Plan to invest?

[Anonymous]

Alright so as of now i'm 26 years old.

I still live with my parents, only make $30,000 a year.

In about 7 months, I'll have about $9,000-$10,000 from saving, etc.

I plan on starting a 401k very soon.

My question is, what else could I do with this money?

I want to invest it, but I don't have the smarts for stocks, etc.

I asked a few friends if they wan't to try and invest with me, whether its starting a small business or something else. No one came forward.

I really wan't to grow this money, but with the risk being in my hand, and not other companies. I'm don't have a very big imagination, so I wouldn't know what do with company wise. My best friend is a great carpenter, (I help him out a lot on weekends, being a laborer, etc) but he didn't bring anything up about maybe starting something small to get us going.

I looked into some of those lending sites, but apparently, I need to make "so much" a year, which I do not qualify.

I really don't know what I should do, other than getting a newer car or what not.

Any help?

[youdontkillmoney]

It begins with you, the person. What is your risk tolerance...it can range from very safe through risky to very risky; of course being young in your 20's is also a factor since you have time to ride out market fluctuations.

ONce you figure out your risk tolerance profile, then decide on appropriate investments. For example, say you are risk averse but want to make double digit returns, so yo uinvest on stocks, then the stocks drop to $8,000 of the $10,000 you initially invested, since you are risk averse you'll get scared and sell at a loss. So if you knew you were risk aversem stay away from stocks, put it in a CD at the bank and gain $200 a tthe end of the year etc.

What to do with your money, it depends hwow I think you'll act when you lose value in the investment.

I'm 41, I just put $5,000 in goldman sachs, GE and a tech mutual fund, I;m down $300 over three weeks. Do I panick, no, because I know I will leave it in for at least a year as I add to my investments. Someone who was more risk averse may sell at a loss and keep what's left.

[wa3more]

First , set up a liquid emergency fund with 2-3 months of expenses in a savings account for car repairs and so on. For the rest, use an S&P index fund and dollar cost average in monthly. Just set up automatic deduction every month for your pay and save as much as you can. CD's pay a negative real return right now and will for a while. I might take the 10k and put in 1/10 every month into an index fund.

At 26, if you do this you will beat 100% of the mutual funds for next  25-30 years. Keep it simple and do not listen to noise or "experts" on CNBC.

If you have credit card debt, pay that off. Stay away from CC debt. It ruins many families.

Also, stay away from bonds . Bonds will under perform for a long time.

Keep it simple. I've been an accountant/financial person for 34 years and this is what I tell people. Some listen...and some don't. My son is a NYC police officer who is real risk averse, until he saw how much he could make by doing this.

[Anonymous]

1. Build a 3-6 month emergency fund.

2. Invest; if you want a "set it and forget it" method, look into lifecycle funds. They ask your target retirement date, and it automatically rebalances itself for you. Just make sure the expense ratio (aka yearly fee) is low. Under 0.8% is pretty good, but you can find some index funds under 0.2%.

[wa3more]

I would use an equity index fund that tracks the S&P like Vanguards.Lifecycle funds sound good in principle but underperform the market over the long  term.

Put the money in monthly and forget about it.  I can't claim that this is my idea but read that Warren Buffett likes it as well.

[mongstradamus]

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@wa3more wrote:

I would use an equity index fund that tracks the S&P like Vanguards.Lifecycle funds sound good in principle but underperform the market over the long  term.

Put the money in monthly and forget about it.  I can't claim that this is my idea but read that Warren Buffett likes it as well.

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I would slightly disagree, if you are somebody just wants to set it and forget it vanguard life cycle funds aren't an bad option they give you a good deal of diversity of having international and some bonds. If you are all in on just an equity index funds , if things go south like 2008, then you will get hit hard. Having some bonds in there could soften the blow an bit. 

[wa3more]

I am not a fan of bonds at all. One of the biggest bubbles ever is probably going on with bonds. And with rates about to rise soon, and ultimately revert to a mean, will rise for a long time. End result is bonds will underperform for a long time. Those heavily in bonds will do poorly.  Look at the two main guys who used to run Pimco, I think they left the bondcentric firm.

[Anonymous]

We can all tend to complicate the investment process to some degree. The best advice I was even given is "doing something is better than doing nothing."

You don't have to have the perfect strategy - it's getting started that matters. Do some research and decide the direction you want to go. The investment vehicle (IRA, Roth, 401k) and the investments themselves (index funds, mutual funds, lifecycle funds, diversified individual stocks, bonds) are less important that actually taking the action and getting started (as long as you don't do something crazy like invest every penny you have into one risky stock). You can always adjust your strategies going forward.