Post of the Day
May 26, 1999
Rule Maker Strategy Folder
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Subject: Re: Getting Started
I am 24 yrs. old with some money in mutual funds and 401K. What is the most effective way to begin investing in stocks?
That's a popular question here these days, and since I don't know all the facts about your particular situation its kinda hard to give hard core advice. In a more general sense, what I would do is the following:
1) Identify how much money you have to invest in your Foolish portfolio.
This would include the amount of disposable income you would have to invest each month, plus any existing stocks or mutual funds that you want to cash out of and reallocate. You would probably first want to fund a Roth IRA with that money until you reach the annual $2000 limit. Any money after that amount could be spent on individual stocks of your own choosing.
2) Identify how much time you want to spend tracking your investments.
If you wish to remain a passive investor, then its best to probably stick with index funds and the Foolish Four. If you have more time, then you can add some individual Rule Maker and Rule Breaker stocks to your portfolio. Individual stocks take more time because, as a Foolish investor, you should really know the business of each of the stocks you hold.
3) Take into account the amount of risk that your are comfortable with in your portfolio.
Individual stocks tend to be more volatile than most standard mutual funds or index funds. The Foolish Four companies tend to be pretty stable, with Rule Makers being slightly more volatile. Rule Breaker stocks by their very nature are quite volatile and have the highest amount of risk. The most important thing to remember here is that your portfolio should not keep you awake at night. It should work for you, not you for it.
4) Research, research, and research some more.
Don't feel like you have to jump in all at once. If you are only 24, then you probably have 30+ years until retirement; so if it takes you 6 months to get ready, then it shouldn't affect your final returns too much at all. The Motley Fool has all kinds of information here at your disposal to make your job of selecting investments easier. Read through the buy reports on the stocks that they bought in the past. Get a feel for what makes a good company. If you find a company you like, check out the message board for that company and see what others are saying about it. Read through the latest quarterly and annual reports. Is the company growing the business and beating its competitors, or is it sinking fast against a rising tide of competition. Check the Rule Maker boards here for reports that have been completed on several potential Rule Maker companies. Check the Foolish Workshop to see which stocks have come out of their 10 different mechanical stock screens. Like I said, there is plenty of information available and it is easy to get overwhelmed. Just take your time and plod ahead.
If you absolutely feel like you need to put your money in something in the meantime, then invest in one of the spider stocks that mimic the S&P 500 or the NASDAQ indices. They function the same way as an index fund, except it takes less time to buy or sell your holdings.
I know I've rambled alot here, but I hope this at least points you in the right direction.