This thread is better suited to IMHO. I’ll move it there.
I’m in no way a financial professional.
From your posts I’m not sure what exactly your situation for the money is. Do you have a plan to use the money in the near future? Or is it truly your life savings, and you don’t want to touch it until retirement time?
Personally I’m a very high risk 26 year old investor. The way I see it if I lost every cent I had today, it would suck, but I have time to make it up before I retire. And before I invest I make sure that I could afford to it completely. The last few years have been very good, and there are many good solid mutual funds returning 20-30% percent a year for the last 10 or so. Individual stocks are often returning 60% a year. But the down side is that many go nowhere or downhill. Morningstar and the Motley Fool have great web sites for beggining investors, where you can determine the risk of various types of invetments, from stocks to mutual funds.
The most important rule of investing is never let anyone talk you into doing something you are uncomfortable with, but I think it is a disservice to tell a 25 year old to invest in fixed return, under 10% investments.
$5000 at 7% for 25 years = $27000
$5000 at 12% for 25 years = $85000
$5000 at 16% for 25 years = $205000
16 percent is a very good, but very obtainable return if you use sound judgement. 12% is the average stock market return for the last 50 years or so.
For me the reward is worth the risk of maybe losing it all, becuase as I said I have a long time to make it back. If you may need the money more or less intact within 5 years or so, then high risk investment may not be the right thing fo you however.
One more word of caution about brokerages. They are more than happy to take your money, and do what you want with it, but in my personal opinion they often have ulterior motives for steering you in one directon, rather than everything for the customers benefit.
I got your best interests at heart, so you can trust me.
I know an off-shore oilwell that’s ready to spout. But I wouldn’t dream of asking you to invest all of it with me. Keep $50 for your old age.
handy believe me, my head’s spinnin-a-plenty. It seems like everything said here is in layman’s terms in general, common knowledge to many, but I’m only slightly less lost than I was 2 days ago.
Can we all pretend I said my age was 14, not 24?
Cisco I’m not thinking that longterm. I do currently have a 401K account (not that I fully understand how that works, but that’s a whole other thread). I’m thinking more of putting it away for maybe 5 to 10 years or so. Maybe longer, but liquid enough to be able to access it should I need it. I don’t see me needing it for anything in particular for a few years at least.
konrad any advice on how to go about finding a specialist? any idea what kind of fees I can expect to pay him/her? Do they usually work for a flat rate?
Dougwhat exactly is a money market account? Is that the same thing as investing in stocks? I have to take some time this week to check out that site, as well as the other one from Zev, and I mean a lot of time because I’m overwhelmed just looking at the homepages.
wolfmanNo, I don’t plan to use it in the near future, but I don’t want to freeze it till retirement either. What exactly is a mutual fund? 20-30% a year sounds good to me. Tell me more. How do I actually go about doing this?
bongelIn this life you have to take some risks sometimes. I don’t need the 50. Let’s go for the whole shootin’ match.
OK, so in summary I have as possible options:
1)CDs
2)savings bonds
3)money market account
4)stocks
Now, for your assignment: Compare and contrast these 4 was of investing money in terms of:
a. liquidity (if that is a word)
b. risk
c. returns
Part 2 - explain how one would go about pursuing these options.
please 
I really appreciate all your responses thus far.
Dougwhat exactly is a money market account?
MONEY-MARKET FUNDS are often touted as the safest kind of mutual fund, but that depends on your perspective. On the one hand, it’s almost impossible to lose your principal in one of these things. On the other, their returns are so low – 4% to 6% on average – that they can’t beat inflation over time. In the long term, your money loses its buying power and so actually becomes less valuable. Consequently, money-market funds are most useful for parking cash you need in the short term – a car or house down payment, for instance, or next year’s tuition.
The reason money funds are so stable is because they invest in ultra short-term securities like those issued by banks, the federal government or big companies with Grade A credit ratings. Your return comes in the form of a dividend. In these respects, money-market funds are very similar to a bank certificate of deposit. The advantage of a money fund is that it is completely liquid. Unlike a CD, which will lock up your money for at least six months, you can sell your shares in a money fund at any time. They also often offer perks like the ability to write checks against the principal. The advantage of a CD is that your deposit is usually insured by the federal government.
There’s a short answer. Money-markets are not like investing in stocks because they are not invested in stocks. They are a parking place for your money until you decide to do something with it. The ability to write checks on it gives you complete liquidity (which makes it a constant temptation).
Putting money in a money market is not investing. It is SAVING.
There is a diffence.
Well there are a lot of people who can explain better than me but a mutual fund is a collection of stocks rather than a particular stock.(okay a money market fund is mutual fund technically, But usually mutual fund refers to a stock mutual fund) A fund manager decides what stocks to purchase, and how much to purchase. For example a manager may decide to put 200 million into Microsoft, 150 million into SUN, 100 million into Kmart, Ford, or rectal-imagery.com or whatever.
You then send them money, and you get a certain number of shares for your money. Commonly the shares have a price of $15-$40, (but some really old closed funds are incredible, like Berkshire-Hathaway A is like $62,000 a share, but since its closed you don’t have to worry anyway).
You now have x number of shares in the mutual fund. If the manager bought Microsoft, and Microsoft goes up, then the value of the fund shares go up. If MS goes down, the share value goes down. The benefit, is less risk to you. If microsoft went completely broke, then the Fund would lose money, but because the money is spread around, you don’t lose it all. On the otherhand if microsoft doubles one day, your value goes up but doesn’t double.
I’m a crappy explainer I know, but basically in buying one fund, your buying a percentage of a bunch of stocks, so your risk is diluted. But if the whole market goes down a bunch, then then fund will go down a bunch.
The cool thing is there are funds for nearly every focus you could think of. There are funds for only over-seas, or huge companies, tiny companies, biotechs, Internet companies, or even funds that only invest in environmentally responsible companies. Some are index funds, where the fund just mimics a big index like the S&P 500.
Obviously 20-30% isn’t a guarantee, but the technology stocks have done so well the last couple of years that any fund even moderately invested in techs should have done that or better. But as the biggest surge for techs may be over, so you not assured of getting 20%(I know you know that but I have to point it out for moral liability )
An Ira(roth or normal) would be good if you were sure you wanted to save it for retirement. But if you plan on saving it, but might find a reason to spend it, you can just put it in a normal account, and avoid the extra penalties an IRA has if you take it out before you get old and grey. The Ira does have tax advantages if you can accept that you wont touch it for a while.
Anyway just checkout Motleyfool.com, its a free website that’ll tell you more that you ever wanted to know about P/E ratios, capital gains liability, and the mid-cap sector. And it makes a lot more sence than my babbling.
One piece of advice, ** Moe **,
If you want to think about retirement, NOW is the time to do it, while you’re young.
Answer this question:
Moe #1 contributes $2000 to an IRA account every year from age 22 to 30. At age 30 (after 9 years) he stops contributing but simply leaves the money to accumulate interest.
Moe #2 starts contributing $2000 a year to an IRA starting at age 30 and continues until he retires at age 65. He has contributed for more than 30 years.
Who, at age 65 (assuming an equal amount of growth), has more money?
The answer is Moe #1!! Don’t believe me? Just run it through any spreadsheet. If you are interested in saving for retirement, then it is very important to start as young as possible to take advantage of the compound interest.
Zev Steinhardt