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Thread: Advice for young, new investor?

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    Default Advice for young, new investor?

    Another check-in with my main financial advisor (SW Dollar Den folks)...


    So, I think I'm doing okay at the moment... but what's the best next step?
    Here's my current situation:

    $4,500- Sallie Mae savings
    $500- Bank of America Checking
    $100- Bank of America Savings
    $0.67- Ally Savings (not sure whether or not I should close the account yet)
    $0- Sallie Mae CD

    $4,000- Fidelity ROTH IRA

    (newly purchased single stocks of Amazon, Google, Netflix, Apple.
    + Fidelity Contrafund. But no bonds or foreign stock, or anything else. Don't know much about that yet. I'm actually not being super-smart about the domestic stocks, either, but I got really impatient and wanted to learn by trial-and-error...)

    -$2,500
    Student Loan debt, on hold.


    I feel like I should educate myself about investments... I'm tempted to start my own business or buy property already, but I have two years left in school; I think I need to just graduate before I dive into anything too complicated and new. Because I have classes, I can't work as much as I'd like... I go in about 1 night a week, if possible, averaging $300 a shift.

    Should I put some money into the Sallie Mae CD? How much? Like $100? or $500? I feel like it's barely worth it... even if I put in $1000, after 12 months I only get $200 back or so, and I could just make that amount by going into work one extra shift. So why even bother?

    Agggh!!! Am being too greedy? I want to make more money, and faster!!!

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    Default Re: Advice for young, new investor?

    well, unless specifically stated otherwise, none of the posters in Dollar Den are 'qualified' to offer investment advice ... and thus we don't. However, we certainly post a lot of personal opinions !

    One such opinion is that, given the current global economic situation and FED policy, medium term interest rates upon which CD interest rate payouts are based are at record lows. Additionally, there appear to be 'changes' in the works that may be negative for the 'purchasing power' of the US dollar i.e. inflationary. For both of these reasons it doesn't make sense to 'lock in' the lowest interest rate payouts in history right now via a CD purchase.

    As to the Roth IRA, the companies you have chosen are all 'hot money' high flyers. The only personal comment I can offer is that the higher something flies, the farther it falls ... thus it's important to watch the share values and be prepared to 'pull the plug' if any major downtrend begins. I have mixed opinions re the potential future risks of locking up money in IRA's, but the Roth IRA with its already taxed contributed money is the 'least of the evils' in this regard.

    A question on your 'held' student loan debt. Depending on how these arrangements were actually made, it's possible that Sallie Mae is tacking interest charges onto your student loan balance even though you aren't being required to make payments. If so, and if that interest rate is 6-7%, then one of the 'smarter' investments you could make might be to pay off this student loan. After all, this interest must be paid using after-tax dollars ... which is probably the equivalent of 9-10% fully taxable interest or dividend earnings on the money NOT used to pay off this loan but invested instead.

    As to buying property, while there are a lot of 'professional' opinions out there, the facts are that there will be a ton of additional variable interest rate mortgages resetting in 2011, plus there is already a huge backlog of foreclosures on existing delinquent mortgages that have yet to wind their way through the courts. Additionally, I just saw a new statistic that 24% of all existing US mortgages are now 'underwater' i.e. the borrower owes more in mortgage principal than the property can be sold for. The probable conclusion is that houses which are selling very cheaply this year will be selling even more cheaply next year ! Plus Washington will soon be discussing the possibility of limiting the tax deducition for mortgage interest paid, which could cause a de-facto 10-15-20% increase in the total net cost of mortgage payments for existing and future homeowners. Thus I wouldn't be in any hurry to buy property over the course of the next few months at least.

    ~
    Last edited by Melonie; 11-15-2010 at 03:43 AM.

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    Default Re: Advice for young, new investor?

    I'd pay off that student loan regardless of it's on hold or not. If you have the money to be paying it off then you probably ought to do it. Melonie is right that even "on hold", while they may not actively be trying to pursue you for the debt, they could be tacking on interest. Plus, even if they aren't tacking on interest, it will look good on your credit report to have that paid off.
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    Default Re: Advice for young, new investor?

