Subject: Advice - Beginning Investors
Last-Revised: 1 Aug 1998
Contributed-By: Steven Pearson, E. Green, Chris Lott (contact me)
Investing is just one aspect of personal finance. People often seem to have the itch to try their hand at investing before they get the rest of their act together. This is a big mistake. For this reason, it's a good idea for "new investors" to hit the library and read maybe three different overall guides to personal finance - three for different perspectives, and because common themes will emerge (repetition implies authority?). Personal finance issues include making a budget, sticking to a budget, saving money towards major purchases or retirement, managing debt appropriately, insuring your property, etc. Appropriate books that focus on personal finance include the following (the links point to Amazon.com):
- Andrew Tobias
The Only Investment Guide You'll Ever Need
- Eric Tyson
Personal Finance for Dummies (5th edn.)
Another great resource for learning about investing, insurance, stocks, etc. is the Wall Street Journal's Section C front page. Beginners should make a special effort to get the Friday edition of
What I am specifically NOT talking about is most anything that appears on a list of investing/stock market books that are posted in misc.invest.* from time to time. This includes books like Market Logic, One Up on Wall Street, Beating the Dow, Winning on Wall Street, The Intelligent Investor, etc. These are not general enough. They are investment books, not personal finance books.
Many "beginning investors" have no business investing in stocks. The books recommended above give good overall money management, budgeting, purchasing, insurance, taxes, estate issues, and investing backgrounds from which to build a personal framework. Only after that should one explore particular investments. If someone needs to unload some cash in the meantime, they should put it in a money market fund, or yes, even a bank account, until they complete their basic training.
While I sympathize with those who view this education as a daunting task, I don't see any better answer. People who know next to nothing and always depend on "professional advisors" to hand-hold them through all transactions are simply sheep asking to be fleeced (they may not actually be fleeced, but most of them will at least get their tails bobbed). In the long run, an individual is the only person ultimately responsible for his or her own financial situation.
Beginners may want to look further in The Investment FAQ for the articles that discuss the basics of mutual funds, basics of stocks, and basics of bonds. For more in-depth material, browse the Investment FAQ bookshelf with its recommended books about personal finance and investments.
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