Investing questions

[jerboski]

It is my honest opinion that anybody who wishes to invest their money should read A Random Walk Down Wall Street by Burton Malkiel. It gets dry, but it's incredibly insightful.

Great book! I also like the intelligent investor by Benjamin Graham

 

[BleedBlueGold]

I'm 30 and currently have my investments allocated as such: Aggressive Growth, Growth + Income, Domestic Growth, and International (25% each respectively). The good ol Dave Ramsey way.

However, I have heard from numerous people that this isn't necessarily the best way to invest and that Dave, while great on getting out of debt advice, is less intellectual about his investing advice. Although, his KISS approach is pretty much fool proof. Get in, stay dedicated, and never sell low (ride out the bear markets...don't time the market). Investing for retirement is a marathon. And any successful investor will tell you that.

I'm currently reading The Boglehead's Guide to Investing. So far, great book. It may cause me to re-allocate all of my investments. And I second reading Millionaire Next Door.

 

[wizards8507]

I'm 30 and currently have my investments allocated as such: Aggressive Growth, Growth + Income, Domestic Growth, and International (25% each respectively). The good ol Dave Ramsey way.

However, I have heard from numerous people that this isn't necessarily the best way to invest and that Dave, while great on getting out of debt advice, is less intellectual about his investing advice. Although, his KISS approach is pretty much fool proof. Get in, stay dedicated, and never sell low (ride out the bear markets...don't time the market). Investing for retirement is a marathon. And any successful investor will tell you that.

I'm currently reading The Boglehead's Guide to Investing. So far, great book. And I second reading Millionaire Next Door.

My belief is to let the financial intellectuals do their financially intellectual investing and I'll do it the simple way. If someone is ASKING for investing advice, it means they probably don't have the technical training in finance and accounting to understand the so-called intellectual approach in the first place. It's much better to understand a simple approach than go with something elaborate and sophisticated that you don't understand. The other guys treat personal finance as a mathematical exercise and ignore human behavior.

 

[Irish Houstonian]

One thing I'm fairly sure of: once Yellen stops pumping, get your retirement $ out of the large-cap funds.

 

[RDU Irish]

The OP was about 401k decisions for an admittedly less than informed young investor.

1) Always get the free money (i.e. company match) - this was stated by others but worth repeating. Not many options in life for IMMEDIATE 50% or 100% return on an investment. If your employer is $ for $ on the first 6% then they are better than most and you need to take advantage of that.

2) Investments - KISS - 50% S&P 500 fund, 25% Small/Mid Cap US, 25% International. Some may say this is too risky but consider you are starting from $0. Since you have very little at risk at this stage, basic dollar cost averaging works to your favor with the risky assets.

3) Sleep on it - Leave your account alone. You have a 30 year time horizon so you don't need to be looking at your account daily and making changes more than once a year. 401k investors shoot themselves in the foot more often than not by being overly active and chasing performance.

4) Bonds - 401k plans investment options for bonds usually range from bad to worse. I could get on board a 10% allocation if your options weren't most likely loaded with government bonds and longer term bond. I would leave them out for 3-5 years and reconsider them when you rebalance at some point down the road. With interest rates as low as they are and the options you likely have to choose from, absolute returns are likely to stink in that area for a while.

 

[wizards8507]

One thing I'm fairly sure of: once Yellen stops pumping, get your retirement $ out of the large-cap funds.

Never! MOAR stimulus!

 

[RDU Irish]

As for Dave Ramsey - Save like Dave Ramsey...just don't invest like him - Sep. 26, 2013

the title of the article sums up my views precisely. I enjoy his radio show but any time he spouts off on investing it makes me cringe.

 

[wizards8507]

The OP was about 401k decisions for an admittedly less than informed young investor.

1) Always get the free money (i.e. company match) - this was stated by others but worth repeating. Not many options in life for IMMEDIATE 50% or 100% return on an investment. If your employer is $ for $ on the first 6% then they are better than most and you need to take advantage of that.

