Carrie Schwab: I would say the best place to start for the young person or any person is in asset allocation mutual fund. Mutual funds are really great, are perfect for somebody who doesn’t have the time to really follow their investments, nor really have the knowledge.
An asset allocation mutual fund invests in diversified portfolios, stocks or in cash. Depending in the asset allocation that you choose, or the mutual fund you chose, depends on your risk tolerance, how much risk can you accept internally and what your time frame is for investing.
Another alternative that’s becoming very popular is the Life-Cycle Fund. It is similar to the asset allocation fund, where again it is in a diverse portfolio of stocks, bonds and cash. As time goes on it readjust the amount of stocks in bond as you get closer to your target date. So, becomes more conservative.
Those are two really good examples. But keep in mind that anybody who plans to invest, you need to set that money a side or you mentally set that money aside for at least five years. Other wise you risk selling at a time when the market might have a short term dip.
Recorded on: March 27, 2008