Expert: Paul Henneman - 4/11/2004

Question
Hi, I am 19 years old and would like to start investing money so when I get older and live on my own I will have some extra money on the side.  What would you suggest investing in?  I dont know too much about investing, so any help at all would be greatly appreciated.  Once again, I wouldnt mind not being able to touch this money for a long time.  I just dont know where to put my money and how much to put in.  Thanks!! Ryan

Answer
Ryan,
  Thank you for your question!
At 19 years old, you would be off to a very early start should you begin an investment plan now. Even with modest funds invested each month, you could easily end up with far more than some extra money on the side when you are older. The way interest compounds over time, if you are disciplined and contribute a little every month, you could have a wonder financial situation in a few decades.
  That is the good part. The bad part is that successfull investing is a very difficult thing to do. Often invstors lose substantial amounts of money then give up. This can happen in the short term, but in the long run the economy grows at such a rate that even poor decisions will pay off. If you make investing a hobby, learn everything you can, you can further maximize your results. It takes time and patience.
   I would first suggest that you begin saving money immediately. This can be done in a money market fund. The interest you will receive is small, about 2% for the best money market account available, but it is a good place to deposit savings while you build up a base to work with. You typically need a thousand dollars to do the next step, so here is where you can 'park' your savings in the meantime. The best money market account I know of is Netbank (www.NetBank.com) They are federally insured, very important. Their interest rate is among the best I have seen. A money market account works much like a savings account, you even get checks to write against the funds in your money market account in the case of an emergency. But don't make a habit of this or the whole thing won't work!
  While saving in this account, begin research. The book I recommend to start with is "Investing for Dummies", available at www.amazon.com.   This will give you the basics you need to begin making decisions on what to invest in. I strongly recommend that you pay the most attention to mutual funds. This would be the next step for you in my opinion, for the next few years.
  Investing in stocks offers the highest returns. But it is also the most risky. Begin research how to find good companies to buy stock in, and set up test portfolios on a free site such as finance.yahoo.com to test your ideas. Do this for a few years, really try to get a feel. Once you are confident enough, I would suggest 50% of your portfolio stay in mutual funds as a more safe investment, 25% of your portfolio in long term stocks, and 25% in more risky but possibly lucrative short term stock plays. Some more websites to visit to look at mutual fund and stock research:

www.morningstar.com
www.CBSMarketwatch.com
Finance.yahoo.com
www.multexinvstor.com

Once ready to invest in stocks, a great place to make your buy and sells is www.FOLIOfn.com they have perhaps the lowest trading costs, important as you do not want the fees to trade stocks to eat up your profits.
I hope this helps to get you thinking about both the importance and benefit that successful investing can have in your life, as well as the knowledge, patience, and discipline that is required to do it successfully. It can really pay off later in life.
Please do not hesitate to follow up with me if I can be of any further assistance,

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