Small time new investor... need some book/tip suggestions

[Dryst999]

So I just turned 25, graduated college last year and finally making decent money (45k/yr but I live in TN so that's like 90k in NYC..). I have paid off 10k in CC debt this year and only have 5k left in student loans and 8k left on my car loan so i'm looking to start investing this year.

I'm not looking to get rich and i'll be VERY happy to average 8% returns, the less risk the better. I have 1k startup to invest and only plan on contributing $100-200/month for the time being, this will increase as my salary increases and I get more experience in the market. This will be a more long term investment, the earliest I will touch this money is 5-7 years from now in which I may take a chunk out of it to help with a house downpayment.

With what i'm looking for i'm guessing Index funds are the way to go for ease if investing/low risk? Is it going to be possible for me to contribute little amounts per month like i'm planning or will the fee's make my investment worthless? Should I sign up for etrader or use Vanguard?

Any tips or book suggestions for a beginner would be appreciated, i'm not dumb or lazy and plan on doing my research... I come from a poor family so i've never had the chance to even start thinking about investing until now.

 

[edro]

E-trade / Sharebuilder / ScotTrade / Vanguard

Automatic savings plans usually waives any fees.
Pick a mutual fund and start contributing.

Set up a Roth IRA, since you can withdraw Roth funds for home purchase without penalty.

 

[Brainonska511]

I use Vanguard. Good selection of low-cost index funds of varying risk.

The only issue I see for you is that most of them require $3k initial deposit.

 

[Jeeebus]

Suggestion: Spell it "investor."

 

[Schfifty Five]

I use fidelity and I think all trades are only $8 now.

I like their website a lot, very accessible with lots of functionality.

Definitely set up a Roth IRA if you haven't yet and max it out every year ($5K for 2010 I believe).

 

[rcpratt]

I need to start researching this as well. I'm 22, no debt, saved about 10k (6 months living expenses) in a relatively safe money-market account, and this is going to be the next step. I'd kind of like to do some reading and have the ability to have some fun with this and research/invest in individual stocks, but I'm not sure how realistic that is.

 

[yllus]

1. Read this: The best investment advice you'll never get

2. 8% with low risk isn't happening, AFAIK.

3. Pick up The Intelligent Investor by Benjamin Graham - one of the latest revisions that has his son's notes at the end of each chapter that "update" the book.

 

[MrChad]

What are your interest rates on your student loan and car loan debt? Are you contributing to a 401k?

 

[vbuggy]

Actually, the best investment advice is to invest in what you know. The moment you get into something you don't, you automatically hugely increase the risk.

 

[ViviTheMage]

Good thread..tagged. I don't know shit about stocks.

 

[blinblue]

For long term/retirement its pretty hard to do better than an S&P index fund. Historically if you can keep it around long term (10+ years) you are essentially guaranteed 9%+
For the fun of it, try out various 20 year spans on this little calculator. http://www.moneychimp.com/features/market_cagr.htm

Basically every 20 year period ends up with at least 8%, even if you went from 1988 to 2008. So short term, its really high risk, but long term, its about as certain as anything can be these days.


I personally use Vangaurd for my Roth IRA. Just started fairly recently (I'm 20, no debt, 6 months of expenses saved).

 

[daishi5]

1. Read this: The best investment advice you'll never get

2. 8% with low risk isn't happening, AFAIK.

3. Pick up The Intelligent Investor by Benjamin Graham - one of the latest revisions that has his son's notes at the end of each chapter that "update" the book.

This, several times over, this. Also, it mentions A random walk down wall street in the first link, and you should read that book as well, not just the first link, but from a quick skim the first link is a good place to start.

If you are going to be putting over $100 dollars a month into something, you owe it to yourself to read these books. We can give you advice, but this is your future, put some work into it to know how investment works.

 

[Dryst999]

What are your interest rates on your student loan and car loan debt? Are you contributing to a 401k?

My student loan is 4.5% and car loan at 7.2% interest, i'm paying double the monthly minimum on both and contributing $200 to my 401k a month. I know some will suggest for me to put more money into my 401k but i'm more interested in having liquid investments for the next 5-20yrs without huge penalties if I need to pull from them instead of a bigger retirement nest egg. I will obviously put more into my 401k as time goes by.

Are there any tax benefits for investing in Index funds? Also my goal is to have liquid investments that I can draw chunks from for home purchases or business ventures if the needs arise without incurring huge penalties or taxes... should I look at something else besides the stock market?

I will definitely check out The Intelligent Investor by Benjamin Graham and if anyone else has anymore book suggestions for begginers I would appreciate it greatly.

 

[edro]

At your age, 401K is your #1 priority.
If your employer matches, you must contribute at least to their matching point.

 

[vbuggy]

Bloody hell. Links, how do they work? Hopefully this one does

http://www.amazon.com/One-Up-Wall-St.../dp/0743200403

 

[rcpratt]

Even (or especially, maybe) if they don't match, try to contribute at least 8% ($300/mo). What you contribute now will be the biggest factor in your retirement.

 

[yllus]

Actually, the best investment advice is to invest in what you know. The moment you get into something you don't, you automatically hugely increase the risk.

Investing in what you know can also be a huge trap. I may think I'm savvy to the tech world and know when to invest in AMD or Intel or IBM because I love their hot new processor, but that often has no reflection on the overall state of their companies and their imminent performance.

 

[Train]

My student loan is 4.5% and car loan at 7.2% interest, i'm paying double the monthly minimum on both and contributing $200 to my 401k a month.

