The high dive or the bunny hill?

[zemon1]

Hello my name is Jeff and this is my first post here. (Please hold your applause until the end of your ride. Keep all limbs in the vehicle at all times until it comes to a complete stop.) I am a 19 year old college student and I have spent a long time trying to learn how to join the big kids in the stock market.

- I have $1,000 in my pocket that I am ready to play with.
- I have an account with a broker (Tradeking)
- I have many hours of research in the market

What I don't have is a clue haha. So far I am looking into either a mutual fund or an ETF the ETF in particular is iShares S&P Global Financials Sect. or IXG.

I know that ETF seems to be looking a little bleak at the moment but I have a strong feeling that the raising of the National Debt Ceiling is going to do some whacky things to the financial sector now that Big Brother is getting his credit limit hiked up. I would really like to do an option on IXG but the more I read about options the less I seem to understand about it. I understand the basic principles but that is all and im not sure I feel safe going on a hunch and the 'basic principles.'

My goal is for this $1,000 to really start me off in my investment future. That said I do know that there is a possibility that I'll never see that money again and if that's how it ends up that's ok too. However I would like to ride it out as long as possible and would absolutely like to see some short term gains of about at least 15%. I don't have a strong game plan but I have a gut feeling about IXG and the timing.

I am more than open to suggestions, and absolutely open to some gentle guidance. My biggest question is what should I put the money into? A nice mutual fund? or my volatile ETF? Perhaps an option on that ETF? There are so many possibilities that it is a little over whelming.

I hope I have provided you with enough information, if not feel free to ask. I look forward to reading what everyone here thinks.

-zemon1

P.S. You may now unstrap your seat belts and exit the ride to your left.

[jpg7n16]

Welcome to the forums

So what you're talking about doing is pure speculation; aka gambling. You are considering an ETF based on your speculations about how the 'debt ceiling' will impact a specific ETF. Options are also a pure speculative play. (Call option = bet that the ETF will go up; Put option = bet that the ETF will go down)

I see some misconceptions about what it truly means to invest in the stock market. 'Big kids' invest slowly over time, at regular intervals, in a diversified portfolio, using an asset allocation that meets their overall risk tolerance. It's boring and it's not as sexy as trying to cash in on debt ceilings and interest rate movements, but it works.

Since you're a student, check out this book from your school library: Amazon.com: The Intelligent Investor: The Definitive Book on Value Investing.

Chapter 1 is called: "Investment vs Speculation" and IMO you really need to read it.

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So the real question is, what are you trying to accomplish? And what would like advice on?

How to speculate on the impact of debt to the financial sector ETF? Or how to intelligently handle your overall financial picture??

If the 1st, I can't really help you there - just go with your gut and pray. God's the only one who knows the future. No one else can guarantee what will happen - though several people try.

If the latter, then you should likely use the money for liquidity and a head start on an Emergency Fund. You're still in school, and generally students aren't in a financial position to invest.

Questions:
-What other assets do you have?
-How much of an Emergency Fund do you have set aside?
-Do you have any debt? If so, what are the balances and interest rates?
-How are you going to pay for school? (tuition, books, and rent)
-Are you employed? What retirement options are available through your employer?
-Do you qualify for a Roth IRA?
-What is the purpose of investing this money? Long term investment? Generate extra spending cash? Just looking for some excitement?
-Are you wanting to invest or speculate?

[kork13]

'Big kids' invest slowly over time, at regular intervals, in a diversified portfolio, using an asset allocation that meets their overall risk tolerance. It's boring and it's not as sexy as trying to cash in on debt ceilings and interest rate movements, but it works.
........
you should likely use the money for liquidity and a head start on an Emergency Fund.

On the nose.

