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Investing Advice
Doxa
Registered User regular
Registered User regular
The situation: I'm 17 out of high school early. I've been working and getting EMT certification. I still live with parents and all of the money I make from now and May is pretty much disposable income with few expenses (gas, car insurance, little else). Mainly I've saved it with college in mind because really there isn't anything I have really wanted to buy. I recently got a scholarship that will handle my next year of college (which will be in a university) and then some (woohoo) which means that a lot of my saved up cash won't be needed for another year and a half, maybe then some. I would like to do something more with that money than have it sit in the bank with a zilch return rate. I have $6000 currently in savings. I want to keep $2000 in there and gamble with the $4000. I figured if I lost all of that I would still be fine.
Problem: I know very little about investing.
Questions: What are some informative resources that are good to read for basics and furthermore? What should I do and why? General advice is appreciated.
Problem: I know very little about investing.
Questions: What are some informative resources that are good to read for basics and furthermore? What should I do and why? General advice is appreciated.
Doxa on
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The stock exchange is in the shitter, the housing market has gone pear-shaped and the likelihood of a depression has never been this big. You're better - much better - off with keeping your money on a banking account for a few % interest and keeping it accessible for you.
Before you do anything silly with your money I would also like to advice you to talk to your parents* first, they can give you a lot of first hand experience with handling money in a responsible way.
*Unless your parents are batshit crazy, don't know your first name or are so rich they have a golden Lamborghini.
My parents aren't good with money. They're just barely beginning to pull themselves out of their debt. I don't really care much to ask them about what to do with a surplus of money when they don't have any experience with it other than spend it. Besides, why not ask a larger pool of people about handling money?
B. What kind of return do you hope/expect to get?
A. I'll cross that bridge when I get there though I trust I'll be fine.
B. *shrugs*, I just want to see if I can figure something more productive than what I currently have
Is there not some long-term non-stock market related savings account you can put it in? I know in the UK there are some savings accounts that are giving ~5% at the moment, and I think that some of the long term things give better long-term odds.
Just seems safer that the market right now.
Probably there is. Long term is how long? I wouldn't want to go over 2 years and I thought that was relatively short term.
I meant versus instant access accounts. Over here there are ones that are good as long as you don't touch the money for at least 12 months.
Probably worth talking to someone at your bank about what the best avaliable options are.
Mine gives me 4.something and i can take money from it if i want to.
You seem to have some glorified views of the stock market, if you think it's a quick way to make a few k without any effort you might be in for a disappointment.
At your age, you don't want to sock away your liquid funds and make them unreachable. But you DO want to earn interest, which you likely aren't where your money is currently. So that means a relatively short-term CD or an online savings account.
You should take an economics course in college prior to getting too involved in investing. Most people don't start saving for retirement until they have a full time job with no or few financial surprises coming up.
All this. If your money goes into the market, it's not liquid. Since the market is only (kinda) reliable as a long-term option, then your money goes *POOF!* for the foreseeable future. We're talking 5 to 10 years at least. Timing the market for short-term gains is one of the most competitive things in the world. Do NOT think you know more about the market than professionals.
Let 'em eat fucking pineapples!
What I would do in your situation is find myself three CDs: a six-month CD, a twelve-month CD, and an eighteen-month CD. It won't be a lot higher than a savings account, but it will be higher, and this way you'll have some added liquidity in case you end up needing it (since you'll be getting money back in six-month intervals).
$6000 is not a lot of money to have in savings in the scheme of things, and it would be INCREDIBLY STUPID for a 17-yr old to be "gambling" away $4000.
Or, leave it in savings.
Also, you are 17, which means you are an "infant" for contractual purposes. No stock broker will touch you. I doubt a bank will even sell you a CD directly and not through your parents.
There are a lot of good articles for newbies to investors on fool.com.
