I am leaning towards going the more aggressive route in the stock market. If i loose some of the money I loose it. I am not to worried about it either way positive or negative its a learning experience.
Dr. Q made some very good points on the two ways to invest.
Here are the priorities in order:
- Time to invest. Unfortunately, this is finite. So the sooner you start the better.
- Rate of Return. Of course the higher the better. But if you swing for a home run each time, you may end up earning less while missing many other good steady opportunities.
- Amount invested. The more the better. At least 10% of your gross income before taxes. A higher amount would be better. Shoot for 20-25% if at all possible.
Sure it's fun to play the market. No doubt about it. However, most folks do better with a conservative approach over time. The market is volatile. Many folks think that they won't mind loosing value, but when it happens, some end up not taking it as well as they thought they would. You will need to find out and explore your limitations.
As for the conservative approach, Index funds are a great way to get started. Then as you learn about the market you can experiment with other mutual funds. And of course transition to purchasing stocks directly once you feel comfortable.
On the conservative side, for example, let's say you invested your $2,000 in an Index fund that earns an average of 10% per year. And you leave it in that fund until age 65 (45 years). You would have $176,000 in that account.
Now, if you invested 200 per month ($2,400 per year) in the same account over the same time period and same rate of return, you would have $2.1 million.
If you could manage an average of an 11% rate of return, you would have $3 million. Likewise if you only managed an average of a 9% rate of return, you would have $1.4 million. As you can see, a small percentage rate change makes a huge difference in the long run.
Of course everyone probably wishes they had a 1,000 shares of Microsoft. That is, original shares. If memory serves they sold for around $27 per share. Those 1,000 original shares, due to splits, would have grown to 512,000 shares and would be worth about 15 million today. Then again, if you invested that same $27,000 in Microsoft around the year 2000, that stock would now be worth about $13,000.
Another area to consider is defense as in being thrifty. As Ben Franklin stated, "A penny saved is a penny earned." Good advice indeed. Take a look at where you can reduce expenditures. Try to avoid impulse purchases. Always live within your means.
Hope this helps.
Happy investing!
🙂