In the best interest of your financial future, I'd recommend that you either:
- save the money for liquidity--it's expensive to graduate, get a job, move somewhere, and get settled. Trust me.
~OR~
- invest it in a basic, quality index fund such as an S&P 500 mutual fund (or a similar ETF if you prefer). Aim for low costs (or "expense ratio"). Also, I probably wouldn't recommend doing this with a brokerage, since they will charge higher fees. Go to a discount mutual fund company such as Vanguard or others. Make consistent additions to your investments, even if only $25-$50/mo for now.

Wanna join the "big kids"? That's how 98% of financially successful people get to where they are. The remaining 2% either get supremely lucky, receive wicked inheritances, or are phenomenally smart. So if you don't think any of those three will apply for you, I definitely recommend you follow the practical course. Particularly if this $1,000 is the sum total of your savings, you won't want to risk losing it if your "strong feeling" proves false.

If that's not what you want, fine... just don't go into speculative investments thinking you're going to hit it rich. Anticipate that you will lose money, then be surprised (and happy) if you don't. That way you at least have realistic expectations for yourself.

By the way, I'm really not that far ahead of you (I'm only 24), but my starter investment (initially just $3,000) like I laid out above has been a big factor in helping me amass about $120k in 5 years, and my total portfolio returns for the previous 12 months are currently about 22%. Sure, my investment strategy has expanded since then, and yes, my portfolio's performance is partly because I caught the recent upswing, but that's what time, consistency, and discipline will do that for you.

[zemon1]

Welcome to the forums
What are you trying to accomplish?

How to speculate on the impact of debt to the financial sector ETF? Or how to intelligently handle your overall financial picture??

If the 1st, I can't really help you there - just go with your gut and pray. God's the only one who knows the future. No one else can guarantee what will happen - though several people try.

If the latter, then you should likely use the money for liquidity and a head start on an Emergency Fund. You're still in school, and generally students aren't in a financial position to invest.

Questions:
-What other assets do you have?
-How much of an Emergency Fund do you have set aside?
-Do you have any debt? If so, what are the balances and interest rates?
-How are you going to pay for school? (tuition, books, and rent)
-Are you employed? What retirement options are available through your employer?
-Do you qualify for a Roth IRA?
-What is the purpose of investing this money? Long term investment? Generate extra spending cash? Just looking for some excitement?
-Are you wanting to invest or speculate?

I just spent 20 minutes writing a post only to find out it was rejected and I didn't copy it.

I got that book.

What do I want to accomplish? Financial security.

I wouldn't mind a little advice on IXG or what others think will happen after this debt ceiling thing.

I would also like to have some help with my financial picture, I wouldn't mind that.

-What other assets do you have? Nothing I would like to liquidate really.

-How much of an Emergency Fund do you have set aside? I honestly cant say i know that an Emergency fund is, though it doesn't really take a PhD to figure it out. Can I get a little run down of it though?

-Do you have any debt? If so, what are the balances and interest rates? After a year of school I have $10k only 5 more years to go. haha The only one gathering interest is the smallest one and I only have $82 of interest due. I plan on hammering this lone down some.

-How are you going to pay for school? (tuition, books, and rent) My dad pays for everything due now books and stuff I pay the loans. Its about even he pays 10k I pay 10k.

-Are you employed? I only get $3k per school year from my job, its very little but its all spending.

-Do you qualify for a Roth IRA? I honestly don't know.

-What is the purpose of investing this money? Long term investment? Generate extra spending cash? Just looking for
some excitement? 80% long, 5% extra money now, 15% fun.

-Are you wanting to invest or speculate? Both at approximately 65/35

I had more to say but I cant remember after having to write this post twice lol.

[jpg7n16]

What do I want to accomplish? Financial security.

Then your goals of liquidity and debt reduction should take priority over speculative investing.

I wouldn't mind a little advice on IXG or what others think will happen after this debt ceiling thing.

Don't know. It honestly doesn't matter to me either way.

I would also like to have some help with my financial picture, I wouldn't mind that.

-What other assets do you have? Nothing I would like to liquidate really.

