As someone who is in between the baby-boomers and generation X, I'm probably in that first demographic that got to adulthood about the time that stock picking got democratized.
Before my generation, stocks seemed to be only in the realm of the rich. Now, the littlest of little guys like me can go ahead and get into stocks through mutual funds and to hold actual stocks through discount brokers.
The advice for people my age is to do the following in this order:
(1) pay off all credit card debts - the interest rates on this kind of debt is very high compared to auto loans, student loans and mortgages
(2) stash away emergency funds in very safe investments that are easy to get to on short notice - I hear 6-8 months expenses
(3) take advantage of work place retirement programs - your employer often matches in whole or in part what you put in
(4) begin to invest in higher risk but higher reward investments for mid- to long-term savings objectives - in other words consider stocks and bonds and other "rich" people's financial instruments
(5) buy real estate - unfortunately, in Los Angeles, that is getting very hard!
My current stock holdings are:
DIA = own the whole Dow 30
SPY = own the whole S&P 500
SU = Canadian Oil Sands
PFE = Big Pharma, hard to beat that 3.9% dividend yield
Obligatory disclaimer: past performance is not an indicator of future results, people can and do lose money.
1 comment:
Hi. You missed one of the other advise that usually makes the short list: diversify. At the basic level, you should have a target fraction split between stocks and bonds. To be more sophisticated, there are also fractions for international and large-cap/small-cap.
Illustration of why. Say you have a split between stocks and bonds. Let's say that there exists a line that has the true long term value (presumably both of these are increasing in time, and stocks faster than bonds). Presume also that in the short term, the values of each varies around each. It also turns out that the causes of the variation in stocks acts has the opposite effect of the value of bonds, but this is actually not vital to the arguement.
Say you divide up your investements when they are both at their true long-term value. (for purposes of illustration) The next time you take a look, one will be higher compared to its long-term value than the other due to the shorter term variation. You would then sell off the high one, and use the proceeds to buy the lower one to rebalance. i.e. you would sell high and buy low, which is every investor's declared goal.
It turns out that the underlying causes of the changes in stocks and bonds are different, which is why that is usually the starting point for diversification. Also, the short term variation for stocks is greater than that for bonds, so as you get older, the general advise in to move your target allocation in the direction of more bonds.
Post a Comment