Noob Investor Here

[wfsaxton]

So I'm young, naive, and idealistic. 28 y/o, single, renter, and make decent money ($70k+). I have about $40k in my 401k and about $10k I'd like to play with in the market.

A lot of interesting reads here, both in the articles and on the forums, but seems like I'm doing the exact opposite of what I should. Maybe someone can help me out here.

- I was looking to get into the stock market (my buddy has been making good money following 'tips' which I was hoping to duplicate)
- I was looking to buy a home (0-down on a condo)

It seems like both of these things are the wrong thing to do, according to what I'm reading. Can someone, perhaps, give me some advice? point me to a primer? Help an average joe like myself?

[Jim Nickerson]

Newbee average joe;

Playing is something some do in the street without respecting the danger of doing so, and I guess it could be said the same for investing. The younger the child in the street, the greater the potential for a bad outcome.

Importantly, you are searching for answers to allow your actions to hopefully turn out for the better, as perhaps opposed to doing whatever it is your buddy seems to be doing successfully as far as you know. I presume your not doing what your buddy does bespeaks of some skepticism of his action.

You have a number of things in your favor as I perceive things. You are young. You apparently have a good job at the moment, and you already have $50K in capital.

I presume you are educated in something, and I presume you have already worked for pehaps 5-6 years. If those presumptions were to be close, it suggests that you have been making good money for a while--I presume it woud take that to accumulate $40K in a 401K. It also suggests if you now have only $10K in your account, that you must have just about bought all the stuff you have wanted over the past few years.

Assuming that you have a job, that is likely to continue for a long time--if such is possilbe, then first you should grasp that your greatest asset is the ability to earn more potential capital. Earnings only translate into capital if you do not spend all you earn. The best way, I finally learned at an age way older than yours, is to buy what you need and not everything you want, and if you are serious you can save a lot of money. I would ask myself do I have enough money saved to live for a year if I were unemployed? I would ask myself am I insured if I should be come disabled? Am I free and clear of interest bearing debt? I would achieve those things before I start throwing money into the stock market. It likely will require patience but should reward you later.

I do not know how much of this website you have read or have read otherwise about the negatives that exist in the US now. To me it seems not to be a good time to be "playing in the street if you are young and inexperienced."

Save your money, and pay attention to what is happening--and I am not sure you can determine what is happening watch the financial networks or reading the popular press.

Read some books, but not those that hype getting rich quickly or easily--for most people, I do not think that happens. Learn all you can, and depending upon your background, that might still not be enough, but it will be better than where you seemingly are just now. If I only had $10 to invest, I would find a good money market fund and park it there while I am trying to get smarter. Be patient in all that you do. If you want to buy a house, and if you believe house are going to be cheaper later in many places, be patient and save your money for a good down payment.

This may all sound like crapola, but had I asked the same questions at your age, which I didn't, and gotten this answer as a starter and followed it, I would have been better off earlier.

Good luck, don't be greedy and don't let impatience push you into doing things that perhaps in later years you will regret.



Jim

[EJ]

So I'm young, naive, and idealistic. 28 y/o, single, renter, and make decent money ($70k+). I have about $40k in my 401k and about $10k I'd like to play with in the market.

A lot of interesting reads here, both in the articles and on the forums, but seems like I'm doing the exact opposite of what I should. Maybe someone can help me out here.

- I was looking to get into the stock market (my buddy has been making good money following 'tips' which I was hoping to duplicate)
- I was looking to buy a home (0-down on a condo)

It seems like both of these things are the wrong thing to do, according to what I'm reading. Can someone, perhaps, give me some advice? point me to a primer? Help an average joe like myself?

1st book to read:

The Random Walk Guide to Investing - Burton G. Malkiel

You can get it from the itulip reading room here or any book store for about $15.

[Alfredo Dominguez]

It won't do much good to study finance without an initial grounding in economics, specifically the Austrians. The Ludwig Von Mises Institute has an online bookstore featuring several titles aimed at the beginner: http://www.mises.org/store/For-Beginners-C9.aspx

[jk]

i have to disagree with the idea of starting by reading about the random walk/efficient market theory.

let me suggest instead that you visit
hussmanfunds.com
and read john hussman's weekly column. there are archives there, too, i believe. he will give a down to earth, clearly thought out way at looking at the stock market. he is not an idealogue, not a permabear, nor a permabull.

i also recommend the weekly column at
2000wave.com
by john mauldin. again, look at the archives, too.

i recommend hussman's strategic growth fund as a core holding- it's a way to get exposure to the stockmarket but with your risk controlled. he has made money in both up and down markets.

i'd also suggest putting 10% [at least] into gld as another core holding.
and this is not a bad time to hold some cash. it's likely you'll have the opportunity to buy things cheaper in the not-too-distant future.

