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I noticed another thread with a new investor asking for advice so instead of hijacking that thread, I thought it would be a good idea to start one of my own.
I'm a 19 year old college student with some savings building up in the bank, so I decided to take the advice of my economics professor and invest in some mutual funds. Three months ago, I invested $3000 in one mutual fund that basically tracks the S&P 500. About a month ago, I put another 3K in a mutual fund mainly composed of mid-cap companies. Since the market had a big hit with the Syria news last week, I've earned only $10 with the first mutual fund mentioned and right now, I'm sitting on an 80 dollar loss with the other. I'm not too worried since I'm holding for the long run and don't need the money any time soon.
I also decided to invest a couple hundred in this pharmaceutical company and in three weeks, I've made 80 dollars.
So, to cut to the chase, I'm interested in investing in more stocks but need some general advice. Am I making the right decisions currently? Also, how can I get more familiar with the various terms Cramer and other analysts use? I constantly hear terms like "line of resistance", moving average, and different things about fundamental/ technical analysis. Any help will be appreciated. Thanks
It's great you are starting young! My parents taught me about stock investing when I was 8 years old. This was around the time of the dot com boom, so they weren't worried about me losing money because pretty much everything was going up. During the stock market crash, they took out my money and I lightly traded, but didn't get serious until I was a junior in high school. I'm now 25 years old (26 in October) and my stock account went from a couple thousand to now over two hundred thousand since high school. I will be sure to encourage my kids to start early too. Time is your best friend when it comes to investing.
I've never been a fan of mutual funds because I like to be in control of my investments. I want to know every detail about each stock I own and have complete control. The biggest mistake pretty much all investors have made is making decisions based on emotions. Let's say you researched XYZ and everything sounds great, so you buy it with a long term goal in mind. The next day, you hear news about Syria and XYZ goes down with the overall market. You know Syria won't have any effect on XYZ's performance, but you start to think, hmmm maybe I was wrong. The next day it goes down again with the overall market and now you are thinking, AHHH I should sell it now before I lose more money, I can probably buy it for a cheaper price in a few days. The next day it goes up and you are confused on what to do, so you wait. The next day it goes up again and now you are really stressing yourself out, but you decide to wait some more. The next day it goes up again and now it is 5% higher than your original purchase price, so you panic and think, I better buy this sucker now before it goes up any higher, I knew I was right! The next day it goes down and you think, oh I should have waited! This happens to most investors at some point and will end up costing you money and driving you crazy. So my best is advice is don't make any decisions based on emotions. Make sure you have a plan before you buy a stock and stick to it.
I'll try to answer your questions now...
1) I already told you my preference is individual stocks because I like to control my money. However, if you don't have time and energy to do your daily research, mutual funds, index funds and ETFs are probably a better choice.
2) The best way is to use google. Whenever I heard a new term, I would google it until I understood it. You don't need any fancy books or anything like that thee days. Most investors use technical analysis or fundamental analysis when trading. You can google each one because they will probably explain it better than me.
I noticed another thread with a new investor asking for advice so instead of hijacking that thread, I thought it would be a good idea to start one of my own.
I'm a 19 year old college student with some savings building up in the bank, so I decided to take the advice of my economics professor and invest in some mutual funds. Three months ago, I invested $3000 in one mutual fund that basically tracks the S&P 500. About a month ago, I put another 3K in a mutual fund mainly composed of mid-cap companies. Since the market had a big hit with the Syria news last week, I've earned only $10 with the first mutual fund mentioned and right now, I'm sitting on an 80 dollar loss with the other. I'm not too worried since I'm holding for the long run and don't need the money any time soon.
I also decided to invest a couple hundred in this pharmaceutical company and in three weeks, I've made 80 dollars.
So, to cut to the chase, I'm interested in investing in more stocks but need some general advice. Am I making the right decisions currently? Also, how can I get more familiar with the various terms Cramer and other analysts use? I constantly hear terms like "line of resistance", moving average, and different things about fundamental/ technical analysis. Any help will be appreciated. Thanks
I'm sure someone will refute me, but I would say COMPLETELY IGNORE JIM CRAMER and technical analysis more generally.
The best way to get good returns in investing is to be CONSISTENT OVER LONG PERIODS OF TIME!
Personally, I don't think buying individual stocks is a good idea. Too much can go wrong with a company even if you've done your research; and individual stocks are a lot more volatile than most broad based mutual funds. In order to be a good stock picker, you have to have both TIME & THE TEMPERAMENT. You need to take time to do the research, analyze the balance sheet and the business, etc. You also need the right temperament. There are a lot of really smart people out there who are bad at investing because psychologically, investing is very difficult.