Pay the min on the student loan, the interest is tax deductable, take that extra money and pay down the car sooner.

Like others have said, start a Roth IRA. max it out as much as possible before you turn 30, this is key.

Spread the rest around, 401k, stocks, mutual funds, maybe a CD here or there, etc.

 

[Dryst999]

So i'm looking into the Roth IRA and it looks too good to be true, so if I contribute 5k/yr to my Roth IRA and say 2 years from now my account is up to 13k, if I pulled 10k which were my contributions for those two years that 10k would be tax free? The only thing I would pay taxes on is the 3k earnings if I pulled the whole thing? Granted these numbers are unrealistic and I would never use this as my emergency fund, I just want to make sure i'm not missing something.

And if i'm reading this right I can also take out 10k tax free including earnings for a home purchase?

 

[vbuggy]

Investing in what you know can also be a huge trap. I may think I'm savvy to the tech world and know when to invest in AMD or Intel or IBM because I love their hot new processor, but that often has no reflection on the overall state of their companies and their imminent performance.

It does actually. I might have missed the bit about not what you think you know, but what you know. It is to a degree about being honest with yourself.

I invested in AMD when they seemed to be going somewhere. The moment Intel's roadmap for the Yonah/Conroe/Woodcrest onwards was revealed I knew they were toast, so I pulled. That is knowledge as someone following hardware to buy.

Similarly I invested in Apple when iTunes for Windows was announced. It was pretty obvious it would be huge, and also because I would be buying it.

 

[blinblue]

So i'm looking into the Roth IRA and it looks too good to be true, so if I contribute 5k/yr to my Roth IRA and say 2 years from now my account is up to 13k, if I pulled 10k which were my contributions for those two years that 10k would be tax free? The only thing I would pay taxes on is the 3k earnings if I pulled the whole thing? Granted these numbers are unrealistic and I would never use this as my emergency fund, I just want to make sure i'm not missing something.

And if i'm reading this right I can also take out 10k tax free including earnings for a home purchase?

I believe in a Roth IRA you must have had the account for 5 years before you can do the home withdrawal penalty/tax free. And the money must be used for home purchase within 120 days of withdrawal.

 

[edro]

I believe in a Roth IRA you must have had the account for 5 years before you can do the home withdrawal penalty/tax free. And the money must be used for home purchase within 120 days of withdrawal.

I only had my IRA for 2 years when I withdrew mine for house purchase, penalty free. Of course, that doesn't mean it was legal and I might get a knock on my door down the road from Mr. IRS.

 

[MrChad]

My student loan is 4.5% and car loan at 7.2% interest, i'm paying double the monthly minimum on both and contributing $200 to my 401k a month. I know some will suggest for me to put more money into my 401k but i'm more interested in having liquid investments for the next 5-20yrs without huge penalties if I need to pull from them instead of a bigger retirement nest egg. I will obviously put more into my 401k as time goes by.

Are there any tax benefits for investing in Index funds? Also my goal is to have liquid investments that I can draw chunks from for home purchases or business ventures if the needs arise without incurring huge penalties or taxes... should I look at something else besides the stock market?

I will definitely check out The Intelligent Investor by Benjamin Graham and if anyone else has anymore book suggestions for begginers I would appreciate it greatly.

I'm a fan of The Only Investment Guide You'll Ever Need by Andrew Tobias.

Personally, I would focus on paying off your car loan before you start investing in mutual funds. Any gains you make on the mutual funds will be negated by the car loan interest you're paying.

 

[Numenorean]

Give all your money to me.

 

[daishi5]

It does actually. I might have missed the bit about not what you think you know, but what you know. It is to a degree about being honest with yourself.

I invested in AMD when they seemed to be going somewhere. The moment Intel's roadmap for the Yonah/Conroe/Woodcrest onwards was revealed I knew they were toast, so I pulled. That is knowledge as someone following hardware to buy.

Similarly I invested in Apple when iTunes for Windows was announced. It was pretty obvious it would be huge, and also because I would be buying it.

At the time you bought Apple stock, were you familiar with their cash flow, their income, how their corporate board was structured, how large their company was, who owned what amount of their stock, and how their licensing agreements were structured with the music industry? Just guessing correctly that iTunes would be big is not the same as knowing the industry.

The idea that you invest in what you know is that you invest in what you know very well, and more importantly know so much about that you know a lot more than the rest of the market. This almost always means a lot of work and study. A lot of people believe they know a lot about the company they work for, such as Enron employees. They also turn out to be wrong most of the time.

Unless you work at knowing a company inside and out, and work at it for long hours, you don't know a company well enough. Too many people view investment as some form of magic money machine that they toss a bunch of cash in and pull more cash out of later. If you buy an index fund, it only goes up if what it is indexing goes up, most index funds are tracking the biggest 500 companies, or trying to index the whole american stock market. In that way an index fund is a bet that the american economy will continue to grow. It is usually the safest bet available, but it is a bet.

To the OP, don't forget to read A Random Walk Down Wall Street. If you really want to work hard at investing, you can do it, but you need to really work, and even then success is hard. Most likely, you don't want to work, and then your best choice is to either find someone to do the work for you, an investment fund, or an index fund and just accept you will never beat the market. If you go with an investment fund, you still need to research them, and do some work to find a good one. If you don't want to do any work at all, index fund. And, honestly, even after all the work, you usually don't come out better than if you had chosen an index fund, so it is usually better to be lazy and go with the index fund route.