Advice for a newbie?

[patchwork150]

Hi all I am less than a beginner when it comes to investing- I really know absolutely nothing, and am asking for advice. I usually hang around WIR, SS, and YM.

I was in debt and worked hard to pay it all off- as of August 17th of last year I have been debt free. Well, honestly I just went back to college, and while I pay out of pocket for most I do now have a 2k loan out now for 3.9% or something close to that.

Since paying off my debt, I have been focused on savings- currently at $17,849.63 and continually growing. I'm conservatively estimating that by January I will top 21k+.

What should I do with this $? Currently $4.7k is in a CD that earns little interest and matures in October. The rest is liquid.

I want to be conservative with my money, but I can't help but think that nearly 14k earning .025% in my bank (yes, 1/4 of a percent) a year can't be good long-term.

I consider a lot of this $ to be an emergency fund, and the rest a down payment for a house fund. DH and I gross about ~60k a year (I make $28,600 a year, his earnings range because of his job), no kids, and I am attending college part-time. I'm 23, he is 26. We won't be buying a house for at least several years more. I would say minimally I would like 1k very liquid for emergencies.

What do you recommend? At what point should I really look at investment? What more info do I need to post?

[rovo]

Patchwork, This isn't "Your Money" and we don't pry as much as those people over there. That said, it is good to have about 6 months of income in very liquid savings. It is my opinion that anything over that amount should be working to earn more through investing. You will get lots of varied opinions from the posters on this board but I'm of the opinion the fastest way to learn is to just do it.

I'm sure some will give you a title or two to read and this is good advice. It is imperative to learn the basics before jumping in but you don't want to let fear of a loss stop you from starting.

Ask questions, follow our "Pick of the Week", look at what we are doing and why we are doing it. If it isn't clear, ask why.

SlowbutSure is a relative newbie to investing and maybe she can give you some insights as to her results and experiences. What reading was good and what was not worth the effort.

[tyfighter3]

You could look at the long term contest, their is some pretty good portfolios there to look at. I'm sure you could find a few good stocks to research. Some pretty good dividend stocks there also.

[mtntigger]

Hi Patchwork! First off, congratulations for being out of debt and going back to college. Those are huge goals and you should be proud of yourself.
By looking at your numbers, it appears to me that you will soon reach your house savings goal and you are either waiting to buy until you reach that goal or waiting for another reason (e.g., finish college). If you are waiting to buy until you save enough, go ahead and jump in now if you are really close; the interest rates and low house prices aren't going to last forever.
If house-buying is a year - 5 years away, then keep doing what you are doing. It's not the smartest move, but it is nice and conservative. You don't want to lose any money in the market after all your hard work. I would put more money into CDs just so the money can't get touched. Although, you really need to shop for a better rate; my savings account gives me 0.25% and the rate of a 3-month CD at my credit union is double that. BTW, CDs are how I saved for my house... every $1K I saved, I created a new CD.
If you are reaching your house savings goal, like wxyz stated, I would concentrate on the 401K or start a ROTH for the both of you (if the 401K option isn't available). Looking at those investment options would be another thread, so I won't expand here.

My favorite investment book that I've read so far is the "Four Pillars of Investing." I enjoy the history and the theory it presents; it gave me more confidence to invest more. As to where and how to invest, I personally found the general advice from the posters on the MSN money and these boards more helpful and reliable than many of the books.

[yclept]

If I were starting out today, I wouldn't mess around with conventional banks and all their fees -- I found Schwab's information (listed below), but they are not the only broker that offers banking services -- I know Scottrade has checks one can write against funds in one's accounts:

Schwab Bank High Yield Investor Checking®  Account Facts
Open an account with $0.
Account service fees:  None.
Who’s it for?  US Residents aged 18 and over.
Introducing the Schwab Bank High Yield Investor Checking account:
Earn 0.25% variable APY— that’s 2 times the national average.
1 No ATM fees. We reimburse any ATM fee you are charged— worldwide.
2 Enjoy free standard checks, free online bill pay and a Visa® Platinum Check Card. Get full-featured FDIC-insured checking for up to $250,000.
3 It comes with a Schwab One® brokerage account that lets you:
Invest in mutual funds, single portfolio solutions, stocks, bonds, CDs, options, exchange-traded funds and more.
Manage both your Schwab Bank checking account and your brokerage account on Schwab.com with a single login.
Easily transfer funds online between your accounts for free.

