Where To Begin If You Have Never Managed a Portfolio*

If someone asked you what to do with an inheritance or 401(k) sum of money, what advice would you give them?  Here are some basic ideas for a novice investor.

• Assume the money is in your checking account and available to be invested.
• Open up a broker account with a discount broker.  For example, go to a “bricks and mortar” location if possible and fill out the forms.  A good idea is to print out the forms in advance and fill them out at home.  Then take the forms into the broker (TDAmeritrade for example) and have them look over the forms to make sure everything is accurate.
• If you are a couple, set up separate accounts for each person.  I think it is wise to keep investment portfolios separate.
• Invest the minimum amount in each account.  If there is no minimum, begin with a minimum of at least $1,000 in each account.  Another option is to place all the available money in a money market account so it is available for investing.  If the money is coming from an inheritance, invest the money in a taxable account.  If the money is coming from a tax deferred account, and you can set up a self-directed IRA account, do that.
• With the market as high as it now is, I certainly would not invest everything in the stock market.  Be patient.  Take anywhere from six months to two years to fully invest the money.  The time will depend on the amount of money to invest.  There is nothing quite so discouraging as to loose money right out of the starting blocks.
• By all means, use index funds or index ETFs rather than trying to select individual stocks.
• At this point I would select one of the ITA portfolios to follow on this blog.
• Begin an investing education program by reading some of the Top Ten Investment Books.
• Learn how to use the Cluster Weighting Momentum spreadsheet.
• I highly recommend using the TLH Spreadsheet to track portfolio and benchmark performance.

Coming back to the original question, what advice would you pass on to the novice investor?

* This blog was moved from the original blog site and revised slightly.