stock index vs. individual stocks?

**disneysteve** · 08-30-2009, 06:44 PM

You asked a few different questions in your post.

1. You might be investing in index funds within your 401k and Roth. Or you might be investing in actively managed funds. You need to check. We can't answer that one for you.

2. "From what I can see indexes are putting money in and letting them do the day trading for you" No. Indexes do not involve "day trading" or really any active training. The fund manager just buys the shares needed to closely match the related index. For example, an S&P 500 index fund will hold shares in the companies that make up that index. You could do that on your own by buying individual shares, but it would be pretty complicated and expensive.

3. What should you do with your extra money? That totally depends on what you already have in place and what this money is for. If it is for retirement, that is different than if it is for a vacation fund or a house fund or an emergency fund.

**Broken Arrow** · 08-30-2009, 07:36 PM

So, Steve has covered it, but let me re-phrase it in another way:

* The index is nothing more than a select list of securities (in this case, stocks) that is used for tracking purposes.

* You can not buy the index, as again, it's just a list used to measure performance.

* Index funds are a specific type of mutual fund that attempts to mirror the performance of one of these indexes (indices).

* You can buy index funds.

* Because they attempt to mirror a market index, no active fund management is required.

* There are also funds that are actively-managed by fund managers, but they are just mutual funds.

* Generally speaking, buying your own individual stocks is like insisting on buying your own parts and building your own car. You can if that's what you really want to do, but it's neither necessary nor generally recommended.

**investingnoob** · 08-30-2009, 08:41 PM

Well Ive already got my 2 retirement funds. I'm looking for short term growth of my extra money insttead of the almost 2% it earns in savings.

And people are saying get into stocks. Id like to try individual stocks and get rich off a small company

**GrimJack** · 08-30-2009, 09:32 PM

We all want to get rich off a small company - but that takes a lot of research and even then it's a crap shoot. The best do not always win.

What is your area of expertise - use that as a place from which to start your research. Once you settle on a couple of stocks, set up a paper portfolio and follow it for a while to see how you did. If you choose a narrow field, that only has a couple companies competing; bet on both if they pass your tests.

Check out Fool.com: Stock Investing Advice | Stock Research for a review of a lot of different 'styles' of investing. Actually, it might be important for you to first figure out what your investing style is

**disneysteve** · 08-31-2009, 04:42 AM

Originally posted by investingnoob View Post

Id like to try individual stocks and get rich off a small company

Wouldn't we all? Of course, if it were easy (or even if it were fairly difficult), lots of us would be doing it.

The stock market is a "get rich slowly" game. That said, you should certainly be able to outperform a 2% return by investing in a diversified portfolio. Perhaps you should look at stocks/stock fund paying high dividends.

**Broken Arrow** · 08-31-2009, 04:47 AM

How about this? There are stock market simulators out there. Pick some stocks on it and see what happens. The good thing about simulators is that no money is at risk.

The bad thing about simulators, though, is that because no money is at risk, you don't always feel the emotions associated with putting real money on the line. But at least it will help you get a feel of what it will take to pick some stocks.

**investingnoob** · 08-31-2009, 04:51 AM

^ I think I will try a couple stocks.
For short term growth what should I be in then?
And do you recommend stock index?
Where do you invest your money steve

**Broken Arrow** · 08-31-2009, 05:12 AM

Originally posted by investingnoob View Post

For short term growth what should I be in then?
And do you recommend stock index?

Well, see, now we're hitting on a basic and fundamental obstacle of stock picking. We know what we would like to find. The question is how do we find it? Or, simply, what should we pick?

In the absence of knowing exactly what, yeah, I really do think index funds are the way to go. (Not to be too picky, but again, you can't buy an index, only index funds.)

**disneysteve** · 08-31-2009, 05:29 AM

Originally posted by investingnoob View Post

^ I think I will try a couple stocks.
For short term growth what should I be in then?
And do you recommend stock index?
Where do you invest your money steve

Can you define "short term" for us? I would not invest any money in stocks that you anticipate needing within 5 years. That should be your minimum time frame for a stock investment, IMO.

I think index fund (or ETFs) are a very good choice for long term growth.

What do I invest in? I have a variety of investments including both stock and bond index funds, domestic and international (no international bonds, just stocks), a couple of actively managed funds and a handful of individual stocks.

**investingnoob** · 08-31-2009, 08:08 AM

I'm thinking 3 years short. I want to buy a home by then, so I'm trying to find best way to save for it other than stuffing it in a savings

**Broken Arrow** · 08-31-2009, 08:18 AM

Yeah, going stocks within 3 years time frame is fairly speculative.... Not that you can't do it, but you have to be willing to accept the roller coaster rides. For example, our current recession happened within two years ago....

**disneysteve** · 08-31-2009, 08:35 AM

Originally posted by investingnoob View Post

I'm thinking 3 years short. I want to buy a home by then, so I'm trying to find best way to save for it other than stuffing it in a savings

That settles it. If this is money that you are saving to buy a house in 3 years, it absolutely should not be invested in the stock market. That money should be in a money market account or CD. If you want to take some risk, you could put some of it in a well-rated bond that matures before you will need the money. I don't invest in individual bonds so I can't advise you there but it might be worth looking into.

**investingnoob** · 08-31-2009, 08:46 AM

I'm thinking 3 years short. I want to buy a home by then, so I'm trying to find best way to save for it other than stuffing it in a savings

**Broken Arrow** · 08-31-2009, 09:40 AM

You know, the crazy thing is, all of my short term savings are in my bank account. Seriously, it's paying 3.01% APY right now, just for parking my money there. On top of that, I still enjoy the benefit of FDIC protection and liquidity (in the event of an emergency).

Realistically, I wouldn't expect more than 2% right now without taking on some risk. If you don't mind some risk, perhaps a good bond fund would be a better fit for the job.

stock index vs. individual stocks?