.)

What I think a new investor should do is open an account at one of the major mutual fund companies (Fidelity, American Century, T. Rowe Price, Vanguard) and invest in an index fund that tracks one of the major indexes (S&P 500, Mid-Cap 400, Russell 2000, etc.). I personally usually prefer small company stocks like those in the Russell 2000 because historically they have slightly outperformed the larger stocks, but I think we might be entering a period where the larger stocks will do better, so at this point I don't really have a preference on company size.

You should invest as much as you can (keeping several months worth of expenses in a bank account or money market).

If you want to invest in individual company stocks later on, then start now doing research and watching how the market moves while you're investing in the mutual funds. Once you have enough money and enough understanding of the market, then you can make the switch.

Answer 5

Stocks have the greatest upside potential, however, risk and return go hand-in-hand. The more upside potential, the greater the downside probability. Of course, if you own a quality company over the long-term, you have greater odds of earning an above-average rate of return. But the chances are still slim to do this without losses when you only have limited funds. To have a well-balanced stock portfolio you really ought to have a $100k or more. That is why mutual funds are a better option for someone just starting out.

Furthermore, I recommend working with a professional. I've been a professional money manager for 20 yrs and I know the dangers that lurk out there for do-it-yourself'ers....and while there is a mass of information out there available, discerning what's important to know and what is accurate versus smoke and mirrors is an ongoing challenge for amateurs. I haven't even mentioned the challenge of managing your emotions. For instance, if the stock rallies quickly when do you sell? What if it keeps going up? Or when do you cut your losses? What if it turns around? The market's capitalize on people's emotions every day...especially professionals. With a mutual fund, you let a professional mgmt team sort thru the maze of informance, utilize sound research and apply disciplined principles that are a more sure path to success. But even they have risks in the short-term....

Answer 6

Hi, I recommend beginning with a stock broker and starting with mutual funds. The beauty of mutual funds is it has the least potential to lose money. Mutual funds are made up of groups of stocks so if one stock goes down you still have the other stocks to support you that may have gone up. Japanese mutual funds for technology companies have earned many people thousands of dollars over the years and are a safe choice. If your going to invest in the stock market only invest the amount of money your willing to part with in the worst case scenario. You will also need to do your part by reading because brokers are not always reliable. If you want to invest money there are some online banks such as ing direct, emigrant, eloan, and paypal which will give you about 5% a year and the money is moveable. In conclusion if you are going to invest as a beginner stick with mutual funds for now because they have the highest potential to make you money and the least chance to lose you money.

-Hope you found this helpful
*from a smart 13 year future invester

Answer 7

I have mutual funds that are yeilding quite well at this point.
I am thinking of getting some stock, but right now the stock that I am wanting to invest in is too high in cost.

The stock market seems to be a bit more "rocky" with the costs of stock.
My mutual funds have stayed remarkably high for about 5 years now.

Answer 8

Remember back in the 1990s when a lot of people either retired early or became wealthy? It was relatively simple. With stock prices going up, up, up, I knew a lot of people who simply invested part of their paychecks. They ended up with several hundred thousand dollars in profits from their constantly rising stocks.

I knew others who had already amassed several hundred thousand by the time the stock boom came along. They were millionaires by the time the 1990s ended.

Ah yes, those were the days. Today it's a lot harder. Stocks don't seem to do much any more. You have to invest in risky emerging countries to see much return. And that chance can evaporate overnight taking your money with it.

When the stock market won't bring you any return, most people turn to real estate. But housing prices have peaked in most cities, meaning you can't just buy a house and sit on it for several years to earn a fat nest egg.

So does that mean we have to give up on ever getting ahead and just learn to be satisfied living the average life our jobs can provide?

Not necessarily. These days you have to think differently to get ahead. For example, you've noticed how manufacturing and jobs are heading out of North America to foreign countries. That's bad news for many workers, but it's GREAT news for some segments of the Foreign Exchange Market.

You see, when we buy products from China, or Japan ships products to England, all kinds of currency has to change hands and be converted. There is BIG money in that process.

FOREX, the foreign exchange market, handles 2 TRILLION in transactions EVERY DAY. That's far more money than what Wall Street handles. Just about anybody can jump in and pull out quite a profit for themselves by participating in the FOREX process.

Does all this sound a bit new to you? Most North Americans have heard very little about FOREX. They've got BILLIONS of dollars sitting in savings accounts and low yield investments that could make them a LOT more money in the Foreign Exchange Industry.

Check out the Smart Foreign Currency FOREX Traders at: http://www.yourforexinvestor.com

To Your Success!!
Brandon Wells
877-773-5345

Answer 9

Despite their volatility, trading penny stocks can be extremely lucrative. Here are three ways that you can profit from investing in penny stocks https://tr.im/S8qLf

The good news about penny stocks is that you can buy a good amount of shares without going broke. It’s thus easier to get a good stake in a company for less than you would pay for stock of a larger organization. To find a company that you feel confident investing in, make sure to do your research. Don’t just choose a company because you saw an article about it, or because your friend is investing in it.

Answer 10

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