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Author: Marxtacy Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 2674  
Subject: Re: What are my options? Will the market crash? Date: 3/31/2003 10:22 PM
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I was 16 when I first started investing in CDs, and I started investing in mutual funds at 18. I'm now 27. From experience I can say "stick with it!"

It sounds like you need to learn a lot more before you start buying individual stocks. I know you want to get that money invested, but you will do yourself a world of good if you wait a month or two while you read as much as you can. In the meantime, don't blow that grand on a whim! Remember, that 1000 dollars could be 65,000 dollars in 40 years (at 11% interest). Heck, add 100 dollars a month on top of that original grand and you will end up with 798,000 when you are 56!

You have a good start finding the Fool website. I'm doing well, but I could be doing even better if I would have had the Motley Fool as a resource when I started investing at your age. With time on your side you won't even have to worry about picking individual stocks until you get a lot more experience understanding business models. Start out with index funds and save as much as you can. But don't sit up nights reading annual reports...there is too much fun to be had at age 16.

When you are ready, open up an account with an online brokerage and send in your 1000 dollars. I suggest investing in S&P 500 exchange traded funds (ticker: SPY). They work just like the S&P 500 index fund, only you trade them like stocks. Don't invest all 1000 dollars at once. Buy 500 the first month, 500 the second month, and hopefully by the third month you will have more money to send into your account. This will get you into the habit of investing each month, and you will be properly diversified until you learn enough to invest in individual stocks. The Fool website highly recommends this sort of strategy.

Also, as long as you have income, you should open up a Roth IRA as soon as possible and start putting away money that will be tax-free come retirement.

I think my biggest mistake starting out was not investing regularly enough....in other words, I wasn't able to take advantage of the "lows". Too many times I saved up a bunch of money and invested it all at once only to watch the stock price tumble. Avoid day trading. With so much time on your side there is no reason to invest the amount of time and energy that day trading involves. The idea is to let your money work for you!

Between ages 16 and 27 I have built up to my current strategy:

#1 Contribute as much as possible to a Roth IRA. My Roth IRA is 50% the S&P 500 index. Since I have a long time till I plan to retire, the rest of the stocks are fairly agressive. Small-cap growth stocks, etc. An added benefit is that you don't have to do tax paperwork for stocks traded within a Roth IRA account. (I don't get too aggressive, however. This is my retirement money, after all.)

#2 To complement my Roth IRA, I maintain a portfolio of several no-fee DRiPs. These are mostly large companies that pay a good dividend and have growth potential. I intend to fund and hold these funds as long as the companies continue increasing their dividend and earnings. I send in funds each month to at least one of the DRiPs, and I try to pick the company with the "cheapest" share price that month.

#3 A regular (no tax breaks) online brokerage account that I use for relatively short-term investments. That is, 5-20 years. 25% of this account is also in S&P shares, basically the proportion that I might need the soonest. The remaining 75% are moderate risk stocks. I fund this account when monies are "left-over" after funding #1 and #2.

#4 A regular savings/money market account to hold my emergency funds and short-term (under 5 years) savings.

Except for actually picking the individual stocks I think I've developed a pretty simply strategy that will work for me over the next 15 years or more. At that time I will start adding bonds and probably real estate to my portfolio. I don't have any children, but as soon as I do I will need to open up a college savings account (i.e., 529 plan), but that won't dramatically impact my core strategy.

Good luck and welcome to The Motley Fool.

marxtacy


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