Investing? ....

[Xcobra]

Hey guys! just a poor college student here...i was thinking of investing some money in the future in the stock market. I say in the future because, again, i am in college and only make 700 bucks a month from a part-time job. I do though have been thinking of saving at least 50 bucks each month and put it on a savings account. But are there better ways of investing it?

I have read index funds are better and outperform mutual funds most of the time. But then again, im only a n00b! I do have 3000 that I put on a Roth IRA and am just letting it sit there and hopefully contribute some cash as I go. I am just trying to get ready for the future. I would appreciate all types of responses.

 

[Chunkee]

read warren buffet..he says index
jC

 

[Special K]

I would recommend you go here:

diehards

Read 1 or more of their recommended books, and ask questions as necessary.

 

[Capitalizt]

www.tiaa-cref.org

Set up a direct deposit with your bank account. They will draft the account $25, 50, whatever...every two weeks and put it into a broad based index fund. This is the best way to average into the market over time. Sometimes you buy more, other times you buy less...but over the long run you are invested in the US economy. Don't do this unless you have a horizon of 5+ years with the money. If you plan to spend it on a car, house, etc you are btter off keeping it safe in a money market. For retirement however, index funds are the way to go. Make sure you are debt free before you start investing however. If you have student loans above 5% or credit card bills, pay them off first. Paying down the Visa is a guaranteed 20% return

 

[Xcobra]

Yes Special K I have asked the same question there, and will read one of their books. It is a very helpful website. I just want to get an idea of what I am getting into, then do some research and decide. Thanks all! everything helps!

 

[mshan]

Not all index funds are created equal (expense ratio and what it is actually indexed to are very important). A lot of companies created index fund mutual funds as a marketing gimmick to gather assets (remember, they often charge 1% or more management fee on all those assets they collect, so they can make a lot of money, at your expense), but charge high expense ratios that defeat a lot of the purpose of an index fund per se.

If you have completely funded your Roth already, dollar cost averaging into Vanguard Index Total Stock Market (VTSMX) is a great idea because it is going to be very very hard to beat over time (say 30 - 50 years from now), and even more so on an after tax basis (turnover ratio is very low because it basically owns the whole stock market, so you don't have to keep paying capital gains every year). Plus, once you hit retirement age, you can take funds out of your IRAs first, and let this fund compound for another 10 - 20 years.

Expense Ratio (management fee and all costs to run the fund) for VTSMX is a paltry 0.15%, and because it is indexed to the whole U. S. Stock Market, turnover is exceedingly low. This minimizes trading costs and produces superb tax efficiency (you don't keep losing capital each year to pay Uncle Sam). Plus this fund is almost 100% stocks, where as a lot of actively managed mutual funds are typically 95% stocks and 5% cash. Over time, stock returns > bond returns > cash returns. Plus, if you have faith in the long term viability of the U. S economy, you can feel comfortable adding money in the most down of stock market days or dark days of recession since you won't need the money for decades from now. You do have to select a fund manager / fund company that you believe has your best long term interest in line with theirs, because if you have to pull your money out 10 - 20 year down the road and reinvest in another more trustworthy steward of your money, you have to pay capital gains then start compounding again with a lesser amount of principal. So fund company and fund manager you choose are very important to implement this strategy optimally (hint: VTSMX)

Two superb books to get you started:
http://www.amazon.com/Personal...&qid=1208832863&sr=8-1
http://www.amazon.com/Common-S...&qid=1208832883&sr=1-3

Perspectives from a successful active manager:
http://selectedfunds.com/pdf/SFSuccInv4Q07.pdf

 

[sindows]

If you have time, take an options derivative class at your college if its offered. Make sure you get a great professor. By the end of it, you should easily make $100-200/month trading options on stock indexes with ~2-3k initial investment. Of course nothing is guaranteed but a 10% monthly return isn't so bad if you're reasonably accurate in telling which way the market will move...the 10% monthly is based from personal experience and no I won't tell you how. If I did, where would my returns come from

 

[TheTony]

fyi: Index funds are generally mutual funds. They can also be ETFs, or some less common form of collective investment.

 

[DaveSimmons]

Originally posted by: sindows
If you have time, take an options derivative class at your college if its offered. Make sure you get a great professor. By the end of it, you should easily make $100-200/month trading options on stock indexes with ~2-3k initial investment. Of course nothing is guaranteed but a 10% monthly return isn't so bad if you're reasonably accurate in telling which way the market will move...the 10% monthly is based from personal experience and no I won't tell you how. If I did, where would my returns come from

On the other hand, if this really worked in the long run you could buy shares in a mutual fund that returned a consistent 60% a year and pocketed the other 60% for doing the work.

Even the illuminati hedge funds with $1 million minimum investment don't consistenly return anywhere close to 120% growth a year, and some of their managers earn $1+ billion a year to run them.

So, if not gambling: stock index mutual funds, buy and hold.

 

[Ionizer86]

Seconded. A total market fund, one with the lowest expenses, should be your best bet to keep things easy and to have good growth over the next many years. Vanguard's is good (VTSMX, mentioned above. 0.19% expense ratio, 3k min).
If you ever manage to net 10k, you could also purchase Fidelity's total market fund. FSTMX: 0.10% expense ratio, 10k min.

 

[Xcobra]

lots of info guys! thanks! I am also gonna buy some books to help do the homework. I do think it is important to prepare myself (or anyone really) financially for the future. I will check out Vanguard...thats where my Roth IRA is...

 

[Capitalizt]

This should be the first book you read:

http://www.amazon.com/Financia...&qid=1208840079&sr=8-1