Expert: Paul Henneman - 1/15/2009

Question
Hi,

I have about $1000 of excess monthly income that I am looking to invest. I already max out my 401k, and have built up a short term savings account of 3 months salary. And own a home.

I have never really looked to invest as I have been saving my extra money to build up my short term savings.

So, I am looking for suggestions on where to look to invest that extra $1000 a month. Real estate? Mutual Funds? Land? etc...

Any advice on where to start looking/research would be great!

Answer
Chris,
   Congratulations on saving through your 401k, and even better thinking about additional investments!
    I would suggest that you consider an index fund. An index fund is a mutual fund that tracks a major index. The investment minimums are low, and with the huge market losses over the past year it is a good time to do this. There still may be some downside coming, as it is always hard to say exactly when the bottom of a bear market is. But there is little doubt that this is a buying opportunity if you are thinking long term.
    The most appropriate index to track is the S&P500, perhaps the most stable and accepted index for this purpose. The ticker symbol VFINX is a Vanguard mutual fund that tracks this index. You could also look at ETF's (Exchange Traded Funds) that do the same thing. The ticker SPY for example tracks the same index, the S&P500. Usually the fees are a bit lower with the ETF's, and there is no investment minimum as you can buy or sell this just like a stock.
   If this is of interest, I would suggest going to http://finance.yahoo.com and type in the ticker SPY in the search box. The resulting page will give you some information, including overall performance charts, and if you scroll to the bottom a paragraph outlining exactly the nature of this particular ETF.
  There is a much more detailed explanation of ETF's here:
http://en.wikipedia.org/wiki/Exchange-traded_fund

   You should also begin to read and research investments. As the amount you invest grows, it is considered best to begin to diversify to other stocks, and even other forms of investment. Your other ideas are sound, such as real eastate, land, or safe investments such as CD's (certificate of Deposits) depending upon the amount of risk you want to take. If you effectively diversified, it spreads your risk so that if one investment does poorly, your overall investment portfolio will not suffer as much.
   Many of these other investments take a bit more to become involved in. I would suggest that index funds, ETF's, or mutual funds are your best option until you have $10,000 or more in those accounts. Of course you could diversify even now by purchasing different ETF's or mutual funds.

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

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