Obviously the 1/4% they are giving above is no better than what you currently have. But they are a bank that is not going to be trying to nickel and dime you constantly. If you trade, they charge you some commission -- the rest of the banking services they seem willing to provide to draw money away from traditional banks in the hopes that you will trade it.
As to liquidity, with checking account tied to a brokerage the worst case scenario is 4 work days to liquidate assets, having them clear, and being able to write a check. Of course, one doesn't want to have to liquidate assets to meet unplanned expenses, so one still has to keep part of the portfolio in cash if the brokerage account has supplanted the bank. Uninvested funds at a broker are available immediately just as they would be with any bank. Credit cards with decent limits can certainly bridge most needs for a few days -- my experience is that unexpected huge expenses (hospital, doctor, etc.) are not going to generate bills that need to be paid within days. Some disasters (like I had a house burn down) can be covered with credit cards for immediate needs (like some clothes, a new computer to access bank and brokerage accounts, etc. -- then one needs the money in those accounts to secure a place to stay, and such -- insurance usually kicks in with some preliminary living money within a week or so, or at least that was my experience).
All of that verbiage is just my way of pointing out that money is fungible. It rankles me to read Weston with her emphasis on "emergency funds" and "vacation funds" and "next car funds", etc. -- to have all of these various divisions of money sitting around as cash earning virtually nothing is stupid. If worst comes to worst and your house, car, wallet, credit cards, checkbook, phone, all burn up at once, you need some family and/or a friend!

I would agree with SBS above. If you can accelerate the house and take advantage of this undervalued market and very low interest rate environment, I see it as the best possible use of money right now. If you were the most knowledgeable fundamental and technical trader in the world and had a house-buying goal, that house would still probably be the best area to concentrate on.

You're obviously not a trader yet. For the foreseeable future, I think trading is going to be the only viable alternative for investing funds. Bonds are bound to crash when interest rates rise, and rise they will since they can't get any lower. I see the stock market as being well ahead of the recovery and the recovery possibly faltering -- not a place to have money unless one is nimble. Precious metals are so over-extended they remind me of the late 90s when "eyeballs" were the supposed new metric for economic success. At these price levels, they are nothing but a reflection of maniacal fear combined with mindless greed.

But you need someplace to put money right now. Well, if I were you, I would go ahead and set up an account with Scott, Schwab, or another brokerage account. Leave the money as cash right now. I cannot in good conscience recommend any investment vehicles at this point in the market cycle. As mentioned above, I believe bonds are going to die, as are precious metals. I see stocks as teetering on the edge of the abyss waiting for a gust of wind to push them back to safer ground or over the edge.
Start learning about the market -- I suggest concentrating on ETFs (electronically traded funds) first. They automatically diversify issue-specific disasters that can befall individual stocks. Being me, I have to say don't get stuck in a "buy-and-hold" mindset -- riding the market up and down is unnecessary and foolish. There are market timing indicators that will let you avoid the majority of market down-turns. I suggest learning to read the MACD indicator on charts and you might want to look at my timing thread that deals with 5-15-50 moving averages. Others here will vehemently disagree with the timing model -- you will have to make up your own mind.
"Buy and hold" is based upon the Efficient Market Hypothesis (whether the practitioners of it realize it or not):
en.wikipedia.org/wiki/Efficient-market_hypothesis
Here is an article from Forbes exhibiting results of using the StockScreen123 risk premium timing model:
www.forbes.com/2010/02/18/proshares-short-spdr-markets-screening-strategy.html
And another Wikipedia article addressing timing's pros and cons:
en.wikipedia.org/wiki/Market_timing

My advice would start with this list:

• read everything you can -- sceptically
  
• don't fall in love with any stock or any company; a company is not its stock, and vice-versa
  
• be contrarian; it is better to be sitting alone in the marketplace with wares to sell (for awhile) than to be part of the crowd that's going to show up to buy those wares.
  
• never put too many eggs in one basket (practice position-sizing discipline).
  

[mtntigger]

don't fall in love with any stock or any company; a company is not its stock, and vice-versa

While this is true, you still have to know the stock and, for me, it is much easier to follow a stock that I know and like than one that someone recommends to me.
If you want to learn about investing, like the others have said, follow (and join) the contests and the journals. Just beware, you will not understand everything. But, the more you read, the more you will understand. If you are ready to start trading (or think that you are ready to start trading), there are also brokerage services that will let you do virtual trading so you can get used to the process (e.g., Options Express and Optionshouse are two that I've used).

