Ask the Fool: Even More Stocks for Young Investors

There's no shortage of Foolish followers on our Motley Fool Twitter feed asking about great stocks for investors who are just starting out. Thankfully, we also have a surplus of friendly Fools willing to offer great ideas for starter stocks.

Like @millerum06, whose question kicked off the previous part of this article, @Iris_Hamilton recently asked us: 

[Any] advice for a young(er) person? I'm almost done college and hardly have any money ... but I feel like there's a better way!

Here are a few more suggestions for great companies and investing strategies from our Foolish panel of investors. Remember, these aren't surefire recommendations -- just ideas to inspire your own further research.

Every little bit helps
Jason Moser, Motley Fool Inside Value research analyst
I remember my days as a young investor quite well. (Hey, who are we kidding? I'm still young.) I think the most important thing for those young and just getting into the game is to go slowly. This is a marathon, not a sprint. Having steady income is a tremendous plus, and taking a little bit of it every month to "pay yourself" is a wonderful way to start investing.

Dollar-cost averaging makes an excellent way to do so effectively. Set a specific amount to invest each month, either automatically in an account or on your own, and stick to your purchases on a consistent basis. Some months' prices will be better than others, but spreading out your investments over time will ensure that you average into a reasonable price over the long term.

As far as actual investment vehicles, index funds like the SPDR Trust (NYSE: SPY  ) are a wonderful way to get started. If you're looking for exposure to stocks in particular, I would look for something offering relative stability and recurring revenues to go along with a nice dividend. Coca-Cola (NYSE: KO  ) fits this bill nicely.

Let someone else do it
Alex Dumortier, Fool contributor
For young investors with a steady income, the stock market is a smart risk. I'd go so far as to say that stocks should very often form the bedrock of a young investor's portfolio -- but not at all times, or at any price! (Right now, the broad market looks somewhat expensive.)

I'd focus on well-managed mutual funds or low-cost index funds. Sure, individual stocks are a more fun, but unless you really enjoy investing, I think your time is better spent investing in your own skills and knowledge, and in your personal and professional relationships.

Finally, if you have a steady income, you should try to make regular contributions to a retirement plan (assuming you have no debts). Contribute early and contribute often!

I have two ideas for young investors, both of them exchange-traded funds (ETFs) -- open-end funds that trade like stocks. Vanguard Dividend Appreciation ETF (NYSE: DVY  ) tracks the Dividend Achievers Select Index, a group of high-quality dividend stocks. Vanguard Emerging Markets Stock ETF (NYSE: VWO  ) tracks the MSCI Emerging Markets Index. Both are among the lowest-cost funds in their category, and both look set to produce an honest return over the next several years.

Stay on target
Anand Chokkavelu, CFA, Fool editor
I think all but the most advanced investors should make indexing -- buying the market, rather than making individual stock picks -- the base of their portfolios. A target retirement fund is the easiest way to do this. These funds automatically change their allocations as you near retirement age. Vanguard's target funds are my favorite, because of their low fees and sterling reputation. As an example, a 25-year-old planning on retiring in 40 years would choose the Vanguard Target Retirement 2050 Fund (VFIFX).

Now, let's build on that base with a pair of individual stocks. If want to get your investing feet wet with a solid company trading at reasonable prices, Wal-Mart (NYSE: WMT  ) is tough to go wrong with. If you're looking for a riskier play, check out investment research provider Morningstar (Nasdaq: MORN  ) . It's been high on my watch list for a while, because I like its managers' measured growth moves (including getting into the opportunity-rich debt ratings business). Morningstar will get really interesting to me if its stock price slips into the $30s.

You've got questions, we've got answers!
Thanks to Iris_Hamilton and all the Fools who've sent us questions via our Twitter feed. If you've got questions about investing or personal finance, we'd love to help. Tweet them to us @TheMotleyFool, or leave a comment in the box below!

On your marks ... get set ... let the disclosure-thon begin! The Motley Fool owns shares of Coca-Cola, Morningstar, and Vanguard Emerging Markets. Coke is a Motley Fool Inside Value and Motley Fool Income Investor pick. Wal-Mart also got the nod from Inside Value, while Morningstar made the cut at Motley Fool Stock Advisor. Try any of our Foolish newsletter services free for 30 days.

