Welcome to the first column of “Money Matters” where we will address personal finance questions asked by students. My name is Todd Erkis and I am a visiting professor in the finance department. I teach several finance classes including Introduction to Finance. Prior to working at St. Joe’s, I worked as an actuary in the insurance industry. I am joined in today’s column by Anna Lubomirski ’21 who is a junior food marketing and accounting double major with a minor in Spanish. Our goal is to answer your personal finance questions. If you have a question, please send it to [email protected].
I have saved $1,000 that I would like to invest in the stock market. Which stocks should I buy? -Andrew P. ’21, finance major
Erkis: Andrew, this is a great question. Is this money that can be left invested for at least one year? If not, then wait until you have enough money elsewhere so you wouldn’t have to sell the investment if you unexpectedly need cash. Young people should include stocks in their investments since stocks have historically had higher long-term returns than keeping money in the bank.
In your case, I would recommend investing in the S&P 500 Index mutual fund Charles Schwab ($500 minimum) or TD Ameritrade ($100 minimum) since they have low minimum investment requirements. When you have more money, Fidelity Investments ($2,500 minimum), or Vanguard ($3,000 minimum) would also be possibilities.
A mutual fund is an asset where an investment manager invests the money deposited in the fund for the benefit of the investors. The S&P 500 Index invests in stocks from 500 of the largest U.S. publicly traded companies allowing you to own a piece of each one.
A mutual fund like the S&P 500 is better to start with than a few stocks because the price of one or two stocks can go up or down quite a bit and this volatility is not ideal for a first-time investor.
Owning many stocks is called diversification, which is a good thing when investing. The S&P 500 Index is diversified, so it should go up and down by much less. Note that there is a risk you will lose money when purchasing stocks including the S&P 500.
Lubomirski: Investing your savings definitely puts that money to good use and is better than just letting it sit in a regular bank account earning only a couple pennies worth of interest each month. It is, however, easier said than done for someone starting out. Once you start thinking about and looking into investment opportunities, you realize just how little you know and can easily feel overwhelmed and intimidated by the prospect.
I went onto the Charles Schwab Corporation website and saw that I needed to transfer money from my bank account into the Schwab account to be able to start investing. Schwab would hold onto the money in a similar way as a savings account at a bank. Through Schwab, I could then use that money to purchase any of a substantial number of mutual funds (intimidating, but very easy!). An S&P 500 Index Fund, which Professor Erkis talks about above, is on the list of available funds and can be easily purchased.
*Nothing stated in this column should be considered investment advice or an offering of securities. Stock investing has risk and you should do your own research before investing.
