What is a good, medium-risk type stock investment? How do I determine what is a good investment or not?

I have about $5,000 in junk bonds for a power utility company that just got its rates frozen be legislature *again*. (Ameren CIPS) How can I quickly choose a safer place to allocate that investment? I need some advice on how to recognize good investments as well.

Even the best investors make mistakes occassionally. As advised by several other responders, the way to prevent specific risk is through diversification. With only 5k, diversification can best be achieved by purchasing a good mutual fund or an index fund.

I do have a certain problem with certain index funds like the total market fund mentioned by one responder. That particular fund and many others are capitalization weighted. That means that your investment is not as diversified as it should be. As much as 30% of your investment is concentrated in 20 stocks. And it is all concentrated in U S stocks. Of course that is preferable to stuffing it into one junk bond.

Recognizing a good investment is more a function of hind sight than foresight. Some that I thought were good investments at the time turned out to be terrible investments. Some worse than terrible. In general though during periods of low interest rates such as today, bonds are terrible investments. Inflation and taxes consume all the interest and much of the principal besides.

Equities in general make better investments than do bonds. If you can purchase stock in growing companies and leave it sit there for 5 to 10 years, you should be able to generate better than excellent returns provided you did not pay too much for the priviledge to begin with. Some that over the years have proven so are AIG, BAC, GE, NSC, BLL, GGG, CHL, XOM, LOW, JNJ, NVS just to name a few that come to mind. But with only 5k it would be a mistake to invest in any of those. Too much specific risk. Just because they have been good investments in the past does not necessarily mean that they will be good in the future although the odds are with them. It is better with a small amount of money to invest in a mutual fund or index fund.

If I had $5000.00 to invest, I'd invest it into 2 or 3 different companies to diversify the funds. I'd buy companies that are leaders in their niche space/industry. Also, I'd also focus on companies that have taken a fall, but their company fundamentals still are intact.

Some names to consider: Best Buy (BBY), Akamai Technologies (AKAM), Yahoo (YHOO)

Look to make a 20-30% appreciation and sell. Then repeat.

Good luck.

It depends on your experiance level.
I believe that playing a good stock at the right time is much better that not playing with any stock at a wrong/bad time.
That's what I learned from http://dalalstreet.realpaisa.com

Good question. Not even professional money managers are good at picking stocks, so the best approach is to buy a broad-based index fund, like Vanguard Total Market Index fund. It has a very low expense ratio, you're guaranteed market returns, and you're well diversified by effectively owning every US stock. Any time you concentrate your money in one or a few stocks or bonds, you take on much more risk.

Muncie Birder below criticizes the Total Market Index fund because it's heavy on large companies, which is true. But the idea of the fund is to invest in the same proportions as the overall stock market, rather than investing an equal dollar amount in each stock. If investors overall put more money in large cap stocks than small cap, that's what the index aims to track. If you put a larger proportion of your money than that into small cap, you're effectively saying you know better than everyone else that small caps will do better. Since not even the pros have a good track record with that kind of decision, you're better off following the index.

A good, medium-risk investment would be to use a balanced fund-of-funds mutual fund. These are mutual funds that invest in underlying mutual funds, so you get diversification with just one fund. Sometimes they are called lifecycle funds too.

Fidelity and Vanguard offer balanced fund-of-funds. Pick one with about 50 - 60% stocks, and the rest are in bonds and/or cash equivalents. That would give you "medium-type" risk exposure.

You have received some good answers but as fart as I am concerned and what I invest in is forex and RE one has more risk one has less which if weighed would fall into your category. I go through an investment club as there is always at least one experienced investor to perform trades and purchases. I can send you to the one I use if you like write me at bankerbobretired@yahoo.com

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