zgreenwell writes: I've recently paid off all my credit card debt and have some money to spare. I want to invest some money. Although I love the idea of being a day trader and speculating changes in the market, I hate the idea of losing money. I'm fairly young and have enough time to sit on any investment. I was wondering what I should do. I've never invested in anything other than a saving account before. Should I buy stocks and hold them? If I do what do I buy? I've started an E*Trade account and have $1000 in it. Right now its just sitting there because I'm not sure what to do with it.
First and foremost a hearty congratulations on paying off your credit card debt. With the possible exception of a mortgage, paying off debt - and avoiding debt - is one of the best investments anyone can make.
But what to do with your new found savings? The first thing I would recommend is that you open a Roth IRA and put in as much of the annual limit (currently $5,000) as you can afford every year. A Roth IRA is a tax-advantaged retirement savings account. You put after-tax money in and it grows tax-deferred until retirement. There are many cases where you can withdraw early without penalty, such as buying a home and for college tuition; check the link above with the IRS to see more of the qualifying situations. The securities recommendations I will make are largely the same, but the type of account is important because one is tax-free and the other taxable, so you would be reporting taxable income every year on the mutual funds when you file, and that would cut into your returns.
Generally the least expensive, least risky, and most accessible way for the average man to dip his or her toes into investment markets is using a mutual fund. Mutual funds offer a relatively inexpensive method of buying into an already diversified portfolio, reducing your overall risk but allowing for market participation. As far as which fund to invest in, you have a relatively small investment at $1,000 (at least it is considered so by equity market standards). It also sounds like you have very little investment experience, and are relatively young, say in your late twenties or early thirties. Have you already maxed out your 401(k) match? Be sure that you are if one is available to you.
Given this criteria, I would suggest one of two funds. The most appropriate would be a target-date fund for a date matching your retirement, like the Principal Inv LifeTime 2050 Sel (PTESX) or ING Solution 2045 S (ISRSX). Both are low cost and have competitive returns, but may or may not be available to you through your broker (E*Trade). Each broker has a separate "Supermarket" of funds available to them. Just like the regular supermarket, sometimes they will or will not carry the brand you want, and sometimes a generic brand is just as good. You may need to look for an alternative share cIass or fund.
The other type of fund I might suggest would be a conservative allocation fund like Franklin Income (IF you can get a load-waived version) or Permanent Portfolio (PRPFX). If the idea of you investment dropping to $800 in a week makes the pit of your stomach drop out, you may want to take on less risk, hence the "conservative." They are good way for savings bond investors to get acclimated to the peaks and dips of the equity and fixed income markets without losing their shirt.
A brief aside regarding the "load-waived" comment: never pay a load. You are basically losing 5% or more of your investment up front when you do so, and paying your broker a commission on an ongoing basis.
Remember, market investments are not guaranteed and may lose value. Then again, money in the bank or mattress is guaranteed to lose value against inflation!
Good luck!