[wfsaxton]

Thanks Jim. You're reading of me and my situation is spot-on! I'm also realizing, right now, that I've spent a lot of money on crap over the past 6-7 (post-college) career and I have a lot better handle on how I can save much more of it. I'm keeping 5% to 401k (can't beat the 4% match my company offers) and will start socking away much more.

I'll probably check out one of those books for my 'bedtime' reading. Thanks for the advice.

And as far as Hussman and Mauldin...I read a couple of the articles and have learned a lot of stuff right away so you (JK) definitely showed me stuff I can sink my teeth into.

Couple more questions--I assume most of you aren't financial advisers, but I have more specific questions about what I can do and perhaps y'all are willing to help me more:

- $7k out of the available $10k I mentioned is in a Roth IRA, 1% return money market. I've only been putting $$ into it because Roth's are basicly liquid (ie glorified savings accounts), but its really just sitting there doing nothing. Is a Roth good for someone @ my age? It seems stupid to have one when all I'm going to get out of it is tax-free income, on that 1%, when I'm 65. Hardly exciting for someone with a 401k...

- $10k is nothing for a down-payment, so I'm pretty sure I'll use the money elsewhere and have to go for a first-time buyer, 0% down option. Having said that, I have about $6k in school loans, $7k car loan (6% interest I believe). The school loan is low interest so I was thinking about paying off the car loan right now and then start saving my car payment money. This, again, would require withdrawing from the Roth. Sound like a good idea?

- How does one buy "gold"? I just opened up an ameritrade account but a search on it came up empty on the site.

Again, thanks for the all the feedback!

[Jim Nickerson]

I think you should put things into low gear--go slowly, except to save more.

I am tired. will make a couple of "for what they are worth" comments tonight to tomorrow.

Jim

[jk]

you can buy gold under the symbol GLD, each share of which represents 1/10 oz of gold. i would agree with jim, though, when he suggested you slow down, read some more, make sure you know what you feel comfortable doing. the markets will still be there tomorrow, next week and next year. you've got plenty of time, so do some more reading and thinking first.

[wfsaxton]

Yeah, mayhaps I'm a tad anxious. Thanks for the advice thus far, though. I appreciate anymore that may be forthcoming.

[jeffolie]

Stock Trader's Almanac, 1992
Yale Hirsh




Extraordinary Popular Delusions & the Madness of Crowds
AUTHOR: Charles Mackay

Why do otherwise intelligent individuals form seething masses of idiocy when they engage in collective action? Why do financially sensible people jump lemming-like into hare-brained speculative frenzies--only to jump broker-like out of windows when their fantasies dissolve? We may think that the Great Crash of 1929, junk bonds of the '80s, and over-valued high-tech stocks of the '90s are peculiarly 20th century aberrations, but Mackay's classic--first published in 1841--shows that the madness and confusion of crowds knows no limits, and has no temporal bounds. These are extraordinarily illuminating,and, unfortunately, entertaining tales of chicanery, greed and naivete. Essential reading for any student of human nature or the transmission of ideas.

In fact, cases such as Tulipomania in 1624--when Tulip bulbs traded at a higher price than gold--suggest the existence of what I would dub "Mackay's Law of Mass Action:" when it comes to the effect of social behavior on the intelligence of individuals, 1+1 is often less than 2, and sometimes considerably less than 0.

[jk]

re tulip mania check out the link below, information saying maybe it wasn't so crazy after all. it is just one example of DERIVATIVE STRATEGY COMIX, something i stumbled on a while back. some of the episodes are a stitch. i particularly recommend "memorial day" at the second link.


http://www.derivativesstrategy.com/m...mix/9602_1.asp

http://www.derivativesstrategy.com/m...mix/0005_1.asp

[Jim Nickerson]

[StartQuote}
Thanks Jim. You're reading of me and my situation is spot-on!
[/QUOTE]

"Spot-on" strikes me as a term for the medicine one puts on one's dog for fleas and ticks. Does it mean "right"?

If 5% contribution to your 401K is not the max you can contribute, get it up to the max you can put into the plan. Whatever your employer contributes is gravy.

