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ALawPoker
07-23-2005, 09:02 AM
Hey guys,

I'm an online poker player. I send half of my profits every month to savings, and am about to start investing in the stock market, and I could use a little help. I had planned to invest mostly in mutual funds, but upon reading a post on here it sounds like index funds are much better? What exactly is an "index fund?" It sounds like it is an investment in the S&P, or the DJIA, or the NASDAQ, etc.... is that correct? Could someone please explain to me what exactly an index fund is?

I am starting with about 4K in savings, and my plan is to put 1000 in a regular savings account or a CD, 1000 in something fairly risky - like an individual stock or two, and 2000 in funds. Does this sound like a good starting plan? And, are index funds the way to go as opposed to mutual funds?

Any and all help is appreciated, I am trying to learn the ropes here -- thanks in advance.

Sniper
07-23-2005, 01:34 PM
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Could someone please explain to me what exactly an index fund is?

[/ QUOTE ]

An index fund is a very low fee mutual fund that invests in the basket of stocks that are included in a stock market index (like the dow, s&p, nasdaq 100, etc). The funds returns will be very close to the return of the actual index it represents.

As far as your plan goes...

One of the key questions to ask yourself is how much TIME are YOU willing to invest in making your investments grow?

If the answer is none, then stick your $$$ into an index fund and receive market level returns over the long term.

If the answer is a couple of hours a month, then do some research on the top performing mutual funds.

If the answer is a few hours a week, then do some research on long term individual winning stocks.

If your answer is a few hours a day, then do some research on taking advantage of short term market inefficiencies.

There are many other factors that need to be considered, but you should probably pick up an intro book on personal finance and another on basic stock market investing, so that you'll at least have the basic knowledge to understand the answers you receive.

If you are young (which I assume you are), I highly recommend David Bach's The Automatic Millionaire, which I believe should be required reading in high school.

ALawPoker
07-23-2005, 04:09 PM
Thanks for the help, Sniper.

So how do you go about purchasing index funds? Do they have a ticker symbol just like a stock? I recently opened an account with Scottrade, I assume you can invest in indexes through any brokerage firm, such as Scottrade, correct?

Also, what fees are associated with index funds? I didn't realize there were any fees other than the commision fee. To collect the fees do they simply take the money out of the net worth of the investment?

Thanks again for your help. And to answer your questions, yes I am young, 22 years old. And I am willing to put in at least a few hours a week. I think it will be fun, and will be a good divergence from poker. So I may focus some of my money on some individual stocks, as you suggest.

Sniper
07-23-2005, 05:08 PM
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So how do you go about purchasing index funds?

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Most brokers have a mutual fund info center (click the mutual fund link on scottrade). You can do basic research on mutual funds there.

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Do they have a ticker symbol just like a stock?

[/ QUOTE ]

Yes, most funds have a 5 letter symbol.

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Also, what fees are associated with index funds? I didn't realize there were any fees other than the commision fee. To collect the fees do they simply take the money out of the net worth of the investment?

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All funds collect a management fee which is taken out of the assets under management and reflected in their daily NAV (Net Asset Value = Price).

You should focus on no-load, no transaction fee (no broker commission) funds.

Funds also have other fees (related to fund expenses) that also are taken out before NAV calculations. You should read thru a fund perdpectus for a full understanding of how this works and what is typical.

[ QUOTE ]
So I may focus some of my money on some individual stocks, as you suggest.

[/ QUOTE ]

As a good rule of thumb, if you are intent on putting in an appropriate amount of time, you should be prepared to spend at least 1Hr/week/stock you hold + 2Hr+/week additional research.

ALawPoker
07-24-2005, 05:57 PM
Thanks again, Sniper.