Is it a good idea to put money into bonds and mutual funds?

Question

I heard that at least with solid bonds you are guaranteed the money back at least and with mutual funds you get much much much more in return but over a long period of time. I am actually 16 and only have 500 bucks to my name but these are the things I am hearing. Any other good investing ideas? What are the most profitable and quickest ways to earn money without playing the stock market?

Answer 1

First, I commend you on your desire to start saving.  At 16, this is quite an admirable trait.

Second, PLEASE do yourself a favor and never get stuck on the  idea of making a quick buck in the stock market.  Sounds like you're already there, judging from the last statement in your post.  Most people will make several small, profitable trades when trying to play the market, and then take a beating on 1 single trade just waiting for the stock they purchased to come back up.  It usually keeps dropping until the person finally gives up and sells for a large loss.

I would highly recommend you parking your $500 in an Exchange Traded Fund (ETF) based upon a diversified holding.  For instance, the Vanguard Total Stock Market ETF (symbol: VTI) is an excellent place to start building your base holdings.  ETFs work like stocks, so there is no minimum purchase requirement, unlike most mutual funds or index funds, which is advantageous in that you only have $500 and the minimums on mutual/index funds are normally greater than $1000.  Each share of the ETF mentioned above, VTI, represents ownership of many, many companies throughout the entire stock market, so you would be extremely well diversified.  

It should also be said that, if you might need this $500 in the near term (3-5 years), stick with savings accounts or CDs.  Investments can turn against you and you need to have the time to wait them out.  If you won't need the funds, then go ahead and start your investment holdings, and keep adding to it!  Even if it's only $10/week, you will be amazed by how much you accumulate as time goes by.

All the best!

Answer 2

well, mutual funds are basically just an investment pool - to get those larger returns (which are not guarenteed, by the way), you would in effect be playing the market.

actually, in any investment, you're going to be involved in the market.

bonds do not necessarily ever earn you any money.  sure, good quality bonds will return the face value upon maturity, but if the coupon rate causes the bond to sell at a premium, and then interest rates rise, it is still possible to lose some money in bonds.

the only riskless investment is government debt.  if you want to make sure that the value of the bond does not fluctuate very much, look for bonds with shorter maturities.

but nearly all bonds have a face value of $1,000 or more (which isn't to say that you can't find bonds that will sell for much, much less than that, but those will either be junk bonds, or low coupon bonds - zero coupon bonds will often sell for less than $100 if they have long maturities).

you'd be best off putting the money in a savings account like ING direct where there are no minimums, you will make a little bit of interest, and your deposits are all insured by the federal government.

as far as what the quickest way to turn a significant profit is: every possible answer will bring incredible volatility and serious risk.  if you don't like risk, get a savings account.  if you want to make money, work for it, or be willing to accept risk.

Answer 3

Forget individual bonds.  You need at least $5000 to buy even 1 of those (and they go up and down based on the interest rate, so you are't guaranteed your money unless you hold them to maturity).

Answer 4

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Answer 5

First, there is no guarantee in investment. Even Bond also got the risk.

You can "park" your money for a short period (1 to 6 months) in Bond Fund ( Mutual Fund ) when:

1) market situation is not too clear

2) you had reach your short term investment goal in Equity Funds ( Mutual Fund )

As you are only 16 of age with 500, I would suggest you to save your money in the bank first before you have a solid planning.

regards

Adrian