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Originally Posted by SailinAway
Interesting thread "Investment Options," but largely over my head. Where do you think a beginner should start? Goal: Same as everyone's. Turn a small pile of cash into a large pile of cash. ;-) In a short period of time.
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The first thing that you need to understand is your risk tolerance. Many people park their money in CDs because they have NO tolerance for risk. In today's higher inflation environment, they are actually losing VALUE even though their principle AMOUNT is not at risk. The $10K they started with is still nominally $10K ("safe") but 5+% inflation has devalued its buying power. The average inflation rate over the last 100 years bounces around 2% - 3%, so if your investment isn't earning at least that much, your investments are losing value.
Investing in anything else will yield higher returns but has more risk. You WILL see the value of your investment bouncing all over the place. The higher the possible return, the more bouncing around in value. That fluctuation drives some people crazy with worry. Seasoned investors have learned to deal with it, like potholes in the spring. To get from here to there (good returns on your investments), you have to live with the bouncing around. Your tolerance for risk is DIRECTLY tied to the amount of growth you can expect. Low risk = lower return. High risk = possible higher return.
The next thing you need to evaluate is, how dependent are you on the funds? Are they required to pay monthly bills? Are they needed to replace a car in the near future? Are they needed for possible long term goals? Are they your kids inheritance? Monthly bill assistance may require you to park money in bonds or a bond fund that pays a reliable dividend and somewhat safeguards the principle. If the money is for your kids inheritance, you can be more aggressive because short term losses will likely be covered by long term gains. However, these types of investments are NOT for the faint of heart. You can lose 20+% of your value if the market takes a deep dive. If that terrifies you, don't play in the "skate board park" and seek out the "swings and the teeter totter" instead.
Personally, I target a 7% return (stock market historical average) which comes with a moderate risk. I also am heavily in equities (stocks, a piece of ownership of a company). You pay no taxes on gains in value until you sell the stock and it is taxed at a maximum of 15% (for most people). In early 2020, my investments lost 16% when the market dived. It has nicely recovered, thank you, but those types of swings are NOT rare.
Stocks also have all sorts of evaluations of their performance. One is a measurement called "Beta". That is a measurement of their volatility, bouncing around in value. Smart Beta stocks won't usually fluctuate as much; good in that big dips are unusual, bad in that it limits the opportunities for gains. HOWEVER, such measurements are NOT a GUARANTEE that the stock won't nosedive in the future.
IMO, it is critical that you find a financial advisor that really UNDERSTANDS the type of investor you are and matches you with the type of investment that meets your needs and personality.
Oh, low fees are definitely good. However, fees are part of the cost of advised management of investments. There are all types of fee structures. Some are a flat amount based on the overall value of your account. Some are also based on sales and purchases made in your account.
Also, don't be "wedded" to your investment advisor. Talk with friends. If the person you are working with is not meeting your expectations over a few years, consider someone else. However, if the market is tanking it is not your advisor's fault. Nor can he stop it. Nor should you be selling and buying to avoid it. It is too late. If you have have moderate risk investments, hopefully the damage will be limited. Also, if the investments are well structured, you should see a bounce back in a few months unless the country is in a recession. If, after a while the damage is worse than average and there is no bounce back, you were invested unwisely and may have the wrong advisor.
I have seen a lot of people give "advice" about "good" investments. In the end, investments are like clothes; they have to fit you, look good on you, and be well made. The choices are highly personal. Advisors that push the latest whiz-bang "winners" to make "lots of money" are NOT doing you any favors.
Most of all, YOU need to become educated about the broad investment choices you have (stocks, bonds, funds, ETFs, laddered investments, etc.). If you were buying some clothes and you couldn't check yourself in a mirror and instead asked an "advisor" how they look, would you be surprised when you got home to a mirror that you might not like them? You don't need to be an expert but if your advisor starts tossing out terms you don't know, you SHOULD know them before you approve that investment. Your advisor's role is to provide you with good choices for your needs and investment temperament. YOU should understand what you are going to "wear".
Good luck.