Recs

6

Advice for Young Investors

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

I recently heard from a young reader in Wisconsin. He asked me a few questions that I suspect many young (and even not-so-young) investors must have. He said: "As a young graduate (with minimal student loans and zero credit card debt) looking to get in the market, what amount of money should I be willing/able to invest if I want to put together a diversified stock portfolio instead of investing in mutual funds?"

Let me address his questions now -- and before I go any further, I invite you to forward this article to any young people you know. (To do that, click on the "Email" link in the box to the right of this article's headline.)

Small numbers are OK
First of all, I commend Matt for having no credit card debt. Student-loan debt is nothing to be ashamed of, and it's often at a relatively low interest rate. But credit card debt is often commanding more than 25% per year in interest, which can increase your debt exponentially, in short order. (Dig out of debt if you need to -- it can be done.)

Once you're free of high-interest debt and you're ready to invest, you don't need much to start. Let's say you aim to own 10 or 12 different individual stocks. You needn't buy them all at once. Start with one and add more as you're able.

You can invest in each stock with as little as $50 or even less, sometimes, via "direct investing." Dividend reinvestment plans (often referred to as "Drips") and direct stock purchase plans (referred to as "DSPs" and "SPPs," among other things) let you invest in thousands of companies with small amounts of money. Your contributions buy small numbers of shares, or even fractions of shares. With traditional Drips, you need to own one share of stock in your own name before you can add to that. With direct plans, you can buy your first share directly from the company. Both plans permit you to bypass brokerages and their commission fees. (However, these days many brokerages charge very little in fees, and offer many excellent resources. Learn more in our Broker Center.)

Here are just some of many companies you can invest in directly:

  • ExxonMobil (NYSE: XOM  )
  • Merck (NYSE: MRK  )
  • Motorola (NYSE: MOT  )
  • McDonald's (NYSE: MCD  )
  • Walt Disney (NYSE: DIS  )
  • Wal-Mart (NYSE: WMT  )
  • Eli Lilly (NYSE: LLY  )

So even $50 or $100 could get you started! You can put a small sum into a dozen companies for perhaps just $750 or less, and then, month by month or quarter by quarter, you can add $100 or more to that, buying more shares regularly.

Bigger numbers
But maybe you're sitting on, say, $3,000 or $5,000. Well, you could open a regular, traditional brokerage account and invest in stocks that way, without signing up for dividend reinvestment. (Reinvestment is often a powerful way to keep building your wealth, but it can add some bookkeeping headaches when you want to sell some or all of your shares -- you'll have to have good records of the purchase price of each.)

Consider also setting up an IRA account with a brokerage. You'll be able to invest in the same stocks (and funds) as you can with a regular account, but you'll get some tax breaks with an IRA and you'll be socking away valuable retirement dollars. Since you're young, they'll have an extra-long time to grow. If, for example, you're 25 right now and plan to retire at age 65, you have 40 years for your money to grow! That's enough to make most older people salivate ... or cry. Just $1,000 in an IRA today would grow to more than $45,000 at an average annual rate of 10%.

It might seem early to think about retirement now, but if you sock away as much as you can in your 20s and 30s, you'll fall on your knees thanking yourself for that in your 50s and 60s. Let us help you -- visit our Retirement Center and also consider giving our Rule Your Retirement newsletter service a whirl. A free trial will give you access to all past issues, and they're not as boring as you might assume! (They even offer recommendations of stocks and funds.)

Funds are good
You seem a little prejudiced against mutual funds. Don't be. They can be more powerful than most stocks, and can take a lot of the legwork out of investing for you. So do consider both funds and stocks -- funds can save you from ... uh ... losing $200,000, as someone I know did.

Learn more
Keep reading and learning. After all, the more you know, the better you're likely to do. Here are a few articles that can help you:

Longtime Fool contributor Selena Maranjian owns shares of McDonald's and Wal-Mart. Eli Lilly is a Motley Fool Income Investor selection. Wal-Mart is a Motley Fool Inside Value pick. Walt Disney is a Motley Fool Stock Advisor recommendation. Try our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.


