How to start investing

[winterwind_23]

Hi all,

I'm new here and am looking to start investing and being smarter with my money.

I'm 23 years old from the Bay Area and have about $40,000 in my checking and saving. I make about $43k/year. I don't have any debt from student loans, car, or home, and I live with my parents and so pay a minimal "rent" of $300 every month.

I've just recently started contributing 10% of my pre-tax take -home pay to a 401k account, and I have about $7,000 in my 401k currently.

I guess I have several questions:

1. How and in what should I start investing? I don't have any idea who to go through to get an account set up, how I can buy stocks, bonds, etc. Basically, I am clueless here and would appreciate some guidance either in the form of book or website recommendations, or just advice you guys can give me so I can learn more and get started.

2. As a novice potential investor, what are some good investment options at which to take a look? Stocks, bonds, etc.?

3. I've heard that property is one of the best first investments. Is it better for me to keep accumulating my money (and not invest in riskier assets) until I'm able to put a down payment on my own house?

4. Any other advice you can offer to me (what you wished you knew at 23, when you first started investing, etc.)?

Thanks!

[elfen lied]

First, you want to ask yourself what are you investing for? Is this money being used for retirement? Is it for extra income? For fun? Once you figured out what you're investing for, you'll understand the amount of risk to return to undergo.

Second, what are you interested in investing in? Do you like large caps, or small caps? Growth stocks or value stocks? Do research on your own and figure out what you want to invest in. Great places to start would be Yahoo! Finance. Seeking Alpha is great too as you get to read what authors are recommending and see if they align with your own assumptions.

I would suggest you open up a virtual account and trade with fake money. Sites like investopedia have a virtual simulator and most online brokerages have one as well. Trading with virtual money will give you a sense of how investing works and not risk any of your capital. With only $4000 to invest, your options will be limited but you can still pick up som quality investments.

Lastly, to answer your questions on which brokerages to use, it's really up to you. Based on your username, I would assume you live in Canada which makes your options a bit more limited (Some of the best ones like TD Ameritrade don't operate internationally). I would suggest OptionsXpress. This is the one i'm using right now and they have excellent user interface, research tools and trading options (stocks, etfs, mutual funds, options, futures, etc...) I believe they have a promotion going on right now if you sign up you'll get 13 weeks of investor business daily for free.

[winterwind_23]

Congratulations on being debt free!

You would be wise to stay that way.

Thanks! I'm really glad I'm debt free, as I continually hear horror stories of recent college graduates in seemingly insurmountable debt.

In my opinion, you should keep about $5k of your current checking/savings in your checking/savings account. This is your Emergency Fund. Normally it should be 3-6 months of expenses, but since you don't seem to have many expenses plus you do not own a home, $5k just seems like a good number to me.

The remaining $35k I would invest in Mutual Funds unless you are planning on buying a house in less than 5 years. Then keep it in a savings account and just keep adding money to it until you can either make a large down payment on a house or pay cash for it.

I do plan on buying a house within the next 5 years. I'm guessing investments such as mutual funds are pretty long-term, so it wouldn't be wise to invest in them now and withdraw in a short four or five years?

Also, is it wise to not put any money in my 401k now so I can accumulate more cash faster to put towards the down payment of a house? Or should I continue to contribute 10% of my income to the 401k since in the long run that may be more beneficial?

Real Estate is a good investment, however, some people (lie me) are not cut out to be a landlord. In that case, the only Real Estate to invest in should be your own personal residence. Another GREAT investment is Mutual Funds. Be sure to diversify your investments. In my opinion you should at least have investments in International, Global or World Mutual Funds, Large Growth Mutual Funds, Small Growth Mutual Funds and Balanced Mutual Funds

This house will be for personal residency and not as a property investment per se. I might rent out the extra bedrooms to tenants, but other than that I plan to live there.

There are several books and web sites that will help advise and explain investments. I suggest that you just surf the internet and learn for yourself. Some of the more popular financial advisers that have web sites include Dave Ramsey, Clark Howard and Suze Ormond. Probably any of their advice on how to invest would be pretty good.

Thanks for the advice! I will definitely take a look at those websites.

[grumpter]

Good god. Invest in a place to live (eventually). Strike while rates, prices & demand are low. It doesn't have to be a place you plan to live in 3 years or more. Buy a place that you can turn into a rental, for a profit, after just a few years of living in it (but ride the gravy train of living at your parents as long as all of you can stand it).

[natewebco]

You should max out your 401K first. Then max out a Roth IRA. If you really want to learn to start investing, start looking at the stock market. You can open an account with an online broker like Scottrade or E-trade to get started.