GMAC bank had a 9 month CD yielding 4.25% APR not too long ago, but rates may have changed. CD's should be covered under FDIC, but you should consider the health of the bank (GMAC bank was probably offering slightly better rates so as to get business, increasing their capital holdings in an effort to gain the status they needed to qualify for the bailout). You can ladder CD's (as Thanatos suggested) so as to put money into investments and have capital freed up gradually as the CD's reach maturity.
There are funds that are double-leveraged with or against market movements (if you're making a bet on a general trend). And if you are going to make single-company stock bets make sure you know when you're going to get out. If it drops 8% are you going to get out or hold? 15%? Similarly you should have an idea of when to exit on the upside as well.
In a highly volatile market, trading individual stocks for short term gain requires you to be there at the computer to take advantage of changes that occur very fast. Unless you're just gifted at recognizing stocks that are genuinely oversold/undervalued that will return to regular valuations. In that case you can probably get richer, faster by selling that advice then trying to build up your nut with $4K.
Go with a CD.
@RUN: What banks will do tends to vary by state. I was able to keep my own account at 17 in Texas though before that I had to have my parents cosign.
Yeah, but keeping a checking/savings account, where there is no damage to the bank if the 17 year old voids the contract is a lot different than a brokerage account, in that if you void a contract after a bunch of stocks you buy tanks the brokerage could be out thousands of dollars.
If you are still set on investing, I'll suggest you a couple of options. All these assume you research them properly and aware of this risk associated with them (you could and probably will lose money on them).
First I would suggest you research IRAs and Index Funds.
IRAs give tax breaks. So if you don't have one, it would be in your advantage to get one for your "trading account". Also the limit is $5K in 2008 (if you set it up before Dec 31, so not much time left). In 2009, you could do another $5K if you came into some more money. wiki has some basic info. Google has more. There is basically a Traditional or Roth account.
Secondly research Index funds. I would suggest a broad market index fund with a low load (fee) and highly suggestion you read "A Random Walk Down Wall Street" before you buy anything. I like vanguard funds, but there are other good ones out there. Something like an S&P 500 tracker or Russell 2000 (or Russell 5K) tracker. (might be under different name, but same thing). I also have some international, global and emerging market index trackers which are doing a bit better then USA only trackers at the moment .
Both of these I would consider "long term", as in for 10 years or more. Also index funds have risk. They could go to 0.
Another school of thought would be gold and silver. Again this is risky and you could lose your money. You can do Gold/Silver in some IRAs if you want, could vault it or do physical delivery. Check out bullionvault.com The pre-requisite for this would be the book "Crash Proof" (not that I agree with everything in it).
Along those lines, a commodity index fund might work too.
Third, you don't have enough money to buy different stocks. You have enough to buy into 1 if that. This is risky for many reasons (specially in this market). Read "A Random Walk Down Wall Street" to learn about diversification. If you have your heart set on a Stock, I would either do it though an IRA (for tax benefits) OR though a Direct Deposit program/DRIP ( were you buy stock directly from the company). The Direct Deposit/DRIP will help with fees, but not with taxes. This is VERY risky.
Another option would be Bonds/Notes/Tips, etc. Federal debt is giving pretty poor returns right now (in some cases negative [which is atypical]). But they are low risk. Go look them up and research them. You probably don't have enough money to do Munis or Corporate bonds (they are higher risk anyways). Here is wiki page: http://en.wikipedia.org/wiki/Treasury_security
Buy them though http://www.treasurydirect.gov/ to reduce fees.
Another option would be realestate, but don't think you have enough money with that (other then a REIT).
Generally those are your options. Let me know if you have any questions.
Also pretty much all of the above besides CDs, savings and in some cases Government Bonds carry higher risk with them. Generally though, one hopes that they give better returns. Don't invest in them unless you are prepared to lose money.
Investing is a hard game. I started young too and got knocked around a lot. Just be prepared for the worse and be willing to learn from your mistakes.
