Beginning investment
"Your question is very broad. Whole books can and have been written on this topic. The right place to start is for you and your wife to sit down together and figure out your goals. Where do you want to be in 5 years, 25 years, 50 years? To quote Yogi Berra ""If you don't know where you are going, you'll end up someplace else."" Let's go backwards. 50 Years I'm guessing the answer is ""retired, living comfortably and not having to worry about money"". You say you work an unskilled government job. Does that job have a pension program? How about other retirement savings options? Will the pension be enough or do you need to start putting money into the other retirement savings options? Career wise, do you want to be working as in unskilled government jobs until you retire, or do you want to retire from something else? If so, how do you get there? Your goals here will affect both your 25 year plan and your 5 year plan. Finally, as you plan for death, which will happen eventually. What do you want to leave for your children? Likely the pension will not be transferred to your children, so if you want to leave them something, you need to start planning ahead. 25 Years At this stage in your life, you are likely talking, college for the children and possibly your wife back at work (could happen much earlier than this, e.g., when the kids are all in school). What do you want for your children in college? Do you want them to have the opportunity to go without having to take on debt? What savings options are there for your children's college? Also, likely with all your children out of the house at college, what do you and your wife want to do? Travel? Give to charity? Own your own home? 5 Years You mention having children and your wife staying at home with them. Can your family live on just your income? Can you do that and still achieve your 50 and 25 year goals? If not, further education or training on your part may be needed. Are you in debt? Would you like to be out of debt in the next 5-10 years? I know I've raised more questions than answers. This is due mostly to the nature of the question you've asked. It is very personal, and I don't know you. What I find most useful is to look at where I want to be in the near, mid and long term and then start to build a plan for how I get there. If you have older friends or family who are where you want to be when you reach their age, talk to them. Ask them how they got there. Also, there are tons of resources out there to help you. I won't suggest any specific books, but look around at the local library or look online. Read reviews of personal finance books. Read many and see how they can give you the advice you need to reach your specific goals. Good luck!" The advice I have is short and sweet. Be an investor, not a speculator. Adopt the philosophy of Warren Buffet which is the 'buy and hold' philosophy. Avoid individual stocks and buy mutual funds or ETFs. Pick something that pays dividends and reinvest those dividends. Don't become a speculator, meaning avoid the 'buy low, sell high' philosophy.  EDIT:For some reason I cannot add a comment, so I am putting my response here.  @jad The 'buy low, sell high' approach makes money for the stock broker, not necessarily you. As we learn in the movie Trading Places, each buy or sell creates a commission for the broker. It is those commission expenses that eat away at your nestegg. Just don't sell. If a security is trading at $10 a share and pays $0.25 a share each quarter then you are getting 10% ROI if you buy that security (and if it continues to pay $0.25 a share each quarter). If the price goes up then the ROI for new buyers will go down, but your ROI will still be the same. You will continue to get 10% for as long as you hold that security. A mutual fund buys the individual stocks for you. The value of the fund is only calculated at the end of the day. An ETF is like a mutual fund but the value of the ETF is calculated moment by moment. I am a huge fan of jim Cramer and while you may not get CNBC in Australia you can prolly catch jim cramers podcasts If you have an iPod or iPhone which really will help your financial literacy a bit.  Here's my advice . Set up a IRA or tax advantaged accounts if they exist in Australia (sorry I only know usa markets really well).  Then you can pick investments to go in there or in a different investment account. I am a huge fan of index funds in particular Etf index funds because they are still very liquid. I prefer the free or no commission funds by Charles scwabb but vanguard is also very good or maybe even better. A few great funds are the vanguard total stock market fund (it invests in every company in the world) and any fund that mirrors the s&p 500 or the Russell 2000 midcap.  Another good idea just to make room to save money is make a budget with your wife. I like the other post about planning in reverse . Setting up a budget to see your expenses and then make automatic pay dedications that go into savings or different accounts for savings.
Fahad, in finance we make a distinction between investments that tend to grow in value and assets that hold value.  Investments that grow in value are generally related to investing in well-thought out businesses.  Investments can be done in retirement accounts through stocks and bonds but also owning part of a business directly.  Good investments make more and more money off the money you put in. Common examples of assets include gold and other non-productive property like real-estate you don't rent or cars.  You can even have some assets in your retirement account as many would argue government bonds behave like assets.  All of these things tend to (more or less) go up in value as the cost of everything goes up in value, but don't tend to make you any excess money in the long run. There is certainly a place for both investments and assets.  Especially as a young person it is good to lean toward investments as you likely have a lot of time for the money to grow as you get older.  