None of the Fools above own shares of any of the companies they wrote about. Fool online editor and lead Tweeter Nathan Alderman holds no financial position in any company mentioned, either. The Fool's disclosure policy is falling ... with style!


Read/Post Comments (9) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 30, 2010, at 1:47 PM, YoungDude20 wrote:

    Computershare has auto-invests at $2 + $0.03/share. What benefit does Sharebuilder have over this?

  • Report this Comment On June 30, 2010, at 2:54 PM, PeyDaFool wrote:

    I'm relieved to see you promoting Vanguard's Target Retirement 2050 Fund, Anand, since I've been discount averaging my 403(b) money into that fund for about two years now.

    Wouldn't you suggest we look more into emerging markets, as Alex suggests, though? From what I understand, most of the target date funds are somewhat lacking in that category.

  • Report this Comment On June 30, 2010, at 3:07 PM, gddunton wrote:

    I have seen some poor reviews about computer share and their customer service but I have never actually used them. As a customer of sharebuilder I know those aren't issues to worry about with them.

  • Report this Comment On June 30, 2010, at 7:23 PM, kedo76 wrote:

    Good luck with those stellar Target Retirement Funds. And when I say "good luck" I mean good luck finding food in the garbage dumpsters outside restaurants when you're 65 because you relied on them.

  • Report this Comment On June 30, 2010, at 7:52 PM, vgaymer wrote:

    I'll look into computershare as well since someone mentioned sometimes the company would pay the transaction fees. I must say, though, I've been very pleased with my sharebuilder account. They will reinvest your dividends and capital gains distributions regardless of whether the underlying company has a DRIP plan(which was a contingency with my other brokerage account). You can set your reinvestment option for each individual holding and not just for the entire account.

    The user interface is very easy to use. The customer service has been very attentive and of course $4 is very reasonable. You are limited to those $4 auto-trades on tuesdays, though, which is kind of bizarre to me, but even "real-time" trades are a reasonable $10 in those instances where the market takes a huge 1-day dump and you can get stuff cheap.

    As for the topic(lol) for a young person dividend reinvestment(i. e. compounding) is your best asset when you have a larger life expentancy than most. So pick a few(not just one but not a whole lot either) dividend paying blue-chips and have at it. Some people are recommending etfs and funds to limit risk. I don't like that approach except for perhaps DVY since:

    1) Although fees are low, they ARE taking away some of your return.

    2) General broad-based etfs like SPY have their dividend portion diluted with non-dividend paying stocks, and as I can't stress enough, the compounding from dividends is your best friend.

    3)Unless your willing to pour over every holding in these etfs(like the S&P!) you'd could be invested in either stuff you find reprehensible(like tobacco stocks for me) or real dogs like um.. GM or AIG when they were members of indices.

    Cheers,

    G

  • Report this Comment On June 30, 2010, at 11:25 PM, YoungDude20 wrote:

    Orrr instead of cashing your dividend, reinvest it...? Whatever pays the bills though

  • Report this Comment On June 30, 2010, at 11:58 PM, shivy1 wrote:

    or you could just sell covered calls, im actually up 10% since january when market has been down by doing this. Better than dividend, and if you plan on holding its a nice monthly payment.

  • Report this Comment On July 01, 2010, at 1:06 AM, 50Ozi wrote:

    Computershare and BNY Mellon, and maybe the American Exchange reinvest dividends according to the individual stock's plan, the last time I looked. Some companies are fee-free and some company-paid, and some have fees. There are, at least usually, minimum investment amounts. I don't believe they offer options trading.

  • Report this Comment On July 02, 2010, at 12:59 PM, SocialRespInvest wrote:

    Young Fools: as you're starting out, please do take some time to learn about socially responsible investing.

    Some people are shocked to discover that (after sending their $25 to the Sierra Club and marching against companies that are chopping down a distant forest or pouring oil all over a pristine environment) their life savings are invested in companies that are chopping down distant forests and pouring oil over pristine environments.

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