Ask the Fool | Beginning Investing

Q: If I don't know much about stocks and don't have much money, how should I start investing?

- - M.M., Tampa, Fla.

A: Begin by increasing your knowledge until you feel comfortable putting some of your hard-earned dollars to work for you. Don't jump in blindly.

Books such as One Up on Wall Street (Fireside, $15), by Peter Lynch with John Rothchild, and The Wall Street Journal Guide to Understanding Money & Investing (Fireside, $16), by Kenneth and Virginia Morris, can help you understand the world of stocks. Online, click over to www.Fool.com and www.betterinvesting.org to learn the basics and more. When you're ready to open a brokerage account, visit www.broker.Fool.com for guidance in choosing a good one.

If you end up deciding that you don't want to study and carefully select stocks or mutual funds on your own, your best bet is probably to sock your long-term money into a broad-market index fund, such as one based on the Standard & Poor's 500. Learn more at www.indexfunds.com and www.fool.com/school/mutualfunds/mutualfunds.htm.

Q: How can I track my portfolio online?

- P.W., Syracuse, N.Y.

A: Many online services offer portfolio tracking - try AOL, for example, or Yahoo Finance. At such sites, you can enter the various stocks and funds you own, the prices at which you bought them, and the purchase dates and commission costs. From then on, you can check in anytime to see the latest value of your individual holdings, as well as your total portfolio. Many brokerages, on their Web sites, will show you the value of the assets they hold for you in a similar fashion.

Fool's School | 401(k) Tips

Your payroll professional calls a meeting and explains the company's 401(k) plan. Your eyes glaze over, hearing confusing words such as aggressive growth, bond, gold, emerging growth, international, value and money-market funds. You haven't a clue what to do, so you do . . . nothing. You are not alone. In 2004, about 21 percent of those eligible for 401(k) plans did not participate in them. It is not as complex as it looks, though.

Here are some tips:

  • Begin participating in your company's plan as soon as possible, contributing as much as you can. It not only builds your nest egg, but also reduces your taxable income.

  • Keep emergency money separate. Invest only what you don't expect to need for at least five years. (Note: There is a penalty on withdrawals before age 59 1/2.)

  • If your employer matches your contributions to any degree, take full advantage of that - it's free money. For example, if your employer will tack on $500 to a $1,000 contribution you make, you've just earned an instant, risk-free return of 50 percent. That's hard to beat.

  • Over the long run, stocks beat most other investments, by far. Unfortunately, much of 401(k) money is invested in low-yielding bond or money-market funds, where it grows very slowly.

  • Look for an S&P 500 index fund in your 401(k) offerings, as it beats the vast majority of mutual funds over the long run and has lower annual fees, to boot. If your 401(k) plan does not include a broad-market index fund, based on the S&P 500 or the even broader Wilshire 5000, urge your payroll professional to have one added.

  • Leave your money in the plan for as long as possible. This delays the ultimate tax bite and permits maximum growth. Do not borrow from your account unless it is an emergency.

Foolish Trivia

Born in Boston in 1986, I pioneered the office-supplies superstore concept, aiming to offer small businesses the low prices that large companies were getting at the time. Today, I rake in more than $18 billion annually from my 1,900 stores around the world, and from my Web site and mail-order catalog. My typical store carries more than 7,000 items, while my Web site offers tens of thousands. My stores also offer UPS shipping and built-to-order computers. My stock has appreciated roughly 15-fold over the last 15 years, and I began paying a dividend in 2004. Who am I?

Last Week's Trivia Answer: I was founded in 1945 by Harold Matson and Ruth and Elliot Handler, who began by selling picture frames. Since 1959, I have sold more than a billion pink boxes of a product named after my founder's daughter. The product has toiled as a dentist, paleontologist and presidential candidate. I have made more vehicles than has Detroit. I merged with Tyco Toys and Fisher-Price in the 1990s and have inked licensing agreements with Disney, Sesame Street, Nickelodeon and Harry Potter. I rake in about $5.6 billion annually. My wheels are hot, my people little, and my girls American. Who am I? (Answer: Mattel Inc.)