    Quote Originally Posted by Melonie View Post
    As to the Roth IRA, the companies you have chosen are all 'hot money' high flyers. The only personal comment I can offer is that the higher something flies, the farther it falls ... thus it's important to watch the share values and be prepared to 'pull the plug' if any major downtrend begins. I have mixed opinions re the potential future risks of locking up money in IRA's, but the Roth IRA with its already taxed contributed money is the 'least of the evils' in this regard.
    What are examples of companies that aren't "hot money" high flyers? How do I learn more about that? Read more newspapers? Certain kinds of books?

    I guess I dont know much about certain kinds of companies, like gas/oil or big manufacters... so I don't know how much I can trust investing in them... I know I should invest in what I know, or in good companies whose products I use...

    How can a young investor invest wisely when they largely lack life experience? (I'm 23)

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    Default Re: Advice for young, new investor?

    try ... they have a series of articles that is an excellent starting point for learning investment basics.

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    Default Re: Advice for young, new investor?

    +1 for paying off the loan.

    Z

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    Default Re: Advice for young, new investor?

    ^^^ agreed ! For better or worse, most people don't stop to think about the relative 'cost' of paying loan interest ( even supposedly low interest rate loan interest ), versus the relative 'income' from interest bearing investments / savings. In the case of an early loan repayment, there really isn't any 'tax' leveed on the resulting savings. Thus if the person is in perhaps a 33% overall tax bracket, and the loan interest rate is even a low 6%, in essence not having to make those loan interest payments is equivalent to 6 * 1.33 = 8% in fully taxable investment / savings interest earnings ( which is impossible to obtain risk free these days ) had the money been deployed towards making new fully taxable savings / investments versus the same money being used to pay off the loan early instead !!!

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    Default Re: Advice for young, new investor?

    What Melonie has stated is spot on and I do believe you should read up a bit more on personal finance and investing before you continue making investments.

    An easy example of why I feel this way is because even if you bought your apple stock as far back as a month before you posted, apple was trading at ~$300 which is quite close to it's 52 week range of $321. Furthermore, it went up from trading at around $250 to $300 just the month before which is not a good thing for someone who is buying or looking to buy if one is an investor (long term) opposed to a trader (short term).

    I'd give a more detailed response, but I'm short on time.

    FYI: I chose to use apple as an example because about 2yrs ago, apple was trading at 85-105 dollars a share and was a GREAT buy. It's also one of my favorite growth companies that I absolutely love to follow. Trust and believe, you don't want to mess with companies like these unless you buy-in near historical lows or have a lot of capital to invest. A 100 shares here and a 100 shares there - which in apple's case is 30k btw - doesn't cut it. You're dealing with a growth/speculation driven stock AND buying in on the high end of it's trading range.
    Last edited by London Lenoir; 11-23-2010 at 03:07 AM.

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    Default Re: Advice for young, new investor?

    ^^^ yes but Apple, Microsoft, and a host of other US tech companies face major risk of losses as a potential result of the Irish bailout by the EU. The reason for this, of course, is that Apple, Microsoft etc. are able to avoid billions of dollars of US corporate taxes for many years now by instead servicing their non US customers worldwide out of a sub-corporation in Ireland where their non US global earnings are only subject to a 10% ( or lower ) Irish corporate tax rate instead of the 35% US corporate tax rate. Part of the EU bailout package for Ireland may be a mandate to increase Ireland's corporate tax rate ... which would immediately cost Apple, Microsoft etc. billions of Euros in additional taxes !

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    Default Re: Advice for young, new investor?

    Since we are not offering "advice", nor should we ( for obvious reasons ) I will just tell you what I have invested in with good results : My portfolio is essentially in four parts : 1. Gold and other precious metals. I own gold coins not as an "investment " per se, but as "insurance" just in case Bernanke keeps burning out the printing presses and the dollar loses much of its value. About half is in coins and the rest is in mining companies like Newmont. 2. Overseas. Brazil, India and China are the three parts of the BRIC I am invested in - I try to avoid Russia- plus light investment in Australia, Canada, Indonesia and believe it or not, Mexico. All through mutual funds. I can't be bothered tracking foreign companies in addition to the American market. 3. Food and basic commodities including oil via ETF's. 4. Tech- Companies like Apple, Intel, Hewlett Packard, GOOGLE ! , RIM and medical tech companies. Both in individual stocks and mutual funds.

