I know nothing about Stocks, but I am very interested and I'm about to get some money freed up to start investing. For anyone that has invested and done well. What do you recommend to get started? How do you watch your stocks? Please share your wisdom.
Short term or long term? If you want to throw some money down and let it sit there for 20 years, go high risk. Short term, go low risk. Find a broker in your area. 3 to 5% is standard.
Low risk is just that. No risk, no reward. With high risk, over the long haul (10 - 20 years), you'll see a nice(r) return because you'll see drops, but over time, it keeps.going up. Look at it this way: You pay $100 for a stock. It crashes and is only worth $10 now. Some panic and sell. No! Spend another $100 and get 10 more. In time, that $200 investiment is now $1100 (and growing).
If that's the case it seems like it's not worth short term investment unless you stay on top of the stocks at all time
Think of short term as McDonalds and CocaCola. They've made their money. Not gonna lose it either. High risk is the next internet start up company. Might be Google. Might be AOL.
Always try to invest long-term. And invest in passively managed index funds, not actively managed mutual funds or individual stocks. The market itself over the long-term outperforms almost every active manager out there. By investing in a portfolio of index funds, you sort of "own" the market. In investing, there is a thing called standard deviation which more simply put is risk. By investing in a few stocks you take on extremely high concentration risk. Typically an individual stock in an asset class will perform about as well as an index fund of the same asset class. But the individual stock has a much higher standard deviation. I work for an investing company that I will not name cause I don't want to have a conflict of interest. I can give you a couple names of other companies though. Wealthfront and Betterment are both passive investing companies. They essentially put you in a portfolio of ETFs (exchange traded funds) of index funds. Wealthfront charges a ridiculously low annual fee of .25%. If you are interested enough to read a book, I'd recommend The Little Book of Common Sense Investing by John Bogle. He's the founder of Vanguard. If you want to get really deep into the weeds you can read A Random Walk Down Wallstreet by Burton Malkiel. Bottom Line: There is no free lunch in investing. Slow and steady investing in low-fee, passively managed portfolio of index funds is the way to go. I could post a book's worth of information in this thread, but I'll stop there for now.
I'll post one more thing. One of the main reasons picking stocks doesn't work is the concept of Wisdom of the Crowds. The price of the stock is the "fair price" for that stock as has been decided by the millions of traders. Remember that whenever someone wants to buy a stock, someone has to be willing to sell it. So if some good news happens about a company, the stock price is going to go up until someone feels comfortable selling it. If a drug company finds the cure to a disease, obviously everyone would want to buy that company, but who would want to sell it? They're going to try to get the future returns that would be pretty much guaranteed at the point of sale. So the news of a company is already sort of wrapped up in the price. And with today's technology, news travels so fast that within minutes a stock's price is reflective of everything we know about that company.
Awesome info Savory! I’ll order that book you recommend. How much would you recommend to invest to start?
Anything you can. Most of the country is woefully under invested. And if the market starts to go down, DON'T SELL. The market has always rebounded. You only lose the money once you sell the stocks at a price lower than you bought it for. If you are invested in a few different index funds, you'd basically need a collapse of capitalism to sink you, but at that point we'd all be screwed. So many people back in 2008 sold AFTER the market hit close to bottom and didn't buy back in until well after the recovery. If you hold on through the ups and downs you should be OK. There are other reasons to invest long-term and not sell. If someone is actively investing, not only do they have to beat the market, they have to beat it by a substantial enough amount to cover their higher fee, transaction costs and the difference between short-term capital gains tax (where you get taxed the same amount as you would on your income level) or long-term capital gains tax (where you get taxed at 15% regardless). If you hold an investment for a short time and are constantly buying and selling, you will end up "donating" more of the money you make to the government. So let's take the S&P 500 for example. Since 1928 when it started, it has averaged a return of about 10%. First off, not many active managers can beat 10% long term. Statistically you could argue it's luck if they do. But getting 10% isn't enough. They have to get enough to cover their fee and all those expenses. Warren Buffett, one of the most famous "stock pickers" in the world (granted he picks stocks with resources the rest of the world can't and often buys controlling interests) made a bet. http://fortune.com/2016/05/11/warren-buffett-hedge-fund-bet/ I say all this with the caveat, there is no guarantee in life. We could get nuked and the market never recovers. But in order to get a nest egg, you have to invest in stocks. You can't invest in treasury bills or bonds and expect to watch the money grow. Use bonds and such to damper risk and as you get older, increase the bond allocations to decrease risk. But you need to take risk. Risk is what drives returns. If someone promises you a guaranteed 15% return with no risk, ask yourself, "Why in the hell would you offer that type of deal to me? Why wouldn't you just keep that for yourself?" The trick is not taking unnecessary risk like concentration risk.
