Useful stock market books to read or shows to watch?

[Weeks4MVP]

I was wondering if anyone could suggest a good book to read or a show to watch for a beginner looking to get into the stock market. I just graduated from college and am about to begin my first job so I am looking to begin investing (outside of the company 401k plan).

 

Thanks for your help!

[endaround]

1) Buy an index fund

2) don't touch it

3) don't touch it

4) Ignore everything and don't touch it

 

Unless you have huge amounts of time or you want trading as a hobby its just not worth trying to actively manage your portfolio. And unless you have tons of money it isn't worth paying someone to do it either. Your biggest decision should be whether you want the fund in a normal IRA or a Roth IRA.

[And That]

Books are all over the place. Motley Fool's book will tell you one thing, Charles Schwab's book will tell you another, Jim Cramer's still another, ad nauseum. Know that when you read almost any investment advice book (or website), the author is trying to sell you on their point of view and plan of action. If you read only one book and follow that guidance, you're only going to approach the market from a limited point of view. I would recommend reading many books - as in, at least 2 or 3 - on the subject before putting a serious amount of money in to the market.

 

I personally think the book (of those that I've read) that hews most closely to sanity and common sense for someone who doesn't want to make investing their second job is Charles Schwab's "New Guide to Financial Independence." It's slightly dated, but still very relevant. I generally get less of a feeling that he's trying to sell me something than a lot of other books. But read those other books, too.

 

I would also recommend checking out Morningstar.com.

 

Off endaround's statement, if you're going the simple index fund route, and there's nothing wrong with that, I would make sure to have a modicum of diversification by buying a US stock index fund (such as SWTSX), a foreign stock index fund (such as FSIIX) and a bond index fund (such as VBMFX). The allocation to each is obviously how much trust you have/risk you can stomach in each of those investment vehicles.

 

Or you can leave the allocation to the pros and go with a moderate allocation fund, though you may still likely not get much foreign equity in there. The Vangaurd Wellington fund (VWELX) would be my choice for moderate allocation, but there are a lot of options. DODBX and FPACX are good ones, too.

 

Edit: I should also say... I think very few financial TV shows are useful for investing insight. They're almost all based on the 24 hour news cycle and watching them may well only lead to making rash decisions based on some seemingly new pertinent information.

[Weeks4MVP]

Thanks for your help guys! I'll be sure to check out Charles Schwab's book and Morningstar.com.

[MJLiverock]

Let me add as a professional investor that I echo And That's final paragraph. Most shows like Mad Money or Bulls and Bears are hype machines about what just happened or what may happen tomorrow and neither have been very good at predictions. They may be entertaining but remember that if they are talking about it on TV it is probably already priced in by the market professionals.

 

Endarounds comments are pretty true. But don't forget that in owning a mutual fund you are paying someone to run your money for you, you just don't necessarily see the bill or realize the fees you are paying. The biggest mistake I see investors make is not understanding the fees they are paying for managment. Mutual funds typically charge 1.0% plus maybe 0.25% in 12b-1 fees in some cases. 12b-1 fees are for marketing the fund and paying off the broker or financial advisor who sold you the fund. The 1% goes to the fund to pay for the portfolio manager, analysts, overhead, etc. of running the fund. Often times you will see some finanancial advisors charge you 1% or I have seen up to 2.5% as a management fee and all they are doing is selling a mutual fund which is managed by someone else getting 1% or more. Accounting firms are really starting to get into this business (and in my opinion really providing no added benefit but are really good at burying the fees and convincing people they know something about investments which really are a whole different animal than accounting). You may be paying 3.5% in fees each year which is a tough hurdle to overcome in investment performance, especially when bond yields are so low and most don't cut fees for fixed income portfolios, yet fixed income portfolios always charge less for managment fees in the institutional investor world.

 

The other fee to watch is loads on mutual funds. I can't telll you how many people I have seen that had no idea they paid a 5% load to their advisor.

 

ETFs or Index funds typically charge much lower managment fees because all they have to do is buy whatever is in the underlying index so they don't have to pay for analyst or portfolio manager expertise like an active managed fund does. Foreign or specialty index or ETF usually chage a few basis points more than broad index funds.

 

Edit: Forgot to name a book -- try It's When you Sell That Counts by Don Cassidy. The book is very common sense based, doesn't use crazy theories or try to say it has a foolproof method that the author made up. It is a very basic approach to investing and thinking about how to go about it. It is about $20 at Amazon.

[And That]

Yes, fees are definitely something you need to look out for. Vanguard (whose main selling point is low expenses) released a study a little while ago that largely proved that low expenses, not past performance, were the main indicator of future success. Since index funds generally have the lowest expenses of any mutual fund category, theoretically they should have the best returns over time. Theoretically.

 

I'm not a professional investor by any stretch, but in our family's portfolio, I make it a point to keep fees well below average, even though we only use indexing as part of our strategy. We never have or will ever buy a fund with a load. Loads are killer, especially if you believe in dollar-cost averaging your investments. And while we own a few transaction fee funds, the vast majority of our holdings are NTF (no transaction fee) funds.

 

I really like index funds as opposed to index ETFs because you can usually get a perfectly good indexer as an NTF fund, especially through 401(k) plans, and again, not paying money every time you put a little bit more money into the fund can make a huge difference over time.

 

The reason I recommend studying up so much on investing before you actually take the plunge is that you should be able to do most of your investing yourself. It takes a little time to learn, but you can save a lot of money in the long run by not paying someone to make your decisions for you. This isn't for everyone, of course, but I think a lot of people would do just as well with their own Ameritrade/E-trade/whichever personal brokerage account than they would do paying someone to take care of things for them.