    To recap I am about 20% in metals ; 20% food and commodities; 30 % overseas and 30% Tech; more or less, give or take.

    Try not to fall in love with one particular area or stock no matter how well it is doing. Try to stay diversified. Don't be afraid to sell, take a profit and reinvest the proceeds.

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    Default Re: Advice for young, new investor?

    Ralph Madoff (Bernie Madoff's father) gave this advice to William Nasi, Bernie Madoff's personal messenger who drove with Ralph a couple times a week:

    "Never, ever, ever invest on Wall Street. It is run by crooks, and SOBs . I don’t trust them. Put your own money in a savings bank and you control it yourself. A dollar is worth a dollar. Don’t let greed get into your psyche.”

    He made this statement before his son Bernie Madoff's empire came tumbling down.

    I don't necessarily agree with putting your money in a savings bank, but I'll say this - I've represented a lot of rich people and NONE of them got rich by investing in the stock market. They got rich by investing in themselves (with many ups and downs along the way).
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    Default Re: Advice for young, new investor?

    ^^^ unfortunately, that advice is a bit dated ... since these days a dollar this year seems to be turning into 90 cents next year all by itself ( in terms of purchasing power ).

    Also agreed that US stock share price levels are becoming increasingly disconnected from real world economic conditions of the underlying companies. This is the result of high frequency trading between big Wall St banks, the result of hedge fund 'hot money' jumping from sector to sector in search of quick profits, the use of corporate profits to buy back stock shares rather than expand the business etc. It's still possible to make an occasional profit in US stock markets, but this is now based on short term price volatility rather than long term growth potential - thus should be properly classified as gambling versus investing.

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    Default Re: Advice for young, new investor?

    Quote Originally Posted by jack0177057 View Post
    Ralph Madoff (Bernie Madoff's father) gave this advice to William Nasi, Bernie Madoff's personal messenger who drove with Ralph a couple times a week:

    "Never, ever, ever invest on Wall Street. It is run by crooks, and SOBs . I don’t trust them. Put your own money in a savings bank and you control it yourself. A dollar is worth a dollar. Don’t let greed get into your psyche.”

    He made this statement before his son Bernie Madoff's empire came tumbling down.

    I don't necessarily agree with putting your money in a savings bank, but I'll say this - I've represented a lot of rich people and NONE of them got rich by investing in the stock market. They got rich by investing in themselves (with many ups and downs along the way).
    Then how do you explain the long term results of investing in stocks ? If you had invested a few thousand in 1979 or 1980 or 1987 when the Dow was below 1000 or below 2000 you would be sitting very pretty now.

    If you invested in gold and oil 5 yrs. ago you would have seen an excellent return on investment.

    Generally if you try for the quick kill , rely on tips or just follow the herd then you are less likely to do well. But if you invest for the long term, 20 to 30 years, nothing has outperformed stocks.

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    Default Re: Advice for young, new investor?

    Quote Originally Posted by Eric Stoner View Post
    Generally if you try for the quick kill , rely on tips or just follow the herd then you are less likely to do well. But if you invest for the long term, 20 to 30 years, nothing has outperformed stocks.
    That is a sales pitch that stockbrokers use. The vast majority of people I know or have met that have made any real money (self-made, not trust-fund babies) are small business owners. Granted, that most small businesses fail (up to 75% - but that's mostly due to the fact that anyone can start a business and most do it without a sound business plan or sufficient capital), but those that succeed will produce much better returns than stocks (and they create jobs, instead of laying off people). I have one client that came from Switzerland about 20 years ago with little money in her pocket. She and her husband invested in a little beauty salon place, and 20 years later, she is worth $11 million. (They were unique in that they were incredibly tight with their money and reinvested nearly every penny of profit. With the saved profits from their little beauty salon, they bought an entire upscale strip shopping center and established a big fancy beauty salon.)

    With the internet, you can start an online retail business or a service business with a relatively small investment.

    If you are afraid of the failure rate of small businesses, you can buy a franchise license, which has a 75% success rate. Another client of mine started with one modest little Subway store and now owns about seven of them. She is now worth several million dollars.
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    Default Re: Advice for young, new investor?

