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post #1 of 6 (permalink) Old 08-28-2009, 10:11 AM Thread Starter
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Investing for beginners

Here's the scoop. I'm 23 and graduated college last year. I am currently working two jobs. (Full time is the start of my career and part time is just for extra $$) I have about $3-$4K in savings right now. I'll be honest, I know NOTHING about investing, and it seems from an amateur perspective that it doesnt look like a great time to do it. But it seems like if I can find something with any amount of compounding interest at 23, then it will pay off when I'm 40-50. I am going to start reading up on the subject, but I wanted to know how some of you have gotten good starts investing your money?

Basically I have a few rules I want to follow.

-Fairly Low Risk ( I realize my return is based directly on risk, but I don't want to ever be significantly screwed if something crazy happens in the market.)

-Something I don't have to keep up with constantly

-Something that is fairly liquid where I can remove money along the way if I need it.

Thanks for any advice!

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post #2 of 6 (permalink) Old 08-28-2009, 10:23 AM
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Re: Investing for beginners

I'm no expert either but i think since you have started a carreer that you max out your 401K and or Roth IRA. Those things will make you set down the road at 40-50.
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post #3 of 6 (permalink) Old 08-28-2009, 10:31 AM
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Re: Investing for beginners

[quote author=Big_Mike_4488 link=topic=154590.msg3300790#msg3300790 date=1251468687]
-Fairly Low Risk ( I realize my return is based directly on risk, but I don't want to ever be significantly screwed if something crazy happens in the market.)
[/quote]

Are you saving for retirement or for a big purchase a year or two away? If you're saving for retirement, "safe" investments right now aren't giving ANY returns, so that would be worthless. Might as well leave it in a checking account.

You have 40 years until retirement, take a too risk adverse strategy and you won't even outpace inflation.

[quote author=Big_Mike_4488 link=topic=154590.msg3300790#msg3300790 date=1251468687]
-Something I don't have to keep up with constantly
[/quote]

They're often criticized, but you could invest in a time/target oriented fund. For instance, if you want to have access to the money in 2030, you invest in a 2030 fund. It will reallocate away from risk (or it should...) as you get closer to that date, similar to what a good adviser would do for you.

[quote author=Big_Mike_4488 link=topic=154590.msg3300790#msg3300790 date=1251468687]
-Something that is fairly liquid where I can remove money along the way if I need it.
[/quote]

If access is key, you probably need a two phase savings strategy. Save up enough "cash" to pay 6 months worth of bills should you become unemployed, temporarily disabled, etc. Then actually "invest" savings beyond that. You don't want your emergency fund sitting in the market, IMO.

As far as maxing out IRAs/401ks, don't do that at the expense of regular savings. If, for whatever reason, you need access to that money before 59 1/2, the IRS will take a large chunk. In other words, you probably need a short-term, liquid savings approach coupled with a separate long-term retirement oriented savings.
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post #4 of 6 (permalink) Old 08-28-2009, 10:48 AM
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Re: Investing for beginners

welcome to my wheelhouse

the above advice is basically correct. however, i would suggest maxing out the employer sponsered plan (most likely it's a basic 401k) UP TO the employer match. meaning: if they match up to 5%, you only need to put in 5% to take full advantage of the free money they're giving you. after that, put as much as you can into a roth ira (1-800-544-6666 for free assistance in setting up a free roth ira with zero account fees along with free advice on which investments are appropriate for your goals and risk tolerances). for 2009, if you're single and make under $105k, you can contribute up to $5k into a roth ira. if you can pull this off you'll be in great shape. if you can max out the ira and STILL have more money to invest, then go and max out the 401k (which is typically 20% of your gross paycheck, or $16,500 if you're under 50 years old). if you're doing all that, don't even worry about additional savings unless you're filthy rich and need to fool the tax man. in that case, look into a tax deferred annuity for any extra cash you've got lying around that you don't want to pay yearly taxes on.

as far as what to invest in, at this stage of the game you should look into an allocation fund. those are mutual funds that look to keep a steady mix of stocks and bonds to align properly with your risk tolerances. or, a life cycle fund that is nothing more than a "fund of funds" that has a specific date in mind for when you will need the money. as time goes by and that date approaches, the fund automatically updates it's investment mix to become more conservative over time. that simply means that the ratio of stocks to bonds becomes less heavily weighted towards the stock portion. it will still have a good chunk of stock funds within the portfolio, but less of them. the fund company does all the reallocation for you, so it's a "set it and forget it" fund option. as you accumulate more money in the accounts, you can later decide if you want to take a more active approach with the money and seperate the single fund aspect into a more focused portfolio. it's all up to you. either way, there's no charge for any of this if you call the number above, while also getting the peace of mind that you're with the most respected provider of life time financial solutions in the world. hope this helps, enjoy and good luck!!
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post #5 of 6 (permalink) Old 08-28-2009, 10:49 AM
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Re: Investing for beginners

sorry fatty, it took me too long to post my reply.

and my above advice was assuming you had the aforementioned 6 month savings for emergency. i should have said that. thanks fatabbot for filling in my future gaps
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post #6 of 6 (permalink) Old 08-28-2009, 10:57 AM
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Re: Investing for beginners

If you're looking to invest long term definitively do what others are saying and max your employer sponsored plans to their match. If you're looking to invest relatively short term and want liquidity they I suggest you look into mutual funds and money market accounts.

I wouldn't say right now is not a good time to invest as all of my mutual funds have gained 22% return since march, just make sure you do as fatabbot said and keep about 6 months expenses in an "emergency fund" (a savings account that will be untouched unless it's an emergency) since we are in a recession and the best thing you can do is save your money. If you decide to purchase stock or invest in mutual funds make sure you re-invest the dividends!


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