Date: Wed, 5 Jul 2006 12:48:39 -0500
From: Tad Borek 
Newsgroups: misc.invest.financial-plan
Subject: Re: Building onto a plan:  Your take on starting stock investing?
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Charlie wrote:
> What is your thinking on starting investing in the stock market? 

> withdrawal from this fund will begin in about 8 or 9 years.

> I am newly opening a discount brokerage 
> account and trying to use a couple of newsletters for advice.I intend to buy 
> stocks of recommended companies that are names I recognize and which 
> appear to be doing well in the real world.

Charlie,
If you can save $1k/month for the next three years, and leave it alone 
for 8-9 years, then certainly - it makes sense to invest that money so 
it grows. And you might decide that the riskiness of stocks is OK, 
instead of the guaranteed return of, say, US savings bonds.

But I would put individual stocks, selected using newsletters, at the 
bottom of the list. To be blunt, it's unlikely you're going to find 
winning stocks that will give you a better-than-average return on your 
money, because most professional investors aren't even able to do it. 
Using newsletters makes you reliant on the author, and if you read those 
Hulbert reports, the main message is that newsletters as a group don't 
seem to be very reliable sources of stock-picking tips. This is 
especially true if you factor in all the newsletters that go out of print.

Why add that risk? Instead, you could invest your money using mutual 
funds, allowing you to invest in stocks without having to pick 
individual ones and keep up with the companies. A good start would be to 
look at the approach of the "LifeStrategy" funds from The Vanguard Group 
(www.vanguard.com). These are no-load funds with low annual expenses. 
There are similar funds out there from other companies, but these will 
give you an idea of what's available in this category of mutual fund. 
The funds combine investments in a broad mix of investment types - US 
stocks, foreign stocks, bonds - in percentages based on how much risk 
you'd like to take on. Looking at the materials on those funds will give 
you an idea of how risky stocks are over the time period you'd be investing.

It might take a couple months to build up the money for the initial 
purchase, but after that you could keep putting $1k into the fund each 
month, then let it ride. Looking ahead 12 years from now, I think it's 
more likely that your nest egg will have grown if you take this approach 
than if you pick individual stocks from newsletters.

-Tad