Stock Investing 101
January 8, 2004 2:41 PM   Subscribe

I'd like to start investing in stocks. What's the best way to get started in a safe, conservative way. ETFs maybe?
posted by oissubke to Work & Money (7 answers total) 1 user marked this as a favorite
 
If by "conservative" you mean "free of unsystemic risk", a handful of ETFs would be a good place to start. But make sure that you don't concentrate on too narrow a slice of the market-- and the S&P 500 is "too narrow", IMO. If you want to make a killing, concentrate on one stock or sector, If you want to invest "conservatively" as you claim, you will need to be diversified across capitalizations, industries, countries, and strategies.

It's vitally important that you understand how sub-asset classes can rotate in and out of favor. (.pdf)

I've been in the business for seven years as a broker and an analyst, and of all my beliefs, that one that has grown strongest is that do-it-yourself stock investing can be quite perilous. I am in no position to judge what you are capable of, but the absolute best thing you can do is educate yourself. Check out the AIMR Candidate Body of Knowledge (.pdf) to get an idea of what people who manage money for a living ought to know, pick the most relevant parts (Financial Statement Analysis, Portfolio Management) and get thee to a library.
posted by trharlan at 3:01 PM on January 8, 2004


Thanks, trharlan. I agree that I've still got quite of bit of learning to do before I jump in.

To clarify what I'm looking for, I'm not interested in daytrading or anything of that sort. I just want to start taking some of my discretionary income, and instead of spending it on DVDs, video games, etc., invest it in something that's going to make me say, "Man, I'm sure glad I did that" years or decades from now.

It seems to me that the stock market, window-jumpers aside, is generally a good long-term investment. If you have a stable, diversified portfolio over an extended period of time, apart from occasional disasters, it seems like you'd do pretty well -- that's why I was wondering about the ETFs.

Since I don't plan to do a lot of short-term trading, are there better ways to get in on the indexes? Would a fund be better?
posted by oissubke at 3:15 PM on January 8, 2004


It's probably true that expenses are a key driver of investment performance.

Your assertion that throwing money at the stock market and letting it be is a good long-term strategy is correct-- at least I believe roughly what you believe in this regard.

If you have the money to buy ETFs once or twice a year and avoid maintenance fees at a brokerage, ETFs will probably be cheaper than index funds. If you lack these means, you're probably better off buying a total market index fund and an international index fund from Fidelity or Vanguard.
posted by trharlan at 4:18 PM on January 8, 2004


Where would ETF maintenance fees be disclosed by a brokerage?
posted by Fupped Duck at 4:46 PM on January 8, 2004


Fupped Duck, it's not the ETFs that would be charged a fee, but having a brokerage account.

I'll second trharlan's recommendation on when to use ETFs or funds; funds if you're going to add a bit each month, ETFs if you're going to infrequently commit bigger sums (and get a low-cost brokerage account).

oissubke, Morningstar has some useful tutorials, I think, along with research on funds. You have to register (free) to do some things, and others they save for those who pay. Their forums are free and can be good, too, especially the Vanguard one.

For diversity, you might consider buying Vanguard's Total Stock Market Index fund (profile). Low expenses, huge (US only) diversification. They also offer it in an ETF form, I think (Vanguard calls its ETFs VIPERs). They have a Total International One too (profile)

Other useful reading is FundAlarm.
posted by pmurray63 at 6:51 PM on January 8, 2004


are mutual funds still reliable? that was what I was recommended to look into first for investing.
posted by Hackworth at 9:24 PM on January 8, 2004


Yes, Hackworth ... provided that you:

a) pick good fund companies that put customer interests first, and
b) have the proper allocation (mix) of funds

Good fund families include Fidelity, Vanguard, Dodge & Cox, and many others. Bad ones include the ones you've heard news stories about, and many others. To echo my previous advice: read Morningstar and FundAlarm. MSN has some decent articles. I like Money magazine too.

You don't need to go overboard and buy a lot of funds if you choose carefully. In fact, you can actually reduce your returns by doing that, along with not being as diversified as you might think.
posted by pmurray63 at 8:20 AM on January 9, 2004


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