Stocks: How do you make money with them?

[Guest ash-]

I've been reading a bit about stocks, bonds etc from a college business book I had laying around and it sounds very interesting. Unfortunately, this seems like the kind of endeavor that will need several books to fully appreciate. What sites, books, and magazines should I get more information from?

[ArmyG]

Buy whatever I buy and you'll lose money for sure...

[Shazz]

try Vanguard.com

 

They have a great site.

[witt]

buy low, sell high. If Forbes says to buy it, you already missed the boat

[Goofus Maximus]

Go with a no-load index fund for the majority of your investing (Vanguard's S&P 500 fund is a popular choice), and use the leftovers for individual stock picks. AVOID DAY TRADING. Stocks are a long-term investment, and day-trading is literally gambling with your money. Never sell off stocks when things are going through a downturn, just because you're afraid you'll lose more money; you lose money and have to pay alternative minimum taxes anyway, and the stocks will eventually rebound, and you'll kick yourself silly for having sold them.

 

Go here for better information on what to do, and what NOT to do.

 

Stocks are a way to save for your retirement. Never think of them in any other way.

Edited May 26, 2006 by Goofus Maximus

[MrDuke]

Go with a no-load index fund for the majority of your investing (Vanguard's S&P 500 fund is a popular choice), and use the leftovers for individual stock picks. AVOID DAY TRADING. Stocks are a long-term investment, and day-trading is literally gambling with your money. Never sell off stocks when things are going through a downturn, just because you're afraid you'll lose more money; you lose money and have to pay alternative minimum taxes anyway, and the stocks will eventually rebound, and you'll kick yourself silly for having sold them.

 

Go here for better information on what to do, and what NOT to do.

 

Stocks are a way to save for your retirement. Never think of them in any other way.

 

 

Good advice.

 

Get some education before you start.

 

In addition to just buying stock, you should understand why it's time to buy a particular stock, how to sell short, how to buy/sell/utilize options as protection on existing stock or as an additional financial tool.

 

Make sure you understand options. Just as you wouldn't drive a car without insurance, you should not own a significant amount of longterm stock without protection.

[Brillow_Head]

We just set up a Roth IRA account through our bank. If you make under 110k a year combined (as in you and spouse) then you can contribute 4k a year.

 

As long as the money is contriubted after taxes, then all the money you deposit in the Roth, AND the compounded intrest will NEVER be taxed and never have to be added as "Additional income." You let it simmer for 30-40 years on a risky to semi-risky mutual fund (or a diversified portfolio) you can net yourself a sizeable chunk of change to retire on (we're hopping for $1 Mill+)

 

Not to say that you turn 62 and, bam, your a millionar...you'd withdrawl enough money each year to give you a fixed income to draw from until you die or your IRA runs dry.

 

The key is two things

 

1) Start early.

2) Be disciplined (as in keep putting money in)

 

Go to your bank and sit down with an investment manager, they can tell you some pretty cools stuff that is relatively easy to set up with a little bit of help.

[Chief]

They key is managing risk, and managing costs. Like Goofus said, having a managed fund has many benefits.

 

Managing risks:

 

Diversify--buy small, medium, and large company stocks, consider REITs or funds that have REITs (real estate investment trust) as a portion of their holdings. The S&P 500 fund basically traces the value of the S&P 500 index. Watch the news at night and when you see what that index did, you will know what you made.

 

I would encourage you to diversify in other ways too though.

 

international, domestic

stocks, bonds

 

are the traditional concepts for investing, but also consider diversifying your tax liability.

 

Before you invest on your own, max out your 401k. At least make sure you are contributing up to the maximum of your employer's matching limit. If you have more sitting around, go higher. It lowers your adjusted gross income so that you effectively lower yourself into a lower tax bracket--and that's a good thing.

 

Beyond that, an IRA works much the same way. The money that you put it adjusts your tax liability.

 

Beyong that, a Roth IRA is AFTER tax dollars. You get money in your paycheck, you put it in your Roth. You can't write it off, but you have PRE-PAID the tax. So in 20 years when you go to cash out your Roth, what you see is what you get. With other accounts, you will have to pay the appropriate taxes.

 

Managing Costs:

 

Fees and taxes. There are fees for conducting transactions, and there is tax liability. Between the two of those, you need to know A LOT before you start putting your savings on the line. So that's all I'll say about that.

