Q & A - Starting an Investment Portfolio

Date: Friday 09th 2008f May 2008 04:20:35 PM

Q & A - Starting an Investment Portfolio - 03/03/2008

By: Hari Wibowo

Name: Kim

Website: N/A

Date posted: Mon, Mar 3, 2008

Question: I am 35 years old and currently quit my job to stay at home.
How do I begin to save for my personal retirement as well as my childrens? My
husband has a 401 plan but that does not include me. What are the basic fundamentals
of starting a investment portfolio for myself?

Answer:

Hi, Kim. The basic fundamental of starting an investment portfolio is to soak certain portion of your income for investment. Your next question would be how much is enough? I believe that every dollar counts. If you start saving a dollar a day at the age of 20 and put it in index fund that averaged 10.5% return over the years, you would have more than $ 500,0000 by the time you are 70. Since you are 35 years old currently, you would have significantly less but this is just a dollar a day! You can step it up a notch a little bit by putting aside, say, five to ten dollars a day. I am pretty sure you can manage to find some area that you can save to start an investing portfolio. As a reference, I'm attaching the 'value of one dollar' article that you can access by clicking on this link.

Having known the benefit of saving every dollars you can, then let's move on how to construct an investment portfolio for oneself. As for the amount of money needed for a beginner, I believe that if you have $ 1000 or more, then you can start. Commission on a stock trade is not a big issue anymore for small investors as there is a low cost commission broker such as Scottrade ($ 7 per trade) and Zecco (free stock comission).

As to what type of stocks you should buy with say $ 1000, I would suggest that you start with an index fund first. There are many funds that you can choose from the Dow Jones Industrial Average (Ticker: DIA), Nasdaq 100 index fund (Ticker: QQQQ) and the broader index S&P 500 (Ticker: SPY). The broader index S&P 500 has returned 10.5% on average since World War II. However, there is up year and down year. As this is a proven strategy since World War II, you will do quite well if you buy SPY during a down year. That is what I would suggest you to look at. To add some diversification, you should buy the second index fund of QQQQ, which consists mainly of technology stock. QQQQ is more volatile but return should be more if you can buy it on the dip.

As for how many stocks you should hold for your investment portfolio, it depends on your initial capital. For a $ 1000 initial startup, two index fund is sufficient. As you grow your capital, it is best to have between 5-10 different index fund or individual stocks. As for other details of investing, you have to sharpen it as you go along. Basically, for individual stocks, you need to understand the concept of fair value.

Hari - Novice Investing

END

Hmm, I am confused. And I have questions

I'm fine, thanks. Bring me back to main page

Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding any securities.

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