Investing in a Mutual Fund/IRA: I'm SCARED! Any advice? (1 Viewer)

[Michael D. Bunting]

I'm looking to put a small amount of $$ ($100 or so) each month into a Mutual Fund. Most likely funding an IRA - but I need to research IRA's before I make a final decision.

I know this isn't a huge amount of money compared to other investors - but I'm just starting out, and I would add more money as i can over the next few years.

I have about 14-15 years left in the military (if I decide to stay in?) and this money/investment would be used to supplement my retirement at that time.

The problem is that I am scared to death about investing anything right now.

We do have a small savings account that I would continue putting some money into each month, as this is used mostly for emergencies or "un-budgeted" expenses that we don't have planned out in our budget.

Does anybody have any suggestions for me? Or can somebody share with me your investment strategy stories?

Thanks for any info/knowledge!

 

[Scott Merryfield]

There is no single investment strategy that works for everyone. People handle risk differently, so a high risk strategy that one person is comfortable with can be nerve wracking for another person.

Also, keep in mind that an IRA is a long term investment, so any short term dips or rises in the market are not a big deal. History has shown that the stock market performs well over the long haul (of course, past performance is no guarantee for future gains, as all the investment companies' disclaimers state ). Also, consider a down market as a buying opportunity, since securities are cheaper during those times.

Personally, if I was in your situation I would start with a solid diversified mutual fund with a mixture of stocks and bonds. Something like Fidelity's Puritan Fund.

 

[SteveK]

Michael - Scott gave some good advice. A down market can be depressing, but can also represent great buying opportunities. A diversified mutual fund is likely a better bet than any individual stock, as you never want to put all of your eggs in one basket. Also, by investing on a monthly basis, you derive the benefits of "dollar cost averaging", where your $100 buys fewer shares when the price is up and more shares when the price is down. Dollar cost averaging doesn't guarantee a profit, of course, but it is usually a better way to invest than buying a huge number of shares all at one time.

You need to decide the level of risk you're comfortable with. Some stock mutual funds take a more aggressive approach than others, so find one that you feel comfortable with. Also, find a mutual fund with a low expense ratio, such as the family of Vanguard funds. Otherwise, high expenses can significantly impact the fund's performance.

Speaking of risk, there's one thing you need to remember: ALL investments have risk, even savings accounts. No, you're never going to lose money in a savings account, but there will be times when a savings account earns substantially less than other investments.

Right now, almost all investments are losing money, as we're clearly in a "bear" market. But what goes down must come up, sooner or later. It is painful watching your investments shrink in value, but they will recover--eventually. Hang in there, and good luck!

Steve K.

 

[Charles J P]

Not to scare you, but I read an article about a month ago that is still stuck in the back of my mind. It was about some stock market analysts that are predicting that the entire market could see a period of stagflation (if I remember the term and my economics classes correctly) In other words, due to market performance and general inflation, the money that you put in, could actually be worth less in the long haul. I think historically, over any 20 year period, the stock market has always gained about 10% as a whole. So if you were diversified, and investing long term, you couldnt lose. Now, these people were saying that 20 or 30 or 40 years from now, the Dow could still be below 10,000. Which would mean, that due to inflation, you would have actually lost money.

I've actually been meaning to post about this and get some other people's opinions, but I never did. This looks like a good opportunity.

 

[Joe Szott]

Michael - You made the smartest possible move when starting investing: ask someone else about it! Most folks are too headstrong or too embarassed to ask about money, but investing is anything but simple. What I suggest is that you go to a financial advisor that will explain investing to you and make a plan for your personal situation and goals. A lot of them ar3e hurting for business these days, so they are probably discounting their fees like crazy. I've used a few in my life and it is a really, really good idea if you are new to the 'game'. American Express has decent people that will give free consultations, look em up in your area.

For your situation though, I would suggest you look into a Roth IRA, I have one of those. It has several advantages over a normal IRA and is one of the best deals going as Bush just gave it a huge shot in the arm. Basically, with a Roth IRA: you invest money that has already been taxed, it can grow forever (don't need to take it out at 70 yrs old), you cna invest it where you like, you can always take your original amount back out for free, and after some time or 59.5 yrs of age, everything you take out of there is tax-free forever. It is a really sweet deal for anyone who is eligible.

PS - "Personal Investing for Dummies" is actually a very good introduction of the different avenues available to us normal folk. I highly suggest it, just put a brown paper cover on it if the word Dummies puts you at ill ease

Charles - In 2001, a book was slated to come out called "DOW: 36,000". These guys don't know what the market will ever do, they just feed on the momentum. Protracted stagflation is about as possible for the US as a nuclear attack tomorrow from Saddam Hussain. Not 100% impossible, but I wouldn't bet on it myself.

 

[Michael D. Bunting]

Thanks for the great advice and all your knowledge fellas!

I'm short on time (working alot right now) and when I have a couple days off later this week I will be sure to read your posts more carefully and do alot more research.

It does sound like an advisor is in my future though - so I will do some checking with my Bank (USAA Federal Savings Bank) and do more research on the funds they offer.

Many thanks....I'll update you all once I decide what I'm going to do...

 

[Scott Merryfield]

I'll second Joe's advice regarding looking into a finacial advisor. If you do decide to go that route, look for one that has a fee-only structure -- i.e. they do not work on commission. Anyone working on commission has a vested interest in steering you towards certain investments that earn them the best commission.

We have used a financial planner for about 8 years now to help with investments and tax planning/preparation. It was the best financial decision we've ever made.