I'll say this. Anyone who says, "you should buy $x" or even, you should buy now is scamming you. Even if they truly do not believe they are. (ie, not intentionally giving you bad advice)
Nothing is free and if someone is telling you to buy something. They are either
- Likely already own it. You buying it helps their cause. The more people are buying it, the higher the price goes. Penny stock email scams were notorious for this. It's called a Pump and Dump scam.
- Have some other incentive for you to do so. For instance, Jim Cramer from CNBC tells you to buy $x stock helps his own cause even if he doesn't actual own the stock.
Jim Cramer is considered an expert. (I refer to TV guys as talking heads) Which is why he is on TV. He is wrong just as much as everyone else. For instance, after the multiple large market drops, he was telling everyone to buy on the dip! Now (at least last time I heard him) he was saying don't! (so he already burned some unsuspecting investors who listen to him) So if you're buying based on what Jim Cramer says. (or anyone else telling you to buy) You're likely to get taken to the cleaners.
The reason he recommends stocks even if he doesn't own them? Because that is what he gets paid to do. If he didn't. He wouldn't have a job! There are also other under the table ways he can make money doing this without owning the stock.
Not to mention this doosie!
Cramer was also an "editor at large" for SmartMoney magazine and was accused of unethical practices, when he made a $2 million personal gain after buying stocks just before his recommendation article was published.
Read about several of his doosies on his wikipedia page.
Sometimes the advise is good advice. Sometimes it's just talking heads talking. Either way. It's dangerous to take financial "buy" advise from anyone if you are unable to tell if what they are saying is true.
If someone recommends a stock to me. I don't always dismiss it out of hand. Many times I already know about the stock, but if I don't. I will do an initial investigation on that stock. Many you can dismiss out of hand just by looking at the company details from 10 feet away at say the free site finance.yahoo.com (or whatever website you choose to use)
The only reason I recommend index funds is because they are extremely simplistic and you do not need to know the details of all the stocks inside them. You just need to understand the general purpose of that index fund. There are different index funds and you should understand what each index fund is (it's purpose) and understand it's diversification. ie,
Nasdaq is an index of stuff that trades on the Nasdaq, but's it's pretty tech centric. That might diversify your tech holdings for the most part, but it doesn't diversify your portfolio as well as it should be due to being tech heavy. On the other hand, the
Dow Index fund is 30 blue chip stocks across many sectors that help diversify your portfolio. The
S&P 500 or Standard & Poor's 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies.
For most (including my) IRA and 401k. Funds are all you can use and if you just want to set it and forget it. Go for well balanced index funds rather than sector specific funds. If you want to manage it, diversify your fund holdings to the sectors you think will do well while always keeping a portion for a well diversified index fund as a stable base.
If you just want your own portfolio, (not an IRA / 401k, etc) you can manage it the same way as you would an IRA / 401k. Or you can invest more time and risk into individual stocks. Individual stocks means you either pay a professional to do the head work for you, or you must spend the time to do (including learning to do it) yourself.
Oh and before I forget. Funds charge fees. Before buying a fund, check the fees. Index funds are usually by far the cheapest. Fees can eat away extremely large sums of money over 10-40 years if you don't keep your eye on what you're being charged!
