I Eat Bear

Experience and economics have taught me a few things. Like there are two tricks to money. Making it and keeping it. No, that is probably not an original, as I am pretty sure at the least, Warren Buffet beat me to saying it (he is older than I am, not to mention richer). But it is true.

This will deal with recommendations for mostly the younger investors, and it is dealing with the economic conditions we have today. A lot will apply to ALL investors however.

First, young is the ideal time to begin to invest. It is also the hardest to do then, as many start out with nothing, and need everything. And they lack experience, and the information overload just can't be properly processed.

But, let's for a second assume you are a young college graduate, or even younger and without a degree. And, let's say you are one of the lucky few in these times, and you have a job.

Most employers will encourage some form of long term savings plans, and encourage enrollment, as they should. You do need to set up a savings plan,,, no joke folks. Then again, I do know just how hard that is to do on a shoestring budget. Trust me, 95% of you will waste more than $10 a month, and many of you more than $100 a month. It is a function of being younger, and yes, less disciplined. And, I do not mean that in a bad way. You are buying experiences. Unfortunately, it is all current, and there will be a future.

To keep this short, I do recommed you invest. Any way you can. Experience tells me, if someone else does it for you, you will miss it less. For that reason, and only that reason, I will recommend you invest in 401K to the maximum you can live on. Otherwise, a 401K is likely the WORST investment you could make. It is right up there with life insurance, in terms of a poor investment for the young. If you are going to live 50 more years, and most will, how much life insurance should the young have? They have nothing of value, except "life" anyway, and charging for that is riduculous.

So, what to do, and still invest. Force yourself to set up an INDIVIDUAL INVESTMENT ACCOUNT. Force yourself to set up a direct deposit to it. As much as you can live without, so you can live much, much better later. IT WILL WORK. By the way, Fidelity Investments, is a good company to do this with. There are others though.

Now, here is the good, bad, and the ugly with this idea. You have just erased the fund manager cost you will get that you will be charged from a 401K. You will be becoming your own fund manager. Why pay them 5% or more, for what you likely will do better at anyway. It does have problems however. Because you do not have a ton invested already, your trade costs will be relatively higher, so you want to make a limited NUMBER of trades. The rates go down later, when you have more invested, but initially, trade costs can add up. Then, you have the best opportunity in maybe 50 years to invest in good companies, at the cheapest time, so you have almost a guarantee, you will succeed over time.

There is no replacement for research, and you will have to do some. MSN MONEY is a GREAT site. Get used to it, and use it often,, (once you can afford a computer (lol)).

Then, find 5 stocks you think have promise, that cost less than $10 a share. Initially, you may only need one of these. If you invest $10 a month, invest in one a year with a minimium of 10 shares buys. If you invest $100 a month, invest in two for them at 20 shares each, each month, until you get you 5 stocks. Yes, you DO need DIVERSIFICATION, as soon as you POSSIBLY can afford to do it. Still, because you may not be able to diversify quickly, does not prevent you from making money on a single stock. Then again, not all of you will, unfortunately. The second thing you MUST have is patience. Something most young people lack too much of. But your investment here is not so huge, you can't withstand it. It will be tough, and I know it. You still see some red at some point on your investments, at least in a single stock. Until you can get some diversification, ride it out. Time WILL make you a winner! If it has not in 3 or more years, you may consider a sell, but ONLY to reinvest elsewhere.

Here is the beauty of this though. At the end of 5 or less years, you will have a portfolio, that YOU can manage. It may or may not be a big one, but chances are GOOD, you made money on it. And, it is far better than your bank. If you put it in your bank, you likely pulled it out, because it was just too convenient, and your needs were just too great. Fact is, you would have survived anyway, and this GIVES you something, because it is a little tougher to do.

Now, the bigger your investment amount, the bigger your returns will be. So, for you with more cash, I still recommend, some good stocks, at under $10 a share. Some of the best stocks may cost more than that, but the weaker stock price stocks DO have the best chance for a big bounce right now, as they have been beaten down already. It is not the time to fear penny stocks, but be extremely cautious with stocks under $5 a share, and limit your portfolio to 25% or less of them.

My point here is simple. Be your own INVESTMENT MANAGER. No chance someone else scams you. Second point, be patient. Too much activity, will cost you. Third point, there will be a tomorrow, next day, next week, next year, and for most of you, more than 3-5 decades. You can make ALL OF THEM better!

You don't NEED someone else. You need YOU! Everyone else wants your money, no matter how much or how little. Don't pay them. Pay YOU! For the long term!

Comments: View Comments |  Wednesday December 17, 2008