I'm 33. Stable income, few major debts. I read that I should buy stocks at my age, and then get into mutual funds later, but how late is too late?
When investing you might be better of thinking in terms of the types of: 1) Assets you will invest in, 2) Accounts you will use to house your assets, and 3) Strategies to pick the specific securities.
When you invest, you invest in assets. For example: Cash, Bonds, Stocks, Real-estate and Commodities.
How you invest in these assets varies: You can buy them in a mutual fund format, in an Exchange Traded Fund format (ETF), directly in a separate account etc. Thus an equity mutual fund is simply a collection of stocks picked by its portfolio manager. So when you buy an equity mutual fund you are in fact invested in stocks. Each type of format (funds, ETF’s etc.) has its own set of benefits and costs.
Finally there are literally hundreds of strategies you can use to select the specific investments: E.g. You can buy stocks based on strategies like: Passive/ Indexing, value, growth, small-cap, large-cap, distressed, arbitrage, etc. etc.
At my firm we consider all three aspects, and determine the correct mix for a client’s needs.
I agree with the answers above. However, I would like to add an additional comment. If you build a portfolio of 20-30 stocks, as Gregory pointed out, you do have your own mutual fund. However, if you start holding more stocks, say 50-100 (and I've seen portfolios holding much more than that), you may want to consider using an ETF or mutual fund. You can then fill in or over weight some companies in the portfolio. The reason for this approach is the trading costs associated with holding and balancing a large portfolio. Those $4.99 or $9.99 transaction fees can really add up. One portfolio I dealt with nearly mirrored the S&P 500. That's a lot of transaction fees.
Tina, to quote Dr Eugene Fama who is one of the great minds of finance: "I'd like to compare stock picking to fortune telling but I don't want to insult the fortune tellers” Although Dr. Fama can be acerbic he smarter than we are when it comes to investing. .
Hi: I do not know where you read that and what were the credentials of the person stating that. If you want a diversified portfolio- which is the main wayto reduce risk- you need to use mutual funds or ETF's. For example- a mutual fund or ETF cannot fall to Zero, but a stock can go bankrupt and you can lose 100% of your money.
I would never recommend an individual investor dabble in stocks. It is very hard for even professionals to not only pick stocks but to make the timing decision of when to buy and sell. The best route for an individual investor is to take exposure to the market through pooled vehicles like mutual funds and/or exchange traded funds. We recommend taking a core-satellite approach to building portfolios where ETFs are held in the core and active money manager are added as satellites.
You first need to fill out a risk questionnaire and then determine what your asset allocation should be, that can then be expressed through different pooled investment vehicles in a global framework.
Quantitatively, I can't see any reason for holding individual securities at all. Have you seen the study done by financeware about 7 years ago? They tracked hundreds of securities over a three year period and concluded that owning individual securities - on average - offered investors no greater return than the index it sits in... but exhibited 3 times the volatility! There is already enough uncertainty in our world today, why increase it by trying to pick the best needles in the haystack , when you can simply buy the entire haystack with a fund or ETF? Unless you understand the risk completely and want to take it... then go for it.
I would advise against investing directly into individuls securities b/c when you do - you are taking on unecessary risk. A basi rule of investing is: "you will not be rewarded for risk you can diversify away". There are risks in individual companies that can be diversified away; either through mutual funds, ETF's or prfessionally managed accounts. Good luck, Evan
A diversified portfolio of stocks through an index fund is a good place for a beginner to gain equity exposure. As others have stated, trying to beat the market through stock selection is generally a losing proposition. Managers all over the globe dedicate their lives to attempting to outperform a benchmark and very few are able to accomplish this feat over an extended period of time.
I would tell you that Mutual Funds and also Exchange Traded Funds (ETFs) are great investments for you and anyone else in your Age Bracket. Remember though that one of the only "free lunches" that are still available in investing is the power of diversification. When you buy an Individual Stock you are not getting that free lunch, you are investing in only 1 company. So, if you want to invest in 1 company's stock then I would say limit that amount to no more than 5% of your total investment portfolio that way even if the company went bankrupt it wouldn't wipe your investments out completely.
You mention that you have "few major debts". All of the answers you've received have been focusing on investing, but without knowing the specifics, I'd say that it's preferable to first focus on paying off your debts and then start thinking about investing. If you have a large chunk of money now, I'd suggest you to look into the "Snowball Method" to pay your debts (there are a few calculators that you can find on Google to help you see how it works). Once you're clear (maybe with the exception of a mortgage with a small, fixed rate), then you should start thinking about investing. Investing in the market (either through stocks or mutual funds) needs the discipline of remaining invested for at least 10 years, and then, there's no guarantee that your earnings in your portfolio will be larger than the interest expense of your loans.
I hope this helps.