Roth IRAs weren't around when I worked. From what little I know, they are the best savings method that exists, if one can afford to pay the taxes. To my understanding a Roth should be the last thing one ever liquidates, and one can be passed on to beneficiaries and maintain its ability to always be liquidated without taxes--unless the law get changed.

I assume you must have opened it early on and because of earnings level can no longer add to it, and that it is in some bank which only pays minimal interest on IRA's under $10K or so. Were it mine I would try to hang onto it, and get it into a brokerage house where along with other accounts it would be eligble for better interest rates or even investments. A lot of mutual funds have minimal levels of $2000 to buy shares when the investment comes out of an IRA.

You need to find something on the web on in a book that explains the "magic of compounding interest." 1% is not a good interest rate. As above you need to get that money out of whatever instituion that is taking advantage of the smallness of the Roth.

I am not a financial advisor.

It strikes me that you are hell-bent to buy a house or condo. Perhaps buying a condo right now is the absolutely wisest thing you could possibly do, but the otherside of the coin could be that it is the stupidest thing you could do. You really need to get some good advice about what you seem ready to jump into. That advice would best come from someone who is not a realtor--if you want unbiased advice--and who knows about where you are living and what is your worst case scenario as far as continuing to be employed.

Despite the apparent interest savings to you from taking out your Roth and paying off your car, I think I would try to pay $1K a month on my car for seven months out of pay checks and in the mean while find out how to park your Roth somewhere else if that is possible

I would also, if you get busy reading and imporving your understanding about what may be going on in the world with regard to debt, look at your 401K to see how it is invested now and try to answer the question of whether there are other choices in the plan that might be safer.

I do not know what sort of education you have or how good it was. Regardless of whatever degree one gets, I believe there are two results that a good education should provide. The education should make one aware of how ignorant he/she is when it comes to the massive knowledge that exists in the world today, and it should imbue one with the importance of critical thinking--achieving the latter may take awhile even if you deem it of the ultimate imporrtance

You might be well served to spend the money to see some financial advisor. One caveat is beware of people whom you pay to give you advice when their livelihood is made from selling things they advise you to buy.

From what little overall I know about you, I say again as several others have advised, you need to improve your knowledge and save as much as you can.

I cannot tell you more.





Jim

[Jim Nickerson]

Shoot! I screwed up a post, sorry.

spot-on strikes me as a term for medicine that one puts on one's dog to rid it of fleas and ticks. Doies it mean right?

You seem hell-bent to buy a condo. That might be wise or it might be dumb right now. You need to get your knowledge level up so that you are capable of making the best decision, or at least a good one. That is not going to occur immediately or in a day or two.

Were I you, I would find out if the investments in my 401K are as safely invested as they can be. Determining that takes knowledge. Put all you can into your 401K, unless you are required to put it into the company's stock, then I might think twice about that.

You need to get your Roth into an instutution where you can invest it or draw more interest if it remains in cash. A Roth I believe is the last thing one should ever liquidate under what I can imagine are most circumstances, but I could be wrrong.

Before I seriously considered liquidating a Roth at your age, I would pay the max I could out of my paycheck each month to pay off the car note and then drive the car til it is worthless. You need to search web or find a book that explains the magic of compounding interest. Young age is when this can best pay off, and you are about to enter the 2nd third of your life expectancy.

It might be best for you to pay a financial planner for his/her advice, but beware that the advice entails your buying something he/she sells. Pay a planner for the advice, not investment products it pushes.

I have no idea what is your educational background. A good education, regardless of the field, should provide you with two things at least. One is to appreciate how ignorant eveyone is when it comes to all the knowledge that exists in the world. Secondly, it should imbue you with the importance of critical thinking--achieving criticality in thinking is probably never-ending.

This is all I can suggest. Good luck.

Jim

Jim

[Jim Nickerson]

Newbee:

If you haven't already chanced upon Eric Janzen's thought on the housing market, look at it--it could be worthwhile.

[url]http://www.itulip.com/housingbubblecorrection.htm[url]

Jim

[AmericanBushi]

Re: Noob Investor Here

I feel "Noob Investor's" pain! The only difference is that I'm NOT young, NOT single, and DON'T have capital. So for me the advice to get smart first makes a great deal of sense as it's my only option currently!;)
I've started, because of the great advise listed above, to check out the MISES site. Can anyone offer a good "reading list." I think all of "us Noobs" (even the lurkers who aren't posting), would benefit a lot from it. Thanks in advance, the user's of this site are incredibly supportive and I know it's appreciated.