How Should I Start Investing?

Posted by Guest - How Should I Start Investing? :
I read your investing article here and am wondering at what age do you think I should start investing. I'm 23.

Guest Says:
First off I would recommend always having a security savings fund that you dont touch. This means liquid money that you need in case you have to job hunt, lose your job and have to pay bills, have to move to a new city to take a new job, etc. You should always assume these things can happen and that money will always be there for that. It could be 5K or 10K, you know best what that number is.

Once you get that put away, then look at investing. Start with 401K where you work, max that out or certainly get to the point where if the company matches 6%, then you always need to at least put in what their matching as thats free money. 401K also helps lower your tax bracket.

Guest Says:
Also, I meant to say in regards to 401K, just buy 2 mutual funds, as even one mutual fund is diversified already. Maybe get one international and one U.S., or one blue chip and one small cap. Check the costs on the mutual funds as that adds up over time. Dont pick the expensive ones, that matters, they tell you the cost on all of them. Vanguard is typcially lowest cost and very good.

Keep in mind some day you will have a 100K or more in there, and if costs are 1%, which sounds small, they are taking a $1000 every year! So pay attention to the costs.

Den Says:
Here is my advice, if I had to do this all over again.

If I had lets say 5K to invest and I was in my early 20s (I didnt have that back then), then I would buy 3 high dividend stocks with the 5K, split it in to each. Then leave it 20 years, I really wish I had done that as those dividends collect and reinvest over the years and those stocks grow over time, it would have really been big today and thats even with 2 huge market sell offs that occurred in 2001 and 2009, it still would be up huge today. Pick good stocks, nothing tech related because they change to much over time.

Its critical you do this in an IRA! The reason is its tax free and grows tax free, so you dont pay on that each year or have that tax hassle. Go to somewhere like Merrill Edge or Scottrade to open an IRA at year end, they will help you open it and its pretty quick.

Guest Says:
How do you decide which stocks to invest in?

Den Says:
For this as its a long term growth plan, I would look at companies that pay dividends and have not cut their dividends over time. All this is important as it tells you how well the companies are run and how profitable they have always been.

For example, MMM, DOW, GE, PG, JNJ are all different areas and all pay good dividends and have for a long time. I sure wish I had bought those back in the early 90s (of course I had no money back then, but if I had done that the payoff would be huge).

Look at GE for example, it was $6 back in the early 90s. So it would be up 400%, but what you aren't seeing is all the dividends it was paying again and again, and your stock shares would have been growing as it continually reinvests over those 20 years.

I would do that with 5K, then when I get another 5K put it in again and buy more shares, even better if there is a huge market selloff and you can buy at that time.

Guest Says:
The key thing here is also that some tech companies are great, like IBM, AAPL (apple) MSFT (microsoft) GOOG (google), but I would not invest in those long term because tech companies rarely last as long as those. Many disappear so long term I would go with the stable high dividend companies as you wont be watching this and trading, but instead making it buy and hold.

Guest Says:
key point above is do it in an IRA, that will save you years of messing with taxes and time to do the paperwork for that every year. Once you open an IRA you only need to do it once, then you can deposit money yearly into that account.

Guest Says:
Always make sure you have an emergency fund first (for example if you had to job hunt or move, you should have enough in savings to spend a few months doing that at least). Then after that as you save up money you can begin investing in a few stocks.

Guest Says:
VZ is a good dividend stock. Always average in, so if you buy 20% of your position today, dont buy another 20% until its a down day, you want to buy when its down, not up.

Guest Says:
Think long term, average into a few different stocks when the market sells off. Stick with teh winners.

Add your reply below ...