looking to invest some money

Discussion in 'After Hours Lounge (Off Topic)' started by Keith_R, Jan 23, 2005.

  1. Keith_R

    Keith_R Screenwriter

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    Hey all, I'm 19 years old and would like to begin investing money somehow for my future. I've ammassed around $4200 in a savings account and routinely have money coming back to me between work and financial aid for school. I'm in a good spot right now since I'm attending school through a complete tuition paid scholarship and have also been approved for grants and other financial aid to help me get through school.I'd like to use some of this money that I'm getting and invest it in a way that it grows and provides me money for my future and later events like purchasing a home. I'm kind of new to the investment thing and looking for advice from fellow HTF members on the best way to do this and see a good return w/ less risk.

    The way I see it I have several options includng the stock market, an IRA, or CD accounts. I currently have a CD account that I've put some money into with my family but the CD thing doesn't really provide a high return like I'm hoping to achieve. The stock market can be very rewarding but in this case it might be a little bit risky for me. This leaves me with an IRA or mutual funds (or are these two the same thing? excuse my ignorance), I don't know much about these except that they are built around retirement. I'd be real interested in somehow investing in real estate since I know it can be a very secure investment and can provide high rates of return but I haven't the foggiest of how to do this much less begin my investment career.

    What should I look into doing with my money that will make it grow w/ little risk and hopefully give me a secure financial future? how do I go about investing money? and is there a good resource to learn about investing and the various ways of doing it? thanks!
     
  2. Don Black

    Don Black Screenwriter

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    ING Direct has 2.35% APY Savings Account. Higher than most short-term CDs and FDIC insured with no restrictions...
     
  3. Brian W. Ralston

    Brian W. Ralston Supporting Actor

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    I would take some of it and make a maximum yearly contribution to a new Roth IRA. The rest, perhaps you can invest in some mutual funds or something with a good long term track record.

    But I would definitely start the Roth IRA ASAP.
     
  4. Cameron Yee

    Cameron Yee Executive Producer
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    First of all Keith, I have to commend you for your sensibility. At 19, while not a wild one in any respect, my head was nowhere near where yours is at, so consider me impressed!

    I'm no financial wizard either, but from what I understand mutual funds and IRAs are not mutually exclusive things. In other words, you can buy into mutual funds but have them "wrapped" in Roth IRA "giftwrap," which ultimately generates (hopefully) higher returns with the Roth IRA tax incentives. I believe any company like ING can set you up to do this.
     
  5. SethH

    SethH Cinematographer

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    If I were you I would invest in index funds. I would pick one other than the S&P500. I would actually prefer a whole market fund, but that's just my personal opinion. The difference between an index fund and a traditional mutual fund is that mutual funds are actively managed, meaning a percentage of what you pay in goes to an investor (probably 1%-3%). There are no such fees with index funds, meaning a mutual fund would have to beat the index by at least that fee to make it worth it.

    I would also get out of that CD ASAP. CD's are probably the worst long-term investment you could make. Safe? Sure they are, but a treasury bill would probably give a higher return and be equally as safe. If you want to keep some of it liquid, go with the ING direct savings account mentioned above that probably has a higher return than your CD anyway.
     
  6. Jeff_CusBlues

    Jeff_CusBlues Supporting Actor

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    Kieth - If you are interested in the stock market, pa rouse the Motley Fool website at www.fool.com. It has a section called Fool School that gives you a good education on investing and valuing stocks. It can also be entertaining. They also discuss investing strategies. There is a lot of material to read, but it is very educational. And best of all. Most of it is free.
     
  7. Elinor

    Elinor Supporting Actor

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    Keith, I don't recommend "investing in real estate" for 2 reasons: it is considered (in general) way riskier than individual equities (stocks), and also the real estate boom is by most accounts done. I personally invested some money recently and while the Real Estate Mutual Fund was very tempting, with the best 5-year return rate of all the funds, I have just read too much in the past 6 months about the boom days being over.

