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    Advice for a Novice

    Question: I am completely new to investing and want to know how to get started. I recently inherited quite a large sum of money and I would like to be able to live comfortably for the rest of my life. All I know about investing is that you can lose your shirt.

    Answer: Well, I would say the one thing you know about investing is very accurate, so you are off to a good start!

    I think there are two parts to your question. First, how do you educate yourself? Second, how you set yourself up to live comfortably ever after?

    To become informed, you can talk to savvy investors, you can read books and articles and watch video and live presentations. To really learn (which is not the same as merely being informed), you need experience. Try some things, and along the way you will undoubtedly make mistakes from which you can learn. The secret is to keep those mistakes small.

    You can learn a lesson just as well from losing $500 as from losing $50,000. But you would be surprised how many people plunge ahead as if they couldn?t possibly make a mistake. They might spend weeks researching a new car purchase yet make an investing decision involving ten times as much money after only a few minutes.

    To educate yourself, start by doing some reading. An excellent place to start is Investing for Dummies by Eric Tyson. This covers a wide range of alternatives and teaches you how to protect yourself from many of the biggest mistakes investors make. I would also call your attention to two good books by John C. Bogle: Bogle on Mutual Funds: New Perspectives for the Intelligent Investor, and Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor.

    Quite soon you will find that there?s an overwhelming amount of investment information available free on the Internet. Some of it is valuable and some of it is essentially uninformed opinion. Some of it is simply incorrect and masquerades as the truth. It can be hard to sort all this out.

    Take a class at a local community college, but be aware that the teacher may be a broker or financial planner who is looking for clients to whom to sell commissioned products. The whole class may be subtly arranged with that objective in mind.

    Consider joining the American Association of Individual Investors (www.aaii.org), a non-profit organization that offers lots of educational materials. Local chapters in most large cities hold seminars on various investment topics.

    Now, the second part of your question: How to live comfortably ever after. I don?t know your age or your objectives, or the amount of money you have inherited. So I can speak only in general terms.

    Your question suggests to me that you are at relatively high risk to be taken advantage of: a novice investor with a lot of money. Therefore I would urge you to proceed with great caution.

    At the moment you are at a fork in the road and you have to make a basic decision: Will you do this yourself? Or will you hire an investment manager or advisor? Perhaps you will want to hire a manager while you learn, then gradually take more and more control over the management of your money as you gain confidence.

    If you take the do-it-yourself route, go slowly and cautiously. Start by making sure your legal affairs are in order, that is, you have a will and you have protected yourself from liability through appropriate insurance. Next make sure you set aside money for an emergency fund, money you can access quickly without fouling up an investment plan.

    Then invest half or more of your money in bond funds. Start with a short-term bond fund like those offered at Janus, Fidelity, Vanguard or T. Rowe Price. Invest the rest in a couple of conservative no-load equity funds. Four that come to mind are T. Rowe Price Spectrum Growth (PRSGX), the Fidelity Fund (FFIDX), Vanguard Total Stock Market Index (VTSMX), and Vanguard Tax-Managed Capital Appreciation (VMCAX).

    As you learn more, you will probably want to diversify. Do this gradually and cautiously, and be patient. Expect to make mistakes along the way, and do your best to learn from them.

    If you find a successful and experienced investor who is willing to be your mentor, consider entering that sort of relationship. But always use your common sense and remember that you, not anybody else, are the boss.

    If you want to hire an investment manager or advisor, choose carefully. Seek references from friends and relatives. Ask for references from lawyers and accountants.

    Here?s a parting thought, an excellent rule of thumb: Never invest in anything that you don?t understand.

    If you do all these things, you will be well on your way to living comfortably ever after.

    Paul Merriman is founder and president of Merriman Capital Management, a Registered Investment Advisory firm, and co-portfolio manager of the Merriman Mutual Funds. He manages over $280 million for his clients, has a weekly radio show which can be seen and heard at soundinvesting.com, and is the publisher and editor of FundAdvice.com.