Many people want to start off investing by building their own portfolio of individual stocks, which is perfectly fine, however, it can be much more confusing and difficult than simply investing in mutual funds (we will discuss mutual funds in the next lesson) offered through your 401k plan and or other defined contribution plan like an IRA or Roth IRA (if your company doesn’t offer a 401k).
Basically, with your 401k plan, you must choose from various mutual funds offered by the investment firm your company is working with (so, you don’t have a choice here, if you want to invest additional money over and above what you are contributing to your 401k plan – you can and should do so by building a larger portfolio of additional individual stocks and bonds).
Back to the question I hear (about picking individual stocks) so often, it’s probably more common than screaming is in my house. “Is this stock a good buy?” The problem is this, I can’t answer that question for you – and neither can anybody else without your specific information, only you can. Now hold on, don’t call me a jerk or retard or whatever else, because I’m not giving you the information you think you want, listen to my reasoning:
Without knowing your age, the amount of risks you are willing to take, what your current portfolio of stocks and bonds are, how long you want to invest, and various other factors – I, nor anyone else could tell you if one stock is better for you than another. In future lessons however, I will teach you much more about investing through buying individual stocks (for those who don’t have a 401k, or whom want to invest additional money outside of their 401k or other defined plan).
An example of my above thoughts: An uncle of mine was asking me about various specific stocks and if I thought they were good buys. In many cases the stocks were good buys for me, but not for him. How could that be? Well, many of the stocks he was looking at required a much longer time commitment than he had. He is only 5 years from retirement and the stocks he was looking at were long term investments (meaning he would have to remain invested with them for a long time – maybe over 10 years in some cases to realize the returns on his investments that he wanted). In his short time frame, it was not likely he would generate the returns he was wanting. On the other hand, I could hold on to the stock for 10 years, and would likely make good money doing so.
It is worth repeating a million times, if anyone gives you advice on specific stocks without knowing a damn thing about you, their advice is pretty much worthless to you. The information you use to decide if one stock is better for you than another should be based upon your needs, not somebody elses or what they think is “the hot stock” of the day, month, year, or whatever.
So, you are asking, “then what good is this site if it can’t help me pick a stock?” Once again, in future lessons, I will help you learn about the tools you can use if you choose to build your own portfolio. But for now, we will move our focus to the options an average new/existing 401k investor or similar has to choose from (mutual funds) when they go to setup their 401k plan.
Please proceed to the next lesson, this will become much more clear after that, I promise. Mutual funds are what 401k investors must choose from, learn what they are in general here.
Don’t have time to carry on now? Come back at your leisure, but don’t wait too long, every dollar wasted is a dollar not working for you. Also, consider signing up for my daily updates sent right to your in-box. Don’t worry, I hate spammers too.