Investments/monies/etc

[cookie]

I lived at home for almost two years while being in receipt of significant bursaries and student loans so I have a ~£15000 that I have in a savings account (mostly to just offset the interest I pay on it so I have a lump sum accessible whenever I need it), and ever since I have become more interested in the world of investment. What do you invest in? Why?

I'm currently flirting with the idea of investing in gold once the introductory rate on my savings account runs out, but beyond calculating the return I'd need to break even against a savings account after factoring in commission and handling fees, I don't know much apart from buying gold when your currency is strong and selling when it's weak. At the moment I'm paying attention to gold prices and have started reading finance-related news to learn more about this stuff.

 

[Morm]

If it were me, I'd try to spread the risk around a bit. Short term Stocks, RRSPs, Tax Free Savings Accounts and maybe putting a hooker through school. Apparently TSFAs (if you have these or equivalent in England) are all the rage, because it's literally taking money you've just made and not paying tax on it WHILE saving it.

Edit: When (if) this economy stabilizes, I'll start hitting up a menagerie of stocks and ultimately buy some properties if I can. That could be YEARS away though, as university educated people in their early 20's are up to 25% unemployment in Canada thanks to over saturation of experienced, educated workers that had been laid off.

 

[FlareBlitz]

I'll preface this by saying that I am not an accredited financial adviser; however, I do have a ton of experience in this area, seeing as it is directly related to my degree and chosen profession.

First, please don't buy gold unless you're planning on running arbitrage (which is buying gold where it will be cheap and selling where it will be expensive, this requires a ton of information and is risky) or are skilled in short term speculative trading (which, by your post, you likely are not), because you probably won't come anywhere close to catching the market, much less beating it. Gold consistently underperforms in the general market, and the only reason it is this popular as an investment is because...well, I'll leave politics out of it. Simply put, some people are stupid.

As for general advice, go down this list here. This is conservative advice: you will almost certainly make money, but not a whole boatload.

1) Pay off high-interest debt (credit cards etc)
2) Have a reasonable amount of money in high liquidity accounts (savings account) for emergencies
3) Invest around 70% of the remaining money in less liquid, but guaranteed, accounts as you see fit. These include CDs (Certificate of Deposits) MMDAs (money market demand accounts), T-Bills (debt instruments issued by the government). All of these are backed by the government, so it's a time/liquidity tradeoff for the cash.
4) Invest the rest of the money in slightly riskier investments, such as mutual funds, growth stocks, and corporate bonds.

If you want to be less conservative, invest less in the guaranteed investments and more in the riskier investments. I would avoid very risky investments (junk bonds, capital appreciation funds) until you know what you're doing.

Hope this helps!

 

[2gig]

While I follow financial news a lot, I don't actually know too much about investing.... This one time, I decided to play around with a practice account on a Foreign Exchange (FX) site. Basically, the way this works is you sell one currency in large quantity (usually by 100,000 for the paper currencies) and buy another currency. I spread my investment pretty evenly between Swiss Francs, Hong Kong Dollars, Gold, and Silver.

The practice account started me with $50,000 (I assume this is money that an investor would have to put into an account up front as a type of Ante), which turned into ~$120,000 in the month that I'd let the account sit there after making those initial investments.

As I'd made this practice account with hardly any knowledge of how FX trading worked, I expected to lose a large sum of my practice money. Because I'd done so well on this practice account with so little knowledge, I developed a distrust for FX. After all, if it was really that easy to turn $50,000 into $120,000 in one month, then why isn't everyone doing it? If I'd lost my practice money, I'd have tried to learn why, but my success on the practice account led me to believe that the site was trying to entice me into investing real money to lose.

TL;DR: I don't trust Foreign Exchange trading.

 

[WaterBomb]

FlareBlitz is very knowledgeable so I would take his post seriously, but one thing you need to remember is that alot of these "guaranteed" investment options (like CDs, Money Market accounts, etc) do not have high enough interest rates to even keep pace with inflation. While you technically are earning more money than you would if the money was liquid or in a low yield savings account, you're still "losing" money in the long run. If you really want to MAKE money you need to invest in more high-yield options that outpace inflation.

That being said, this is a bit tricky for the bulk of our forum users because we are all fairly young, and do not have the capital or assets that older and more experienced folks have. The most important thing for people our age (read: under the age of 35) is to have as much liquid assets as possible to cover expenses. It is not wise for younger people to invest too heavily in restricted access (money market, high yield savings) or zero access (CDs, Annuities) because they need to have as much money at their disposal as possible. Unless you are making ridiculous amounts of money at your job (which you probably aren't) it is best to restrict your investment to your participation in whatever 401k plan your company offers, if they do at all.

If you intend to ignore this advice and still want to invest and make money, you'll have to pursue riskier options. The only "fixed" interest rate investment options I can think of that outperform inflation are annuities, and most young people can't afford to lock up that kind of money for 10+ years without being able to access it in an emergency.

All that being said, if you DO participate in a 401k plan with your job, be aggressive with your investment choices. As a previous poster said, spread your choices around between a variety of funds. Even you more cautious people should be mildly aggressive, and resist the temptation to dump everything into the "safer" funds. Save that for when you're older. And for pete's sake, once you choose your investments, LEAVE THEM BE. If you're online checking your investment performance every other day you will get discouraged and have a heart attack. Let the investment do what it's supposed to do, and give it time to perform.

Above all else, do not invest any significant amount of your money without the advice of a licensed financial professional. Don't let mom/dad/friend/smogon tell you how to invest.

 

[FlareBlitz]

WaterBomb's addendum to my advice is sound, but I'd like to nitpick a few things. For one, the value you get from CDs is highly variable depending on the banking institution, at least in the US. I have some money in a 1-year CD that gives me around 4% at a local bank here, while BoA gives like, 1.5% right now. I'm not sure if the rates are standardized elsewhere, but if not, look around and see if you can't lock in good rates. Same goes for MMDAs. T-bills should always outpace inflation as long as you get medium-term to long-term ones (i.e. 5 year), although this assumption might currently be invalid if we ending up facing a protracted period of inflation in the next few years. If you're really worried about inflation and still want a safe investment, I'd recommend TIPS; these are US-specific but you should be able to find an analogue in your country. They're basically t-bills that are protected against inflation, with the downside of locking your money in for a longer term. There are also corporate bonds that have inflation-protected analogues. And if you're willing to take on a bit more risk, there are stock indexes and mutual funds that are tied to inflation, which I'd recommend investing in if you anticipate a future spike in inflation (which is likely).

Like I said, my advice was very conservative because it seems that your savings are due to a one-time windfall and not due to a consistently high income. If your income gets to a point where you have money left over to put away every month, I'd recommend more aggressive portfolios (capital appreciation funds, sector mutual funds, real estate, annuities). But if I got a one-time lump sum, I'd be more concerned about keeping most of it than risking it on the market. I'm pretty risk averse though, so it's your call ^__^

Edit: And yeah, definitely consult with someone whose job it is to advise you before committing to anything. Just remember that brokers have conflicts of interest, so adjust your evaluation of their opinion accordingly.