Investing for dummies

amother

Tue, Mar 05 2024, 12:42 pm

hi all

I am more of a real estate type of person so I have invested in that
now that re is hard I have money lying around but I really have no idea how investments work

does someone have patience to explain it to me?

is it really so easy eg
I have 20k I put it in vanguard (ive heard that word and have no idea what it is ) or cd or what else? and in 5 years what will be with the money?
and what on earth are stocks and how do they work?

thank you!

Layokee

Tue, Mar 12 2024, 9:39 pm

Depends if you want to invest it short term or long term.
For short term a CD is probably the best option. It's basically a High Interest saving account but you can't take out the money before a set date or else you pay a penalty.
If you want to invest long term ( over 10 years) put it in a mutual fund or an index fund

Layokee

Tue, Mar 12 2024, 9:46 pm

A stock is a part of a company. When you buy a stock, you become a investor/partner. Whenever the company makes profit, you as an stockholder/partner will also receive a profit called dividend. In addition, when the company increases in value, the stock that you paid say $50 is now worth $ 60.
You can choose to buy stocks in individual companies or you can invest in an index fund which basically takes money from many investors (like you) and they invest it in many different companies. That way if some companies go down in value, you have also invested in other companies that have hopefully gone up. An index fund charges a fee. I think 1%

Layokee

Tue, Mar 12 2024, 9:48 pm

amother Lightgray wrote:

I work with a financial advisor. We put our money in various index funds. It’s for long term investments- 5-10 years +

Most financial advisors will only work with you if you have a minimum of much more than 20k

amother

Lightgray

Tue, Mar 12 2024, 9:48 pm

amother OP wrote:

And then what happens?
Your money doubles? Triples?

Officially money doubles every 7 years. But I don’t count it every day so I can’t tell you specifically. I think it averages out to every 7 years.

amother

Jade

Tue, Mar 12 2024, 11:04 pm

It sounds like you want straightforward advice. Vanguard is a good first step. Now in Vanguard you want to buy the mutual fund called VFIAX, as much as $20k can buy. By buying this fund you are buying a piece of the top 500 companies in the US.
And that's it! Don't touch it for 10 years and if history is any indication of the future it will have more than doubled. Keep it in for 20 years and it will have multiplied by 8!

The value will go down from time to time so it's important not to panic and sell. It may take a few years to regain its value from the drops. Makes sure it's money you won't need for the next 10 years.

I hope that helps

amother

Strawberry

Tue, Mar 12 2024, 11:34 pm

amother Jade wrote:

this, but two comments-
It doesn't have to be vanguard, it can be anyplace that does investments (fidelity, schwab)
Each of them usually has a mutual fund like the one mentioned that combines 500 or 1000 companies, and does well in the long run

Secondly, it may be better to invest in chunks (ie: 1000 per day for 20 days)

Note that although stocks are sold by # of shares (generally), mutual funds are sold by dollar amount.

amother

Wed, Mar 13 2024, 10:50 am

amother Jade wrote:

This is very helpful ty
Any recommendations of an investor that does this for you? Or is it a website
Like how do you actually practically do it?

And in your opinion is it better than Real estate
Why would someone opt for this over real estate
Is it bc re you need a down payment of eg 120k and Here you can invest much less like eg 20k?

justforfun87

Wed, Mar 13 2024, 11:00 am

I have written about this before but a very easy book to read is called simple path to wealth. It explains all of this! I personally have Schwab. The point of the book is you want to invest in the S&P 500 which is a "a lot of basket with lots of different eggs." It is way less risky than single stocks. I literally just click a button online and purchase more when I have the money. The thing is like others have said this isn't "panic money." Meaning you don't look at it every day. You don't even look at it for 5 years. You don't pull the money out for a long time. This is for long term growth.

amother

Jade

Wed, Mar 13 2024, 12:45 pm

amother OP wrote:

You do this yourself on the Vanguard or another brokerage website. The basic steps are funding your account, then buying the fund. All can be done on the brokerage website. It takes a few days for the money to transfer, it's like a bank transfer.
The S&P 500 has historically grown much faster than real estate. I'm not sure if collecting rent negates that. Also, if you already have real estate it's good to diversify your portfolio.
Other pros are that it's much much easier than real estate, it takes 0% of your time other than clicking a few buttons in the beginning, and less starting investment needed as you mentioned.

One advantage real estate has is the ability to leverage your money. With 100k you can buy a property worth 500k. If that increases by 10% in one year, you made 50k minus whatever you paid in interest. With stocks, if you invest 100k and it grows 10% the first year you only made 10k. But again, it's more likely that the stocks increase by much more than the real estate.