My investing advice if you have $1000 to $10000
Posted by Frugal on August 29th, 2006
With $1000, you can start investing in many mutual funds. Here is what I would suggest:
- Invest in a low expense ratio mutual fund. Find something that has a good 5 year track record, especially through the 2002 bear years. Use Yahoo’s mutual fund screener for your research.
- If you have more than $3000, one of the better “mutual fund” that I can recommend is BRK/B, the B share of Berkshire Hathaway, the company of Warren Buffett. You can only buy 1 share since each share is about $3000. I did a comparison of his company to S&P 500, and his record is simply super-outstanding. Berkshire Hathaway holds many valuable and diverse types of business. Therefore, I am willing to put it into the category of “mutual fund”. Besides, I believe BRK will outperform S&P 500 going forward.
- Buy some 1-ounce silver Eagle coins to just preserve your buying power.
With this amount of money, I would NOT invest in individual stocks or sector funds, both are too risky for a small amount of investable assets.
P.S. I added comments on Warren Buffett’s old age. Be sure to check it out.
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August 29th, 2006 at 8:37 am
I guess my biggest fear with Berkshire Hathaway, whether rational or not, is what is going to happen to the stock when Buffet dies? He is almost 76 now, and his leadership has been crucial to their success. Will there be a huge selloff and price drop when this happens?
August 29th, 2006 at 9:49 am
It’s a valid concern, and my concern in the past. I will respond later.
August 29th, 2006 at 2:02 pm
frugal, What are your opinions on fidielies of vanguard’s dividend stocks.? Of course for long term investing..
August 29th, 2006 at 2:18 pm
I usually like most of the Vanguard funds. But for majority of the dividend investing in the “normal” investment world, the yields are too low for my taste.
My dividend investings are not for everyone because it is individual stock-based. There is an entire dividend investing series on the left column.
I wouldn’t invest everything, or not even 40% of my money into dividend stocks. They are an essential component for the portfolio, but definitely not the entire picture.
August 29th, 2006 at 3:25 pm
On Warren Buffett’s old age, I think a mini-sell off when he dies is unavoidable. But I personally believe that drop from such event will not exceed 10%. If it exceeds 10% or close to it, I will be buying.
If you have read any of Buffett’s annual letters to shareholders, you should get the feel of how he manages his company. Most of the different businesses are headed by excellent managers, one of the crucial criteria for Buffett to invest or buy their business in the first place. So Buffett’s death will definitely not become a collapse in Berkshire Hathaway’s business. Furthermore, the vice, Charles Munger has been working with Buffett for long, and his investing philosophy is very close to Buffett’s. I believe Charles Munger can continue Buffett’s empire without a problem. Maybe a bit less stellar, but definitely well-above average.
The only other concern is his huge personal stake in BRK, and since he has donated majority of that to Gates’ Foundation, I’m sure certain proper arrangement has been done not to affect share price of BRK. The Gates’ foundation most likely will only be selling out BRK very slowly and very gradually. Any big sale will certainly be pre-arranged with big buyers. I don’t think anyone needs to worry about that, since Buffett has always been a thoughtful investor.
At last, I want to disclose that I don’t have any personal holdings in BRK/A or BRK/B. I have been looking at BRK for a long time however, maybe more than 2 years. Since my investment style is top-down, rather than bottom-up (I pay more attentions to sectors than individual stocks), I have been putting my money into other sectors that I believe to be more exciting and interesting.
But I’m certain that BRK should stand the test of time. If QQQQ or SPY or Dow Jones falls 40% overnight, I will be selling every “regular” stock, and buy BRK. BRK may be slow and bulky, but it will be the most steady that you can find in a big turbulent stock market.
August 29th, 2006 at 11:37 pm
What do you think about Fidelity funds? Do you think they usually underperform comparing to other similar funds? I currently have an international fidelity fund (again with the being long term/aggressive while-i’m-young formula), but seems like everyone in the neighborhood is talking about vanguard funds (which i can also get through fidelity, though i think it’s most load fund)
Thanks! Awesome site!
August 30th, 2006 at 5:32 am
The easiest way is to find the equivalent class of mutual fund from Vanguard or another company, and compare their historical performance on a 5-year chart (maybe using Yahoo finance).
Read “Four Pillar of Investing” in my book list. It will tell you why Vanguard is good because of its low expense ratio.