If you don't have any assets readily available, then you have a liquidity need, and should keep your $1000 in cash.

I honestly cant say i know that an Emergency fund is, though it doesn't really take a PhD to figure it out. Can I get a little run down of it though?

Sure An Emergency Fund is a separate cash account held for liquidity (separate as in - in addition to your checking account). The typical recommendation is that in order to have enough liquidity to weather an emergency, one should have between 3-6 months of nondiscretionary expenses held in cash. In other words - if your world went to crap and you had to pay for the essentials for 3-6 months, about how much would you need to make it?

If you were to get in an accident and needed money for doctor's bills, the EF would save you from having to sell your car (or investment assets) to pay medical bills.

So even though the EF will never generate high returns, it is an important part of your overall financial plan.

-Do you have any debt? If so, what are the balances and interest rates? After a year of school I have $10k only 5 more years to go. haha The only one gathering interest is the smallest one and I only have $82 of interest due. I plan on hammering this lone down some.

It is the only one gathering interest right now. As soon as you graduate, you'll have a possible need for debt elimination. This is a mark against investing today.

-How are you going to pay for school? (tuition, books, and rent) My dad pays for everything due now books and stuff I pay the loans. Its about even he pays 10k I pay 10k

-Are you employed? I only get $3k per school year from my job, its very little but its all spending..

Your school expenses are $10k/year and your income is only $3k/year. That would lead to more debt, and is another indication that you are not in a financial position to invest.

-Do you qualify for a Roth IRA? I honestly don't know.

If you only make $3k, yes you are (so now you know ), but I don't think you have the capital available for retirement investing at this time.

-What is the purpose of investing this money? Long term investment? Generate extra spending cash? Just looking for
some excitement? 80% long, 5% extra money now, 15% fun.

It is in your best long term interest to hold onto the $1000 as cash for upcoming needs, and as a partial liquidity buffer. I would not suggest investing in anything really.

I know that's not what you wanted to hear, but that's what I truly think is best for you at this time.

[zemon1]

$3k isn't all I make. Also I will soon be going on Co-op. The $1,000 isn't all I have, just all I am willing to lose. I plan on saving/investing all of my co-op money so that by the time its all done i will have a nice little chunk of money for the down payment on a house. However i have no intention of just letting it chill in a savings account earning 3% when basically any mutual fund i've seen returns that and much more.

I am not trying to argue, I value the advice you gave me, and will make some more plans possibly based around it or pieces of it. Just trying to say I may have mislead you, though I clearly am in debt or rather I will be soon. But hey whats school good for if you don't leave without 2 pennies to rub together? hahaha

-zemon1

Edit: As for the emergency fund I have NO IDEA how much I would need to live for 6 months. I have never had any bills. I buy gas for my car. Currently I live with my parents and at school everything is paid for. I have health insurance because it is required by my school. If I lived on my own I could imagine a need for 1500 or more a month, but I just don't know because i've never lived on my own =/

[rj.phila]

quotes:

"and would absolutely like to see some short term gains of about at least 15%. I don't have a strong game plan but I have a gut feeling about IXG and the timing."

"If I lived on my own I could imagine a need for 1500 or more a month, but I just don't know because i've never lived on my own =/"

you need to go invest whatever you can afford to lose, STAT. ASAP. it will be a good learning experience, and will re-calibrate your thinking. if you think that you are going to earn "15% in the short term" cause you have a "gut feeling", you are likely in for a rude awakening.

the odds that you can turn 1k into 1150 in a year buying an individual stock are extremely slim, let alone investing in ANYTHING in the financial markets. 10,000 hour rules get you those kinds of returns. gut feelings get you broke, fast, and that is why i think you need to go out, invest along your lines, and turn that 1k into 500-600 ASAP, as it will be a valuable learning lesson. i dont think doing it with 10k 1st time around is very smart.

