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  • #16
    Originally posted by jIM_Ohio View Post
    mutual fund will take money from investors- like you, me, maat and others here. They then pool our money together and invest in stocks, bonds, foreign currencies, gold, silver, wheat, corn, swiss francs and another other security.

    Most mutual funds only invest in a portion of what I listed.
    For example some will invest in all stocks.
    Others will invest in all bonds.
    Some will invest in a mix of stocks and bonds.
    Some might invest in US stocks
    Some might invest in Foreign stocks
    Some might invest in large US stocks
    some might invest in large foreign stocks

    How narrow do you want to find the stocks? My suggestion is look for large cap US stocks first. Easy to track, you know the names of the companies (Microsoft, GE, Pfizer) and then learn from there.

    Vanguard, Fidelity and T Rowe Price are the 3 places a new investor should look.
    At Vanguard look for total market index or 500 index
    At Fidelity look for same indexes or Equity Income or Blue Chip names in fund names.
    A T Rowe look for Blue chip or Equity Income funds

    T Rowe for example will allow you to invest $50/month into one of the funds. They will charge $10/year (assessed in August) until account balance is $5000. Vanguard may not accept any investment until you send them $10,000. Fidelity is somewhere in between.

    The entire $50 you send to any of the 3 gets invested. You will own shares of the mutual fund which owns shares of the stocks. If mutual fund costs $10/share, you get 5 shares. If it costs $25/share you get 2 shares.

    Each day the shares will go up and down in value. Might go up or down 30 percent in one day ($10 turns into $7 or $13). The shares of the mutual fund go up or down based on the stocks it holds going up or down.

    Okay, lets say that I want to buy stocks. Not a lot but some. perhaps even save up the $500 and do the scottrade thing. What would be the best place online to use? Sharebuilder or scottrade?

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    • #17
      You can buy no load mutual funds with T. Rowe Price for no transaction fee. You basically setup and asset builder with a minimum of 50 per month.

      Mutual funds are where you and many others combine your money to buy shares in a diversified portfolio of stocks. There are many different types and risk levels. You can buy into an index fund like the S&P 500 or sector funds like natural resources or combinations of many others.

      Mutual funds provide diversification with low fees.

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      • #18
        Originally posted by maat55 View Post
        You can buy no load mutual funds with T. Rowe Price for no transaction fee. You basically setup and asset builder with a minimum of 50 per month.

        Mutual funds are where you and many others combine your money to buy shares in a diversified portfolio of stocks. There are many different types and risk levels. You can buy into an index fund like the S&P 500 or sector funds like natural resources or combinations of many others.

        Mutual funds provide diversification with low fees.

        Okay, on these mutual funds. Lets say that I invest $50 a month for the next 25 years. Where would I be (rough estimate) Assuming they continue on an average track. I am also assuming that this is the right choice for a retirement option.

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        • #19
          Originally posted by cicy33 View Post
          Okay, on these mutual funds. Lets say that I invest $50 a month for the next 25 years. Where would I be (rough estimate) Assuming they continue on an average track. I am also assuming that this is the right choice for a retirement option.
          The equation (I believe) is

          Future value=amount invested*(1+rate of return)^time

          For example if you invest $600/year with a 30 year time horizon with an 8 percent return:

          $600*(1+.08)^30=$3000
          (sorry computer locked when posting)
          Last edited by jIM_Ohio; 12-26-2008, 07:25 PM.

          Comment


          • #20
            Originally posted by jIM_Ohio View Post
            The equation (I believe) is

            Future value=amount invested*(1+rate of return)^time

            For example if you invest $600/year with a 30 year time horizon with an 8 percent return:

            $600*(1+.08)^30=
            okay, I realize that you probably know the answer to that but I don't. I don't understand algebra beyond the most basic. I don't know what the 1 + .08 means. I do know that the first symbol is multiply. Based upon your figures and the current market, what would the amount be? I cannot make an informed decision if I don't have even a basic understanding of this.

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            • #21
              It is one of the most used options for retirement investing. Most on this board invest this way, as do I.

              50 dollars per month at 8% for 25 years is 47,500
              " " at 10% is 66,000

              50 a month is only 600 per year. It is a good start, but you should invest more when possible. Here is a site where you can use a savings calculator.

              Retirement Savings: How fast will it grow? - Calculator - CNNMoney.com

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              • #22
                [QUOTE=maat55;199346]It is one of the most used options for retirement investing. Most on this board invest this way, as do I.


                Thank you for your answer, I realize that it is not a guarantee but it does help me see the big picture. See here is where my biggest problem is coming in. I have absolutely no understanding of how this area works. I have tried to learn on web but it is not very helpful. I am learning more everyday and I am researching constantly but whenever I try to get a basic answer I get confusing answers. I don't personally think that most on this board invest. I think most of the regular posters on this board invest. but alot of lurkers and occasional posters like me don't. We are trying to learn and I am really trying to open my mind to the possibility that the stock market and/or mutual funds are a viable option. But to be honest, when I get mumbo jumbo instead of basic, easy to understand answers it is very frustrating and one tends to not bother. And I did in the very beginning admit that I have little to no knowledge of this area. and at the risk of sounding even more ignorant, is 8% the average over time or the current rate?

                Comment


                • #23
                  xyz xyz
                  Last edited by jIM_Ohio; 12-26-2008, 07:50 PM.

                  Comment


                  • #24
                    My computer locked when posting (wireless connection)...

                    basic math is compounding- some call it the 8th wonder of the world- from an investing stand point it means your interest earns interest.

                    If you invest $50 per month that is $600 per year
                    If you get an 8 percent return for 30 years your $600 became more than $3000.

