- April 30, 2008 at 3:26 pm #257579Very good question, but making huge profits opens yourself up for huge risks. Also if you invest in the stock market it should be money that you don’t need to access for 5 years or more. Also long term investing should include bond investing as well.
For most of that means that if we are in the stock market we are saving for our kids college as well as for retirement.. The only way to make money in the stock market is long term investing and understanding all aspects of investing to keep costs down. Get some good books on investing before you begin so you are aware of the history, economics, costs, etc of investing.
For example many people when they see their mutual fund down sell, rather than buy more.
I wouldn’t recommend in investing in individual stock directly there is too much risk with individual companies unless you know much more about value investing and evaluating individual companies in the long term and their earnings, etc.
What Warren Buffet suggests for the first time investor to start out with Index Funds or low cost etf’s that follow the market indexes. etf’s work like stocks and have lower expense ratios, etc, however you have purchase fee of say$10 through Etrade/sharebuilder. I agree with him.
I personally only do Index Funds in my Roth IRAand my 401K is mutual funds. My short term money is in an ING account.
Very few people should be investing directly in individual stocks since it is very hard to beat the market average, that after years of long term investing is about 10-11%.
It’s very hard to beat the market and get better than 10% longterm, so I recommend a beginning investor invest in Index Funds. Yes you might be excited to gain 30% like in 1999 in overpriced stocks, but then the loss of 40% in 2000-2002.
I think the biggest thing in investing is a good understanding of all things in the stock market. Try to understand expenses in investing and keep those low, value investing, growth investing, large cap, small cap, mid cap, foreign investing, Real estate investing, precious metals investing. Also try to understand how people evaluate the value of stocks.
For example P/E ratios, etc.
I recommend two different books that have been helpful to me on beginning investor (which is what I consider myself). I’ve read a bunch more on mutual funds as well. Very very helpful stuff if you want to cut costs.
__A Lazy Person’s Guide to Investing__
__Four Pillars of Investing__
You can save yourself alot of money by knowing a bunch of this stuff, for example on many of the Mutual funds that you by you can pay a 5% – 8% sales fee that really isn’t needed if you buy from a broker and the mutual fund has 2% expense ratio. Over time that really really dings you total return.
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