    Quote Originally Posted by Melonie View Post
    ^^^ unfortunately, that advice is a bit dated ...
    I may be a bit cynical, but I don't think this advice is a bit dated - "Never, ever, ever invest on Wall Street. It is run by crooks, and SOBs. I don’t trust them."

    The greed and shameless extravagance of wall street firms, even after we (hard-working decent and modest Americans living paycheck-to-paycheck) bailed them out, is shocking and abhorrent, but not likely to reform, until hell freezes. Same can be said for most publicly-traded companies.

    For every dollar invested, half will end up being spent on a lavish excessive party/retreat for executives or an undeserved executive bonuses.
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    Default Re: Advice for young, new investor?

    Quote Originally Posted by jack0177057 View Post
    That is a sales pitch that stockbrokers use. The vast majority of people I know or have met that have made any real money (self-made, not trust-fund babies) are small business owners. Granted, that most small businesses fail (up to 75% - but that's mostly due to the fact that anyone can start a business and most do it without a sound business plan or sufficient capital), but those that succeed will produce much better returns than stocks (and they create jobs, instead of laying off people). I have one client that came from Switzerland about 20 years ago with little money in her pocket. She and her husband invested in a little beauty salon place, and 20 years later, she is worth $11 million. (They were unique in that they were incredibly tight with their money and reinvested nearly every penny of profit. With the saved profits from their little beauty salon, they bought an entire upscale strip shopping center and established a big fancy beauty salon.)

    With the internet, you can start an online retail business or a service business with a relatively small investment.

    If you are afraid of the failure rate of small businesses, you can buy a franchise license, which has a 75% success rate. Another client of mine started with one modest little Subway store and now owns about seven of them. She is now worth several million dollars.
    Alright. I'll try to meet you half-way on this. The best ways to generate wealth are to 1. have a successful business of your own or 2. have a high-paying job. As for INVESTING, nothing that I know of has outperformed stocks over the long term i.e. at least ten years.

    If you go along with the "17 year cycle" of the stock market, then we have about 7 more years to go before there is a major upswing like from 1982 to 1999 or '83 to 2000 depending on whose charts you really prefer.

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    Default Re: Advice for young, new investor?

    ^^^ my reference was to the fact that following the stated advice today to achieve 2% fully taxable interest earnings on a US dollar bank account in an economic climate where US dollar denominated prices for gasoline, food, insurance, and just about every other 'necessary' expenditure are increasing at an annual rate of far more than 2%, is a formula for guaranteed loss of purchasing power. Granted that it may be less of a loss of purchasing power than being long certain 'high flying' US stock shares right now, but it is still a loss. However, in general, during times of US dollar devaluation US stock prices increase as a direct result.

    Within reason, I agree with you regarding the apparently lavish spending on parties and bonuses by Wall St. firms who are benefiting from gov't 'assistance' via TARP. However, I also share the same opinion about Silicon Valley companies doing the same sort of lavish spending and bonuses ( or stock options or stock share buybacks ) who are also benefiting from gov't assistance via still legal offshore corporate tax shelters ( see other thread Google avoids 2.3 billion in US corporate taxes via Ireland / Holland / Cayman Islands ).

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    Default Re: Advice for young, new investor?

    Quote Originally Posted by Eric Stoner View Post
    Alright. I'll try to meet you half-way on this. The best ways to generate wealth are to 1. have a successful business of your own or 2. have a high-paying job. As for INVESTING, nothing that I know of has outperformed stocks over the long term i.e. at least ten years.

    If you go along with the "17 year cycle" of the stock market, then we have about 7 more years to go before there is a major upswing like from 1982 to 1999 or '83 to 2000 depending on whose charts you really prefer.
    I'm not unreasonable,... if you meet me half-way, I'll meet you half-way. I actually have a 401(k) with stock investments, but most of my investments are in real estate and a small business.