Personally, I think most people should invest in balanced funds that own a mix of stocks and bonds. These 3 funds have done better than the S&P 500 Stock Index over the last 20 years with less volatility:
T. Rowe Price Capital Appreciation (PRWCX)
Dodge & Cox Balanced (DODBX)
Vanguard Wellington (VWELX).
Pick one or two of these funds, add as much money as you reasonably can, and hold them for decades. If your fund has a bad year, try to add extra money if you can...they usually bounce back the next year or the year after.
Successful investing is boring....like watching paint dry.
So, to cut to the chase, I'm interested in investing in more stocks but need some general advice. Am I making the right decisions currently? Also, how can I get more familiar with the various terms Cramer and other analysts use? I constantly hear terms like "line of resistance", moving average, and different things about fundamental/ technical analysis. Any help will be appreciated. Thanks
Now, with this government shutdown and debt ceiling debate about to dominant the news, should I take my money out of the two index funds I currently own? The stock market is already plummeting severely, and I'm scared what could happen if they don't reach a deal.
I don't want to take my money out if it will just go down 2 to 4 percent, but I am afraid of a huge drop.
I also want to take into account taxes on capital gains (not really sure of the rate so I can't ascertain the benefits of selling, then buying back later).
Now, with this government shutdown and debt ceiling debate about to dominant the news, should I take my money out of the two index funds I currently own? The stock market is already plummeting severely, and I'm scared what could happen if they don't reach a deal.
I don't want to take my money out if it will just go down 2 to 4 percent, but I am afraid of a huge drop.
I also want to take into account taxes on capital gains (not really sure of the rate so I can't ascertain the benefits of selling, then buying back later).
Any help will be appreciated!
If you are investing in stocks, it's completely unrealistic to expect your balance will not drop more than 4% at some point. Corrections of 10% or more for the stock market probably come about once a year, on average. That's why I like balanced funds. They usually fall less than the stock market as a whole, so they don't have to bounce back as much when they recover. That is why the top balanced funds can beat the performance of the stock market with less volatility.
Here's an interesting piece on the frequency of stock market drops at various percentages:
Stock market drops of 5% or more happen 3X per year, on average. Corrections of 10% or more happen once per year, on average.
You're 19. If the stock market drops 10% or more, do whatever it takes to hold on to the shares you have and better yet, BUY MORE! Even if you only have $100 to spare, do it. You have to get yourself used to not freaking out when the market declines. You need to learn to get a little excited (but not too excited) and to buy more shares when there are declines of 10% or more.
Last edited by mysticaltyger; 10-08-2013 at 05:52 PM..
If you are investing in stocks, it's completely unrealistic to expect your balance will not drop more than 4% at some point. Corrections of 10% or more for the stock market probably come about once a year, on average. That's why I like balanced funds. They usually fall less than the stock market as a whole, so they don't have to bounce back as much when they recover. That is why the top balanced funds can beat the performance of the stock market with less volatility.
Here's an interesting piece on the frequency of stock market drops at various percentages:
Stock market drops of 5% or more happen 3X per year, on average. Corrections of 10% or more happen once per year, on average.
Interesting, but I'm still wondering if I should sell. I'm in the 15% tax bracket so short term capital gains are taxed at 15%. Right now, I've only made $70 (a few days ago it was near $300). Therefore, taking into account taxes and commission fees, I'm looking at -$30. I'm pretty sure the market is going to do down a lot more than the equivalent of losing 30 .
Most people, and certainly most people who are relative newbies, will lose money over the long term if they get in the habit of trying to time short-term market moves.
Interesting, but I'm still wondering if I should sell. I'm in the 15% tax bracket so short term capital gains are taxed at 15%. Right now, I've only made $70 (a few days ago it was near $300). Therefore, taking into account taxes and commission fees, I'm looking at -$30. I'm pretty sure the market is going to do down a lot more than the equivalent of losing 30 .
If you can't put the money way for at least 5 years (and many folks would say 10 or 15 years) and forget about it, then you shouldn't be putting money in the stock market in the first place.
As Longarm said, people who trade frequently almost always lose money.
This is also why I recommend balanced funds, which invest in a mix of stocks and bonds while having performance that is almost as good and sometimes better than pure stock funds.
At this point, probably leave well enough alone, but if / when you have new money to invest consider a fund such as:
Vanguard Wellington
Vanguard STAR (low minimum).
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