New Venture Lab: Equipping Christian Entrepreneurs

Question

I have $50,000 to invest and I am interested in investing in the stock market.  What would you recommend?

Answer

The answer that follows does not constitute investment advice and I am not an investment advisor; any investment you make is at your own risk. 

First of all, your investment strategy should include more than just public stocks and will really depend upon your financial goals and your risk profile.  For that portion of your assets that you do want to invest in the stock market, buying individual stocks may not be the best bet, especially for amateurs like you and me.  I personally like to buy index funds or exchange traded funds if I am targeting a specific industry.  Most professional stock pickers that spend all day studying a company's fundamentals and a specific industry still have a very hard time out-performing the market, let alone us part-timers.  Also, if you start doing a lot of buying and selling with a small stake, you will end up burning a lot of cash in friction costs (trading fees and taxes on the short-term gains). 

What I do with my public equity portfolio is buy balanced index funds for the long term so all gains are long-term gains (more favorable tax treatment) and no transaction fees after the initial purchase and even then it is spread across a large diversified buy. 

As for the portfolio mix, I follow something like a 25%-25%-25%-25% strategy with 25% in a large-cap index fund (large companies -- check out SPY for an S&P 500 index), 25% in a mid-cap index fund (middle market companies -- check out the MDY fund), 25% in a small-cap index fund such as QQQQ and 25% in a bond index fund (many to choose from).  Large cap stands for large capitalization or simply large companies, typically Fortune 500, Standard and Poor 500, etc and so forth on down the line with small cap being smaller early stage public companies. 

With this strategy, I will only pay for four trades to buy the four index funds and my portfolio will rise and fall with the market, which can be a little scary if it starts to go down, but just remember that the market returns 12%+ year in and year out over the long haul, so for a long-term investment strategy, it beats almost every other kind of public equity investment strategy. 

If you still want to study and buy individual stocks, I recommend Peter Lynch's book "Beating the Street" or Benjamin Graham's book "The Intelligent Investor."  You can buy the books by clicking here: http://www.newventurelabs.com/abookstore/