    I went with a Mid Cap Value fund, only because the Small Cap Value fund was closed to new investors.

    Mutual funds enable you to "invest in the stock market" without the high risk of selecting individual stocks yourself. A fund manager makes the selections.

    You can visit morningstar.com to see the various funds and their rates of return. T Rowe Price also has a nice fund comparitor on their web site, of their funds, that lets you see returns over various time periods.

    Personally, if you're young, it's silly to be too conservative in investing. CDs and money market stuff, this is for grandmothers who can't risk any loss.
     
  8. Tim Holyoke

    Tim Holyoke Second Unit

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    I definitely second the Motley Fool (fool.com). Basically a no BS approach to teaching about everything financial. I started investing when I was 17, and this is where I got started. It's become a little more commercialized lately, but still a wonderful source of info.

    One of the best "investments" you could make as a beginner is to subscribe to their discussion board community. It's not much (like $30 for 2 years I think? I forget), and there is a different board for basically everything you could imagine (including about every publicly traded company). There are some VERY smart people there who are also extemely helpful.

    You'll quickly learn there, as others have said, that your first $4000 should go to a Roth IRA. I have mine through Ameritrade, and it's easy to setup and work with.

    While I'd generally advise any novice to start with index funds (S&P 500 being the most popular), this economy is supposedly not good for index investing. A similar, but more industry-concentrated choice, would be ETFs. They have become very popular in recent years, with choices of many different industries.

    Get started by checking out the Fool, and once you understand the most powerful tool in the history of the world (compound interest [​IMG] ), you'll be well on your way to success.

    Hope this helps, good luck.

    Tim
     
  9. Keith_R

    Keith_R Screenwriter

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    thanks for the help guys. I'm busy checking out the Fool right now. I've read all of the posts here so far and it's very helpful except that I'm a little confused.

    The way I understand it a mutual fund is a selection of stocks picked by someone whom manages it and allows you to invest it, there are many of these some w/ a higher rate of return than others. Correct?

    What is an IRA and how does it work? I know someone said put your money into a "Roth IRA" but it seems like there are several IRAs, what is the difference between Roth and the other IRA's? thanks for the tips and suggestions, it's got my mind going. Keep it coming.
     
  10. SethH

    SethH Cinematographer

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    Yeah, pretty much. If you look at the data index funds beat about 90% of mutual funds in the long-term. You have to remember you are not garaunteed any return, no matter how much you're paying someone to manage a mutual fund. Sure, some have had returns of 20%+, but not consistently. There have only been a handfull of managers EVER to beat the market on a year-after-year basis, so the chances of you finding the next one is slim.

    Mutual funds are very good investments, but for my money index funds are better. The ETF's that Tim mentioned are also very interesting, but I haven't researched them enough to hold an educated conversation.
     
  11. Mort Corey

    Mort Corey Supporting Actor

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    A Roth IRA is funds that are contributed on an after tax basis and the earnings are tax free when you take them out for retirement, etc. A traditional IRA is tax deductible on your Federal Income Tax and is taxed when it's distributed.

    Do your homework first. Make sure you're aware of the risks and rewards of the various types of financial management schemes before you plunk down your cash. The higher the reward you seek will most likely also have the highest risk attached. There are no Wall Street firms, funds or programs that will guarantee that you will not lose money.

    Good fortune.

    Mort
     
  12. Cameron Yee

    Cameron Yee Executive Producer
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  13. Elinor

    Elinor Supporting Actor

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    >"If you look at the data index funds beat about 90% of mutual funds in the long-term"

    Perhaps, but you have to often look REALLY LOOOOOONNNNNNGGGG term to see that.

    I think there are plenty of funds the past 5-10 years that have easily beat out S&P500, Midcap, etc. (and I know, since I have little choice but index funds with my 401k).
     
  14. SethH

    SethH Cinematographer

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    Well, that may be true, but only for these last 5-10 years. What about the 5-10 year period immediately preceeding that, or the one preceeding that. Below is a quote from www.fool.com (as reference above in this thread). The quote is about index funds:

    "Sound simple? Sound like aiming too low? It isn't. Almost all actively managed equity mutual funds over time lose to the market averages. And those funds that do beat the market's return typically do so for only a very short period of time, and then quickly reverse course."