[zemon1]

Well that was a bit more abrasive than most peoples approach. I guess someone has to be that guy though. I'm not sure how the EF quote was relevant but that's Ok. Niether of those things annoyed me much. What kinda got under my skin about your post was that you didn't really say anything constructive. The others were AT A MINIMUM were helpful in showing me where I migh be making a bad desicion. Your post breaks down to essentially your stupid have fun losing that money. Thank you for being that guy for me so that no one else feels obligated to be that guy and can be constructive in helping me decide the best way to help myself with what I have.

-zemon1

[rj.phila]

Well that was a bit more abrasive than most peoples approach. I guess someone has to be that guy though. I'm not sure how the EF quote was relevant but that's Ok. Niether of those things annoyed me much. What kinda got under my skin about your post was that you didn't really say anything constructive. The others were AT A MINIMUM were helpful in showing me where I migh be making a bad desicion. Your post breaks down to essentially your stupid have fun losing that money. Thank you for being that guy for me so that no one else feels obligated to be that guy and can be constructive in helping me decide the best way to help myself with what I have.

-zemon1

zemon-im sorry you took that that way. i didnt mean it to be abrasive. if you read my response, i suggested investing "whatever you could afford to lose, STAT." you may take that as abrasive. it was intended as constructive, actually. i was lucky to invest a sum that i could afford to lose at an early age, and it decreased by about 60% over 10 years. it was one of the most valuable lessons i ever learned, and furthermore, i COULDNT have learned it via proxy, or by just taking someone else's advice.

if you can't afford to lose 1k, then dont. but i DO think that getting your feet wet should be a high priority. this is how we all learn, by making mistakes. internet advice only goes so far with no real world application; we learn by experience.

again, forgive my language, but the sentiment or message behind i do think is truly worth heeding. there is no possibly way for an investor to bat a 1000 average off of advice given on the internet.

if you are insistent upon folks offering "soft lesson" advice, then i will offer this: that 1k will go MUCH MUCH MUCH farther as an investment if you use it to either A) start a business, or B) better yourself via education, health, etc. example: a 1k lawn mower (that can generate income) will generate a much better return than a 1k ETF. what will garner the absolute MOST benefits across fields? a 500 mower, 250 in an ETF, and 250 in an EF.

[zemon1]

I apologize for what I said. It is truly impossible to realize someones tone through the internet and I guess I am just used to most other web sites. On this site I have yet to see a truly rude and negative person yet. I'm sure they are here, but I just haven't seen ANY yet. Thank you for your advice. I wasn't really planning on sinking the whole $1,000 into one thing I was thinking IXG for some and a mutual fund for the rest (one of the ones mentioned above). Thank you for you Clarified advice, and I apologize for jumping to conclusions and misinterpreting what you said.

-zemon1

[jpg7n16]

$3k isn't all I make. Also I will soon be going on Co-op. The $1,000 isn't all I have, just all I am willing to lose. I plan on saving/investing all of my co-op money so that by the time its all done i will have a nice little chunk of money for the down payment on a house. However i have no intention of just letting it chill in a savings account earning 3% when basically any mutual fund i've seen returns that and much more.

Well I was mainly trying to find out if you were working a main job, and taking classes.

With a small income, it'd be hard to make back your $1000 if you somehow lost everything (def a possibility if you use options).

Since that would take 1/3 of your school year to make back, it's not a good risk given your current situation.

Now if you made $30-50k+/year and were taking classes at night or something - you could easily make the money back and would be something in favor of investing.

I am not trying to argue, I value the advice you gave me, and will make some more plans possibly based around it or pieces of it. Just trying to say I may have mislead you, though I clearly am in debt or rather I will be soon. But hey whats school good for if you don't leave without 2 pennies to rub together? hahaha

-zemon1

You're at perfect liberty to do whatever you want to with your own money. But since you asked for advice, I'm tellin you what I believe is the best for your overall situation - not just what's best for the rate of return on $1000.

