23 Year old Stock buyer

[EdMan2]

Ok so I'm 23 and working at my first job. I make okay money and I save a lot. I'm going to get a roth ira in a few months, but thats another story. Right now I have saved about 3k in a savings account earning 5% I want to invest in stock, but after researching for a month, I have learned that I don't know enough to jump in and buy stocks. Seems to be that a mutual fund is the way to go, no?

In a couple of weeks I will have 4k to invest, what mutual fund should I start with? I'm still researching, and this is one of my first steps. I am looking at vanguard right now. I was looking at the vanguard index fund.

Any advice on what mutual fund I should buy? I'm looking for semi long term, but I am not against risk (hey im young right?). I will return to school in about a year and a half to get my masters so i want to save as much as i can.

[Ima saver]

I have most of my investing money in Vanguard index 500. I have been in it for almost 20 years and I am very happy with it. i suggest you try that one.

[Coleroo]

I think funds are great for us youngsters With all there is to learn about stocks, it will take years of studying. For those who want to plunge on in, parking money in a fund is a good starting point. I have always done well in my funds... and sucked with individual stocks (I've bought into 3 companies the past 3 months and all 3 have gone down...its disheartening.. lol).

You want confidence boosters right now - something that will show you that "hey this does work!" and a solid fund with a professional manager can definately do that. If I would have jumped strait into stocks without starting out in funds, and without reasearching, i probably would have dropped my drawers and run screaming in the night! :-)

[EdMan2]

I think funds are great for us youngsters With all there is to learn about stocks, it will take years of studying. For those who want to plunge on in, parking money in a fund is a good starting point. I have always done well in my funds... and sucked with individual stocks (I've bought into 3 companies the past 3 months and all 3 have gone down...its disheartening.. lol).

You want confidence boosters right now - something that will show you that "hey this does work!" and a solid fund with a professional manager can definately do that. If I would have jumped strait into stocks without starting out in funds, and without reasearching, i probably would have dropped my drawers and run screaming in the night! :-)

So what funds do you suggest I look into? So far I have looked at Vanguard total stock market index.

[Coleroo]

Morningstar: Stocks, Mutual Funds, and Investing has good reviews of funds.

Also, retirement target funds are doing good right now. (I contribute to the T Rowe Price 2045 target fund). And you can buy into a target fund even if you aren't planning it for retirement - and you can consider using a ROTH IRA to hold it because you can withdraw your contributions at any time without penalty (just can't take out your earned interest until after 59).

You should also look into the wide variety of investment funds available - some have more risk attatched than others... there are small cap, large cap, foreign, technology, and other related funds too.

[disneysteve]

I'm going to get a roth ira in a few months, but thats another story. Right now I have saved about 3k in a savings account earning 5% I want to invest in stock

Are you saying you want to put 3K in stock outside of your Roth? If so, why? You say this money is for the long term, so why not use it to start your Roth today instead of in a few months? Or is this 3K going to be needed for some other purpose?

[EdMan2]

Are you saying you want to put 3K in stock outside of your Roth? If so, why? You say this money is for the long term, so why not use it to start your Roth today instead of in a few months? Or is this 3K going to be needed for some other purpose?

I want to use the 3k for semi-long term...I look at a roth as something for when I retire. Right now I want to invest in a fund where I can use the money in the near future if I happen to want/need it. By semi long term i just meant that I wasnt expecting to buy today and sell in a month or something. As for the roth, I plan to start that in the comming months because I will have some extra money in that time, but right now the money that I saved I had intended for investing for gain in the near future (1-5 years).

[meaghanchan]

If you're going to need the money within the next 5 years, don't invest in stocks (or stock mutual funds). Your money could go down quite a bit in that time. Most people reccommend investing in stocks only if you won't need the money for at least 10 years.

At the most aggressive, I'd reccomend a fairly conservative balanced fund- 40% stocks/60% bonds.

Others may disagree. I would just look at the real (inflation-adjusted) returns for stocks over a 5-year period. During the worst 5-year period, US stocks lost an annual 11.62 percent. That's a large chunk of money- at the end of the 5 years, your investment would be cut nearly in half.

Check out this Andrew Tobias column,

Where To Put Money You'll Need In Five Years

[EdMan2]

If you're going to need the money within the next 5 years, don't invest in stocks (or stock mutual funds). Your money could go down quite a bit in that time. Most people reccommend investing in stocks only if you won't need the money for at least 10 years.

