Your Questions About How To Invest Money

Chris asks…

How to and where to invest money?

I am searching for a guide or any practical resource that can help me think or get me started about how to and where to invest money?

My money situation is not good for the time being as I only have started my job career now, but I am thinking of the future where I can spare some money.
Thanks.

John answers:

Standard investment advice is that you should invest in a diversified mix of stocks, bonds, and money market funds. If you are like most people you will invest part of your money aggressively in stocks, and part conservatively in money market funds and bond funds. However, some young people will go all stocks, and some very conservative people will go all money markets. The links below have on-line questionnaires which will give you an idea of how to do “Asset Allocation,” determining how much to put in each type of investment.

You want to buy a diversified portfolio of stocks as individual stocks are too risky. Highly knowledgeable people can buy a properly balanced portfolio, but most folks have a difficult time balancing things on their own. They will misbalance their portfolio by buying all small stocks or all growth stocks, or some other misbalanced assortment of stocks. Back in 2000, Some people bought all Internet stocks; they got burnt when they all crashed together. You have to diversify across industries. Unless you know what you are doing, it is best to buy mutual funds that will diversify for you. Buy no-load, low cost funds. Mutual funds should have expense ratios of less than 0.5%.

If your company offers a 401K plan at work, try to invest the most you can. The money grows tax free, and some companies will match your contribution. Investing in a mutual fund IRA is also a good idea. If you have children, you may want to consider a 529 plan or other college savings plan that grows tax free.

I like index funds. Because of their broad diversification, you are less likely to have a dramatic drop in value. They also have the lowest expenses. For stock funds, I would suggest putting ~70-80% of your money in the Vanguard Total Stock Market Index Fund. And ~20-30% in a foreign stock index fund. The Vanguard Total Bond Market Index Fund is good for a bond fund. The Vanguard Target Retirement funds can be good all-in-one stock and bond funds for an IRA. However, there are many different opinions out there on what the best mutual funds are. Read the links below and form your own opinion.

Buying a house instead of renting will save you a lot of money in the long run. You don’t have to pay rent and you build equity in your house instead. Buying rental property can be a good investment for some people. However, being a landlord can be hard work, and many people are not good at it. If you don’t know how to handle deadbeat renters, you can have trouble.

If you have high-interest debt, like credit cards, it is best to pay this off first before trying most of the investment ideas above. You should also have 3-6 months of salary saved up as an emergency fund in a bank or money market fund before trying more risky investments.

I will warn you that there is a tremendous amount of stock investing books and websites that teach stock investing strategies that don’t work. Particularly bad are people that teach “technical analysis” systems that sound impressive, but don’t work.

Believing advice you get on Yahoo answers can be risky, so read these websites for further information. If you find it too confusing, contact a professional financial advisor. They will charge you significant commissions, however.

Steven asks…

What are someways that a college student can invest money?

I’ve been saving up a little bit of money for a while now (about $1600) and i wanted to know how i could invest it so i might be able to get something out of it later. i have no experience in any type of investing before and i am really new to it…… any thoughts

John answers:

Research on mutual funds
you can can some money there

John asks…

Best way to invest money for a teenager?

I’m 17 and I’m looking for whys to invest money. A few people have suggested CDs and with a 5% turn around its not all that much and frankly not worth my time. Somebody else suggested the stock market (I have a general idea on how this works but is it a good investment) Is there any other ways I could invest my money for the future? Thanks!

John answers:

What you should do is take your money to the bank and buy a savings bond. Once you put your savings bond in the bank it will gain intrest over a few years and when you might need money you will have gained like twice what you put in to it.

Its a good plan, its what i did.

Thomas asks…

I would like to invest money and I would like to know how to invest and be involbed in the stock market?

what type of license do you need to invest in stock and how do you get the license. if you don’t have to have license that is good. I just want to invest without going through a broker. I want to make the money cut the middle man out.

John answers:

You don’t need any license or middle man, just open a brokerage account. There are plenty of brokers out there – Etrade, Scottrade, Ameritrade, Fidelity, Tradking, etc. But it depends on your country. You need to do a little research here.

Michael asks…

What is the best financial structure to invest money for a group of people when only 1 person makes decisions?

If there is a group of approx 25-75 people who would like to invest smallish amounts i.e. $10K to $20K each to create a pool of money, and 1 person to invest and make decisions for the group (i.e. a manager) what is the best way to do this pooling? Usually an investment club, each person votes etc so I don’t know if that is the proper format. This would be similar to I suppose how a hedge fund works but not for high net worth investors, just normal people so I’d like to know the best way to organize this, with the least headache in paperwork, admin etc. I envision people being able to withdraw/invest money maybe once a quarter, and obviously everyone would invest different amounts into this ‘pool’ based on their interest/ability. If anyone knows of any websites that would be helpful as well, that would be appreciated. Thanks

John answers:

National Association of Investment Clubs is a good place to start

http://www.better-investing.org/Public/default

I am looking to do a similar thing in the foreign currency exchange market (Forex). I would be happy to send you some more info. Send me an email pupp52@yahoo.com

I found some interesting software that I may be using
http://www.interbankfx.com/pamm_software_overview.php

Best wishes and have fun.

Paul

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