                    Compounding works like this
                    Let's assume $100 invested in something earning 3 percent interest.

                    $100 first year is $103 at end of first year.
                    The $103 earns 3 percent in the second year ($106).
                    $106 becomes $109 the third year.
                    $109 becomes $112 the 4th year
                    $112 becomes $116 the fifth year
                    $116 becomes $119 the 6th year
                    $119 becomes $123 the 7th year
                    $123 becomes $127 the 8th year
                    By the 24th year the $100 will have doubled to $200 (simply by the interest adding to the interest paid the previous year).

                    If you up the return to 8 percent it looks like this:
                    year 1 $100 becomes $108
                    year 2 $108 becomes $117
                    year 3 $117 becomes $126
                    year 4 $126 becomes $136
                    year 5 $136 becomes $147
                    year 6 $147 becomes $159
                    year 7 $159 becomes $172
                    year 8 $172 becomes $186
                    year 9 $186 becomes $200

                    The higher 8 percent return compounded faster than 3 percent (to double the money).

                    Stocks are the 8 percent
                    The bank is the 3 percent (savings accounts, Cds or similar)


                    1+.08=1.08 (the 8 percent)
                    ^30 is raised to 30th power like 2^3=8
                    You would want 1.08^30 (8 percent over 30 years) gives a multiplier of 10. That means money invested for 30 years earning 8 percent on average will grow 10X what you originally invested.

                    $600 becomes $6000

                    Comment


                    • #25
                      Thank you . that actually does make sense. kinda sad increase though. Basically in order to actually turn money over you either need a really good rate or you need alot more money. Based upon what I read it looks like pretty much what you have will be doubled in 10 years. Have given me much to consider.

                      Comment


                      • #26
                        If you can double in 7 years you are doing REALLY well
                        that is a 10 percent + return on average

                        If you give yourself TIME, money grows quickly
                        (for example to "earn" $100 in interest at 8 percent took 9 years; to earn NEXT hundred it would take

                        $200 becomes $216
                        $216 becomes $233
                        $233 becomes $252
                        $252 becomes $272
                        $272 becomes $293
                        in just under 6 years the second hundred is made.
                        so it took 9 years to make 1st $100
                        it took 6 years to make 2nd $100
                        it will take even less to make 3rd, 4th, etc (interest earns interest)
                        This is known as exponential math or an exponential curve... it is the basic premise behind long term investing.

                        Comment


                        • #27
                          Originally posted by cicy33 View Post
                          Thank you . that actually does make sense. kinda sad increase though. Basically in order to actually turn money over you either need a really good rate or you need alot more money. Based upon what I read it looks like pretty much what you have will be doubled in 10 years. Have given me much to consider.
                          It is not that tough.

                          Look at what you need to live off of.
                          Maybe 40k per year? 30k?

                          Once you know that number work backwards and set aside relative to the amount you need to live off of. The $600/year works for someone living off of $3000 per year well. At 40k you want to be thinking of setting aside between $4k ($300/mo) and 8k ($700/mo) to reach a point where the numbers work out being invested for 20-30-40 years.

                          examples- $300/mo over 40 years beats $700 over 20 years (I need a spreadsheet to get exact dfference). Usually longer periods really make the biggest difference.

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                          • #28
                            I highly recommend that you find a few books on investing in Mutual funds. Most mutual fund companies have a variety of different funds to choose from, they also have target funds that are funds that do all the work for you.

                            I suggest that you go to T. Rowe Price website to begin your investing, it is where I invest also. You can setup an account online with 50 per month or call and they will help you over the phone.

                            Mutual Funds - T. Rowe Price

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                            • #29
                              Your initial post said your SO wanted to buy stock to 'see what happens' which sounds like visitors to Las Vegas putting money in a slot machine, to see what happens.

                              You have already learned a lot. I hope you will take the next step and know what you are buying, why you are buying it and the risk involved...rather than gambling. You can look at the list of stocks/bonds the Mutual Fund manager bought and ask ... if you were as wealthy as Oprah...would you buy those stocks?

                              There are tons of books at the library to help you understand even more...I like that series of bright yellow books...one is called 'Investing for Dummies.' Please don't take offense...the whole series has that title.

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                              • #30
                                Originally posted by cicy33 View Post
                                .... I have absolutely no understanding of how this area works. I have tried to learn on web but it is not very helpful. I am learning more everyday and I am researching constantly but whenever I try to get a basic answer I get confusing answers..... We are trying to learn and I am really trying to open my mind to the possibility that the stock market and/or mutual funds are a viable option. But to be honest, when I get mumbo jumbo instead of basic, easy to understand answers it is very frustrating and one tends to not bother. And I did in the very beginning admit that I have little to no knowledge of this area. and at the risk of sounding even more ignorant, is 8% the average over time or the current rate?
                                cicy33,
                                The frustrating thing is that there are lots of variables. I think most people believe they would be doing you a disservice not to give you some supporting data.

                                I think the most important question for a new investor such as yourself is what is your risk tolerance? Why would I ask this question? Well, investments rarely go straight up in value. If you invested in something that loses half its value overnight, would you automatically: a) sell it ASAP! or b) wait, you're investing for the long term (assuming all is well with the underlying fundamentals) or c) buy more, it's a bargin!

                                When the stock market went down this year, there are some folks who discovered they didn't have much appetite for risk because they sold as the market was declining. Sometimes, the same folks after they gain confidence in the market because it goes back up in value buy back in. They are buying high and selling low--it is difficult to make a profit that way.

                                Once you've decided your risk tolerance, then it is a matter of chosing the right investment.

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