Wanting to get into the market for long-term

E

EllCee

100+ Posts
I've never invested anything before, so I'm pretty new to this.

However, I've been reading up quite a bit for the last few months, and have a pretty good idea of where I want to go. However, I have no idea how to go about doing it, and could use some pointers.

Basically, I want to catch the market on it's way up, but am not concerned with starting at the very bottom. I don't mind missing the first 10-20% of the upturn once it starts. This is supposed to be relatively long term. The one caveat is that I need to be able to pull my money out and get liquid real, real quick, should anything happen to my job, or some other crisis were to come up.

I'm in my twenties, and I guess my "ultimate goal" is to let the money sit for anywhere from 4-6 years with the intention of being a down payment on a house.

So I've got about 20k to play with, and I want to basically split it up evenly. Half of it I want to put into funds of some sort. This is where I get pretty lost. I'm looking for something with good future growth potential, that's relatively safe. Not looking for the home run, but not looking to bunt, either. I have no idea how to go about doing this, how to identify which funds meet my needs, etc.

The other half, I want to invest in about 10 companies or so. I want to get into 2-3 oil companies, 4-5 American staples that are undervalued and will not fail, and a couple of solid tech companies.

Right now, I'm thinking something along the lines of:
WMT - Wal Mart
VLO - Valero Energy
XOM - Exxon Mobil
GE
JNJ - Johnson and Johnson
VMW - VMWare
GOOG - Google

So basically I'm looking for a few things. Any suggestions to add to that list? I'm particularly interested in the energy sector, and the company type tjhat I mentioned - companies that are trading under book value that are not going to fail.

I also have a few other questions
- I'm looking around, and it looks like ETrade or TD Ameritrade online would suit my needs fine. I can buy mutual funds, or individual stocks. I'm not really worried about the trade fees, because this is all long-term that I'm looking at. Question about the mutual funds - are there any hidden costs that I need to be aware of? Or is it a one time trade fee, then just let it sit and (hopefully) grow?
- How quickly can I get my money back into cash if something came up?
- Any other general pointers or advice?
- Would it be a better idea, rather than trying to pick stocks myself, to just pick several index funds, like one for tech, one for energy, etc?
 
I'm curious what other will have to say on this topic.

First off, you mentioned wanting a relatively 'safe' strategy. Two years ago I would have recommended some variation of the following:

60% in Total US Index
30% in a Rest of World Index
10% in a Total Bond Market Index

... but I have lost a small fortune.

Some will tell you to continue to pour money into the market because history tells us it will rebound. Some will tell you to buy precious metals because the US Dollar may be on the verge of a deep prolonged inflationary period.

I'm at least glad you aren't worried about timing the market. The market will certainly dip further... but catching it at the dip may be hard because EVERYONE is thinking the same thing.
 
Money managers will tell you to only put money into the stock market that you will not need for 10 years or more.
The reasoning is that if the market goes down you will have time to recoup your paper losses when/if the market recovers.
So if you have six months living expenses in a saving account, then you can consider investing your 20K in the market.

Generally, you can sell stocks and mutual funds the same day you decide to sell.
I'm not sure if you'll have to wait until the settlement date (3 days) before you can withdraw the proceeds from your account.
Probably depends on your brokerage agreement.

I won't add any companies to your buy list since mine have decided to tank along with the market.
whiteflag.gif

And I have no faith that they will recover. Nobody ever thought GM would be hanging by a thread either...
frown.gif


Good Luck with your investments.
 
Double check that GE stock - I remember hearing some negative things about that company and stock this week.

Just do a little homework, I guess.
 
Thanks for the tips everyone. I have been following the GE stock. I just simply don't think GE will be allowed to fail. That would be a disaster.

As for then ten years thing - probably good advice. But the chances of anything catastrophic happening to me financially are very, very slim, if they even exist, for a variety of reasons. Even in this market. And for a younger person, I believe this economy, once it starts to turn back upwards, represents tremendous, unprecedented opportunities for people who survive it with cash to burn. If It was 100k, I'd just make a huge down payment on a house once the housing market bottoms, but with 20k the market is my best bet, IMO.

