Investing For The Far Off Future

I think I will continue with gold and silver until after college and just do 90% stocks after I get a job with my degree. 10$ bullion. Does that sound good.

 

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Figuring you already have bullion, I'd rather do pre-1933, but different strokes.

 

I have 1880's gold coins. 3 to be exact.

 

I would suggest buying a dividend reinvestment plan because there are little to no brokerage fees because you can buy them direct from the company and if there is a brokerage fee most companies will pay for it. The average return of the stock market since 1928 before the crash in 1929 is 11.31% according to New York University. The mistake that most investors make is they usually sell in a bear market. I dont understand why people sell when the market crashes why would you sell at a loss unless you see bad fundamentals in the underlying companies you are investing in. If I were you I would put money in the market. If you put $5,000 in the stock market at 11% a year for 40 years you would have about $327,000. With inflation at 4% it would be worth $67,000 in 2012 dollars.

 

Any tips on finding the right stocks to invest in?

 

What 20 year old can afford real estate?

I'm 23 and definitely can't afford any real estate...I think? I really know nothing about investing in anything, that's why I've just been sticking to silver and gold, it's easy to just buy those.
I have been meaning to go get some books to help educate myself on investing but have been busy job hunting.
Are there any books that you would recommend to read that could be understood by someone like myself with little knowledge of investing?

 

I know real estate is huge right now to invest in. I just don't have that kind of money right now like the guy above said.

 

For a first book ( not intended to be the last book) this one covers the bases. True some will say it is old fashioned investing, but as a first exposure, it will introduce the person to the multiple areas. If it seems too slow and tame, then there are other dummies books for online investing, options, funds, etc.

http://www.amazon.com/dp/047090545X...e=asn&creative=395093&creativeASIN=047090545X

 

Thanks Gem, I'll have to check it out.

 

Congratulations! 1) for joining CT!!!!! 2) for letting your parents pay for things right now. obviously they either believe in you, or want you out of their hair . Love probably also figures into it. 3) for taking a certain amount of money and preparing for the future. Just don't get married and have a kid, that will blow your money and plans out of the water :devil: 4) for asking advice of complete strangers on a Coin Forum. It's much better than asking your personal banker or someone like that for advice. I'm actually serious about this being a better place, only because a your personal banker is likely to see you as a mark. We (some) at least care that others here do well.

NOW>>>>> some advice (from someone who takes her own advice only when its about having fun):

1) Diversify whenever you can
2) And this is soooooooooooooooooooooooooo important: Stay out of DEBT - it is a Killer! if you have debt right now, get your parents to pay it off while you are still in their good graces. Once you graduate from college, they may not be so willing to do so. They might actually see you as a grown person on his own (I'm assuming you are male, but you might not be); in any case, sometimes parents don't share their expectations with their child/children until the time comes when it counts for that child.
3) Don't let your friends get you to buy them things. Sometimes others find out who has the cards and convinces the person holding the card to pay because it's not "cash". Don't do it.
4) Learn to live on less than you make --- whatever it is. Never spend more than you make.
5) Stay healthy
6) Enjoy life and take some chances.
7) Go to Europe at least once.
8) Look for things that have proven track records to invest in, find multiple streams of income, and get in the graces of some rich uncle. Make sure you're in that will.
9) And if you are fabulously wealthy, PM me for my name and address, and put me in YOUR will or tell your parents that you want them to adopt me and make sure I'm in their will. I'm a pretty good child now.

Kasia

 

There are a lot of was to invest in real estate even if you do not have a lot of money. Foreclosed or distressed properties in some areas can be had for less money than you think. You can poole your money with others. You can also wholesale real estate or invest in REITs. As with any investment, it comes with risk so be sure to do appropriate research.

 

My first piece of advice is to take a "wholistic" approach to investing. If you cut an expense, that's that same as a tax-free return on an investment. Make sure you don't carry a credit card balance and pay if off in full each month...(no need for more than one credit card).

I would also recommend contacting the Vanguard Group (well managed, low expense family of mutual funds) and let them teach you about dollar-cost-averaging and portfolio balance. That's a great place to start (imho).

