The Cellar - View Single Post

Undertoad · 05-27-2004, 04:39 PM

Ok, so y'know, stocks have always been very big moneymakers in the long run. The Dow Jones is an index of stocks and you can see on the graph on this page that, anywhere on that line, if you put your money in and then take it out 30 years later, you've made a shitload of money, right?

http://finance.yahoo.com/q/bc?s=^DJI...off&z=m&q=l&c=

BUT, if you put all your money in ONE stock, that's VERY risky - because that one stock could turn out to be Enron. So, they invented mutual funds, specifically for people who don't know about the stock market.

In a mutual fund, they pool all the money from a bunch of people and buy many different stocks instead of just one or two. So you could spread your money around to 100 different stocks without having to be a millionaire, and somebody in an office in Paoli, PA* manages all this stuff for you without you knowing a bit about it... and every three months they send you a piece of paper to tell you how much money it is so far.

These days they offer scads of different funds that group stocks together differently - so you could have one fund that was all risky, and another that was very conservative, different kinds of funds for different people's needs. This makes sense, because if you're 25 you can afford to risk more of your money, while if you're 65 you want to make sure it isn't going to disappear in a short time.

"401k" plans often, but not always, say you can spread your money around in different ways, so you can make the choices that are best for you. The problem is that sometimes they also give you the option of putting that money into the company stock. This is what blew out a lot of the Enron people - they were stupid, they chose to put 100% of their 401k into Enron. For a short while it looked like a great deal as their money skyrocketed, and then they found out it was the worst deal ever.

So if you have the option you should put 0% of your 401k into the company stock, and just pick a fund that works for what level of risk you like, and don't get too tricky about it. And when they send you the pieces of paper just put them away in a box somewhere and forget about them.

*if the funds are Vanguard, which is in Paoli.

05-27-2004, 04:39 PM	#3
Undertoad Radical Centrist Join Date: Jan 2001 Location: Cottage of Prussia Posts: 31,423	Ok, so y'know, stocks have always been very big moneymakers in the long run. The Dow Jones is an index of stocks and you can see on the graph on this page that, anywhere on that line, if you put your money in and then take it out 30 years later, you've made a shitload of money, right? http://finance.yahoo.com/q/bc?s=^DJI...off&z=m&q=l&c= BUT, if you put all your money in ONE stock, that's VERY risky - because that one stock could turn out to be Enron. So, they invented mutual funds, specifically for people who don't know about the stock market. In a mutual fund, they pool all the money from a bunch of people and buy many different stocks instead of just one or two. So you could spread your money around to 100 different stocks without having to be a millionaire, and somebody in an office in Paoli, PA* manages all this stuff for you without you knowing a bit about it... and every three months they send you a piece of paper to tell you how much money it is so far. These days they offer scads of different funds that group stocks together differently - so you could have one fund that was all risky, and another that was very conservative, different kinds of funds for different people's needs. This makes sense, because if you're 25 you can afford to risk more of your money, while if you're 65 you want to make sure it isn't going to disappear in a short time. "401k" plans often, but not always, say you can spread your money around in different ways, so you can make the choices that are best for you. The problem is that sometimes they also give you the option of putting that money into the company stock. This is what blew out a lot of the Enron people - they were stupid, they chose to put 100% of their 401k into Enron. For a short while it looked like a great deal as their money skyrocketed, and then they found out it was the worst deal ever. So if you have the option you should put 0% of your 401k into the company stock, and just pick a fund that works for what level of risk you like, and don't get too tricky about it. And when they send you the pieces of paper just put them away in a box somewhere and forget about them. *if the funds are Vanguard, which is in Paoli.