Investment options for minor sums?

I'm not sure how it works in the U.K., (hoping it's similar), but start an investment account that lets you trade a variety of things like stocks, mutual funds etc. With some companies, you have to buy stock in lots of 100 shares.

 

Personally, I bailed on the stock market and mutual funds last June. I used some of the money to buy a townhouse and I'm sitting on the remainder.

I also don't know how it works in the UK, but some kind of no-load index fund is usually decent. You want to avoid fees of any kind. A lot of the investment houses will want to take a bite every chance possible - that eats into your earnings and can make a plain savings account more attractive. And there's nothing wrong with plain savings. Be sure to start an account and deposit regularly while you decide how to invest.

I'm also very skittish about the stock market. My opinion is that it's currently overvalued and propped up with funny money from the quite generous bailout packages. We've pulled out and put our money into real estate and durable goods. There isn't much growth in those right now, but tangible goods you can use are better than a volatile portfolio.

If you want to get into stock, stick with the unsexy stuff. No media companies or gadget makers. Look for utility companies, mining, pharma, heavy industrial machinery, metal producers, chemicals, and that sort of thing. Those are stable in the long term, generally.

Be careful with government bonds, too. US federal bonds might be OK, but all the state and municipal bonds are unsafe because they're all upside down right now. They increased spending and benefits during the bubble and now can't pay their bills. Beware. Defaults are probably a year or two away.

1. not all fees are evil and it depends on what you want to do with your money.  If you are just doing indexing, then go for the lowest, but if you want to grow your money or not loose your money or want to reduce your volatility while still join in the rallies or want some yield while still participate in the rallies, you probably should get an adviser - and you get what you pay for, generally.

 

2. Not all muni bonds are evil. Again it depends on what you want and how often you trade.  Perhaps a good bond fund is the way to go. 

 

I think indexing WAS the way to go but is not longer a valid investment strategy going forward.  I may be wrong, but I would think all the indexers got killed this year, and will continually be killed year after year for the next 5-10 years.

 

I believe the crux of a good investment is the asset mix, focusing on any single asset class or subclass while ignoring others can get you into big trouble in this turbulent market.  Investing is no longer a set and forget it affair, you need to be vigilant or pay someone to do it.

 

 

 

 

 

 

 

 

 

 

Edited by chesebert - 9/6/10 at 4:02pm

I agree that indexing isn't a good way to go, but it might be viable again in roughly three years. The mortgage problem and corporate bonds will climax in late 2012, and I might go back into the market then. If the market dumps, it'll probably undervalue the kinds of stock I like (see list above) and then I'll buy those again. But unless fundamental reform comes before then, I'm out of the market.

I've always been averse to paying fees to invest. I am not sure all managers are putting my interests first and they often have trouble outperforming random picks, stocks chosen by chimps, and schoolchildren. I've always bought individual stocks in the market, paying for individual trades. I usually buy and hold, and look for stocks that pay dividends which I reinvest. It helps if you can read financial statements. If you can't, it's worth learning. You'll save a lot of money and be able to make better investments.

Tax-free munis used to be a good investment. The problem is that revenues skyrocketed along with property tax returns from the bubble. Most of them committed that money to all sorts of things. But with the real estate collapse, the revenues dropped off. There are all sorts of pension commitments that can't be paid now, among other things. The fed might come in to rescue those, but I don't see a happy ending. I'm staying away for the next two or three years, until those obligations get sorted. It isn't going to be pretty.

In my not-so-professional opinion as a Masters in Finance student (and CFA Level 2 candidate),

 

Index. Not any index fund, but a broad-based one. An index fund is a fund which simply replicates an index. You want to buy an index fund that replicates the entire stock market...if possible the entire worlds' stock market. In Britain I'm sure there is an index fund which replicates the FTSE. You can buy that, but it still is only exposed to Britain.

 

In the USA their is an exchange-traded fund by the ticker VT that replicates the entire worlds' stock market (okay...98% of it). Buy something in Britain like it if you want equity exposure.

 

This is important: As much as I like Uncle Erik and the crew, I must warn you to guard yourself against ALL forecasts. Even well meaning ones. You must never, ever, try to predict where the market is going. It's a fools errand. No one can do it. Even Warren Buffett (or especially Warren Buffett) would warn you against it. There are many Noble prize winners who would agree. The finance academy feels the same way about "Market Timing" as Uncle Erik feels about cables. (ie, it's voodoo). Eugene Fama frequently refers to CNBC and the like as "investment p*rn."

 

Once you get some real 'coin, you're going to want to set up an investment policy you will stick with no matter how good or bad things get. And for that I present you with the Head-Fi of investment: Bogleheads.org

 

 

 

 

Edited by Czilla9000 - 9/8/10 at 12:26am

EMH is what they teach in school, but, of course, you already know this - those who can't, teach :)

 

And what is charting? It's merely a prediction of where the market will go (prediction) based on past data and future probability (forecast), and trade when the indicators matches applicable parameters (market timing).  You should tell all the GS traders that they are on a fool's errand since they can never outperform the market, never mind the historically high profit from its trading arm in 2009.

 

EMH has historically been used to make the indexer feel good about themselves.  Had Buffet been indexing all his life, he wouldn't even be close to where he is now.  Now, more than ever, EMH fails to explain the market; the simple fact is that the market has never been efficient, but it's less efficient now then ever, and will continue to be inefficient until we dig ourselves out of this mess.  However, this is not to say indexing shouldn't be part of your overall investment strategy, just not your only strategy.

 

 

 

 

Edited by chesebert - 9/8/10 at 6:01am