Getting Started in Investing
November 1, 2006 6:43 PM   Subscribe

I just got out of college and started my first job and am looking into investing some money and learning what the stock market is all about. What's the best way of going about doing this?

To begin I'm looking at putting away around $500. Is that too little to begin with? What are my options?
posted by blim8183 to Work & Money (17 answers total) 15 users marked this as a favorite
There is no such thing as too little. If your company has a 401k program, take advantage of it; especially if there is a matching contribution involved. If they don't have such a plan, get an IRA. Since you are just starting out, a Roth IRA is probably what you want.

As for what to actually invest in: you can't go wrong with a mutual fund linked to one of the major exchanges. The key is to get a fund with low or no managment fees. Ask whatever brokerage you choose about what index funds they offer.
posted by Uncle Jimmy at 6:54 PM on November 1, 2006

What are my options?

What are your goals for the money? Is this for retirement? How old are you? How risk-averse are you?
posted by trevyn at 7:07 PM on November 1, 2006

Mutual Funds are made for this sort of thing. You are investing a fairly small amount, but it is added, mutually, to other inverstors' money to make a larger sum.
posted by Pollomacho at 7:10 PM on November 1, 2006

Best answer: Read, read, read.

Read up on what 401ks, Roth IRAs, mutal funds, bonds and stocks are. Read about Warren Buffet and Edward Lampert. Read annual reports. Try to understand what makes a company healthy. Understand the investment vehicles at your disposal and which one is right for you.

$500 is not too little. Your options are many. Understand what the are first.

For what it is worth, from a pure investment point of view, check your company's 401k plan. You often will be able to purchase mutual funds with a company match up to a certain amount (usually a percentage of your salary or a hard ceiling). Think about it: you can earn a guaranteed 100% rate of return plus or minus how the market performs. You'd be hard pressed to do that with a stock on your own.

After that, if you have play money, explore the other options based on what you feel is right for you. The general consensus is a Roth IRA is a good second step after a 401k-to-company-match because of its tax implications.
posted by pedantic at 7:31 PM on November 1, 2006

Response by poster: I plan on contributing as much as I can to my company's 401k plan but aside from that I'm just looking to get some experience in investing money with the eventual goal of saving for retirement and having something to fall back on.

I'm actually an aspiring filmmaker so I don't plan on being at my company for more than a couple years. Much of my late 20s will probably be spent toiling away on various films. That in itself will be a huge financial risk and if there's anything I can do right now to make that easier on myself would be great.
posted by blim8183 at 7:35 PM on November 1, 2006

At the moment I would just keep maxing out your 401k. In the unlikely event you have money after that, toss it in an index fund and forget about it.

However, it's definitely worth it to learn about all of the market choices that are out there. The big ones are mutual funds, stocks, and bonds. Read up on them.

Also, if you're of an experimental bent, this would be a good time to make pretend investments in various things -- take an imagined $30,000 for example, and work out a strategy for investing it. Write down the investments you would have made, and check back on them in a few years.

The biggest advice I have for you is this: the people who work in the financial industry have a vested interest in making your options look as horribly complex as possible, and are frequently quite blatant with their FUD. Pay them no mind, just read up and do what you're going to do.
posted by tkolar at 8:19 PM on November 1, 2006

How long are you looking to hold the stocks?
This wouldn't be for day trading; but when I was still in college I opened a sharebuilder dot com account (I think because they gave me frequent flyer miles or something).
This is a good way to invest small amounts because you can invest in dollar amounts rather than quantities of shares, and the commission for buying is only like $4. There are some downsides, but I've been pretty happy with it for accumulating small amounts.

Nothing like telling your friends that you own 10.22756 shares of Microsoft!
posted by heh3d at 8:42 PM on November 1, 2006

$500 is not too little. $500 is a good amount to start with. The most important thing is to start. Don't worry about making the perfect decision. At this stage, it's far more important to just do something with the money. It's better to make a good choice than the perfect choice.

I happen to like Sharebuilder, too. They're not for everyone, but they're perfect for people like me. I want to be able to just say "take $100 and put it in Microsoft every month" and not worry about it. Sharebuilder does this. Other places probably do it, too.

I've done a lot of reading lately about investing, and what the Big Names (well, the trustworthy big names like Warren Buffet) seem to say is to invest in companies that you understand, believe are undervalued, and have good management.

What's a company you understand? It's a company you're familiar with, maybe one related to a hobby, or to your profession, etc. For me, Marvel Comics might be a company to invest in (if I didn't think they were a terrible investment), because comics are a hobby, and I have a little understanding of the market. The better you understand a particular industry and/or company, the better off you are.

How do you find stocks that are undervalued? Well, that's the trick, isn't it? Do some research. And good management? More research.

Phil Town's Rule #1 Investing is a good book to introduce some of the concepts involved. It's recent, and should be available at our public library. I can't say that all of his ideas are sound, but the book will give you an idea of the approaches people take when trying to pick stocks.

