(Money Magazine) -- Question: I'm a recent college graduate who has a decent job that pays the bills. I also have around $10,000 in a savings account and contribute $100 a month to my 401(k). How should I begin to invest my money? Should I go to a broker? Manage it on my own? Help! --Sophia, New York City
Answer: Let's see. You've managed to snag a job in an employment market that's incredibly challenging, especially for recent grads. You've got a tidy sum tucked away in a safe place that can help you deal with emergencies and unexpected expenses. And you're saving on a regular basis for retirement.
Hey, maybe you should be the one counseling new graduates.
Seriously, financially speaking at least, you're off to a great start. The trick now is to build on the foundation you've already laid by assuring that the money you save throughout the rest of your career is invested in a way that gives you a reasonable shot at financial security.
Given all the turmoil in the economy, I can understand that you may feel some trepidation about venturing into the investing arena all alone. But if I were you, I'd at least consider going it on my own as opposed to working with a broker or other adviser.
Why? Well, assuming you're not going to be investing big bucks, it's unlikely you're going to get much quality time and attention from an adviser. You'll probably end up with a few perfunctory fund picks from some firm's recommended list. That's hardly the end of the world, but it's not a very high bar for a reasonably intelligent and motivated person to match. And you could do worse, ending up with someone who does stay in touch, but only to move you from one investment to another, generating commissions in the process.
Besides, you've shown some pretty good instincts about your finances so far. So why not expand your repertoire of money moves to include some basic but effective investing strategies that can serve you well throughout the rest of your life?
The best-kept secret on Wall Street is that investing doesn't have to be complicated. You don't have to track the Dow every 10 minutes or pore over every pronouncement from the Federal Reserve. And you certainly don't have to sift through each of the thousands of stocks, mutual funds and ETFs available to find decent investments. If anything, I'd say you're better off keeping it simple.
What you do have to do in order to be a successful investor, though, is have a basic understanding of how the financial markets work and learn how to put together a portfolio of investments that can grow over the long-term without getting so obliterated every time the market takes a dive that you bail out.
There are a number of ways to gain that knowledge. A great way to start is by going to our Money 101 section, where you'll find easy-to-read pieces on all the important aspects of personal finances. You can begin with the Basics of Investing, which will give you the lay of the investment land, so to speak. From there, you can move on to the lessons on mutual funds, stocks and bonds.
After that, you'll want to turn your attention to the granddaddy of investing topics, Asset Allocation, which is a fancy term for spreading your money around so you don't get wiped out should any one type of investment tank.
If you're more into books, you might try The Little Book of Common Sense Investing by Vanguard founder and small investor advocate John Bogle; How A Second Grader Beats Wall Street by Allan "Dare To Be Dull" Roth; and That Thing Rich People Do by Kaye Thomas, whose Fairmark.com site is also a font of sensible info on all things Roth.
What I like about this trio of authors is that, unlike many experts who spew out ultimately useless details on specific investments or tout some arcane strategy that works in hindsight, they actually inform you about investing principles. In short, they provide the proverbial net, not just a fish.
Of course, becoming a confident investor takes time and experience. So take it slow and move methodically. I recommend you start with mutual funds, and consider index funds in particular. If you'd like a few fund suggestions to help you get started, you can check out our Money 70 list of recommended funds.
You're going to make mistakes along the way, so don't get rattled when that happens. The key is to avoid making extreme moves, so that you'll be able to recover reasonably quickly from missteps.
If you decide you prefer some help to going it alone, you've got several choices. Most major investment firms and mutual fund firms, including biggies like Fidelity, Schwab and Vanguard, have investment advisory divisions that will manage your investments for a management fee (say, 0. 5% to 1% a year) in addition to the underlying annual fees of the fund itself.
Or you might try hiring a financial planner on an hourly fee basis. The planner can help you create a basic portfolio and make some good low-cost fund recommendations. You can then take over from there. If you decide you need more help later on, you can consult the planner again for an hourly fee. At this point, only a small number of planners are willing to work under this kind of arrangement, but you can find some by going to the Garrett Planning Network or to an online service like MyFinancialAdvice.com. The hourly cost for these types of services varies from planner to planner, but $150 to $250 is typical.
And don't forget to check out your 401(k) plan for assistance. Most plans today offer some type of guidance, ranging from online calculators that show how different mixes of stocks and bonds affect your future retirement prospects to managed accounts, where you turn over your account to an outside investment firm that will create and manage your 401(k) money on an ongoing basis (for a fee, of course).
And if nothing else, many 401(k) plans offer the option of investing in a target-date fund, which gives you a diversified portfolio of stocks and bonds in a single fund. These funds aren't perfect. But they're reasonable choices for investors who would do a lot worse on their own, and they're certainly a decent place for someone like you to stash your retirement savings while you get your investment bearings.
So why not begin steeping yourself in the ways of the financial world now by checking out some of the resources I've mentioned? Even if you ultimately decide you prefer working with a pro to flying solo, the more you know about investments and markets, the more informed your financial decisions will be.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||3.79%||3.84%|
|15 yr fixed||2.90%||2.95%|
|30 yr refi||3.79%||3.84%|
|15 yr refi||2.98%||3.01%|
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