As RonJohn suggests, in the United States this is fairly easy as retirement accounts are common there is a long history of stable financial law even in crises.  Pakistan's institutions are fairly stable and improving but still assets and investments of all types can be riskier. So, I recommend taking your father's advice... partially. Having some assets are good in riskier situations, but good investments are generally the way to grow comfortably wealthy.  A good mix of the two is the way to grow wealthy slowly while protecting yourself from risk.  You, your father and your neighbors know you local situation better than I, who has only visited a number of Pakistan's neighboring countries, so I can't really give more detailed advice but hopefully this gets you started. So, first -- good job on making a thorough checklist of things to look into. And onto your questions -- is this a worthwhile process? Even independent of specific investing goals, learning how to research is valuable. If you decided to forgo investing in stocks directly, and chose to only invest in index funds, the same type of research skills would be useful. (Not to mention that such discipline would come in handy in other fields as well.) What other 80/20 'low hanging fruit' knowledge have I missed? While it may not count as 'low hanging fruit', one thing that stands out to me is there's no mention of what competition a company has in its field. For example, a company may be doing well today, but you may see signs that it's consistently losing ground to its competition. While that alone may not dissuade you from investing, it may give you something to consider.  Is what I've got so far any good? or am I totally missing the point. Your cheat sheet seems pretty good to me. But a lot depends on what your goals are. If you're doing this solely for your education and experience, I would say you've done well. If you're looking to invest in a company that is involved in a field you're passionate about, you're on the right track. But you should probably consider expanding your cheat sheet to include things that are not 'low hanging fruit' but still matter to you.  However, I'd echo the comments that have already been made and suggest that if this is for retirement investments, take the skills you've developed in creating your cheat sheet and apply that work towards finding a set of index funds that meet your criteria.  Otherwise happy hunting! This is literally the worst article ever.  First dividends are not guaranteed, and the higher the yield the higher the risk for a dividend paying stock. When buying a stock that pays dividends make sure they have the cash flows to cover it long term.  Utility stocks are interest rate sensitive. If we head into a period of high interest rates, utility stocks are going to underperform, if not get killed.  Exchange traded funds can be extremely risky, and some have much higher fees than mutual funds.  Variable Annuities should never be purchased unless you have exhausted all other tax deferred strategies, and then probably still to be avoided because of high fees.  Money markets and CDs aren't really investments. They're a cash alternatives that May not keep up with inflation. Okay, I think I managed to find the precise answer to this problem! It involves solving a non-linear exponential equation, but I also found a good approximate solution using the truncated Taylor series. See below for a spreadsheet you can use. Let's start by defining the growth factors per period, for money in the bank and money invested:   Now, let S be the amount ready to be invested after n+1 periods; so the first of that money has earned interest for n periods. That is,  The key step to solve the problem was to fix the total number of periods considered. So let's introduce a new variable: t = the total number of time periods elapsed So if money is ready to invest every n+1 periods, there will be t/(n+1) separate investments, and the future value of the investments will be:  This formula is exact in the case of integer t and n, and a good approximation when t and n are not integers. Substituting S, we get the version of the formula which explicitly depends on n:  Fortunately, only a couple of terms in FV depend on n, so we can find the derivative after some effort:  Equating the derivative to zero, we can remove the denominator, and assuming t is greater than zero, we can divide by the constant ( 1-G t ):  To simplify the equation, we can define some extra constants:    Then, we can define a function f(n) and write the equation as:  Note that α, β, γ, G, and R are all constant. From here there are two options: Use Newton's method or another numerical method for finding the positive root of f(n). This can be done in a number of software packages like MATLAB, Octave, etc, or by using a graphics calculator. Solve approximately using a truncated Taylor series polynomial. I will use this method here. The Taylor series of f(n), centred around n=0, is:  Truncating the series to the first three terms, we get a quadratic polynomial (with constant coefficients):  Using R, G, α, β and γ defined above, let c0, c1 and c2 be the coefficients of the truncated Taylor series for f(n):    Then,  n should be rounded to the nearest whole number. To be certain, check the values above and below n using the formula for FV. Using the example from the question: For example, I might put aside $100 every week to invest into a stock   with an expected growth of 9% p.a., but brokerage fees are $10/trade.   For how many weeks should I accumulate the $100 before investing, if I   can put it in my high-interest bank account at 4% p.a. until then? Using Newton's method to find roots of f(n) above, we get n = 14.004. Using the closed-form approximate solution, we get n = 14.082. Checking this against the FV with t = 1680 (evenly divisible by each n + 1 tested): Therefore, you should wait for n = 14 periods, keeping that money in the bank, investing it together with the money in the next period (so you will make an investment every 14 + 1 = 15 weeks.) Here's one way to implement the above solution with a spreadsheet. StackExchange doesn't allow tables in their syntax at this time, so I'll show a screenshot of the formulae and columns you can copy and paste: Formulae:  Copy and paste column A: Copy and paste column B: Results:  Remember, n is the number of periods to accumulate money in the bank. So you will want to invest every n+1 weeks; in this case, every 15 weeks. The total number of shares on April 1st is 100 + 180 + 275 = 555.  