I opened my first IRA account on September 17, 2001, the first day the New York Stock Exchange opened after 9/11. I had several goals in mind. Obviously, planning for retirement was one, but another desire was to show my faith in America’s resiliency in the face of terrorism and to do my small part to show our enemies that we will not be intimidated.
I started the account through ShareBuilder, a company that allows you to build up your portfolio through dollar-cost averaging and dividend re-investment, which — in a nutshell — encourages you to invest the same amount every month in a set portfolio of equities, averaging out your risk as the share prices rise and fall. The most basic rule of investing is buy low, sell high (or at least don’t buy high). So, for example, is Share A’s price is $10 today and you’re investing $100 per month, then you buy 10 shares this month. If the price rises to $20 next month, then you buy only 5 shares and if it falls to $1, then you buy 100 shares. Obviously, you want to be invested in solid companies that will grow over time, not volatile or risky stocks.
Anyway, I set up to invest in four different equities, and the one I was most personally interested in was Apple. On that day of my first investment Apple was trading at $16.85. That was one month before Apple introduced the iPod. Today Apple was trading in the high $180s.
Now, I wasn’t faithful to the dollar-cost averaging plan. I only invested for 12 months before circumstances dictated I pause my investing, and I only just resumed a few months ago. Nevertheless, my total gain to date on my investment in Apple has been 1,239.05 percent. That’s percent.
Of course, as the advertisements warn you, past performance is not an indicator of future returns. Still, that’s a mighty nice little nest egg we’ve got there. I’d love to see it continue growing. Now if only the other equities in my portfolio weren’t such turkeys, I’d be much happier. (Oh okay only one of them is a turkey, a big orange hammer-carrying turkey.)
I’m sure you know this, but you are taking on a lot of risk by investing in only four stocks. Of course, the upside is that you may make get a huge return, as you have on the Apple stock. But the downside is that you could also be investing in the next Enron. Conventional wisdom from most financial advisors seems to be that mutual funds are a better bet, because you still get a good long-term rate of growth, but with substantially less risk, since most mutual funds are diversified across a large number of stocks (and possibly bonds as well).
I’m partial to Vanguard myself, because of their low fees, good fund selection, excellent reputation, user-friendly web site, and good customer service. And you can set up a Roth IRA or traditional IRA account with automatic deposits from your bank account every month, so that you still get the benefits of dollar-cost averaging. (I don’t work for Vanguard; I’m just a happy customer.)
Actually, it’s not four stocks. One of them is a mutual fund.
Back when it was running about $25 my in-laws bought me Apple stock for my birthday. That same year they bought my husband, their son, Microsoft for his birthday. Guess we know which kid they love best!
Glad to hear you have a mutual fund in there as well. That should decrease your overall risk somewhat. And of course, for all my talk about avoiding risk, I can’t say that I’ve ever had an investment that increased in value by a factor of 12 in just a few years’ time!