Expert: Paul Henneman - 1/19/2004

Question
hello Mr. Paul Hennenman
I am a 25 yr old college senoir. I dont have much money. However, I will be graduating in may and I want to start investing or atleast learning the best way to invest my money. I dont know if Stocks is the best way to go, or Mutual Funds. In fact I dont know anything about either. I was recently watching Oprah and she has a program where this gentleman was showing the audience how they can reduce debt. You see so many people offering their strategies and they sound very good.
As mentioned I dont know anything about stocks so i am asking do you know a website or a place that i can go that will break the whole process down to me. I want to learn how to read stocks to see whats going on.
A couple of days ago i subscribed to Fool, Forbes, and a couple of other popular places. The only thing is that i now recieve email from 6 different places and it all seems like its all to much to understand. Maybe if i would of just picked one site and stayed with it.
Any in sight would helpful
thank you

Answer
Kamilah,
  Thank you for your question!
  It is excellent that you are beginning to think about this now. The way returns compound over time, the sooner you begin investing, the better you will be. It does not need to be alot, just a steady and continuous investment plan will leave you in great condition down the road.
   The services you mention that you have subscribed to are excellent, but as you say too many will give you overload. I would concentrate on just one or two sources of information, then cancel and try one or two new ones every 6 months to a year. They tend to cycle through the same information, this way you can fully absorb what they have and then move on.
   For a long term investment plan: First, I always suggest that you concentrate on eliminating all debt first. If you have no credit card payments, car payments, or other debt, it is that much more you can begin to invest. Plus interest rates just make what ever you purchased on credit 8 to 20 percent more expensive per year, over the years this means you will may several times more for an item that it is worth. Keep a credit card for emergencies, get rid of everything else. It is vital to a successful investment plan.
   Next I would suggest investing in a money market account (www.NetBank.com is the best I have seen). When you reach $2,000, invest this in a mutual fund. When you have additional funds, invest that in a different mutual fund until you have 4 or 5 different funds. Each fund should specialize in a different industry, such as Real Estate, Technology, Engery, Health Care, ect. This will reduce your exposure should the economy do poorly in one or two industries.
   Down the road, after you have some mutual funds under your belt, a stock portfolio would be more risky but offer higher returns. A portfolio 0f 10 to 20 stocks is ideal, also spread out among sectors. You should evaluate the economy and each stock you have every month or two to see if it continues to make sense, and do not have any fear of moving into different stocks if needed. Since this would come after the first two steps, you have plenty of time to begin learning all you can about stock picking (my companies website is fairly advanced on this topic, but feel free to take a look www.ValuEngine.com). Open a practice portfolio on a free site such as finance.yahoo.com and create a test portfolio, see how you do over the next few months or years.
   Real estate is the final category. If you will be living in the same area more than a few years, buy your place to live as soon as possible. Real estate is a great investment, paying rent on a place owned by someone else will do you no good!
   I hope this helps gets you started on thinking about an overall plan. These are large topics to begin thinking about, and should take many years to implement. But you have to have a plan and goals. Eliminate debt, and begin a systematic, regular contribution to investments no matter how small. Even $50 a month will get you started, and move that up as your income rises over time. Successful investing is a lifetime practice of learning and discipline. You are at a huge advantage if you can start while still in your 20's!
  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