Oh, and as long as we are doing commercials for Schwab , I'll do one for USAA (which has all the benefits that yclept listed for Schwab and the interest rates are better). You don't have to be part of the military or from a military family to get their banking and brokerage services; you won't have access to everything, but to most of the services.

[Bluerobin]

Patchwork, after you read, do some due diligence and start checking out some utilities or consumer staples that pay a healthy dividend. If you determine them to be a good fit for you, they will return more via dividend than you can earn in interest. Start with local utilities, gas, water, and electric.
ETA: Get into the dividend reinvestment plan so dividends are used to buy more stock.
Good luck. Remember investing is risky, so first determine your risk tolerance.
Be sure to come back and read what is posted here. Even old retired folks can learn here.

[2kids10horses]

Back in the day, there were a lot of good books! I'm not so sure any more!

There were the Motley Fool series, Markman's Online Investor, and Wm. O'Neals classic "How to Make Money in Stocks".

Remember the Beardstown Ladies? Who were posting Buffet-order returns? Published three books before someone figured out they were counting their contributions into their fund as being part of their return!

I do think that ETFs are the wave of the future. Get to know about ETFs. Also, new ETFs are being created every day.

I agree that getting the max out of your employer match is key.

Something to think about: If you want to trade, trade in a 401k or IRA account. The profits are not taxed until retirement. In taxable accounts, buy and hold Index funds. They usually trade very little, and generate less tax obligations.

[oreo]

I have a Capital One bank account that earns a little over 1% so you don't have to settle for .25%. I also have a Schwab account because they used to have really good rates on savings, checking, and good credit card incentives but now I only use them for brokerage (and IRA). I signed up with the Capital one account through Costco and got $60 credited to my account when I opened it. I don't know if they still have that promotion or not (I think we have the more expensive Costco account not the $50/year one).

I'm with you. I'm afraid to invest any of my emergency fund cash (even though I have a few years-worth of cash) in anything other than the bank so I'm potentially losing a lot of money (I'm considering buying silver or something like that when it is lower) I'm testing the waters by investing my IRA money and have had some hits and misses. It is hard to see the money fall. I have a few stocks and have added some mutual funds. I've been happy with a few of my dividend stocks because even if they stay around the same price, because you get monthly dividends (I reinvest them), you are really getting a good amount of return. I've actually done better with stocks than with mutual funds.

What I like to do is put in a buy price that is sort of below what the price has been for the stock (or mutual fund). Then when the market dips, it buys automatically and at least I don't feel like I bought high. So you specify a price at which you want to buy the stock and when that price is reached (I think in the next 60 days or something) it will automatically buy it for you. I did that and automatically bought some stock when the Japanese earthquake hit (of course I didn't know that would happen but I sort of "lucked out" because I had the buys in the system so when the market went down it bought automatically) then again last week when the market was so down.

I'm very new to this too though and am not sure how you really tell if a stock is "good" or not. I don't understand all of the math etc used to make that determination. I think you almost need a career of this to really understand all of that.

[Small Biz Owner]

Dividend stocks are are good alternative to low yield accounts. I would suggest a lot of diversity, into at least 20 or more holdings. And always remember that the higher the dividend usually equals the higher the risk.

[Peace77]

I would start by paying off the 2k loan.
It's not wise to pay 3.875% more interest than you are receiving.

Transfer the funds out of your bank and into a credit union or bank with a decent interest rate. You should be receiving at least 1%.
Possible places for your new account include American Express Savings, local credit unions, and banks listed at Bankrate.com
At bankrate.com, look under savings and MMA (money market accounts). Consider your Emergency fund (EF) as insurance. It shouldn't be invested in the stock market. Your EF and house downpayment fund should be kept in insured funds so there is no loss of principal.

Do either of you have a 401(k) or other employer sponsored retirement plan at work? If you have an employer match available for the amount that you invest into your retirement plan, you want to take advantage of that free money.

If you don't have an employer sponsored retirement plan, consider starting a ROTH IRA. You can open an IRA account at a major investment firm such as Fidelity or Vanguard. I suggest using a mutual fund for your account. This helps avoid the risk of having funds in only 1 company stock.