The Motley Fool Investment Guide for Teens by David & Tom Gardner

Author:David & Tom Gardner
Language: eng
Format: epub
Publisher: Touchstone

You can invest in a mutual fund tied to any of these indexes. We recommend contacting Vanguard in Valley Forge, Pennsylvania, at 800-871-3879 or via www.vanguard.com.

Why do these indexes exist? Well, they make it easy for people to read how a group of companies is doing, without having to make numerous calculations. There are more indexes than those we’ve listed. But we’ve given you the primary ones. If you buy shares of an S&P 500 index fund, you instantly own a tiny chunk of each of its five hundred companies. Your holdings are weighted from largest to smallest. So you’ll own a lot more Microsoft (the second largest company in the world as of this writing) than you will of Kellogg’s (the dominant maker of breakfast cereals, but nonetheless a lot smaller than Microsoft).

Owning shares of funds based on indexes such as the S&P 500 and the Wilshire 5000 is in many ways like owning a piece of all American business. If you have faith that over the next ten, twenty, or thirty years America’s economy will flourish, then consider investing in an index fund. It truly is our favorite stock market investment.

If you want to try to beat the 9–11 percent annual growth we think the market will offer over the next forty years, then you need to learn more about investing in individual stocks. That means more work, but it can also mean greater fun, more satisfaction, substantial intellectual reward, and more growth of your savings. If you choose to start and end with just index funds, though, you’ll do very well. In fact, you’ll do better than most professional investors!

[A personal apology from the Gardners (yes, this is called for): We really don’t like to overuse the exclamation point. You’ve heard the same thing from your writing teacher. People! Who overuse! The exclamation point! Bore you! And over time you can’t take their hyperbole! Seriously! Yeah, yeah, we know . . . we took the same classes. We agree with these teachers. But this chapter has been so steeped in irony—indeed, more shocking skullduggery at every page turn—that we would not be doing these truths justice if we were to punctuate them with . . . mere . . . periods.]

So this is another of our cardinal points. We’ve made a couple of others. Summed up, they suggest that you should:

1. pay down all credit card debt at the end of the month.

2. save 5–20 percent of your annual salary.

3. invest those savings in a total market index fund for five years or more.

Done throughout your life, you should be able to pursue your dreams, retire early, and dance a mean jig.

Take It from Me

My Investing Life—So Far

Three years ago, I opened an account with a discount brokerage. I was instantly in the stock market game. Drunk on power, I felt like a major player in the financial markets. With a point and click, I moved hundreds of dollars from stock to stock: Papa John’s Pizza, Indonesian Telecom, 3Dfx, Analysts International.

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