The price on April 1st is required.  The current price is stated as $2, but $2 * 555 = $1110 and the current fund values is stated as $1500.  Opting to take the current value as $1500, the price on April 1st can be calculated as $1500/555 = $2.7027. The amounts invested as number of shares x share price are: (Note these investment amounts do not match the example scenario's investment amounts, presumably because the example numbers are just made up.) The monthly returns can be calculated: The current values for each investor as invested amount x returns are: Checking the total: The fund prospectus is a good place to start. The standard advice is to have 3-6 months worth of expenses saved up in a highly liquid savings or money market account.   After you have that saved you could look to start investing.  I would recommend reading the bogleheads investment wiki (https://www.bogleheads.org/wiki/Getting_started).  Even if you aren't planning on following the bogle head's way of passive investing it will give you a lot of good info on options available to you to start investing. You are smart to read books to better inform yourself of the investment process.  I recommend reading some of the passive investment classics before focusing on active investment books: If you still feel like you can generate after-tax / after-expenses alpha (returns in excess of the market returns), take a shot at some active investing.  If you actively invest, I recommend the Core & Satellite approach: invest most of your money in a well diversified basket of stocks via index funds and actively manage a small portion of your account.  Carefully track the expenses and returns of the active portion of your account and see if you are one of the lucky few that can generate excess returns. To truly understand a text like The Intelligent Investor, you need to understand finance and accounting.  For example, the price to earnings ratio is the equity value of an enterprise (total shares outstanding times price per share) divided by the earnings of the business.  At a high level, earnings are just revenue, less COGS, less operating expenses, less taxes and interest.  Earnings depend on a company's revenue recognition, inventory accounting methods (FIFO, LIFO), purchase price allocations from acquisitions, etc.  If you don't have a business degree / business background, I don't think books are going to provide you with the requisite knowledge (unless you have the discipline to read textbooks).  I learned these concepts by completing the Chartered Financial Analyst program. If you're worried about investing all at once, you can deploy your starting chunk of cash gradually by investing a bit of it each month, quarter, etc. (dollar-cost averaging).  The financial merits and demerits of this have been debated, but it is unlikely to lose you a lot of money, and if it has the psychological benefit of inducing you to invest, it can be worth it even if it results in slightly less-than-optimal gains. More generally, you are right with what you say at the end of your question: in the long run, when you start won't matter, as long as you continue to invest regularly.  The Boglehead-style index-fund-based theory is basically that, yes, you might save money by investing at certain times, but in practice it's almost impossible to know when those times are, so the better choice is to just keep investing no matter what.  If you do this, you will eventually invest at high and low points, so the ups and downs will be moderated. Also, note that from this perspective, your example of investing in 2007 is incorrect.  It's true that a person who put money in 2007, and then sat back and did nothing, would have barely broken even by now.  But a person who started to invest in 2007, and continued to invest throughout the economic downturn, would in fact reap substantial rewards due to continued investing throughout the post-2007 lows.  (Happily, I speak from experience on this point!) Thanks for the huge insight. I am still a student doing an intern and this was given as my first task, more of trying to give the IA another perspective looking at these funds rather than picking. I was not given the investors preference in terms of return and risk tolerances so it was really open-ended.   However, thanks so much for the quick response. At least now I have a better idea of what I am going to deliver or at least try to show to the IA. "I tell you how I started as an investor: read the writings of probably the best investor of the history and become familiarized with it: Warren Buffett. I highly recommend ""The Essays of Warren Buffett"", where he provides a wise insight on how a company generates value, and his investment philosophy. You won't regret it! And also, specially in finance, don't follow the advice from people that you don't know, like me." I don't like your strategy.  Don't wait.  Open an investment account today with a low cost providers and put those funds into a low cost investment that represents as much of the market as you can find. I am going to start by assuming you are a really smart person.  With that assumption I am going to assume you can see details and trends and read into the lines.  As a computer programmer I am going to assume you are pretty task oriented, and that you look for optimal solutions. Now I am going to ask you to step back.  You are clearly very good at managing your money, but I believe you are over-thinking your opportunity. Reading your question, you need a starting place (and some managed expectations), so here is your plan: Now that you have a personal retirement account (IRA, Roth IRA, MyRA?) and perhaps a 401(k) (or equivalent) at work, you can start to select which investments go into that account.  