So it’s really that simple, all you have to do is know what will perfom best NEXT year.
Sorry, forgot the 
at the end of the last post.
But really …
Diversify $20K? Might as well be diversifying $10 don’t you think?
I have to interject and mostly agree with SunTzu2U that the quality of much of the advice given to our eighteen year old OP is appalling. Options trading? Seriously? Becoming a landlord?
The hardest thing for an advisor to learn is that it isn’t about you. It is about what is best for your client. It doesn’t much matter what you would do given a sum of money. I can’t possibly know what is best for the OP given limited information. I just don’t where some of this advice comes from based on the facts we do have.
It takes time and experience to understand the financial system and to develop a basic understanding of the options available to an investor. Given that, options trading is the last thing he should be involved in. Buying a house is a close second given the mobility of most people in his age range and the responsiblity of being a landlord.
I would also take exception to Chairman Pow’s rule of thumb that one should only invest what you don’t mind losing. That is just untrue for the vast majority of people and should serve as a warning sign that you are investing the wrong way. A well diversified portfolio of mutual funds carries an almost zero risk of dwindling to nothing. There will be ups and downs, but you can invest with as little, or as much, risk as you feel comfortable.
Ccwaterback I understand that you have become comfortable with individual stocks and I certainly respect your posts on investing. I don’t understand however, why you shouldn’t diversify however much money you have. Most first time investors need to get a feel for the degree of volatility they can tolerate in their investments. Diversification is a valuable tool that should be used to dampen that volatility. With most load and no-load funds it would cost you no more to split your money among several different funds than it would to invest into one. What is the downside of diversifying?
CC–
By diversifying your investment (be it ever what value) you don’t have to figure out what is going to be the best performer NEXT year because if you were properly diversified you would have a little portion of your investment in that fund already. In my retirement portfolio I have 10 funds with 10% of my investment in each fund. This is MY personal allocation, YOURS may be different. I have approximately 50% in income funds and 50% in growth funds and have an ivestment time horizon of 25 years.
Each 50% portion is subdivided into 5 different areas of that specific objective. My income funds include a government bond fund, a high yield corporate bond fund, an international bond and income fund, a domestic income fund and a domestic convertible fund with income tendancies. In the growth portion of my portfolio I have a capital appreciation fund, a small cap growth fund, a large company growth fund, a S&P 500 index fund and an international growth fund.
Every January 4th my portfolio is automatically re-allocated to my initial diversification arrangement. This way I take my profits and roll them into lesser performing funds limiting my exposure to risks associated with an unbalanced portfolio. (Oh yes there is no cost to me for this service). Using this method PLUS dollar cost averaging (DCA) I’ve managed to maintain an average 11% rate of growth for the last 15 years, even in the down years.
How? By having as many of the investement bases covered as possible and sticking to an allocation plan regardless of what the market throws at me. While asset allocation and DCA don’t help you achieve better returns they do limit your risk exposure while investing over time.
Oh yeah BTW I am using a variable annuity as my retirement vehicle on a NON-Qualified basis (Meaning not subject to federal retirement plan rules). I can put in as much or as little as I want and do not have to follow the rules that IRAs must operate under. I don’t have to pay taxes on my earnings until I withdraw the funds and then the taxable portion will be the earnings only. My money is also protected from any judgements against me so if I get sued they can’t touch this money.
Another nice thing for me, since I have a family counting on me, is should I die prematurely my family is guaranteed not to get less than what I put into it or its current value whichever is greater. So during those down years in my portfolio, should something happen, my family won’t pay the price for having a down market. Each year this guaranteed death benefit is locked in upon the anniversary of the contract. If the account value is higher than it was the previous year I have a new higher Guarantee. If its lower I get to keep the previous year’s guaranteed value. So I get to lock in the good years and toss out the bad years for this guaranteed death benefit.
