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How does a new grad start investing?
Dear Dollar Diva,
I am a recent college graduate with no personal finance training.
There are thousands of resources all claiming to have the answers
and honestly, it's a bit overwhelming.
Without spending the next 10 years simply trying
to find out how to start, I thought I'd ask Bankrate.com's investing
publication, greenmagazine.com.
What is a good starting point for a new investor to get into the
market and gain financial smarts?
Your first question asks "what is a good starting
point for a new investor to get into the market?" The Diva's quick
and dirty answer is: Decide how you want to invest your money, i.e.
what percentage you want to go to large company stocks, medium and
small company stocks and international stocks, and then invest in
stock mutual funds.
Hints for the novice investor
Your second question seeks a starting point for gaining
financial smarts. The Diva offers a compilation of helpful hints
and corresponding links to stories, Web sites and books that will
help you get a handle on the investing game. It shouldn't take you
10 years to go through this primer, and each hint you study will
bring you one step closer to becoming a savy investor.
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Asset allocation (also known as diversification) is far more
important to your investment success than the actual stock
funds you pick. And remember, a young, healthy new grad can
afford to take on more risk than a retired geezer.
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Asset
allocation
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If you are clueless about picking stock funds, invest in
index funds. Vanguard is the 800-pound gorilla in this jungle.
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What
is an investment index?
Vanguard
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The sooner you start investing, the sooner you will find
yourself walking in the shoes of a wealthy dude.
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The
impact of saving early
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Invest the maximum in 401(k) plans, whether or not your employer
matches.
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How
do we calculate our 401(k) savings?
Should
I pull out of my 401(k) plan?
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Investing in tax-deferred retirement plans, such as 401(k)'s
or IRA's, is a long-term deal. It costs a bundle to take early
distributions from them.
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When
you owe on a 401(k) loan and can't pay it back.
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Look for no-load mutual funds with low expense ratios.
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Mutual
fund fees
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Spend less than you earn, stay out of debt, set goals, spend
time managing your money and you you're on your way to becoming
The Millionaire Next Door.
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The
Millionaire Next Door
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Saving comes before investing. Accumulate enough savings
for emergencies, including living expenses for three to six
months in case you lose your job in a period of high unemployment.
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Where
do I stash my emergency cash?
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Invest in tax-friendly funds when you invest outside a tax-deferred
plan.
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Tax
friendly mutual funds.
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Read your first book on personal finance.
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The
Green Magazine Guide to Personal Finance: A No B.S. Book For
Your Twenties and Thirties
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Remember, you're in this for the long haul and must
suppress the urge to "panic-sell" when the market takes a dive.
Think about it: because the market crashed, you're forced to sell
low; when it comes back, you'll want to get back in, and you'll
be forced to buy high.
That's the most frequent foul novice investors commit,
and it's the exact opposite of how seasoned investors play the game.
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-- Posted: Aug. 24, 2000
DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting,
from the Kellogg Graduate School at Northwestern University in Evanston,
Ill. Rosen has more than 15 years of experience in the financial arena, serving
in Illinois and Florida as a certified public accountant, financial consultant,
expert witness and educator. She is owner of Dorothy Rosen, CPA, a public
accounting firm that serves individuals and small businesses.
