In this thread they are discussing penny stocks, and it got me thinking…
Not this year, but next year we will have about $1000 unspoken for in my wife’s bonus. We’ve discussed investing before, but neither one of us really knows much about it.
So… what’s a good starting point? We will probably also get the advice of a professional when the time comes, but I figured I could get a head start by asking the collective wisdom of the Dope.
Have you paid off all of your credit cards? If not, that would be the best investment you could make. Do you have an emergency fund equal to six months of mortgage or rent payments? If not, that’s probably your second best investment.
If you want to buy penny stocks, why not just cut out the middleman and give it to me? You’ll lose it anyway, and in the meantime I can put it to better use.
If $1K is all you have, I don’t know if I would go through the motions of setting up a brokerage account or getting a financial professional. You’ll pay commissions on ever trade that will eventually soak up some of your returns. I would research low- or no-minimum balance mutual funds and toss it into a stock index fund or a bond index fund if there is a chance you might need the money in the short term.
Yeah, $1000 really isn’t that much in investment terms. If you do have high-interest debt, use it to pay that down; if you don’t have any significant savings, add it to what you do have; and if neither of those conditions applies to you, sticking it in a CD at your bank might be your best bet. It’s a very good idea to consult with a professional before you make a decision.
Putting the $1,000 into a money market mutual fund. Fidelity and Vanguard have good ones with low expenses and good returns. About 5% is a common return these days.
What next? Well, $1,000 isn’t much, but it is a start. Next step is to increase that amount through regular additions to the money market fund. Direct deposit or automated transfers from your bank account are good, but even if you just commit to sending in a check every month, that’s ok. Actually, this step is the most important to your investment success. I’ve had decent luck with investments, but the bulk of it is still money I’ve put in there from savings.
Once you get a few thousand saved up, you can start to invest in stocks or mutual funds. Most mutual funds have minimums, and stocks have commissions you have to pay. You can learn about this while you are building up the money market fund.
Edited to add: No reason to wait for the $1,000 to arrive. Start your savings plan now and add the $1,000 when you get it.
I agree that $1000 isn’t much but it could be used as an educational exercise. Setting up something like an E*Trade account and buying a stock or two could be interesting. If you treated it like a real exercise, including research, stock history, and commissions, then it could be worthwhile and the risk isn’t very high. You have to be willing to just buy and hold though because even the rather small commissions charged would wipe out most gains in the short term.
Yeah you can do that if you want to treat it like a mad money account. As long as the OP is prepared to lose it during the education process. But you can get the same education with mock dollars or a sharebuilder account.
A decent index fund (better yet an index ETF which has no minimum) will provide a decent return, diversification and reasonably low fees.