Mutual fund vs. bonds?

[freeballer16]

ok so right now i have about $2,500 in a vanguard mutual fund and I am saving my money in a savings account at the moment. When i turn 18 I plan on investing in stocks. So for the short time until im 18...about 7 months would it be smarter to put the money I am saving in my savings account into my mutual fund, or put it in a 6 month bond?

[sweeps]

A high-yield savings account (see Poundwise's thread) is just as good as a bond right now.

Just out of curiosity, you say you have $2500 in a Vanguard mutual fund but you're not investing in stocks yet? Which mutual fund are we talking about? Or do you mean you'll start investing in individual stocks when you turn 18? And why wait until you're 18?

[safari]

The rule of thumb is to keep your emergency fund in a high yield savings account with easy access to your money. A mutual fund can invest in many types of securities, uncluding stocks and bonds. What kind of mutual fund do you have with Vanguard? I do not recommend bying individual stocks if you're just starting out. You won't be able to diversify your portfolio much (read high risk) and will end up paying more money in comission fees than your investment will return. A better idea would be to buy more shares of Vanguard mutual funds that invest in stock (such as index funds). Bonds have lower risk than stocks, but the average return will also be lower. Since you're young and have a long time until retirement, your risk tolerance is higher, so it probably doesn't make sense to put a lot of money into bonds.

[freeballer16]

yes i meant individual stocks...and i didnt know i could buy individual stocks until i was 18...do you know a website that i could do it on?

[bjl584]

Do you have any other savings besides the $2500? If not, then i would not tie that money up in a bond or CD. You want to keep your assets liquid until you have more saved up. I would put it into a high yield money market account. By the way, good job on saving so much at such a young age.

[disneysteve]

Originally Posted by freeballer16

ok so right now i have about $2,500 in a vanguard mutual fund and I am saving my money in a savings account at the moment. When i turn 18 I plan on investing in stocks. So for the short time until im 18...about 7 months would it be smarter to put the money I am saving in my savings account into my mutual fund, or put it in a 6 month bond?

What mutual fund are you currently investing in? And what type of savings account do you have? Finally, why do you want to start investing in individual stocks instead of mutual funds?

[freeballer16]

Originally Posted by disneysteve

What mutual fund are you currently investing in? And what type of savings account do you have? Finally, why do you want to start investing in individual stocks instead of mutual funds?

I am under a well I don't know what to call it, but my grandma is in control of it until im 18...meaning I can't put in or take out. All I know is that it is in Vanguard. As for the savings account..it is just a WAMU savings account i only have about 300 in there because I just opened it. And for the individual stocks...I plan on getting into the stock market business and mutual funds are for long term. So I want to learn a lot of about individual stocks and making money like that. From what I know now, Penny stocks are looking good lol. But I still have a lot to learn.

[bjl584]

I would caution against going out and purchasing stock to learn about the stock market. That could be a recipe for disaster. I would suggest learning as much as you can about stocks and investing before actually making a stock purchase. Go to a bookstore and browse through the investing section. Pick up a few books on the subject. Also, if you know of a friend or family member that is experienced in investing sit down and have a talk with them for a few hours one day. That will help you out more than buying now and learning later.

[disneysteve]

Originally Posted by freeballer16

I plan on getting into the stock market business and mutual funds are for long term. So I want to learn a lot of about individual stocks and making money like that. From what I know now, Penny stocks are looking good lol. But I still have a lot to learn.

No offense, but you have a great deal to learn if you think penny stocks are a good idea. It sounds like you might be looking for the "get rich quick" method that doesn't exist, but that doesn't seem to stop people from looking. Just forget about becoming a frequent trader. If you want to make money in the stock market, you need to have a LONG TERM outlook. You can do that with individual stocks or you can do that with mutual funds. But when you are first starting out, funds are the only way to go because you just don't have enough money to build a diverse portfolio of stocks. It takes 30 or more stocks to be adequately diversified. With a mutual fund, you get instant diversification for as little as $100 or so, depending on the fund.

[freeballer16]

Originally Posted by bjl584

I would caution against going out and purchasing stock to learn about the stock market. That could be a recipe for disaster. I would suggest learning as much as you can about stocks and investing before actually making a stock purchase. Go to a bookstore and browse through the investing section. Pick up a few books on the subject. Also, if you know of a friend or family member that is experienced in investing sit down and have a talk with them for a few hours one day. That will help you out more than buying now and learning later.

yea i already picked up 2 books from my school library and once i am done with those i will be going to the public library and get more..im not going to be dumb about it, i am going to learn as much as possible before i decide to do anything

[hrbatyfan]

Buying individual stocks directly from a large stable company is typically not a bad idea. Doing this without a brokerage will save you from paying commission, and you can typically get automatic investment along with automatic reinvestment of your dividends. If you do it right, you can diversify with a few holdings like these.

Solid blue-chip examples would be like McDonalds, GE, etc.

Also, I would start a Roth IRA before I plunged into taxable investments.

[freeballer16]

Originally Posted by hrbatyfan

Buying individual stocks directly from a large stable company is typically not a bad idea. Doing this without a brokerage will save you from paying commission, and you can typically get automatic investment along with automatic reinvestment of your dividends. If you do it right, you can diversify with a few holdings like these.

Solid blue-chip examples would be like McDonalds, GE, etc.

