Quote:
Originally posted by denim
Fair enough.
I finally got out of debt last month, and couldn't stand to see my savings account accrete with the stock market at a low (IMO), so I opened a funds account and a brokerage account with a major company.
I put $4K of the initial $5K into an index fund, and the rest into a money market, with the idea of going into the stock market. Then, the week before Apple opened its music business, I bought in. Total, I got 100 at $13.44, so things are looking nice. I also bought another computer company which is at what I expect is a low, which simply can't get much lower, and with the amount of money that I could lose it w/o being too concerned.
My current plan is to pay off the credit card each month (my major debt) and put the excess into some financial vehicle. The coming payday check will go into savings, as I'm not happy with that just yet, but other checks will go into funds, both ones I've already got and others.
I also have an active 401(k) with my current company and a RO IRA, but those are inviolate other than how the money is currently arranged in them.
So, what do you think of this? Any general suggestions?
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Well, I'm not going to recommend any single company, but I will state that generally once a stock runs up on a new concern, it will give something back as people overestimate the upside on the news.
When you say you plan to "pay off" your credit card, do you mean you're paying down an outstanding balance, or you're just not carrying a balance from month to month? If it's the former, I'd definitely finish paying down the cc before worrying about investing in the stock market.
Index funds are generally a good bet, though if you think the stock market will sink your fund will sink with it. It might be a good idea, if possible, to invest in a number of index funds, including some non-U.S. markets, if you have some extra cash.
Picking stocks can be a risky business. Keep in mind also that in a brokerage account you're going to be paying taxes on anything you make. Are you keeping the money taxable for liquidity purposes? If you are using the funds for income and growth, that's fine, though you should limit your expectations. If you plan to put the money toward retirement, though, you should definitely think about putting it in the IRA.
Overall, it sounds like you've got a generally sound plan-- you're trying to keep diverse via the index fund, while leaving a little bit of money to "play" with. You might want to diversify away from stocks, you could put some of the money in bonds. Municipal and U.S. bonds are often tax-free under certain circumstances, too.
When you talk about investing $5,000 in the markets, be very careful to rein in your expectations. If you can get and hold onto about seven or eight percent a year, you're pulling in some decent income and will have a good bundle when it comes time to retire. You can also liquidate and use to buy property or invest in a business, etc. However, and this is the mistake most new investors make, you have to learn to be satisfied with consolidating your returns over the long term. If you start thinking, "boy, I picked AAPL at the right time, I bet I can make ten percent a month," you'll probably regret it. It's possible you're the next coming of Warren Buffet, but it's unlikely. So you're wise to keep the largest chunk indexed.
Bob