Invest for the long term. Invest often. Invest now. You are young, and the power of time can make you rich.
posted by jdroth at 9:04 PM on November 1, 2006

Read the relevant parts of Andrew Tobias, The Only Investment Guide Yoau'll Ever Need. His emphasis on the power of compound interest is especially important for folks just starting out.
posted by Dave 9 at 9:13 PM on November 1, 2006

The book titled, a random walk down wall street, is what by boss always recommends to our clients (union pension trustees) when they're looking to learn about investments. IMO, you can never ever go wrong with an index fund (Vanguard has low fees).
posted by bananafish at 9:27 PM on November 1, 2006

There's a stock market simulator at investopedia. You get 100k imaginary dollars to invest however you like. It's fun, when it's running. Which isn't right now.
posted by stavrogin at 10:41 PM on November 1, 2006

I started with around $500 my senior year of college and highly recommend Sharebuilder as well. Like jdroth says, I invested in companies I was familiar with, including one I worked at in college and Krispy Kreme (because I just loved those doughnuts). I did well with that strategy, but you have to be really careful when you emotionally invest like that. You don't cut your losses as fast and could end up losing way more than if it was a company you didn't care about. Also, talk to your friends that are already investing (if you have any). Doing so was really helpful to me.

I'd suggest looking into index and mutual funds as well. The index funds track the market and the mutual funds are managed by someone else, so you don't have to worry about continually moving your money around to play the market.

I would read up via blogs, books, and magazines. My roommate gets Money, but that one was a little over my head, even after I'd been investing for five years. It was only when I completed a graduate level finance course that I completely understood everything that was going on in that magazine. I used to get Kiplinger's Personal Finance and seem to remember that being pretty good.

One extra thing: get your employer to automatically put a set dollar amount into your investing account (like $50 or $100 per month) via direct deposit. Hopefully you won't miss the money and it will help grow your "stock money". Within a year you'd have up to $1700, even if the market is flat. I think I remember this being possible through Sharebuilder. Good luck!
posted by ml98tu at 6:42 AM on November 2, 2006

Most business schools have some sort of personal finance or survey of investments course at the undergraduate level. Perhaps you could audit one through your alma mater or a nearby school? I see you are in NY from your profile so there should be lots of options.

Upon some research, NYU has a continuing ed class on Fundamentals of Personal Financial Planning. Might be a little beyond the scope of what you're looking for but could be worth looking into.
posted by ml98tu at 6:55 AM on November 2, 2006

I strongly recommend investing in index funds.

Listening to a broker or investing in mutual funds is based on the belief that some people are "good" at picking stocks, which the evidence doesn't really support. If they were good at it, why would they have a job picking them for you? They'd be filthy rich already. Plus mutual funds charge much greater management fees (they have to pay their stock pickers and advertise their funds).

Naked Economics by Charles Wheelan, and as well as a Random Walk Down Wall street are both great books on the subject (the former is a better, more entertaining read).

Index funds are composed of stocks that simply mirror market indicators like the Dow and the S&P 500. As for investing in individual stocks, do research, and pick a company you know a lot about and have faith in the corporate culture of.

Like the other posters said, invest early and often. Time is your friend.
posted by zazerr at 7:32 AM on November 2, 2006

Find an investment club in your area. If there are multiple groups, sit in on some meetings to decide. Active groups are excellent opportunities for learning and teaching as you go. You probably won't make a bucket of money with them—bureaucracy + group dynamics can bog down the process—but going through the NAIC process taught me a whole lot about growth investment which I now use to much greater effect on my own.
posted by Fezboy! at 9:02 AM on November 2, 2006

Here are my thoughts:

1) Put as much money as you can afford to into a 401k or IRA for retirement. Do not plan on ever withdrawing this money until you retire. Do not plan on pulling it out in a few years to help you through a tough few months. With this limit in mind, determine how much money you can afford to have hidden away from you for the next few decades.

2) 401ks and IRAs are not necessarily boring old "watch the interest grow" bank accounts. You can invest in stocks, or mutual funds with your money in both. Likewise, you can sell, and move your money around from fund to fund within both without having to ever take your money out of the accounts. Playing the market WITHIN a 401k or IRA might satisfy your interest in this matter.

3) If you still want to try to make some money outside of the 401k / IRA option, open up an account with an online broker (I use eTrade...) and invest the money there. Do not invest any money here though that you are not willing to loose. In my opinion, you shouldn't invest any money in the market that you have not already "lost" in your mind. It's a gamble and you could just as easily loose 50% of it as you could see it increase 20%. It's a gamble. If you're willing to gamble then do it, otherwise stay away. $500 in my opinion is a good amount to start with, put it in, invest in 4 different funds or stocks that you think are going to do well, sit back and see how they did in 12 months.

4) Get ready to loose money. But when this happens, just take a breath and tell yourself that you already "lost" it in your mind. You're stocks will go up 10%, then drop 20%, then work their way back up to breaking even, then at about month 11, go up 15%. It's stressful, but it's fun; just don't count your money untill you sell the stocks.
posted by pwb503 at 10:21 AM on November 2, 2006

If you're looking to avoid transaction fees, Zecco is a recent startup that is the first broker (afaik) to offer completely fee-free trading. I haven't used them yet so I can't vouch for them, but they might be worth looking into.
posted by Vorteks at 8:07 AM on November 3, 2006

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