At the most aggressive, I'd reccomend a fairly conservative balanced fund- 40% stocks/60% bonds.

Others may disagree. I would just look at the real (inflation-adjusted) returns for stocks over a 5-year period. During the worst 5-year period, US stocks lost an annual 11.62 percent. That's a large chunk of money- at the end of the 5 years, your investment would be cut nearly in half.

Check out this Andrew Tobias column,

Where To Put Money You'll Need In Five Years

The money that I have now I will not NEED in 5 years. Its simply money that I have and want to play with it to make it grow while learning something in the process. Right now I'm very open to risk, but not stupid risks....like picking stocks when I still have much to learn about stocks and trading...but risks that are a little more calculated and manageable. To be honest if I were to put 5k into a fund and in 5 years there was 10% loss per year leaving me with only 2.5k, I wouldn't be that heartbroken.

Basically my goal is to maximize how much money I make, but in a calculated and intelligent way. I figure I'm 23, I don't have have a wife, no kids, nobody to to support except myself so I want to try to push the money that I don't need right now as far as it will go by investing it. Is this a stupid goal?

[disneysteve]

I want to use the 3k for semi-long term

As for the roth, I plan to start that in the comming months because I will have some extra money in that time

The money that I have now I will not NEED in 5 years. Its simply money that I have and want to play with it to make it grow while learning something in the process.

I'd suggest reversing your plan. Take the money you have now and open that Roth. The sooner the better. The longer you can have that money growing tax-free, the better off you'll be.

Then, use the "extra" money you'll have in the coming months for the other investment purposes.

As for where to put that money, I think a target retirement fund is a decent first choice. If you want to be more aggressive, perhaps a total stock market index. As funds allow, you can add an international index.

[EdMan2]

Would having a roth be bad if I can't contribute to it? For example, when I go back to school and don't have a significant income for a while?

[disneysteve]

Would having a roth be bad if I can't contribute to it? For example, when I go back to school and don't have a significant income for a while?

Not a problem at all. Whatever money is in the account will (hopefully) continue to grow. Once you are working again, you will be able to start contributing again. And if you do any work during school, you can contribute to the Roth if you have money free to do so. Every little bit helps.

I don't recommend this, but as full disclosure, contributions to a Roth can be withdrawn at any time for any reason without penalty. Earnings can't be withdrawn without penalty, though. So if you put in $3,000 and a few years from now something comes up and you desperately need that money, you could take that $3,000 out again, but again, I don't recommend it. Retirement money should be for retirement only.

[EdMan2]

Which roth should I look at Vanguard, Fidelity, or T Rowe Price?

[Coleroo]

Which roth should I look at Vanguard, Fidelity, or T Rowe Price?

A ROTH is simply the name of the "vehicle" used to store your money - it provides the frame work for the rules of what happens to the money (withdrawal rules, tax rules, etc). You then choose what type of investments to "store" in that vehicle (mutual funds, stock, index funds, target funds...etc). Unlike traditional IRAs (which prevent you from taking out ANY money until after 59), a ROTH is more akin to a savings account where you just cant take out your interest earned until 59! So a ROTH is not only a good way to save for retirement, but can also be marked for education and other expensive purposes down the road (since you can withdraw your personal contributions at any time).

All 3 companies are good and have pros & cons. What you should look into is the fees associated with the funds provided by each of those companies, what your needs are, and what services you want to come with your "fund banking" experience. Those 3 you named are big firms and offer more brokerage services, but you can also consider "self service" ones like Etrade (who also offers a ROTH account set up).

I personally use T Rowe Price because i like their website (user friendly) and their phone customer service is very very helpful. Many of the other users in this forum have used Fidelity and Vanguard - and they have their own reasons for liking those companies. Its kinda akin to asking, "who do you like, Bank of America, Chase, or Citi bank?". Its a personal choice.

[disneysteve]

Which roth should I look at Vanguard, Fidelity, or T Rowe Price?

There is no right answer to that question. It depends on what type of investments you want. All 3 are excellent choices. Take a look at their websites and look specifically at the funds you might be interested in.

Don't get overwhelmed by choices. Many people procrastinate starting their investing because they can't decide where to put it. The most important thing is to just do it. Vanguard, Fidelity, T. Rowe - all great options. Whichever one of those you choose is fine.