I had someone mention to me that Corporate Bonds were the way to go if I wanted something low-medium risk and over a <2 year time span.
Can anyone explain to me what the heck these are, if they are worthwhile, and how I go about obtaining them?
We’re talking a $1000 investment, give or take.
I have a great book called “Get A Financial Life” which is written for 20-30 somethings with these questions, I found it to be very helpful.
Pretty much ditto what others have said. Like voting in Chicago, do it early and often:
If you have some spare income now and you aren’t sure how to invest it, your bank probably offers money market accounts. The money will remain liquid and earning interest, and it’s pretty low-risk. Good holding tank while you are making your plans for bigger and better things. Also a good place to store that couple months worth of “emergency cash”.
I like to max out investment options that have big tax breaks - most important of these is my 401(k) plan at work. I invest the maximum allowed in this (about $15k/year right now) and as a bonus, my employer matches the first 6% of my deductions (meaning if I earned $100k/yr and put 15% into my 401k to max it out, my employer would contribute $6k per year - that’s $500/month of free money).
I have made the rest of my “market” type investments using Vanguard. Like others have said it’s very simple to do and they have extremely low costs (Consumer’s Union does reports on various investment options each year, check your local library. Vanguard always comes out recommended by CU). They have all kinds of index funds, they also have “targeted retirement” funds which means that the exact mix of stocks, bonds and whatnot is adjusted automatically as your targeted retirement date approaches - when you are 25 you can accept a lot more risk for higher returns so you might have more money in stocks, whereas if you are 60 and retirement is right around the corner you might want your money in much more stable investments, even if they don’t have the same rate of return. I max out my Roth IRA with Vanguard and money left over goes into similar investments, I just don’t get any kind of tax break.
Make your investments automatic - your 401(k) will generally be automatically deducted from your paycheck by your employer, at whatever amount you like. You can set up automatic transfers from your checking account to your money market account, Vanguard (and others) let you set up automatic investments as well. If you don’t have to think about it it’s so much easier. It doesn’t have to be a ton of money, start with whatever you can afford (say $50 a month) and keep increasing it as you earn more (or whenever some of your expenses drop - say your car insurance gets cheaper as you get older).
I’d also recommend taking a few minutes to fiddle around with Excel and set up a spreadsheet showing how your money will grow over the years. Very simple to do, just set an amount that you think you can invest each year, pick a decent rate of return and then run it for 40 years. Years ago a friend showed me this and it really inspired me to start saving.
Speaking personally, as I’m young (24) I prefer high-risk, high-reward investments, especially at the moment since I believe that stock market will keep rising for at least the next year. Many people in this thread have mentioned the S&P 500 Index Fund. This is an excellent fund with low fees and good tax advantages, but among stock funds it’s one of the less risky and less profitable. During 2006 it earned about 16% return.
Some of the ways to try for higher rewards are:
Invest internationally. Lately almost every country (except Japan) has been beating the United States in stock market returns, and most analysts expect this to continue. The European Stock Index Fund returned 33% last year. With Europe being a relatively stable area, there isn’t much more risk than with American stocks. For those with an even higher aspirations, there are funds that invest in developing world stocks in places like China, India, and Brazil. Some of these earned over 100% in 2006, though of course they’re extremely high risk because those economies are so volatile.
Invest in small companies. Small companies are generally more volatile than large companies, hence they produce huge returns when the market is up and huge losses when the market is down. For instance, the Small-Cap Value Index Fund returned 19% last year.
Sector-specific funds, meaning funds that invest in only certain types of companies, such as a health-care fund or an energy fund. In order to use these correctly, you have to follow the news carefully, because these funds are highly dependent on current events. (That’s why I personally don’t invest in them.)
Most funds require a $3,000 minimum initial investment if you want to invest directly with Vanguard. How much does Shareholder charge you to invest in Vanguard funds?
After the initial investment, you can add as little as $100 to your fund.
(*it’s Sharebuilder, not Shareholder)
$4 per transaction (for buying, I think selling is about $20 but not sure), regardless of amount. It’s nice, although you have to schedule the investment at least a day or two in advance, and can only purchase stocks/funds on Tuesdays. This doesn’t make any difference to me of course because my investments are long-term, but would to a frequent trader. (who can still buy and sell when they like if they pay a bit higher transaction fees)
Companies commonly raise money using two methods:
Equity - selling pieces (shares) of ownership in the company called Stocks. When you buy 1 share of Microsoft (MSFT), you become 1/xxx,xxx,xxx owner in Microsoft. The value of a stock is dependent on the percieved future success of the company. Some stocks also pay dividents where you receive a portion of the profits of the company.
Debt - taking out a loan. That loan can be broken up and sold to people as Bonds. Instead of paying back the interest and principal to the bank, essentially they are paying it back to whoever owns a bond. The value of a bond is determined by interest rates and whether the comany remains solvent enough to pay it’s debts. Bonds are also rated (similar to your credit rating) indicating the likelyhood of the company being able to pay back their loans.
Bonds generally are safer than stocks, however they also generally show a much smaller return. If your’re young, I’d stick with stocks.
Just for the heck of it, I did a search in MSN.com Money searching for funds that were 5-star rated by Morninstar, no load, low risk, and near $3000.00.
(I’m certainly not advocating the purchase of any of the funds shown. I haven’t researched them at all. That’s up to you.)
You can set up your own search parameters here.
I use Scottrade which has it’s own versions of fund/stock search programs. So far, they’ve been pretty good to me.
::: eyes Democrats in Congress :::
This will duplicate other advice, but it’s worked for me. I’ve been able to pay for college for the kids, and am not worried about retiring - in fact I might be able to retire a bit early.
First, look for leverage. 401Ks should get highest priority, especially if they are matched by your employer. Investing in them helps your tax situation, and the time to start planning for retirement is now. If you ever have kids, you can start saving for college then.
Diversify. Research what split of stocks/bonds/cash makes you more comfortable. I’d say at your age you should be a bit aggressive. Some stocks are good income producers - I’m moving into them. Remember to rebalance your portfolio every so often. If you want to diversify to 60-20-20, and your stocks do well and become 70%, sell some to rebalance.
I agree with most that mutual funds are far better than individual stocks. (though my Google has tripled 
)
Figure out quickly how good you are at picking investments. I suck, and I’ve learned to trust a financial planner. (I thought Google was too expensive when he recommended buying it - luckily I trusted him instead of me.)
Behavioral economists have shown that people’s greatest investment sin is not selling when the time is right. That’s why mutual funds work - they do sell.
Figure out some way of making investing automatic. 401Ks are good for this. You’ll soon get used to not having the money.
We keep just enough in the bank account to make our checking free. Anything else above what we need for checking goes into our ML money market fund, which we can write checks off of.
One other advantage of all of this is that if you ever come into a decent amount of money suddenly you’ll have all the infrastructure in place to deal with it wisely. That helped me a lot when AT&T gave me an oodle of money to leave.