General Question

Sandman's avatar

What is the best way to go about investing in the stock market long-term?

Asked by Sandman (529 points ) February 9th, 2011

I’m currently in college and as my debts build, I’m looking to invest in the stock market long term in order to soften the eventual blow. Who should I use to handle my portfolio and what are some safe options as of right now?

Observing members: 0 Composing members: 0

6 Answers

gailcalled's avatar

I would suggest checking out the https://personal.vanguard.com/us/home site. There is good information about beginning investors. You can answer some questions and also call the 800 number and talk with someone for no charge.

Picking out a few funds (stock, bond, S & P 500, international, for example) is a good way to start.

marinelife's avatar

I would make regular contributions to an index fund. Remember to diversify your portfolio. Think long-term so don’t be peeking at your portfolio’s performance all the time.

choreplay's avatar

Use dollar cost averaging with an energy or health care mutual fund. The more diversified your mutual fund is the less risk there is and therefore the less return. The risk you have in a mutual fund is getting into a situation where you have to cash it in while the market is down, sooo, if you’re going to invest long term you can go with higher risk fund. You start to move toward less risky funds ten to two years out from retirement depending where the overall market cycle is. If in that time frame the market and consequently your investments are hitting new highs, that is the time to think of moving it into less risk funds. If the market drops and you in at retirement age, your screwed, or at least won’t live as well as you thought you would.

High's avatar

Just pay down your debt. You are going to spend more on your debts interest than you will make on a safe investment.

WasCy's avatar

@High touched on something important, and it prompts me to advise you to modify your strategy somewhat.

If you’re of ‘normal’ college age, by which I mean late teens or early twenties, then there is absolutely no reason in the world (especially if you don’t have a lot to invest) to seek ‘safe’ investments.

Look at it this way: You’ll presumably have a long life ahead of you with (probably) a succession of better-and-better-paying jobs for the next forty years, more or less. You’re probably as poor now (let’s hope) as you will ever be in your life. In order to build and preserve your credit, you absolutely have to service your debt first. So by all means make sure that you can handle the current payments on your debt, and only invest whatever remainder you have after paying that and your day to day living expenses.

And then go wild.

Think of it this way. If you have an extra thousand dollars, for example, and you earn a ‘safe’ 5% return over a year’s time, then you’ll have an extra $50 in your net worth. I know that might seem like a lot when you’re living as a student, but in terms of “building wealth”, it’s not much. And it’s going to seem like “why should I bother?” after all the time it takes you to scrape up the $1000 to invest in the first place. You’re talking a pretty modest pizza party, or dinner with a friend at a decent restaurant (and no drinks). Really, why bother?

But I’m suggesting risky investments. What if you lost it all? Well, what if you did? It’s not as if you need it to meet current expenses – at least, it had better not be – and you have the rest of your life to recover from a few mistakes (actually, many mistakes) of that kind. I can guarantee that you’d learn a hell of a lot about how to do it better the next time, such as what to look for in an investment in the first place, how to monitor it, and how to cut your losses so that you don’t “lose it all”. And the potential upside is: “Risky” investments are the ones with the best returns, when they do work out, and you’d probably be surprised at how often they do. As your portfolio grows (and especially ‘as you age’), then you want to think a bit more about safety and preservation of capital, but this is your time of life to speculate and roll the dice.

Please understand, I’m not talking about “gambling” or “penny stocks” (which often aren’t much better), but investing in common stocks of selected companies (there’s a time for mutual funds, but this is not your time for that) and take a chance on them doubling or better year over year. It’s not a terribly infrequent occurrence.

Just don’t invest more than you can afford to lose, be willing (and learn) to live with the risk and keep learning the lessons that your gains (and losses) will teach you.

LostInParadise's avatar

I would advise a mix of safe and risky investments. Since you are young, you can invest up to about 20% to 30% in the types of risky investment suggested by @WasCy . As you get older, you should adjust that percentage downward. A lot of companies offer the option of reinvesting dividends. I think this is a good idea for long term investments. It avoids the bother of dealing with a lot of possibly small dividend checks and it automatically has you buy more stock when the price is low and less when the price is high.

Answer this question

Login

or

Join

to answer.

This question is in the General Section. Responses must be helpful and on-topic.

Your answer will be saved while you login or join.

Have a question? Ask Fluther!

What do you know more about?
or
Knowledge Networking @ Fluther