    Quote Originally Posted by Melonie View Post
    ^^^ my reference was to the fact that following the stated advice today to achieve 2% fully taxable interest earnings on a US dollar bank account in an economic climate where US dollar denominated prices for gasoline, food, insurance, and just about every other 'necessary' expenditure are increasing at an annual rate of far more than 2%, is a formula for guaranteed loss of purchasing power. Granted that it may be less of a loss of purchasing power than being long certain 'high flying' US stock shares right now, but it is still a loss. However, in general, during times of US dollar devaluation US stock prices increase as a direct result.
    That's just over my head... What?

    Quote Originally Posted by Melonie View Post
    Within reason, I agree with you regarding the apparently lavish spending on parties and bonuses by Wall St. firms who are benefiting from gov't 'assistance' via TARP. However, I also share the same opinion about Silicon Valley companies doing the same sort of lavish spending and bonuses ( or stock options or stock share buybacks ) who are also benefiting from gov't assistance via still legal offshore corporate tax shelters ( see other thread Google avoids 2.3 billion in US corporate taxes via Ireland / Holland / Cayman Islands ).
    "Offshore tax shelters" (I put this in quotations because there are legitimate uses for foreign subsidiaties) offend me a little, but not too much, because, at least, the shareholder is getting some benefit (assuming all the tax savings are not being siphoned off to executive compensation packages).

    Also, the idea of being taxes on "world-wide income" is odious to me. If I take money that has been earned in the US and has already been taxed in the US - and I take that money outside the US and form a foreign entity that does business outside of the US, using the resources of another country, and I never bring the profits into the US or use them in any way in the US - why should the IRS tax that? They do (unless I structure it in a very technical way to avoid taxation),... but they shouldn't.
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    Default Re: Advice for young, new investor?

    ^^^ indeed the USA is more or less unique in regard to it's desire to tax the wholly foreign generated income / profits of it's individual citizens ... while at the same time tolerating existing tax shelter structures that essentially exempt the wholly foreign income of certain US corporations.

    As to the supposedly 'over your head' comment, it's about US dollar inflation / QE causing the real purchasing power of US dollars to decline ... thus rendering a 2% earned interest rate as a 'losing investment' despite the fact that the investor winds up holding additional dollars a year down the road ! Or put another way, one could spend US$1000 today to buy real goods that will cost / be worth far more than US$1020 a year from now. I'm alluding to a slow motion replay of Weimar / Zimbabwe, where holding onto a particular currency in conditions of rapidly rising prices as denominated in that currency is a guaranteed 'losing' proposition.

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    Default Re: Advice for young, new investor?

    Quote Originally Posted by jack0177057 View Post

    "Never, ever, ever invest on Wall Street. It is run by crooks, and SOBs . I don’t trust them. Put your own money in a savings bank and you control it yourself. A dollar is worth a dollar. Don’t let greed get into your psyche.”
    What does it mean to "invest on Wall Street"? If i have my money in a Fidelity Roth IRA but am using some of it to invest in stocks, is that putting it in savings, or investing on Wall Street? Or neither?

    How do I buy bonds? Which ones are good?


    p.s. i am currently working on paying off that loan with the savings.
    Last edited by Lillionaire; 11-28-2010 at 02:30 AM.

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    Default Re: Advice for young, new investor?

    ^ Its okay to invest a little in Wall Street, but you should start a small business of your own as soon as practical.

    You need a financial planner to answer your question (don't trust them though, they're crooks, too). Ask a Melonie who she trusts. (And do a search to see if that person has ever had a lawsuit or arbitration filed against them or a complaint registered against them.)

    I think that, technically, all publicly held stocks and bonds that are traded on the New York Stock Exchange are part of "Wall Street", because they are in cahoots with the big NYSE brokerage houses that trade them.

    I'm sure that the Nasdaq has its own band of crooks and SOBs, though.
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    Default Re: Advice for young, new investor?

    Quote Originally Posted by jack0177057 View Post
    I think that, technically, all publicly held stocks and bonds that are traded on the New York Stock Exchange are part of "Wall Street", because they are in cahoots with the big NYSE brokerage houses that trade them.

    I'm sure that the Nasdaq has its own band of crooks and SOBs, though.
    Who exactly are you accusing of conspiring to steal your money? Are you saying that you don't think that doing anything except lending banks your money or starting a business is a good idea?
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    Default Re: Advice for young, new investor?