    Mutual funds can be great investments and in many situations are superior to index funds, but if you're looking for long-term investment index funds almost always win. Also remember that a mutual fund must beat an index fund by at least 1%-2.5% to make it worth it because that is the typical fee you pay to the manager of the fund.

    If you can get into a mutual fund managed by Bill Miller at Legg Mason Value Trust then definitely do it. He and Peter Lynch (no longer active I don't believe) are about the only fund managers EVER to consistently beat the S&P 500 (Bill Miller has beaten it 14 years in a row, but I think all his funds are closed to new investors).
     
  15. Justin Lane

    Justin Lane Cinematographer

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    But if you started investing 5 ago, this means you have lost 5 years of quality growth/compounding which is a big deal for an early investor.

    I too would recommend starting a Roth IRA. Your earnings have to be saved for retirement (or can be used one time to purchase a home as long as they have been in your IRA 5 years), but any regular contributions you make (i.e your $4200) can be removed anytime without penalty, though I don't recommend spending retirement savings.

    J
     
  16. Brad_Harper

    Brad_Harper Stunt Coordinator

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    The best advice I can give you as someone who started investing early is learn as much as you can about the stock market. Forget about mutual funds, savings accounts, etc. Nothing much competes with the potential returns on your money and it's not as risky as some people make it out to be.
    Someone above mentioned an ING savings account. I suggest buying ING stock instead. Most people don't know that ING pays about a 3.5% dividend/year (maybe more or less). Which is better then the best savings account. Pick any bank stock actually and you will find similar dividend returns. Plus you have the added bonus of making a decent return with the actual stock.
    Instead of keeping your money in a bank go out and buy a piece of it! Stocks are your friend!
     
  17. Keith_R

    Keith_R Screenwriter

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    I've been trying to do this but it can be awfully confusing. Being that I'm 19 would it be wiser to invest in a Roth IRA or take some risk and go for the stock market?
     
  18. Patrick Sun

    Patrick Sun Moderator
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    It depends on your aversion to risk. If you want slow and steady, max out your Roth IRA contribution (I guess it's still $3000 for 2004, and goes up to $4,000 for 2005), and then take the leftover and put it in either individual stocks if you're feeling lucky, or scout out some index or mutual funds of specific sectors you think have a good future upside.

    If you're willing to let it ride, then go aggressive with individual stocks or mutual funds.
     
  19. Tim Holyoke

    Tim Holyoke Second Unit

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    Well, you can invest your Roth IRA money in individual stocks. Why don't you try something like this: put up to the max $4,000 into a Roth IRA, put about $3,000 of it in index funds (I would break it into 1/2 S&P 500, 1/2 Russel2K), and use the other $1,000 to try on individual stocks? Just put $300-400 in a few different stocks. Of course teach yourself along the way and know what you're investing in, but that way you'll stay interested. Once the money is in your IRA, you can buy and sell all you want and won't be penalized (taxed), as long as you don't withdraw the money from the account. However, make sure not to ever go overboard making trades, or transaction costs will eat you alive.

    (As an aside, I'd recommend anybody that has $5,000 or more to invest in NON-retirement accounts to check out Freetrade. It's a subsidiary of Ameritrade, and gives you something like 30 or 40 FREE trades per month. They keep costs low by doing everything electronically.)
     
  20. Jeff Ulmer

    Jeff Ulmer Producer

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    Just remember these are historical rates. The funds I was in had great historical numbers, until they hit a 94% decrease and I lost everything. High gain potential=high loss potential (mine were considered medium risk, didn't matter). If you want a guaranteed return, choose a vehicle where your principle is protected. Don't invest any more in a mutual fund or the stock market than you are prepared to lose, and watch out for the transaction fees, which can quickly negate any gains you may have made.
     

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