Generally what I do is a little bit of everything. That's hard to do with only $4K, so start with something that interests you and build up some more cash doing work to fiance other investments you want to get into (while research and reading up on it of course! reading and research is just as important as a good cash flow that can be invested!)
Don't be afraid to blow money on investments. If you invest $100 and learn something, that is worth more (in my humble opinion of course) then blowing $100 on booze it up or buying video games.
Lastly one principal I hold dear is a constant flow of money into investments. I invest every month in a few different things. It's hard going to get setup (since most place require an initial investment), but once setup having a regular schedule to invest does a portfolio good
Its way too early for me to think about retirement and really anything long term. Though I'll read that book Rhino suggested in my free time so in the future when I can really dig in I'll be able to.
If you want to do that anyway you should invest into a mutual fund, or two. Funds are made up of other funds, which are made up of stocks and bonds and ponies and puppy dogs, so you are well diversified incase bad things happen. The market is poor right now, but saying "don't invest" is poor advice because everything is cheap right now, which means you get more bang for your buck.
Otherwise, I'd go the CD route, its considerably "safe" right now without the same chance of returns as a mutual fund.
they're essentially groups you buy into where a professional investor decides what and where to buy.
anyone who is telling you not to invest or to go to vegas are dicks and. . . oh robothero explained it already.
Where you're young and there's chance of a depression, this is when you want to invest. Find a nicely diversified mutual fund and go for it.
In any case, the only way you'd get a higher-than-savings-account rate out of a traditional money market account would be to meet their minimum balance, which usually is not less than $10,000, frequently more like $20,000-$50,000.
And I wouldn't bother with Treasury Bills. The main advantage of buying government debt is that it's tax-free, which means it gives lower returns. When you're talking about someone in the income bracket the OP is in, the savings on taxes don't make up for the loss on interest.
Short-term, but stable savings that you can't access and spend (like CDs) are something i strongly recommend. It will also give you a little time to see how much you can save additioanlly in a year while you do strong research on your next investment step.
So that's lesson one.
Beyond that, the CD recommendation is a good one. I wouldn't worry about mutual funds or stocks yet--for one thing, you should worry about that when you have a regular source of income, for another you're kind of small-time. I'm always got great customer service from my broker, even when I was a small-time investor, but you simply get some better options available if you can front a bigger investment and keep it there long-term.
We should all congratulate you on thinking about saving and growing your money now--I kind of want to thank you because it's also good for the economy. A structured savings account like a CD isn't just good for you--it's good for the bank you buy with because it means they'll know they have access to X amount of money for a duration of Y days, which helps them make their own investments. A CD is a financially and economically responsible way of investing at your age.
Buying one individual stock in a highly volatile industry that may not even exist in 30 years during a depression is probably not a good idea.
Yeah, safe investments like CDs have bad returns, especially at times like this. You don't want to throw money into anything risky if you know you may need the money next year.
The only time a flat out recommendation is valuable in itself is when it's provided by someone working in your interest (like a good financial adviser) or if the person telling you has insider information (which you shouldn't act upon).
If you're itching to trade you'll likely need to have a legal guardian setup a custodial account for you as I don't think you can enter into any agreements with a brokerage house unless you're 18 minimum.
Here's the additional problem posed by the part I've highlighted--everyone is reading/watching the exact same market information you are and incorporates that information during pricing. Think of it this way: let's say a talking head says you should buy stock in company X because it's currently undervalued. So you think, gee, I should buy company X because it's going to increase in value.
Now here I am over here watching the same television program. I already own stock in company X, and I'm thinking I might sell it. But am I going to sell it to you at yesterday's price knowing that it's going to likely to increase in value? Fuck no! I'm going to sell it to you at a price that acknowledges the future potential of the company.
This is called "market efficiency," and especially in the age of information, the market will be more efficient than you at accurate assessing the value of stock because while the market may close at the end of the day, it never actually sleeps.
If you had enough money to play, I'd tell you to invest in a diverse portfolio. You don't. Save as much as you can so you can start investing when you have a steady income.