Beginner investor, good plan of action?

What are your goals and what is your financial situation?

What is your risk tolerance?

I don't have a numerical goal. But, let's assume i have about $5k to work with for now (i'll get more, i have a job! )


I want to be able to build up some good earnings within the next 10 years. I'm 24. Ideally, I would like to retrieve some of the earnings out from the next 5-10 years. But, i'm also ready to dump my money for retirement.

I'm not sure how i'd calculate risk tolerance.

Quote from Handonam : I'm not sure how i'd calculate risk tolerance.

You learn that when you lose money on investments you were sure where a good idea.

But vault is right, no one can answer any of your questions if you haven't stated your explicit goals...just like you can't find your destination by simply getting into your car and start driving.

I have the same problem. I'm your age and I can't figure out what percentage of my savings I should put in my IRA versus saving to buy a house down the line.

That said, if you do open an IRA, you should open a Roth IRA [cashmoneylife.com] with one of the many online brokerages out there (Schaub, Ameritrade, Scott Trade, etc). You choice of brokerage depends on your priorities. Do you want to go it alone and open with a very inexpensive broker, or do you want to open an account with more interactive learning options that has a higher trade cost?

I opened up my IRA with Ameritrade a year ago. If you don't know what you want to invest in, you can simply put it in a Retirement ETF [investopedia.com] for your target retirement date. Check out SPY [yahoo.com] or VTIVX [vanguard.com]. These are ETFs that will rebalance from a more aggressive position to a less aggressive position as you age. It is a great one-stop-shop strategy until you have a more firm understanding of investing. At that point you can sell the index fund and put it in something else if you want. Some online brokerages will allow you to trade ETFs commission free (instead of paying a trade cost between $6-$20 per trade).

In the meantime pick up The Bogleheads' Guide to Investing [amazon.com] to help you understand what all your investment options look like (and learn that its darn near impossible to beat the market, so indexing is a good strategy for most people. If you're still feeling lost then check out the Bogleheads Forum [bogleheads.org], where people can help you set a target asset allocation and understand more about investing.

I tend to favor the roth more than a regular IRA. Sure you get the tax savings now when using the regular IRA, but tax rates are likely to go higher as you get closer to retirement.

Bogleheads is a good passive investment strategy. Most of the funds have crazy low expense ratios, which is important when you have a small amount to invest. Stick 60% in VTI, 30% in VEU and 10% in VNQ and you have a diversified stock portfolio. Eventually you may want to add some bond funds into the mix.

If you open an IRA account with a major broker like those listed, they're probably going to have a number of commission-free ETF's that you can buy. They're designed for beginning investors who don't have the knowledge, don't want to take much risk and just want to "park" their cash somewhere. They're usually sector related, managed by someone at Morningstar and their performance over time is not any better than a broad index like the Dow, for ex.

If you do decide on a broker like TD, Etrade, Scottrade, etc...ask around because those with current accounts can get you extras (like free trades) through their referral programs. I know Scottrade will give each 3 free trades...which is not much at $21....but it's better than nothing.

Whatever you do...start now and put at least the company match if any in a 401k.... or similar,,,IRA if necessary. 10% is the goal of every paycheck..then bump it every time you get a raise as high as you can go for as long as you can. Your 24..you should have started at 18. GO!

Diversify..with a leaning on good stocks.

Can't he/she just max out there IRA each year and the withdraw any contributions later for a down payment? You can't withdraw the earnings but it was my understanding that you could withdraw your previous contributions without tax or penalty.

short gold,short munis ,short bonds,short banks,short facebook,buy energy and medical

Here is an easy-to-understand, very helpful guide to investing [clarkhoward.com]. It will answer many or most of your questions and help you determine which path is right for you.

To answer your question of "where to look for getting IRA/mutual funds", look to Vanguard [vanguard.com]. Vanguard is the lowest cost brokerage out there. They're a co-op (just like a credit union is a co-op) which means, as an investor, you're a part owner. Vanguard is to investing, what a credit union is to banking.

Avoid sales people, whether they call themselves brokers, advisers, planners, or worst of all, strategists. It probably takes as much skill and knowledge to pick a good adviser as to pick good mutual funds.

A major reason to avoid sales people is to keep your overhead costs low. As others here have said, cheap is good.

Avoid the urge to "take control" of your investments because it seems that a highly active approach to managing investments is no better than a passive one, no matter what many experts say otherwise ("Buy and hold is dead!" -- Jim Cramer) and who have their own financial motives to favor active management.

You really should read books like Stocks For The Long Run and Bogle On Mutual Funds and to get an idea of your risk tolerance, look at the long term records for various investments. 10 years is not long term. For example, compare the total returns and price volatility (the two behave very differently) of the S&P 500 versus the whole corporate bond market for 20-30 years. Notice how much the S&P 500 has varied in price compared to the corporate bond index.

Don't try to find the best mutual funds or stocks. It can't be done, except by luck.

Quote from cavan : short gold,short munis ,short bonds,short banks,short facebook,buy energy and medical

Always follow advice from strangers who can't prove their track records.

Quote from Handonam : I just got a savings account, and i'm looking to find the next steps to start investing.

Quote from cavan : short gold,short munis ,short bonds,short banks,short facebook,buy energy and medical

Probably the worst advice I've ever seen for a beginner - from simple passbook savings to shorting secular bull markets. No only is this poor guy clueless as to WTF you're talking about, it's terrible advice even if he did. Is your goal to make everyone's ignore list, or just most?

Quote from larrymoencurly : Don't try to find the best mutual funds or stocks. It can't be done, except by luck.

Quote : Always follow advice from strangers who can't prove their track records.

You mean like you?