    ^ No conspiracy is necessary, everyone involved in the finance industry "steals" on their own for themselves. Really, most of it is not even "stealing", but perfectly legal.

    CEOs and top executives should not make $5 to $100 million each per year (plus all the perks), even when the stock prices have fallen and shareholders are losing substantial value in their investment. Also, why would anybody be worth $5 to $100 million a year? Who gets to decide salary and bonuses - their cronies who make up the board of directors. Its a buddy and "good ol' boy" system. I'll vote for your fat bonus, if you vote for my fat bonus.

    Athletes and actors/actresses make a lot of money - but at least there, it is transparent and we all "vote" on paying them exorbitant compensation by our participation in some event, i.e., going to the baseball game, going to the movies, watching sitcoms, etc. In the case of CEO's - its a small group of men in a closed meeting, deciding to give away YOUR investment money to their buddy who is already extremely rich. When was the last time YOU got to decide how much compensation is fair for a fortune-500 CEO?

    Even the rich understand that this is a total scam. Why do you think they put their money in hedge funds, instead of the stock market? A hedge fund manager is paid a percentage of the earnings. This make more sense, doesn't it? --- The investor's interests are alligned with the manager's.

    Brokers/financial planners try to steer you into making investments that generate the most commissions for them, instead of what is really in your best interest. This is very unethicaly, but technically, it is not "stealing" and it is generally legal. (Except in the case of "churning" - when they get too greedy and buy and sell your stocks in rapid succession for the sole purpose of accruing huge commissions and fees that you have to pay to them.)

    As far as Wall Street firms - Where do I start? Just google "financial crisis", "wall street bailouts" and/or "moral hazard".

    So, if you have a $100k lying around, open a Subway restaurant. But, don't squander away the profits. Re-invest all your earnings and buy a 2nd, 3rd, 4th and 5th Subway. Be patient, and you're guanteed to turn your original $100k investment into a few million.
    Last edited by jack0177057; 11-30-2010 at 10:21 AM.
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    Default Re: Advice for young, new investor?

    Dude, you're just ranting. If I understand correctly, the topic of this thread is "advice for a young, new investor" and you seem to be saying that going anywhere near anything except a bank account or starting your own business (which is about the riskiest thing you can do) is a bad idea for some reason. I'm a trader, and so am biased, but a lot of the hate for "Wall Street" that I read is very misinformed. I'm not going to argue with the internet, though.

    My advice would be to keep most of you money in a _safe_ bank or government bonds for the next few months, because there's a lot of shit about to hit the fan. If you think you can predict the future, like some of us do, you might want to take a position on gold or various stock indexes with a small part of your money. You're talking about hundreds of dollars in your post, though, so fees and charges are going to eat up a lot if you spread yourself too thin.
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
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    Default Re: Advice for young, new investor?

    keep most of you money in a _safe_ bank or government bonds for the next few months
    Actually, finding a 100% 'safe' bank or a source of gov't bonds that are truly 'safe' from loss of principal value isn't something that can be taken for granted these days ... but that's a topic for a different thread !

    at any rate, circling back to the original topic of basic advice for a young, new ( and presumably exotic dancer ) investor ...

    A. Build up a 'local' store of cash that will cover 1 month's worth of normal costs of living ... with 'local' meaning cash in a home safe or cash in a local bank account where you are reasonably guaranteed that you can walk away with cash in your hand on a single day's notice.

    B. Build up a higher yielding but still 'cash' oriented ( i.e. short maturity ) emergency fund that will cover 6 months worth of normal costs of living that will earn a ( comparatively ) higher interest rate ... some examples of which would be a money market mutual fund, higher yielding internet bank CD's with staggered maturities etc.

    C. Pay down any existing debts ( with possible exceptions like a home mortgage ), starting with those that charge the highest interest rates.

    ... once all of the above have been accomplished, THEN it is time to think about making 'risky' but potential higher yielding investments, time to think about making investments to diversify against 'home currency' loss risk, time to think about investing in live-in real estate etc . As 'person' already pointed out, there is a lot of s#!t going on in the world economy right now, thus protecting against potential principal losses is just as important as seeking high gains.

    ~
    Last edited by Melonie; 12-01-2010 at 08:50 AM.

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