Read/Post Comments (6) | Recommend This Article (6)

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 October 27, 2008, at 12:05 PM, madmilker wrote:

    Buy American made is the best advise. Why do you think tat company with the star in the name puts 95% Chinese made items in their stores in China....it's to make the nice people there support their country and keep their currency strong. Sad tat company don't do the same in America. Cheap is what got America in this mess and the only way for America to get out is take pride in America again and only buy made in America. It's time for George Washington to spend some time in America and not in a foreign land.

  • Report this Comment On October 27, 2008, at 12:06 PM, jemilehmann wrote:

    I am sorry. How can you recommend your young reader to start an IRA now? Cheez, rather pay taxes on your gains now than later. Furthermore, if you start investing on your own with $5000 - remember you are doing this as a learning excerise. According to the sage of Omaha - there is only very little chance you will beat the index as an individual investor, and it is by no means time yet to start buying an index. (Wait until the Dow sinks below 7000 or until we have a confirmed upwards trend). Maybe get a Berkshire Class B Share instead - they will be better than gold when compared to the rest of current investment alternatives

  • Report this Comment On October 27, 2008, at 12:16 PM, jemilehmann wrote:

    also, currencies are designed to loose value. if $1000 at an annual rate of 10% grow to $45,000 in 40 years, then remember that $45,000 in 40 years will be worth the equivalent of only about $2,250 - about $0.05 in todays on a dollar in 40 years. So a penny saved is a penny earned indeed, but not much more if you cannot do better than 10%. Conclusion, nothing beats an above average income and below average cost of living when striving for relative wealth.

  • Report this Comment On October 27, 2008, at 3:45 PM, mtghack wrote:

    "Student-loan debt is nothing to be ashamed of...", well what I'll say will be controversial but having your parents use a HELOC to fund your 40k/yr private liberal arts college degree so that you can become an Applebee's waiter afterward IS something to be ashamed of. Many of these kids move to MBA/MD/JD degrees later on, but some simply do it because they realize they made a bad investment decision in the first place for the first 4 years (or is it more like 6 years now).

  • Report this Comment On October 28, 2008, at 4:53 PM, EliteMerchant wrote:

    Start investing young, I have for a year and I am nearly 15, I started with 750$ and turned that into 2300$. Do your research, find a well managed business that has good income and goals and many years later it could have exceptional earnings. I currently own General Motors, I believe that the Detroit three are too big to fail and hopefully when I am older I can use the money to pay for college. Two things also, Be fearful when others are greedy and be greedy when others are fearful-Warren B. and it rewards only come with risk. But if you have the opportunity to invest at an young age I advise you take that, instead of buying that new game console invest that money, you will learn many new thinks, I know I have.

  • Report this Comment On October 29, 2008, at 4:33 PM, mtghack wrote:

    OctF - I look at it from an economic standpoint. From a personal satisfaction standpoint, staying in college to explore your interests is great. But looking at it from the cold-hearted perspective of capitalism, education prepares a student to be a productive member of the economy in the future. And as a very significant portion of American students become more focused on introspection and getting degrees that leave themselves with a lifetime of debt with no real job prospects, the Asian and Eastern European countries are picking up our slack, producing scientists and engineers that will shift global power away from the US. The greatest capital is human capital, and American society doesn't seem to be making very good use of its human capital.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 763194, ~/Articles/ArticleHandler.aspx, 10/21/2014 10:00:37 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Selena Maranjian
TMFSelena

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

Today's Market

updated 44 minutes ago Sponsored by:
DOW 16,614.81 215.14 1.31%
S&P 500 1,941.28 37.27 1.96%
NASD 4,419.48 103.40 2.40%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2014 4:01 PM
DIS $87.54 Up +2.02 +2.36%
Walt Disney CAPS Rating: *****
LLY $64.68 Up +1.58 +2.50%
Eli Lilly & Co. CAPS Rating: ****
MCD $91.01 Down -0.58 -0.63%
McDonald's CAPS Rating: ***
MRK $55.13 Up +1.08 +2.00%
Merck & Co., Inc. CAPS Rating: ***
MSI $62.39 Up +1.14 +1.86%
Motorola Solutions… CAPS Rating: **
WMT $76.02 Up +0.88 +1.17%
Wal-Mart Stores CAPS Rating: ***
XOM $93.65 Up +1.88 +2.05%
ExxonMobil Corp CAPS Rating: ****

Advertisement