I want to invest money but I have no idea how or in what? (bonds, E-Trade)
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So I'm 25, I've got a bit of money saved up and I want to multiply it as much as I can. I'm currently in the home stretch of my PhD and by the time I graduate later this year I should have £11,000 - £13,000 in the bank. I want to put it to work and I don't mind if a little bit of risk is involved if there's a decent chance of a big payoff.
However, I know precisely jack **** about what to invest this money or how to go about it. I don't know the first thing about investing and I am not about to blindly hand my savings over and have faith in something I don't understand.
So if anyone has any advice for me I'd like to hear it, anything at all.
1. Open an online investment account with a known Internet broker: Charles Schwab, TDAmeritrade, etc. Since you specify your investible amount in pounds, I assume you are located in Great Britain; I also assume online brokerage services are available there. I suggest an Internet broker because of the low-cost trade capability.
2. Invest in what you know. You say you don't know in what to invest, yet you know where you shop, what services you personally consume, whether you like Twitter better than Facebook, etc. Use your personal experience to guide your choices. Do you use Pandora or SiriusXM? Coke or Pepsi? Starbucks or Peet's? I'd suggest stocks to start. The historic stock return in the US averages 8 to 10% annually, doubling over 10 to 12 years. Bonds don't come close to this rate of return. You may consider mutual funds, but avoid those with "loads" (fees for purchasing the shares) or high annual fees. Vanguard in the US has some of the lowest fee, no-load funds available.
3. Diversify. Spread your investment across several different items, maybe five to ten stocks or three or four mutual funds. While four of five stocks will follow the direction of the general market, maybe you'll find one or two that go up when everything else is going down. Diversify across industries, maybe across regions, countries or continents.
4. Invest money you don't need in the short run. It's hard to watch your investment take a dive six months or a year after you've bought, but it's easier to watch if you know you have time to see it come back. A corollary to this is to be an investor and not a trader. An investor will take the downturns in stride along with the upturns while the trader gets in and out on every small change of direction. Some folks recommend taking losses when your holding falls 8-10% from your purchase price or a subsequent high price; that a decline of 50% means your investment will have to grow back 100% to break even. This can work, but it can also miss out - over the course of the past three or four years, Netflix rose from $25 to over $300, fell back to $80, and is now over $400. If you had sold at $270 during the first decline, would you have bought back in and, if so, when?
5. Reinvest your dividends. Many brokers will purchase additional shares of your stocks, instead of sending a check to you, when the stock issuers pay dividends. Over the years, the number of shares purchased with dividends can vastly exceed your initial purchase and you won't have spent a dime of additional money to get them.
6. Stagger your purchases. Spread your initial investment over several months. You will be less susceptible to buying in at a market top, particularly since the market (in the US, at least) had a large runup last year.
7. Monitor your investments, but don't fret over them. You don't want to ignore them for five years and find you've lost everything; likewise, you don't want to get an ulcer worrying about every hourly up-tick or down-tick. Some good advice I've read is to check the closing price at the end of each week. You'll have the weekend to consider your reaction, but you'll have to wait until Monday to act.
Risk and reward go hand in hand. "Big payoffs" (in a short time span) generally means big risks, but in a lifetime of investing you can get big payoffs without taking big risks. Compounding is your friend.
Exchange-Traded Fund (ETF): "A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold. Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does. By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order."-Investopedia
It's sort of like a mutual fund, except it trades like a stock. There are no minimums, you can buy or sell it anytime. There are ETFs that track the performance of say the Nasdaq 100, S&P 500, Dow 30. There are ETFs that own hundreds of biotech stocks. There are ETFs for almost anything. GLD tracks the price of gold.
The ETFs I mentioned are...
QQQ
IVV
DIA
These track the Nasdaq 100, S&P 500, Dow 30. If the S&P 500 goes up 1%, IVV will go up around 1%. If the S&P 500 goes down 1%, IVV will go down around 1%.
