AFM Reader: How Should I Go About Buying Stocks?

October 11, 2008

This arrived in my inbox yesterday:

I was wondering what’s the best way to go about buying stocks? I have about $10,000 that I am willing to invest and right now during this melt down seems like a good time. I have never bought stocks before, do you have any good advice?

Well, since you asked…

Since you have never bought stocks before I would recommend against buying individual stocks. Instead, focus on investing in stocks via a good low-cost index fund or exchange-traded fund (ETF). Keep in mind that if you go the ETF route, you will have brokerage charges. For simplicity’s sake, I would just open an account at Vanguard and put half of your money in either the Vanguard Total Stock Market Index fund (VTSMX) or the Vanguard S&P 500 Index fund (VFINX) and half in the Vanguard Total International Index fund (VGTSX).

If you’re concerned that the market hasn’t yet bottomed, you could dollar-cost-average your way into the market by investing a portion of your money over several weeks or months—of course that’s up to you.

The main thing is to be sure you have the stomach to ride out this storm. It could be years before we return to normal. One thing you could do to help with volatility would be to put a portion of your portfolio in the Vanguard Total Bond Market Index fund (VBMFX). Just remember that Vanguard has a $3,000 minimum investment for all their funds and since you are only investing $10,000, you won’t have enough to meet the minimums on more than three different funds.

I hope this helps.

4 responses to AFM Reader: How Should I Go About Buying Stocks?

  1. I am a big fan of buying individual stocks. However in this market I think you take the law of averages and buy an etf as said above. There is no doubt in my mind that the Total Stock Market index of the S&P 500 won’t be up in 2 years. However, it most likely will continue to go down (or swing both up and down going nowhere) for the next couple of months. We aren’t out of the woods yet.

    However when I look at my portfolio of individual stocks I see some great companies that have just been beat down by this economy. I have faith in them and don’t plan to sell even if I need to free up some cash.

    But open up a brokerage account with TDAmeritrade, Schwab or one of the many other good brokers and purchase these etfs – they trade just like stocks. In fact if we have another down week that’d be a great time to buy. If we have some sharp gains, you might wait for another pullback before purchasing. But at these levels if you have the cash to spare and the time to wait you’ll be rewarded.

  2. Index investing is slowly being accepted in Japan. But we can only buy “VTI” if we want to buy Vanguard ETF via Japanese securities.
    Hope to make good investment environment so that we can invest in law cost indices.

  3. I great way to allocate funds is utillizing Vanguards “Lifestyle All in One” funds. I plan to use my money in 5 years time horizon, so if your planning to invest for at least 5 years minimum, Dollar Cost Average Monthly into somthing like VASIX, which placed 20% S&P 500 Index ETF, 80% Cash/Bonds Vanguard ETF with an allocation component where asset allocation changes based on market conditions between the two. A nice coneservative way to seek the benefits of overall stocks while prices are discounted in a very convervative manner. Since it wrapped into one fund, your diversified with just the 3,000 minimum, just choose your time horizon.

    There are a set of 5-6 funds to choose from depending on your time horizon, the longer you plan to invest, the more money is allocated to stocks, and stocks in Emerging Marktets (from coneservative to agressive). Vanguard is the best option hands down. (no 12-b1, no front-back ends).

    https://personal.vanguard.com/us/funds/vanguard/LifeStrategyList

  4. hi koji. I’m interested in investing stocks. Please give some advise which Japanese securities should I go. I’m from Fukuoka.