For people who have money sitting in CD’s or in retail investment accounts they are exposed to taxes and any potential lawsuits against them. I’ve learned by now, its not a question of IF someone sues you but WHEN someone sues you because it will happen. I advise my clients to avoid all types of risks be it taxes, low returns, inflation, loss of principle, liquidity risks and even lawsuits. All of these concerns need to be considered when investing.
Step 1: Forget you ever asked a bunch of yahoos on the internet about how to invest money (especially Doper yahoos–what were you thinking?). You’ll get lots of different opinions that are mostly based on the different people’s individual circumstances and aptitude and have nothing to do with your circumstances or aptitude.
As an added bonus, the opinion givers will invariably start arguing with one another about each other’s opinions and will entirely forget that you exist. (Looks like we’re just about to hit this stage in this thread.)
Step 2: Read at least five general purpose books (i.e., ones that assume the reader knows absolutely nothing and try to introduce the reader to absolutely everything), and then read more about specific types of investments (e.g., bonds, different types of stocks, other equity stuff [REITs, MLPs], options, futures, boring stuff [money market accounts, CDs]), investment strategies in each of the different areas (e.g., for futures: scalping, hedging, swing trading, position trading, etc.), and anything else you got interested in while reading the general purpose books.
Investing for Dummies is a really good place to start; I recommend it to beginners because it doesn’t have an agenda or anything else to sell. You’ve gotta watch out for this when you read any other book, but after you’ve read a couple things like this will be easy to spot.
Step 3: Do whatever you determined for yourself is the right thing to do based on your research and analysis in Step 2. This might be simply putting all of the money into a CD and forgetting about if for a few years and it might be trading currencies at home in your spare time (and not getting much sleep, but that’s the life of a currencies trader).
You have a hell of an opportunity here, buddy. It’s worth taking the time to educate yourself so you can make the right decision for you.
I never did very well with mutual funds (“funds”). To me they are just another added expense (annual fees whether they make money for you or not). So with funds you not only have Uncle Sam’s taxes and inflation working against you, you also have annual fees. If you go out and buy a handfull of the bluest of bluechip (never transportation stocks, they always suck IMHO), and hold them for a long time (we’re talking 20 years+ according to the OP), it’s my thinking this would be your best bet.
I certainly respect the opinions of the last several posters on this thread, we have met before and I can see they definitely know their stuff. I’m still going to hang tough with my handfull of bluechips though (General Electric, Hewlett-Packard, Intel, Johnson & Johnson, 3M Company, Procter & Gamble and Exxon Mobil).
From SunTzu2U:
“What the heck is a NO LOAD fund? Just because you don’t pay a front end charge or a back end surrender charge if you get out early doesn’t mean you don’t pay a LOAD. Way too many people make their decisions based on fees associated with a fund. They fail to look at the management and the method which a fund is allocated. You want a TRUE definition of NO LOAD? NO LOAD = NO HELP. If you plan on investing in an index fund wouldn’t you like to have another set of (skilled) eyes looking at it BEFORE you leap. I have seen and done some analysis of comparisons made between No-load funds and sale-fee funds investing in the similar sectors. What the evidence shows is that EVEN after you pay your fees you are much better off by buying a sale-fee because the management fees (12-b1) are LOWER than the NO-LOAD and you also have someone to advise you in your investments.”
Good point in that management fees are also of consideration. However, if you remember I was specifically recommending Index funds from firms like Vanguard and Fidelity which have 12-b1 fees below any sales fee I have ever seen. Your post strikes as a pretty typical pitch from a financial planner. I’ve been investing for over 30 years and, after working with 4 or 5 financial experts, have become convinced that none of them provided me any benefit. My best returns have always come from my own investments so now it’s all between me and my estate planning attorney.
Index funds generally outperform 80% or more of the mutual funds available, when tax impact is considered. I still think it’s the best way to go for the small long term investor.
SunTzu2U - you need to look at stock options trading, while you are jetskiing on a lake. Seriously these can make alot more money than the mainstream investments, but they require alot more research.