Also, I would start a Roth IRA before I plunged into taxable investments.

I dont like the idea of buying big stocks like that, that would be long trm investments. I am looking for more of i dont know, but something that has more risk but more of a reward, but I have quite a few months until i decide. So as I learn my opinions will change

[disneysteve]

Originally Posted by freeballer16

I dont like the idea of buying big stocks like that, that would be long trm investments.

Stocks ARE long term investments!!! If you don't have at least a 3-5 year time line, you shouldn't be buying them.

Say it with me now.
Stocks are long term investments.
Stocks are long term investments.
Stocks are long term investments.
Get the idea.

If you want to gamble, go to the casino. The odds are way, way better at the blackjack table than they are in the penny stock market.

[freeballer16]

makes me want to boohoo. i dont want to wait that long for a bonus, but i will keep studying

[greedy4chips]

Penny stocks are like the lottery, but with less winners.

Buy good stocks and forget about them for 45 years and you will be happy most likely. Yes some will have run up and dropped a ton over the years making you scream (ATT is a good example over the last 45 years), but a vast majority of the solid stocks will be worth much more than if you were to plunge into the penny stocks and hit the jackpot.

Lets say you put your $300 into a 1 penny stock, that is 30,000 shares. At what magical price are you going to sell $1, $2, $5, or $10?
$1 = $30,000 minus capital gains taxes (15% long term) = $25,500
$2 = $60,000 minus capital gains taxes (15% long term) = $51,000
$5 = $150,000 minus capital gains taxes (15% long term) = $127,500
$10 = $300,000 minus capital gains taxes (15% long term) = $255,000

The numbers seem enticing but your likely end result will be a $300 tax write-off on your loss.

Penny stocks are penny stocks because no one would pay more for them.

Good luck!

[freeballer16]

Originally Posted by greedy4chips

Penny stocks are like the lottery, but with less winners.

Buy good stocks and forget about them for 45 years and you will be happy most likely. Yes some will have run up and dropped a ton over the years making you scream (ATT is a good example over the last 45 years), but a vast majority of the solid stocks will be worth much more than if you were to plunge into the penny stocks and hit the jackpot.

Lets say you put your $300 into a 1 penny stock, that is 30,000 shares. At what magical price are you going to sell $1, $2, $5, or $10?
$1 = $30,000 minus capital gains taxes (15% long term) = $25,500
$2 = $60,000 minus capital gains taxes (15% long term) = $51,000
$5 = $150,000 minus capital gains taxes (15% long term) = $127,500
$10 = $300,000 minus capital gains taxes (15% long term) = $255,000

The numbers seem enticing but your likely end result will be a $300 tax write-off on your loss.

Penny stocks are penny stocks because no one would pay more for them.

Good luck!

Alright, well I have been convinced...penny stocks are out. I need to find out what to look out for in buying a good stock...are graphs a good thing to look at. I can see how they could and could not be good to look at.

[safari]

Originally Posted by freeballer16

Alright, well I have been convinced...penny stocks are out. I need to find out what to look out for in buying a good stock...are graphs a good thing to look at. I can see how they could and could not be good to look at.

Graphs only show the past performance, and, as everybody knows, past performance is no gurantee of future results. If you just look at the graphs, you'll have a greater risk of buying high and selling low. Your goal is to buy low and sell high. There are a variety of factors that affect a stock performance, such as earnings reports, politics, economic trends, competitors, just to name a few. If you're planning to invest in individual stocks, you'll have to study and analyze all that information. You'll also have to keep an eye on all your investments. It takes a lot of time and resources. That is why mutual funds are so popular. The mutual fund managers do all the work for you, and you get instant diversification without paying commissions, which you would have to pay if you purchased individual stocks. All you have to do is pick a few good mutual funds and just sit back and watch your money grow. Once your portfolio grows and you learn more about investing, you can look into buying individual stocks; however, for a beginner I do not recommend it. My advice to you is to go to either Vanguard or Fidelity website and look at the no-load mutual funds that they offer.

[greedy4chips]

I agree with Safari! Leave the tough stuff up to the professionals. Even they cannot be right all the time, but diversification is the key to avoiding the wipeout of your capital.

Would you build you own space shuttle, demolish a building with explosives, or wash your own clothes? You can certainly read about how to do each of these things, but is it realistic to say you cannot become an expert on such complicated processes as those listed above. Leave the complicated stuff up to the experts, like your mom doing your wash!

[autoxer]

Originally Posted by freeballer16

I dont like the idea of buying big stocks like that, that would be long trm investments. I am looking for more of i dont know, but something that has more risk but more of a reward, but I have quite a few months until i decide. So as I learn my opinions will change

Originally Posted by freeballer16

makes me want to boohoo. i dont want to wait that long for a bonus, but i will keep studying

It sounds like you want to gamble, not invest. Don't confuse the two. Stock picking with a small portfolio won't provide enough diversification to protect your assets.

[disneysteve]

I just wanted to add that I have no problem with doing some speculative investing within the bounds of a well-diversified portfolio. Lots of us look for a little excitement from time to time. But that can't be the basis of your investing plan. Build a solid, stable, well-diversified base, then take 5-10% of your total and use it for some gambling if you are so inclined. If you lose it, at least you aren't decimating your portfolio.