Devoted to understanding the basics and fundamentals of investing

Thank you for a wonderful article.

Being young myself, I have been blessed that I was given the opportunity to open my first Roth IRA when I was 16, and contributed yearly ever since.

In my own experience, investing on a consistent basis for an extended period of time is almost a sure bet to beat even the hottest stock pickers.

Thanks again!

Jason, you've been investing since 16. What kinds of things do you invest in? I know readers with kids would be interested. Share some of your experience if you would.

Thanks,
Larry

When my father helped me open my Roth IRA at the age of 16, I purchased two large cap mutual funds. Even though I had no idea what IRAs and mutual funds where, my dad kept telling me that "compounding is your best friend". Because of his wisdom, I have contributed to my IRAs every year since. (and boy have the results been nice!)

Throughout college, I was also fortunate enough to have an job with a 401K. Again, with the guidance from my dad, he explained what exactly a 401K was, how company matching was "free money", and why it was stupid not to take full advantage. (After graduation, I rolled-over 4 years of 401K contributions and earnings into a tradional IRA.)

This past year, I graduated from college, and my take on investing has changed from "something you are just supposed to do" to something I absolutely love and can't learn enough about. At the age of 23, my current portfolio is comprised of (low expense, no load!) mutual funds - approx. 90% stock/10% bonds.

The most important piece of advice I can give parents who are trying to teach their children about investing, is to lead by example. Make it fun for your kids. Even something as simple as paying them interest on their saved allowance will instill values.

Unfortunately, most young people my age (early twenties, fresh out of college) have absolutely no grasp on the importance of saving money, let alone investing. But, in the world of compounding, nothing beats time.

Larry asks me in his posting whether a 5-Bar System, which I described elsewhere on this blog, would beat the Wilshire 5000's performance index, as a reliable market-timing tool. That's a very good question, and I wish I knew the answer. I don't however, because I haven't done enough empirical data analysis to establish any kind of a reliable historical record (let alone an actionable trend) over a sufficient amount of time, using the old 5-Bar System pitted as a simplistic comparative approach against the mighty Wilshire index.

Theoretically, the 5-Bar System should offer a decided advantage, not because it is necessarily very good as a market-timing tool, but because it is a pro-actively managed approach to investing, versus the Wilshire 5000, which is a passive index bogey. Given sufficient time, I might be able to give you a more informed and intelligent answer to your question, if I'm still alive and my brain hasn't completely atrophied by then.

As you know, I only value chart books from a long-term perspective, as an historical analysis tool, not from the perspective of a short-term market-timer (which I am not skilled enough to attempt with any expectation of success, unfortunately).

You might also correctly assume that my answer to a more worthwhile attempt at outperforming the Wilshire index (than using a 5-Bar System) would instead be an investing approach utilizing (1) Modified Dollar-Cost Averaging and (2) Earnings Bands. (Elsewhere buried in this blog, both of those investing tools are also explained in some detail, within one my long, previously posted "educational" commentaries).

And in order to actively manage my Modified Dollar-Cost Averaging approach, so that it might have a fighting chance to outperform your passive index, I would need to establish the appropriate average break-even price points, (the easy way) using those two Lotus or Quattro Pro or Excel spreadsheet templates (Average1.wks & Average2.wks), which I previously uploaded to you for redistribution to any other readers who might care to test this approach.

I've probably forgotten to mention some other critical considerations, in response to your inquiry, but I'm sorry to admit that's the best I can do for you at this time.

Bob, I agree with the purpose and value of the chart book. I don't have one and instead build one downloading data from Bloomberg whenever I need to check something like this out. When I eventually lose access to historical data I will need a chart book or its electronic equivalent.

I appreciate beyond measure your educational comments and hereby recommend them heartily to all readers.