Expert: Paul Henneman - 7/15/2004

Question
hi paul.  my boyfriend just changed jobs.  he had about $1,000 in a 401k plan, but his new job doesnt have a 401k. we dont want to take the money out, but we dont know what to do with it.
is there a long term investment for such a small amount of money? (we would keep adding to it, but it would start out at $1,000.)  
thanks for your time :)
-nina

Answer
Thank you Nina for your question!
  Yes, a good question. I would simply suggest a mutual fund. Most funds have a minimum investment, but that is commonly $1,000. Stocks would be too risky, for that amount you would essentially have to invest in a single stock, and this could easily go the wrong way if the market took a downturn, or the stock you invested does not perform. A mutual fund would reduce this risk. To be more specific, I would suggest an 'index' fund. These are mutual funds that invest in and match broad indexes in an attempt to match overall market performance. This is a perfect long term investment for $1,000 that would not entail too much risk, but over the years could give good returns. Some years will be good, others bad, but overall the average should be near the overall market average. www.morningstar.com is perhaps the best known website to do mutual fund research. I recommend visiting this site to do some more research on exactly which mutual fund you want to invest in. A fund that is based on the S&P 500 index would be good. I know that Vanguard has some funds that do this, morningstar should be able to help identify others to consider. Look closely at the fund, including long term performance.
Another suggestion I have is to read 'Investing for Dummies', available at most major bookstores and at www.Amazon.com   This is a great book to get an idea of what types of investments are out there and to start planning your long term plan. Reduce debt, if you have credit card debt, pay it down, do not assume high interest and expensive car loans. These are the things that prevent the vast majority of Americans from having a very profitable retirement.
Think of it this way: With conservative investments, your money should double every 5 years.  If you spend $15,000 more on a luxury car than a car that simply fits your needs, that is $30,000 you pass on in five years. $60,000 in ten years. It adds up fast.
Credit cards: The interest for the amount of credit most Americans carry is a thousand or more a year. Again, double this every five years, and you will see how badly this will affect your future. Every person in this country could retire with a million dollars if the avoid all debt and planned for the future. The way investments work, they build over time. The longer you have, the better off you will be. You can't afford to wait! Pay off debt, get that 401k plan in gear, once debt is gone increase your contributions as much as possible.
I hope this helps! Please do not hestiatete to follow up with me if I can be of any further service,

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