I'm looking now, and wondering if it wouldn't be simpler, less time consuming, and leave me greater room for error, if I just split it up between index funds in segments that I think are going to rebound well. I found some nice funds in the Tech, Energy, and Construction industries that I like.

Another question I have... I'm sure there are 5,000 answers to this, but I like having as much info available as possible...

Any pointers on picking a "safe" entry point. Like I said - I don't mind missing the first 10-20% of the upturn when it does happen. But I definitely don't want to dump money in a "fake" bull run and have it lose 10% within a week. I'd rather catch it on the way up.
 
Just keep this in mind...

For a century, the US was been the world's lone super-power in virtually every sector of the market - from industrial to financial. Over that period, we learned that our economy would typically bounce back because it was a given that the backbone of our economy was resilient.

Things have changed. What we don't know is what happens when the US has to share the stage with several other countries? What happens with the US Dollar is no longer the world-standard. Will our economy continue to be resilient now that we've practically handed over our engineering and manufacturing sectors to other countries? And energy is a legit concern - what happens as we increase our dependance on foreign energy?

We're told that consuming more will stimulate the economy. First, we can't consume more because people haven't saved money. Second, consuming would require the use of credit which is dangerous. Third, our unemployment rate has grown to 9% which means all the more people without a steady source of income. Last, much of our consumption is of foreign goods.

Things are really screwed up. I'm not sure that we're seeing a temporary dip so much as a deep deep market correction. Once we do hit the bottom, sure the market will start growing again, but expect it to grow at a much much slower ate. Think 4 to 5%, not 11 to 12%.

Just be cautious. Don't think the rules that applied to the market for the last 80 years will apply to the market for the next 20 years. Many of the variables have changed.

I'm off my soap box.
 
"Any pointers on picking a "safe" entry point. Like I said - I don't mind missing the first 10-20% of the upturn when it does happen. But I definitely don't want to dump money in a "fake" bull run and have it lose 10% within a week. I'd rather catch it on the way up."

No one knows the answer to that. Not even WB. Protect yourself by spreading your purchase over several buys spread out over a period of time. don't buy everything at once.
 
It is hard for any individual to pick stocks in individual companies. Mutual funds spread the risk around, and have traditionally been better for individuals, but I'm not the professional-what does Orange Blooded say?
I still think the economy will bounce back, but who can predict the timing.
Related question-is this a very stupid time to add to one's IRA if you get a pretty good tax advantage on your 1040? Like everyone else's, the amount we put in there last year is worth about half at this point.
 
Correct me if I am wrong, but during the Great Depression, the markets lost 89% of their worth.

Our current downturn is roughly between 35 and 40%.

We could be a long ways from the bottom. No way to predict. Some people are very confident this won't be another Great Depression. I don't think we'll hit 89%, but I do think we still have a ways to go.

In reply to:
Click to expand...
 
I heard a report a week or so ago from a leading expert who says the market will recover towards the end of this year, then completely bottom out in early 2010-- down into the like 3000's. I don't think I'd put money there right now. It's not safe.
 
If you need the money to be "liquid" in case of emergency like loss of job, etc., I wouldn't invest the money at all. Put it in a high yeild savings account and call it your "emergency fund". Don't touch it unless its an emergency. Independent of this, start investing into a diversified mutual fund by allocating whatever $$ you can to it each month. (dollar cost averaging).

Just my 2 cents.
 
My employer (a Fortune 500 tech giant) seems to believe the economy will start picking up in Q2 2010. Until then, it looks like we are bracing for another 12 months of downturn. I put more stock into what my employer believes than what I hear from tv analysts and government economists / politicians.
 
Don't extend that line of thinking to investing only in your own company. It didn't work out so well for Enron employees.
 
There is a difference between savings and investments. Savings are to cover emergencies not investments. Set aside some of your money as savings.

If your buying for the long term don't worry about timing, buy in now - it should not matter in 10 years if stocks went down a little more before they went back up. If you are fixated on the timing in this market then you are not looking at it long term.

If it is your first time around then funds may be a better place to start than individual stocks.
 