Edit: As for the emergency fund I have NO IDEA how much I would need to live for 6 months. I have never had any bills. I buy gas for my car. Currently I live with my parents and at school everything is paid for. I have health insurance because it is required by my school. If I lived on my own I could imagine a need for 1500 or more a month, but I just don't know because i've never lived on my own =/

IMO - this is how the steps should go:

1) Create a budget (this would define your monthly expenses)
2) Establish an emergency fund of 1 month's expenses (based on expenses found in step 1)
3) Pay off any high interest rate debt >6%
4) Complete the EF to a full 3-6 months expenses; likely only 3 months in your case, since you're risk seeking
5) Invest 15-20% of your income for retirement (not including any employer match)
6) Once steps 1-5 are in place, then you can engage in speculative investments with excess funds


You have no budget (otherwise you'd know your monthly expenses). You didn't even know what an EF was. You're incurring more debt than you're making in income. You haven't saved anything for retirement.... but somehow you think it's okay to make speculative investments with the very little capital you have available.

You are trying to jump to step 6, without going through steps 1-5.

Said another way, you are attempting to build a house with no foundation.


Betting on IXG may work out for you - and I hope it does if you decide to do that - but the smartest thing to do is to build your foundational financial picture first.

If you came to us with steps 1-5 already in place, and $1k extra cash sitting around, I'd have no problem whatsoever with your decision to gamble on IXG.

[EEinNJ]

I had a position in IXG as part of one of my IRA's. However, it was just one of about 10 sector ETF's. Guess which one went from +20% to -50%? Take a look at the stocks in it- most are still pretty beaten up and a long way from coming back (Citigroup, BoA, etc.). If the gigantic infusion of TARP money didn't move the needle much on them, whatever happens with the Federal budget/deficit issue won't, either. If anything, there's much more downside risk.

Forget about buying just one sector on speculation. If you're just starting, take 500 bucks, buy a balanced fund in a Roth IRA, and keep the other 500 in cash just in case. If you have an income (and I hope you do if you're considering investing!), add $100 a month to it through payroll deduction. Years from now you'll be glad you did.

[zemon1]

Funny enough. If I had <s>invested</s> speculated with that $1000 I could have bought 21 shares of IXG at ~46. In the next month or two it went down to 36 or so, where I probably would have jumped ship. If I didn't jump ship it would now be worth 1221 though.

Not sure how I stumbled upon this, but it is interesting to see what I thought 3 years ago and how much it has changed. For anyone who contributed to this thread, thanks a lot, you really did help quite a bit if nothing else you helped me plan a lot more of my future goals out.

-Jeff

Sorry for grave digging

[snafu]

Jeff, did you want to be an 'investor' or a 'gambler?' You'll find we mostly advocate for investors. You've a grand opportunity while living at home, supported by parents, who provide Emergency Funding just because you're their son.. I've no idea where your $ 1K came from, do you have summer employment? With a bit of research you'll discover that it's difficult to get 3% on savings just now. I hope you'll discover that we want you to have a positive outlook, I'm alarmed when you suggest you're willing to loose up to $ 1,000. You can do that quickly at the casino in your community as a gambler.

Most MFs or ETFs require a minimum opening balance. Those to fail to plan plan to fail is a worthwhile strategy when it comes to investing. 1st question is to determine fees, whatever they name them. You need to know the MER [Management Expense Ratio] that silently, quietly moves money from your pocket to the provider salesman any commission or cost to buy or sell. Can you keep investment funds in the account for a minimum 5 years? Have you heard of DCA [Dollar Cost Averaging]?

Kork 13 offered an effective starting plan. Many of us started by making regular monthly payments to buy greater or less units based on NAV. Once you've accumulated sufficient sums, you can easily re-allocation holdings for higher risk products with a good foundation.

* I'm using basic acronyms hopeful you'll become familiar and comfortable with financial lingo.