I have been recently pursuing Investing, not that I have a lot of money to invest, but in general of how people make money and how money attracts money :) here are the few investing options that are out there:
- Get out of debt: This is the first evil, All Debt is bad, but some are better than the others, Credit card, personal debt, cars are among the worst. Anything you pay interest on is bad. Loan on your home is not as bad, but it needs to get off soon.
- Banks: For all those who just use the interest provided by the bank to grow your money, the days of 6-10% interest rate was for our previous generation not ours, the best we can do as of now is open an ING account whose current interest rate is 3%, which is better than most fixed deposits, If you need a recommendation to this let me know, in that way both of us can make money :)
- Real estate: If you are in the US (in most areas) and have a stable job (going to last 2 years or more) and have 5% or so down payment then buy a house and remember the mantra, Location! Location! Location! My personal opinion is not to overextend your self on the house loan, get a loan which you pay off in 10-12 years and own the house. Things like number of earning members of the family are important and things like wife’s future maternity leave should be carefully considered before you set down a price on the house you can afford.
Other real-estate investments can be additional rental property purchase. This way the rental property pays for the loan and the property hopefully will appreciate in a few years :) - Mutual Funds:
Advantages- There are 9 categories of mutual funds, based on the risk level you are willing to take
- There are more mutual funds then stock! I was surprised at this first but it is counter intuitive.
- Since a mutual fund consists of a number of stocks, owning a mutual fund gives instant diversification.
- Mutual funds should be No Load
Disadvantages- You can loose money, Loss is possible with a mutual fund. It is not like a savings account :)
- All funds have fees, which mean they will take a percent of the profit that is made by the fund. This is usually taken yearly and is in the range of 0.5% to 2%. I don’t like no fees, but they are necessary.
- Profits are not huge (like doubling your money). The average mutual fund will give you like 10-20% in a good year.
- Good mutual funds have a minimum ($2500) that you need to invest. Sometimes I think, I am not ready to risk 10% loss on $2500 of my hard earned money :)
Difficulties- Finding a good mutual company.
- Understanding Morning star ratings.
- What should be the risk level?
- There are 9 categories of mutual funds, based on the risk level you are willing to take
- Stocks
This is risky business:).You should own stocks, but do yourself a favor and don’t put all your money into it.
Advantages- Profits can be great if you pick the right stock at the right time.
Disadvantages- You are responsible for diversifying your own stocks. It is not very helpful if you put all your money into 1 company.
- Fees,
ScottradeInteractive Brokers probably offers the lowest fees amongst the online traders. At $7 for Market orders, this is pretty good; I have not found anyone reputed and cheaper then them. Though I don’t have an account here:)
Difficulties- Needs a constant following of the market.
- What stocks to buy?
- When to buy?
- When to sell?
- Profits can be great if you pick the right stock at the right time.
- DRIPS
Dividend Re-investment plans; these plans allow you to buy stocks of a company monthly. E.g. you can say I want to buy Home Depot $250 of home depot stock monthly or fortnightly.
Advantages- Dollar Cost Averaging: Build up your assets slowly in a number of companies.
Disadvantages- There are fees associated with each purchase, like $2.50 each time to purchase stock of $250, which is 1% of your principal. So the stock has to appreciate at least 1% before you can realize any gains.
- Dollar Cost Averaging: Build up your assets slowly in a number of companies.
Any more Investing Ideas?
10 comments:
Super, Kamal! Very good compilation of investing options. Appreciate it...:)
baby k, nethiku galeej kapram ipo oru sensible post? :)
I know lot of us consider investing options, but if you really need to make money through investing, you need to play big deals, and to play big deals, you need big money...vicious circle? The problem is most of us are only concerned with making money...while the more sensible thing to do is to make time...get money from other people's time (not illegally or unethically of course)! Am sure you have read Rich Dad Poor Dad...try going through the complete course - Cashflow Quadrant and then Business School!!
A very original post.
