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EASY INVESTMENT MANAGEMENT AT A YOUNG AGE: PURCHASE THREE OR FOUR STOCK INDEX MUTUAL FUNDS

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Big caveat here: I am not an investment counselor. The biggest hurdle for investing—and it causes
individuals to delay investing for years—is that it is complicated, and they don’t know where to put
their money.
Thus, my advice for people starting out is to make it as simple as possible. Otherwise, I know you
will wait years and miss opportunities to grow your money.
So, here is a quick lesson on stock mutual funds:
▪ Definition—An investment vehicle that is managed by a financial professional. A
mutual fund allows you to be invested in a number of stocks managed by that
professional rather than purchasing each of the individual stocks. This is called
diversification.
▪ Fees—All mutual funds charge fees. Some charge additional sales fees. I’ll discuss
sales fees further in the next principle.
▪ Index mutual funds—These funds focus on replicating the performance of a specific
financial market or specific type of stock category (e.g., large company stocks). Since
they don’t require active management, they charge lower fees.
▪ Types of stock mutual funds—You can invest in different categories of mutual funds,
including large company (large cap), mid-size companies (mid-cap), and small
company (small-cap). Categories also include many specific areas, including
international, country specific (e.g., China), technology, and health.
▪ Growth versus value funds—Growth funds consist of companies in high-growth
industries that are expected to have high future earnings growth. Value funds are those
that are trading at a discount in relation to their expected future value because they are
in depressed industries.
When I started out, I put a total of $4,000 in four different stock index mutual funds (low fee/no sales
fee funds):
1. Large company value ($1,000)
2. Mid-cap company growth ($1,000)
3. Small company growth ($1,000)
4. International growth ($1,000)
From this basic start, I grew my stock portfolio. In twenty-five years, I haven’t varied much from this
focus. I’ve just added different categories and have grown my portfolio from there. More importantly,
I have always kept my investments very simple and easy for me to understand. I hope I’ve done the
same for you.
Please don’t do exactly what I did. Just take the learning and develop a simple approach that makes it
easy for you to invest. I will remind you again that I am not an investment advisor. I just want you to
invest and to do so at an early age.

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