QLD
SSO
DDM
These will try to double the performance of each index. For example if the S&P 500 goes up 1%, SSO will go up around 2%. If the S&P 500 goes down 1%, SSO will go down around 2%.
TQQQ
UPRO
UDOW
These will try to triple the performance of each index. For example if the S&P 500 goes up 1%, UPRO will go up around 3%. If the S&P 500 goes down 1%, UPRO will go down around 3%.
QLD, SSO, DIA, DDM, TQQQ, UPRO, UDOW are leveraged ETFs, so they are more risky, but you also can make a lot more money. These are good to own if you believe the markets will continue going up.
@CSD - I got your rep, you're welcome. If you have any other questions, send me a direct message. You currently have your profile blocked, so I'm telling you here. Sometimes I'm not on the forum for days or even weeks at a time, so send me a direct message if you need to get in contact.
The great thing I like about ETFs is that they are already diversified for you. They are usually much less volatile than individual stocks. You don't have to worry about researching and keeping track of multiple stocks, multiple commission fees when trading and all of that stuff. The whole process is simplified.
You can trade an ETF at the click of a button exactly like you trade just one individual stock. That's why I recommend ETFs.
Last edited by BigCityDreamer; 02-21-2014 at 07:44 AM..
1. Open an online investment account with a known Internet broker: Charles Schwab, TDAmeritrade, etc. Since you specify your investible amount in pounds, I assume you are located in Great Britain; I also assume online brokerage services are available there. I suggest an Internet broker because of the low-cost trade capability.
2. Invest in what you know. You say you don't know in what to invest, yet you know where you shop, what services you personally consume, whether you like Twitter better than Facebook, etc. Use your personal experience to guide your choices. Do you use Pandora or SiriusXM? Coke or Pepsi? Starbucks or Peet's? I'd suggest stocks to start. The historic stock return in the US averages 8 to 10% annually, doubling over 10 to 12 years. Bonds don't come close to this rate of return. You may consider mutual funds, but avoid those with "loads" (fees for purchasing the shares) or high annual fees. Vanguard in the US has some of the lowest fee, no-load funds available.
3. Diversify. Spread your investment across several different items, maybe five to ten stocks or three or four mutual funds. While four of five stocks will follow the direction of the general market, maybe you'll find one or two that go up when everything else is going down. Diversify across industries, maybe across regions, countries or continents.
4. Invest money you don't need in the short run. It's hard to watch your investment take a dive six months or a year after you've bought, but it's easier to watch if you know you have time to see it come back. A corollary to this is to be an investor and not a trader. An investor will take the downturns in stride along with the upturns while the trader gets in and out on every small change of direction. Some folks recommend taking losses when your holding falls 8-10% from your purchase price or a subsequent high price; that a decline of 50% means your investment will have to grow back 100% to break even. This can work, but it can also miss out - over the course of the past three or four years, Netflix rose from $25 to over $300, fell back to $80, and is now over $400. If you had sold at $270 during the first decline, would you have bought back in and, if so, when?
5. Reinvest your dividends. Many brokers will purchase additional shares of your stocks, instead of sending a check to you, when the stock issuers pay dividends. Over the years, the number of shares purchased with dividends can vastly exceed your initial purchase and you won't have spent a dime of additional money to get them.
6. Stagger your purchases. Spread your initial investment over several months. You will be less susceptible to buying in at a market top, particularly since the market (in the US, at least) had a large runup last year.
7. Monitor your investments, but don't fret over them. You don't want to ignore them for five years and find you've lost everything; likewise, you don't want to get an ulcer worrying about every hourly up-tick or down-tick. Some good advice I've read is to check the closing price at the end of each week. You'll have the weekend to consider your reaction, but you'll have to wait until Monday to act.
thanks for the very thorough answer. I never thought about the worrying side of it, but actually I think it sounds like it could be quite a fun rollercoaster ride. Sort of like gambling but with an actual chance of doing well in the long run. It sounds quite exciting.
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