I've always had an interest in investing because I think its important to plan
for the future. This dawned on me a few years ago when I got a new job and
during the orientation, I was shown a video about the future of social security
and the prospects does not look good. Basically, it stated that by the time my
generation, Generation Xs reach the retirement years, social society would
either disappear or there would not be much money by that time since the
Baby Boomer generation will use it all up. That frankly frightens me and I now
realize that I cannot simply rely on social security alone, I need a backup.
Anyway, I'm very new to investing so I don't know anything about it, except
that there's no such thing as a perfectly safe place to put savings and that all
investment involves the risk that you will never see your money again. I am
interested in both short-term and long-term investing.
1. How can I get started on investing?
2. Do you recommend that I take courses at my local college to get a better
understanding of how investing works?
Best regards,
Julian
Answer Hi Julian-
Sorry for a slow reply, been on some travel. I'll comment first on Social Security then get on to your question.
I hear your concerns a lot, particularly from younger people who are many years from collecting SS benefits. It's a near certainty that there will be some changes to the programs - the benefits paid, and/or the taxes collected - but it's unlikely that Social Security is going away in our lifetimes. It's simply too big. Many people are surprised to hear that over 35% of the taxes collected by the federal government are Social Security taxes (see http://en.wikipedia.org/wiki/United_States_federal_budget#Major_receipt_and_expe... with a chart of data from the Congressional Budget Office). That money is earmarked for these benefit programs and while tweaks will become necessary, I really don't see the tax - and the benefits - going away entirely.
That said, it's an excellent idea to view SS as at best a safety net providing a smaller amount of income for the basics, and then plan for the rest yourself though savings and investment. I put savings first because financial security is primarily achieved through the simple rule of spending less than you earn, and saving the difference. You don't need to achieve outstanding investment returns to find financial success, and relatively simple investment strategies can work very well. Complicated ones can easily backfire, leaving you with less than you'd end up by not taking on excess risks.
You ask about courses...I'm a believer in reading first, it's cheaper and can let you know where your interests lie. Your question is written like someone who can digest some non-beginner material so I'll throw out these book suggestions - all classics in their own right:
A Random Walk Down Wall Street - by Burton Malkiel - overview of money & investing, strong nudge towards using index mutual funds
Common Sense on Mutual Funds - by Jack Bogle - founder of Vanguard Group - great overview of how to invest in mutual funds, again with the index-fund focus
Stocks for the Long Run - Siegel - makes the case for stocks as long-term investments while giving an understanding of their risks
That's all focused on investments. Another piece is just figuring out where to put your long-term money, to minimize taxes - e.g. choosing among the different types of IRAs, and any alternatives you have at work. That's a big topic but the Motley Fool and Fairmark.com sites have some good info (Fairmark is more technical/advanced). After many years doing this, I have to say that the investment stuff doesn't change all that much, but the tax and "planning" questions require constant attention because those things do change (new laws, new tax schemes, etc.)
All these books are readily available at bookstores, Amazon and many libraries. Hope that gets you going and feel free to come back w/follow-up questions.