 

+++

 

For the specifics, keep in mind that your tolerance to risk and investing strategy is quite different now than it will be in a few years. The closer you get to retirement, the less risk you want. You'll want steady secure income, and less emphasis on growth. So over time you need to reevaluate your holdings and adjust--fewer stocks and more bonds.

 

Fidelity, and others now, offers funds that are designed to adjust over time. Say you plan on retiring at 67, and you'll be 67 in 2042, then you could buy the Freedom fund. It has a comprehensive strategy, and adjusts the portfolio to predetermined mixes over time. Low fees, too.

 

Freedom Funds

 

I would start there, and start learning the strategy. A mutual fund has multiple stocks and bonds and professional managers that make the decisions for you, but it will get you in the game.

[Chief]

http://money.cnn.com/2006/05/09/pf/expert/...xpert/index.htm

 

Walt Musgrave gives pretty good advice. I signed up for his email newsletter years ago--the link to sign up is at the top of the column.

[shep48]

buy norfolk southern we have had 2 years of record breaking profits. high fuel costs drive shipping away from trucks. ralilroad is a long term investment stock like general electric.

[ThruX]

I have a 401k from my work through merrill lynch just got it recently. They said i could choose what i wanted to invest in or let them do it. i am also able to watch my money grow, but have not been able to figure out how to log in yet. when i do though i think i am going to tinker around looks like some fun stuff.

[FroBoZZ]

i guess ur talking about having some firm like vanguard handle ur stocks, not picking your own stocks and investing yourself

[Goofus Maximus]

For the most part, index funds tend to outperform other stock picks, and they always outperform other, more actively managed, mutual funds, over the long term. It's a safe investment with minimal transaction fees, and thus where you would want to put the largest chunk of your stock investment dollars. You keep the other smaller chunks for things like individual stock picks.

 

The only main thing to always keep in mind, is that stocks are a long-term investment, and you buy them with the intent of holding onto them for a good long time, whether the price goes up or down in the meantime.

Edited May 30, 2006 by Goofus Maximus

[Chief]

That's a misleading response. Index funds, are funds none the less. There are management staff behind the index fund buying/selling/re-weighting the individual stocks. An index fund is not different than a mutual fund for all practical purposes.

 

With both you will want to look at management and transaction fees and minimum investment amounts.

 

The best index funds will not be a "pure" representation of the S&P 500 (or whatever other index that particular fund tracks such as DJIA, NASDAQ, etc.) they will bulk up on the smarter items. Some index funds outperform the index they track--the only way to do this is to weight your holdings.

 

There are also ETFs, which are exchange traded funds. They are purchased similar to stocks (but you can only buy them at the end of the day---can't let people buy them till their prices are set by the day's trading of the individual stocks that comprise the index.

 

For example, Diamonds track the Dow and Spyders track the S&P, and they are two of the more popular ETFs.

 

It is also far from true that Index funds always outperform managed mutual funds. Index funds are actively managed funds, and their investments are limited to whatever index they track and the regional markets therein.

 

This limits your diversity, and few Indices are composed of 100% growth oriented companies. So they provide a stable base that is representative and long lasting.

 

For example, here's the top 25 performing S&P index funds versus the top 25 performing Small cap growth funds over the past 10 years:

 

Index funds

 

Small Cap Growth funds

 

I pulled the data from WSJ.com and saved the results as a PDF.

 

 

Note the 8% VS. 20% returns.

[nut]

i do "fake" stocks

 

at

 

Investopedia.com

 

 

its fun and ive learned a lot

 

 

[appalachian_fox]

If you want to learn more about stocks, I recommend the Intelligent Investor, Revised Edition. It was originally penned by Benjamin Graham and has been updated by a protege of one of his proteges. It is a good look into equities in general, gives a good overview of "value investing" (one method of juding the upside / downside potential of stocks) and pretty much ends with recommending index funds for the long term unless you want to make a full-time job of equities analysis. This way, you can learn a little (It's not in-depth about all facets of stock, and leans more to the market side than the corporation side) and if you want to choose individual stocks anyway, you will learn a bit about what things are good to look for and why.

 

http://www.amazon.com/gp/product/006055566...5Fencoding=UTF8