Good luck and Welcome to CT!!! :welcome:

 

There are no "right stocks" to buy. Fortunately, you are a 20 year old college student, and the good news is that successful stock market investing is probably easier than whatever you are studying. To do very well over a lifetime, you only need to read one book, "The Intelligent Investor" by Benjamin Graham. It isn't new but it is probably best. It's pretty easy reading. Pay special attention to chapters 8 and 20. The book will teach you how to choose stocks and how to think about market fluctuations. Investment success doesn't depend on high IQ as much as having a correct investment philosophy and correct way to think about market fluctuations. This book will give you both.

Edit: Don't get hung up with trying to buy the next Apply or hot stock. Look for quality at a discount, and the book will show you how to do this.

 

Don't do it until you know a WHOLE lot more about how markets work. And don't trust so-called experts until you know who to trust. I've been investing for a long time, and the more I learn the more I think people are crazy to play the market until they reach an advanced level of competence. Looking back, even though I had read books, charts and newsletters, I'm stunned at my previous knowledge gap. Realistically, until about 10 years ago I made money in stocks on pure dumb luck.

Most people will say that "in the long run stocks go up". That may be true, especially since you're only 20, but that doesn't mean that ALL stocks go up. And the "hot" stocks can sometimes be the worst (read about the rise and fall of the Nifty Fifty) Sometimes even diversifying doesn't work. Let me give you a couple of examples of when diversifying among stocks doesn't go quite as planned. If you invested that $5,000 in an index fund (hypothetically) in 1929 you would have made exactly $0 by 1954 (minus inflation of course, ex/dividends). Can you sit there and make nothing for twenty four years? It certainly isn't a wise use of the time value of money. Likewise invest it in 1965 and by 1980 you would have made exactly ... nothing (minus heavy inflation, ex/dividends). Do you know if 2012 is not 1929 or 1965? If it is, do you know when to get out?

What's worse is that what works in the market changes. If you're not flexible eventually you're going to get hurt. Fundamentals, trend, momentum, buy-and-hold and swing have all had their day at different times. But for periods of time they can completely bomb ... and you have to understand why. And you have to understand psychology because sometimes the market is driven by herd mentality. Then, to do it well, you have to figure out your strengths and weaknesses. If you try to invest in a way that doesn't match your interests or emotional capabilities, you'll get hurt.

So what I'm saying is, don't do it until you're ready.

However, if you have "play" money go ahead and play around in the market. Sometimes having real money on the line is a great learner experience. But I wouldn't play the whole stash.

 

Fatima's advice of staying out of debt is #1. Beyond that, I think gold and more so silver are your best bet, namely because of the reasons why they constitute the definition of money, which is to suffice the following characteristics:

Fungibility: 1 oz is worth the same as any other ounce intrinsically. You can melt it into anything you want, but if it weighs it weighs and they are mutually exchangeable.

Divisibility: You can break it up into as many pieces as you want, and each piece will retain its representative value.

Durability: 7 million oz of silver was found on the bottom of the ocean last year, perfectly fine.

Portability: You can carry it with you without much effort or concern about its integrity.


Housing and land may be a great investment, seemingly very affordable, but they fail the portability and divisibility first and foremost. Yes it can be a good store of wealth, but if you need to get that wealth back you don't have many options.

Stocks, bonds, and currency all fail the durability test. Paper currency also fails the divisibility test. Sure you can 'break' a dollar, but you can't cut it in half. They may outperform precious metals, but you're not going to get any of them off the bottom of the ocean and jump for joy if you do. They are not a long term store of wealth compared to precious metals, but compared to the average lifespan, yes they are longterm. However they also require that the companies and governments that manage them, that they represent, remain in power. These are what I refer to as faith based assets.

So assuming that metals are the way to go, you have big brother gold, the steady climber who never gets too bent out of shape, consistently performing as a hedge against inflation, the safe bet as the ultimate monetary metal.

Or you have crazy unpredictable silver, the black sheep of the metal family, who will keep you up at night worrying about what antics he's up to. As both a monetary and an industrial metal it follows gold for the most part, but tends to race around and make you question whether he will show up for dinner on Sunday prepared by reliable brother gold right when he said he would. Gold is the good son, but silver is the prodigal son.

