Expert: Paul Henneman - 6/23/2008

Question
Dear Mr. Henneman:

I have about 25,000. that has been in a 90 day CD rolling over for about 9 mths.
What I'd like to do is move it out of there where it could have the potential for
additional gains. My idea is to  use a small portion of it to perhaps invest in a
stock and place the remainder in either an Index or Forex fund, but not sure if
any of this is wise?

The reason is because I'm hiv+, I'm only teaching part time, haven't been able
to find additional work and already using additional savings to survive.

If I invest in a stock do I have to continually trade it ? And If I get a fund, can it
be kept for a period of perhaps 1, 2 yrs.?  I phrase it this way because I think a
crisis could come up. My preference would be to try and test for a year and see
how it does.  What do you think?

Can you please provide this novice with some options? Thank you for your time.  

Answer
Thank you for your question!
    To jump right in, I do not believe that investing in single stocks is good for any investor. The problem is that successful investing takes a great deal of research and experience, and even then there is a significant margin of error. While you could make some good money on such an investment, you could also lose a significant portion of your investment. The risk is not worth it.
    Instead, I strongly urge you to consider a stock portfolio (at least 10 stocks, possibly more), or mutual funds. A truly well balanced investment portfolio will have some stocks, some mutual funds, and some CD's or other very safe investments in it.
    If you do buy a stock, you do not have to keep trading it. You would only need to buy it, then sell whenever you wanted to convert your investment back to cash.
    An index mutual fund is much safer. It still can go down in value, but at least your investment would be spread across the entire index, not a single stock. The S&P500 index is widely accepted as the most appropriate index for such an investment. Vanguard has the fund with ticker symbol VFINX that follows this index.  If you do want the simplicity of buying one investment, and index fund would be the way to go.  The performance will not be as high as a stock portfolio could be if done right, but is something that can be done right away with little effort. Keep in mind that even an index fund can in the short term go down significantly in value. Look at a chart of the S&P500 performance on finance.yahoo.com over time, (1 year, 3 year, 5 year, and several decades) to see what I mean. If you do decide to go this route, or with any type of investment, it is always good to start small and increase your investment slowly as you become more confident. www.motleyfool.com is a good site with many chatrooms and articles oriented towards the beginning as well as advanced investor. "Investing for Dummies" is a great book, I strongly urge you to pick up a copy and read it cover to cover to give you a foundation of knowledge to work on.

I hope that this helps! Please do not hesitate to follow up with me if I can be of any additional service.

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com