One of the very good books on Stocks and mutual funds that i have read is "Beating the Street" by Peter Lynch. You can actually read it and hope to understand something...
And then there is another book "Intelligent investor" intro by warren buffet. Man that is a challenge. But people say thats the best book on investments ever written...
and then we have RDPD the most readable of them all....
You have prompted me to write a "gyaan" on investing and related stuff.
on a completely different note:
This "baby" has a kind of "Padmashri" ring to it. Has really stuck to your name:)
Recently, I too have been reading a lot about investing especially mutual funds as
they are safer than stocks/shares....but figured that I need a lot of money to have some decent investments...so will bug u from next year when u should've gained enough experience and hopefully profits...
Very informative...keep similar posts coming...
KP.
couple of things I would like to add,
1) Bonds
Bonds guarentee you a fixed rate of return...typically 5-7%. When companies want to pay of their debt or want new capital equipment..they would issue bonds which in a sense is you loaning them your money and they would give you a fixed rate of return. However an interesting thing about bonds is their principal value. Say you buy bonds for $100, you will get a fixed rate of return (say 5%) but however the principal value of the bonds can change depending on the market conditions. Typically when the stock market is doing well the bonds prices come down the logic being people would rather invest their money in stocks which has a higher rate of return so the principal value of your bond can come down to say $99 from $100. Ofcourse vice versa is true too.
2) 401K
Many consider this are the best form of investment and many companies do a 401k match. Like for e.g. my company dies a 6:5 match. So for every 6% of my earnings they would give me 5%. The disadvantage though is that you can take the money only when you are 59 and a 1/2 yrs old. Not only would you pay penalty for early withdrawals but you will also have to pay tax on the amount. SO if say you plan on leaving the country in 10 yrs you need to do the math to see you 401k makes sense. In some cases with company match it might be a better investment despite having to pay tax and the penalty for early withdrawal (again because a 6:5 match is almost a 90% ROI)
There are some organisations like Merrill Lynch which would take your money and invest it in stocks and guarentee you a fixed rate of return. The logic is that stocks have historically always been rising at a steady rate (I think its about 6-8%...might be wrong here). So by keeping track of this and moving your money around they can still make enough money to give you a good rate of return and also make money for themselves. If I were to invest in stocks I do the homework and basically leave my stocks alone and would not constantly sell or buy just based on quarterly earnings.
As long as you have your money in decent stocks you should be ok...but again the mantra being diversify..diversify..diversify!!
Hope this helps!
subha: Thanks.
RS: yes, u got the point ! ;)
agnibarathi: I am not sure I agree with your big deals totally, it probably depends how "big" your big is right? Yes, get money of other ppls time, I agree with :) Will try to go thru the courses you mentioned.
prabhu karthik: Will try to go through the books you mentioned.
I've read RDPD, but dont remember much, I need to go through that book again :)
Thanks for the Padmashri thing though ;) I read your stuff abt investing gyaan and I have some comments :)
KP: Welcome, profits kewl ;)
Venky: Thanks for the info on Bonds. It was really something that I did not take the time to understand, but thanks to you, now I do. 401K: Yeah, I knew about that one :) .. should have actually added it to my post. I had one question for you, if you leave the country then u have to cash ur 401K ? (I would think not, but I can be wrong)
hare Bhau, too much ideas for the simpleton in me man.. really awesome post.. will probably get in touch with ya next time me hit lex. :)
btw, did u specialize in investment banking or somethin' ? ;)
cheers !
ak
On mutual funds the key is their fee structure. The best Mutual fund providers are Vanguard, T.Rowe Price and Fidelity.
I think all the three have targeted schemes. So if u want to retire in say 2045 u invest in lifetime 2045 fund in vanguard. It's on autopilot and will adjust ur portfolio from being heavily invested in stocks in the starting years (when u can take the risk) to a bond structure in the later years (less risk, less reward).
Read William Bernstein's The Four Pillars of Investing.
On a side note also invest in metals (Indian's penchant for Gold is actually very good) and real estate... Good luck investing.
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