Realistically, why should you like silver? Analogies don't prove anything. Silver is much more rare than gold above ground, 7 times more rare conservatively, 15 times more rare aggressively. The historic ratio of pulling silver out of the ground has been 17:1 vs. gold, but today's mining numbers indicate it is only 7:1, as in 7 times more abundant in the Earth's crust. This indicates silver is becoming scarce inside the Earth in addition to above ground levels, which are at the lowest level in over 700 years. The inflation adjusted all time high for silver in the 1400's was over $800/oz in 1992 US dollars. A shekel of silver back in the old days was a day's wages for hard manual labor. That is about 1/3 of an ounce of silver. Are you going to accept $10 for that today? I wouldn't.

 

(1) It just isn't that difficult if you stick to value investing principles.
(2) I agree. Do it yourself is better. Nobody will care about your money more than you do.
(3) I agree. That's why selectivity is important and index funds don't work.
(4) I agree. Stay away from what is popular at the moment. It is almost surely overpriced.
(5) I agree. Diversification is a poor substitute for knowledge.
(6) I agree. And the same is true for gold and silver which can go very long periods of time [think 1980-2000] with zero or worse returns.
(7) Value investing "always" works if your time frame is 4-7 years and your use of the method is correct. Warren Buffett gave an excellent talk on this at Columbia University that is available on the internet. Everyone should read it. http://www.tilsonfunds.com/superinvestors.pdf
(8) Ben Graham covers this in one chapter of "The Intelligent Investor." Nobody has ever done a better job of explaining it, in my opinion.
(9) I would say, read the Intelligent Investor and just start investing. The best way to learn how to invest is to invest. Yes, you will make mistakes, but if you follow the principles of value investing, you will rarely be seriously hurt.

Smitty, you did a good job hitting all of the important things to think about. We just differ a bit on conclusions.

 

I've read Graham's book. It's definitely on the list of books that should be read by serious investors. I've recommended Fundamental Analysis for Dummies to beginners as a starting point. It's actually not a bad book. You're right, theoretically, in general, value investing should work over the long term.

We probably only differ in that a true value investor looks at the market bottom-up, and I look at it top-down. But we both still calculate the value of companies. It's just that value investors do it first and I do it last. You probably have found an approach that suits you well.

I certainly don't recommended, and in fact, cannot explain in few words my specific approach to investing. It's just too fluid and involves too many varying inputs. It is not "formulaic", although you could say that "currently" the majority of my investments are based loosely upon macro trends. But I will hit-and-run when I see the opportunity. I've studied and used a lot of approaches to finally get to the one that suits me.

My issue with picking an approach, any "static" approach, is that it can go wrong for long periods of time. Even Buffett has done poorly for quite a while. Can you sit there losing money, waiting ... hoping for it to reverse and for the market to come back to its fundamental senses? Some people can. I can't. At least not with stocks. The "time value of money" just eats away at my psyche. And my experience tells me that I can usually find something better, even if it's only cash. As Keynes said, the market can stay irrational longer than you can stay solvent.

However, I do believe that with any approach you pick, knowledge is king.

 

You are correct that I view investing from a bottom-up approach. I look for pockets of undervaluation and then try to pick stocks with (1) low or no debt, (2) positive free cash flow, (3) low p/e. There are other things I look for too, but those are the basics. I've been using value investing since the 1970s and I have never run into a prolonged period [more than one year or so] when this hasn't worked.

 

But what does that have to do with the OP asking about investing? Everything you said speaks to definition of money, but the OP asked about investing, an entirely different question. Historically, over long periods of time, those who have held money have not performed nearly as well as those who took risks and invested in income producing assets.

 

Ahh, yes, the eternal nemesis of stock and paper money hoarders the world over- the bottom of the ocean. Why, the number of folks catastrophically ruined by having their investments sink to the watery depths has numbered in the teens since the early 1800's, and yet our markets still insist we use their products, knowing salt water will be their ruin. Blasted commies!
All in fun jest, of course.
Guy