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DON'T CAVE; SAVE IT'S EASIER TO START INVESTMENT PLAN THAN TO KEEP MOST RESOLUTIONS.

Byline: Chris Sieroty Staff Writer

This year, make a New Year's resolution you can't afford not to keep. Take the first step toward financial stability by beginning to invest.

Experts say saving money is often easier and more fun than you might think. And it doesn't take hundreds of dollars or all of your holiday bonus to do so.

One of the cheaper ways a novice can begin to accumulate a sizable portfolio is by joining an investment club.

``Even newcomers to the stock market can learn how to invest and not risk much money with the help of an investment club,'' said Ken Janke, president and chief executive officer of the nonprofit National Association of Investors Corp.

Starting an investment club with your friends, neighbors, co-workers or your family is a great way to learn, earn and socialize, Janke said.

``Many investors start with only $25 to $50 a month and invest in well- known companies such as McDonald's, Intel, PepsiCo, Home Depot and other consumer-oriented stocks,'' he said. ``Often investors are comfortable investing in companies whose products they purchase.''

Besides investment clubs, newcomers to investments have an array of products to choose from, including individual stocks, bonds, mutual funds, index funds and dividend reinvestment plans known as DRIPs.

The plans are offered by companies to their stockholders as a way to buy shares directly from the company. Investors can purchase small or large amounts of stock on a monthly basis by reinvesting all or partial dividends into more shares.

``The plans are good for a novice investor because they require discipline while forcing a novice to invest on a regular basis,'' said Jeff Fischer, portfolio manager for the Motley Fool in Alexandria, Va. ``For the typical novice investors, it will help them learn patience.''

Index Funds

The index is the most basic fund as it represents the market as a whole. The S&P 500 index, for example, represents the 500 most valuable companies in the market, which includes the Nasdaq, New York Stock Exchange and American exchange.

``When you buy an index fund you are investing in the American economy, in the best part of the American economy,'' Fischer said.

Other index funds are The Russell 2000, which is an index of 2,000 smaller companies, and the Wilshire 5000, which tracks the entire market.

``The key to buying an index fund is to look for very low fees,'' he said. ``It's an unmanaged fund, meaning whatever the index does, so fees charged to manage an index fund should be about 1 percent.''

Mutual Funds

A mutual fund is a pool of money run by a professional or a group of professionals. After researching a number of companies, they pick the stocks or bonds of companies and put them into a fund.

Investors then buy shares of the fund, and their shares increase or decrease in value as the values of the stocks and bonds in the fund rise and fall.

``Mutual funds are made up from a number of stocks or bonds, giving the investor a broadly diversified fund and guarding against the volatility of a particular stock,'' said Vern Kozlen, executive vice president of City National Investments.

Investors may pay a fee when they buy or sell their shares in the fund, and those fees in part pay the salaries and expenses of the professionals who manage the fund.

``Mutual funds also allow individual investors to select investments in the general market or in specific parts of the market,'' Kozlen said. ``A novice investor who likes tech stocks could purchase a tech fund.''

Stocks and bonds

The main difference between stocks and bonds is rather simple. When an investor purchases a bond, the company that issues the bond promises to return the money plus interest.

For example, General Motors offers both stocks and bonds. With the bonds, the company agrees to pay you back your initial investment in 10 years and also pay you interest twice a year.

The risks of buying bonds are few unless the company goes bankrupt.

When you purchase a stock, if the company profits, its stock may go up in value and pay dividends. You may make more money from the increase in value than you'd earn by purchasing a fixed-rated investment, including bonds.

The downside: The company may do poorly, and you'll lose a portion or all of your investment.

``I think the novice investor needs to accept risk as defined by the value or decline of their investments,'' said Kozlen. ``Both stocks and bonds can decline in value.''

Kozlen said there are different reasons to invest in stocks and bonds.

``Individuals should consider bonds as an investment when receiving concurrent income is a high priority. Alternatively, individuals who are investing for the long term would generally consider stocks as a more appropriate individual investment.''

``We believe that in any long-term portfolio, a strategy would include stocks and some bonds,'' he said.

Federal regulators warn that no one can guarantee that an investor at any level will make money from investments.

``I'm concerned that some of the basic important fundamentals of investing are being lost on investors,'' said Arthur Levitt, chairman of the U.S. Securities and Exchange Commission, at a recent investor forum in Washington. ``Unless investors truly understand both the opportunities and the risks of today's market, too many fall victim to their own wishful thinking.''

Kozlen added: ``Any investor must have clear goals and objectives along with an understanding of the risks associated with purchasing investments. It is the same whether you're talking about a novice investor with $2,000 or a wealthy investor with $100,000 to invest.''

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Title Annotation:Business
Publication:Daily News (Los Angeles, CA)
Date:Dec 24, 2000
Words:954
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