EllCee,

I understand that you are not asking the board to pick the bottom of the market for you, but it is still impossible to say when a true bull market has returned. Even a 10% to 20% positive run-up could be surrendered. In other words, putting your down payment money in the market is going to come with the risk of it not performing for you.

That being said, I'm guessing that you will need to double your $20,000 over the next 5 years to have any decent down payment money. That would require a 15% compounded annual return over the five years. I would wet my pants right now if someone could guarantee me that I could double my money over the next five years. If it can be done, however, my best guess is that it will happen in the stock market. Your job will be to minimize the risk, while accepting that with the risk comes the possibility that you might get burned. Five years may seem like a long time to someone in their 20's, but it isn't a sure deal in the stock market.

To minimize risk I would avoid buying individual stocks. Just buy index funds for the broader diversity of the holdings, plus they have lower management fees compared to most mutual funds. Even buying into specific sectors (energy, tech) adds additional risk over buying a broader market index. If you go the index fund route, check with the mutual fund on how quickly funds are available once you sell (to address your liquidity concern). If the turnaround is too slow, then always keep enough in cash to bridge the gap between your layoff (or other need) and when funds are available.

The US led the world into this recession, and I think it will lead the world back out. With that assumption I would invest in a US market index.

I would definitely bleed your money into the market so you reduce the chances of getting caught in a false bull market. It would also provide you with a cash pool (liquidity again) for a while until you are fully invested. An example would be investing around $7000 now, another $7000 in six months, and the remainder after 12 months. You could put the cash into 6-month and 12-month CDs while you are waiting to move it into the market.
 
I'm in my late twenties and these are some of the pointers that I've used along the way:

- Don't invest more than 20% in your own company stock (even if they're on top - my company, a defense contractor had a huge run for the past five years but recently is 50% off it's all time high late last year just like everyone else).

- Whatever your age is, put that % of your money into safe assets like corporate bonds or a bond index.

- If you want to invest in individual stocks, look at their P/E ratios and where they're trading right now and where stocks in their industry should be. If you find some that you think are undervalued, then take a look at their balance sheet and see how healthy they are, what their dividend payout ratio is, and what their cash situation is right now.
 
Since the day you created this post, the Dow has gone up 25%; I hope you plowed every freakin' dime you have into the market that day, although admittedly that would have been a very suspect strategy at the time...

BTW, if you did, you might want to ease off a bit and let the dust settle...hopefully there's some stabilization building, but you always have to expect a little profit taking (and subsequent drop) after a runup like this...
 
Invest in guano- those old miners in Young Guns might have been on to something.

Along these same lines, what would you guys suggest for retirement purposes? I'm 30, bought a house last year and want to put money in (and leave) until retirement. I have an adequate emergency fund already in place. My dad and I always discuss the time value of money, so I'm looking for a vehicle to put money into monthly and not touch for +/- 35 years. Suggestions?
 
Bloak, there's people a lot more qualified than me to make that type of recommendation, but at the very least, if you work for a company that matches into your 401 then contribute at least as much as needed to max out what they match. That's free $$$, and it wont' come around forever...
 
I have bought, sold and held Ford for years now and will stick with them. When times are good they pay a pretty good dividend, when times are bad and you get in on them they always get back up. They are stronger than GM cash wise and still have some things they can shed if needed.

Coke is another company that I have held and done well with long term.

Travelers did great by me until they merged with Citi. So I might get back in with them now that they are separate again, if they will drop down in the low 30's.
 
Good call Ignatius, however I currently contribute to my 401K with a percentage of company match.

I am a saver, my wife a spender. Each month I set aside money for investments/retirement after contributing towards 401K and savings. While it isn't a ton, that time value of money plays mind games with me, so every little bit I have I put aside to invest and *hopefully* watch it grow exponentially.

After my dad first showed me what compounding interest can do for you (he is a finance guy so he likes toying with numbers), I told I wish he would have set up a fund for me years ago without my knowledge and one day said SURPRISE! So is life- time to do it on my own.
 
Most of those companies you listed offer direct investment and dividend reinvestment plans that allow you to buy the stock directly from the company without using a broker.
 
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