I know that was your question, but things you said in your question made me wonder if you had all of that clear in your head. The key point here is don't wait.  You won't be able to time the market; certainly not consistently.  Get in NOW and stay in.  You adjust your investments based on your risk tolerance as you age, and you adjust your investments based on your wealth and needs.  But get in NOW.   Over the course of 40 years you are likely to be working, sometimes the market will be up, and sometimes the market will be down; but keep buying in.  Because every day you are in, you money can grow; and over 40 years the chances that you will grow substantially is pretty high.  No need to wait, start growing today. Things I didn't discuss but are important to you: "You can start investing with any amount. You can use the ShareBuilder account to purchase ""partial"" stocks through their automatic investment plan. Usually brokers don't sell parts of stock, and ShareBuilder is the only one allowing it IMHO using its own tricks. What they do basically is buy a stock and then divide it internally among several investors who bought it, while each of the investors doesn't really own it directly. That's perfect for investing small amounts and making first steps in investing." "Wow, this turns out to be a much more difficult problem than I thought from first looking at it. Let's recast some of the variables to simplify the equations a bit. Let rb be the growth rate of money in your bank for one period. By ""growth rate"" I mean the amount you will have after one period. So if the interest rate is 3% per year paid monthly, then the interest for one month is 3/12 of 1% = .25%, so after one month you have 1.0025 times as much money as you started with. Similarly, let si be the growth rate of the investment. Then after you make a deposit the amount you have in the bank is pb = s. After another deposit you've collected interest on the first, so you have pb = s * rb + s. That is, the first deposit with one period's growth plus the second deposit. One more deposit and you have pb = ((s * rb) + s) * rb + s = s + s * rb + s * rb^2. Etc. So after n deposits you have pb = s + s * rb + s * rb^2 + s * rb^3 + ... + s * rb^(n-1). This simplifies to pb = s * (rb^n - 1)/(rb - 1). Similarly for the amount you would get by depositing to the investment, let's call that pi, except you must also subtract the amount of the broker fee, b. So you want to make deposits when pb>pi, or s*(ri^n-1)/(ri-1) - b > s*(rb^n-1)/(rb-1) Then just solve for n and you're done! Except ... maybe someone who's better at algebra than me could solve that for n, but I don't see how to do it. Further complicating this is that banks normally pay interest monthly, while stocks go up or down every day. If a calculation said to withdraw after 3.9 months, it might really be better to wait for 4.0 months to collect one additional month's interest. But let's see if we can approximate. If the growth rates and the number of periods are relatively small, the compounding of growth should also be relatively small. So an approximate solution would be when the difference between the interest rates, times the amount of each deposit, summed over the number of deposits, is greater than the fee. That is, say the investment pays 10% per month more than your bank account (wildly optimistic but just for example), the broker fee is $10, and the amount of each deposit is $200. Then if you delay making the investment by one month you're losing  10% of $200 = $20. This is more than the broker fee, so you should invest immediately. Okay, suppose more realistically that the investment pays 1% more per month than the bank account. Then the first month you're losing 1% of $200 = $2. The second month you have $400 in the bank, so you're losing $4, total loss for two months = $6. The third month you have $600 in the bank so you lose an additional $6, total loss = $12. Etc. So you should transfer the money to the investment about the third month. Compounding would mean that losses on transferring to the investment are a little higher than this, so you'd want to bias to transferring a little earlier. Or, you could set up a spreadsheet to do the compounding calculations month by month, and then just look down the column for when the investment total minus the bank total is greater than the broker fee. Sorry I'm not giving you a definitive answer, but maybe this helps." I don't want to get involved in trading chasing immediate profit  That is the best part. There is an answer in the other question, where a guy only invested in small amounts and had a big sum by the time he retired. There is good logic in the answer. If you put in lump sum in a single stroke you will get at a single price. But if you distribute it over a time, you will get opportunities to buy at favorable prices, because that is an inherent behavior of stocks. They inherently go up and down, don't remain stable. Stock markets are for everybody rich or poor as long as you have money, doesn't matter in millions or hundreds, to invest and you select stocks with proper research and with a long term view. Investment should always start in small amounts before you graduate to investing in bigger amounts. Gives you ample time to learn. Where do I go to do this ?  To a bank ? To the company, most probably a brokerage firm. Any place to your liking. Check how much they charge for brokerage, annual charges and what all services they provide. Compare them online on what services you require, not what they provide ? Ask friends and colleagues and get their opinions. It is better to get firsthand knowledge about the products. Can the company I'm investing to be abroad? At the moment stay away from it, unless you are sure about it because you are starting. Can try buying ADRs, like in US. This is an option in UK. But they come with inherent risk. How much do you know about the country where the company does its business ? Will I be subject to some fees I must care about after I buy a stock? Yes, capital gains tax will be levied and stamp duties and all.