2) Investments - KISS - 50% S&P 500 fund, 25% Small/Mid Cap US, 25% International. Some may say this is too risky but consider you are starting from $0. Since you have very little at risk at this stage, basic dollar cost averaging works to your favor with the risky assets.

3) Sleep on it - Leave your account alone. You have a 30 year time horizon so you don't need to be looking at your account daily and making changes more than once a year. 401k investors shoot themselves in the foot more often than not by being overly active and chasing performance.

4) Bonds - 401k plans investment options for bonds usually range from bad to worse. I could get on board a 10% allocation if your options weren't most likely loaded with government bonds and longer term bond. I would leave them out for 3-5 years and reconsider them when you rebalance at some point down the road. With interest rates as low as they are and the options you likely have to choose from, absolute returns are likely to stink in that area for a while.

I agree with everything you said except the bolded. There are funds out there that can beat the market. For example, the Sequoia Fund.

Sequoia Fund, Inc.

 

[wizards8507]

As for Dave Ramsey - Save like Dave Ramsey...just don't invest like him - Sep. 26, 2013

the title of the article sums up my views precisely. I enjoy his radio show but any time he spouts off on investing it makes me cringe.

That article isn't about what Dave Ramsey teaches, it's about one of Dave's Endorsed Local Providers. The article states:

So how was the advice? Smiler recommended I invest in American Funds' target-date fund, which carried an upfront 5.75% load.

Dave would NEVER suggest investing in a target-date fund. Ever. The ELP is obviously going against Dave's principles and the author of that article is using him as a strawman to bash Dave himself.

 

[zelezo vlk]

I read somewhere that it takes 60 some years for an investor to actually prove that he/she could beat the market. The same could probably be said of funds. Keeping pace with the market is the expectation, beating it is a bonus.

 

[wizards8507]

I read somewhere that it takes 60 some years for an investor to actually prove that he/she could beat the market. The same could probably be said of funds. Keeping pace with the market is the expectation, beating it is a bonus.

Sequoia's been doing it since inception in 1970. 44 years ain't too bad, but I get your point.

 

[BleedBlueGold]

That article isn't about what Dave Ramsey teaches, it's about one of Dave's Endorsed Local Providers. The article states:



Dave would NEVER suggest investing in a target-date fund. Ever. The ELP is obviously going against Dave's principles and the author of that article is using him as a strawman to bash Dave himself.

This brings up a question I've been meaning to ask. I used one of his ELPs and they had me transfer my Roth IRA from Chase and my non-retirement investment account from Vanguard to American Funds. I also set up my wife's Roth IRA w/ AF. I have actually heard numerous times where Dave throws out a plug for AF and also mentions that some front-load funds are worth the cost. However, I have heard elsewhere that AF's yearly fees are what really put strain on the growth of your portfolio when comparing it to Vanguard. Does anyone have any insight on this? If this is accurate, it really frustrates me that I chose the wrong place to set up my investments. I definitely understand the thought of using no-load, low fee funds...but are those always the best? That's basically what Vanguard promotes.

 

[BleedBlueGold]

Also, a lot of people use Index funds in their portfolio. Can someone point out to a novice what those are exactly and how I can determine if a fund I'm investing in is in fact an Index fund?

Edit: I'm assuming it says Index in the name...as I'm finding out by searching through Vanguard's list of funds.

 

[RDU Irish]

I agree with everything you said except the bolded. There are funds out there that can beat the market. For example, the Sequoia Fund.

Sequoia Fund, Inc.

No idea what is available in the Verizon 401k but I don't see Sequoia Funds very often in any plans I review. Virtually all 401k plans have an S&P Index fund which is a fantastic bread and butter investment. The selection process is such that plans tend to sell high and buy low for true value adding managers.

Why no Sequoia in 401k plans?
1) over 50% of assets are in the top 10 holdings, 15% in one company would be an instant disqualifier for most plan providers.
2) Not a major fund family, without the sales force they are not equipped to sell themselves to the consultants that plug funds into 401k plans.
3) Style boxes - consultants are overly focused with filling in style boxes on the 401k lineup, funds that "go anywhere, do anything" fall of the map pretty quick
4) Performance - they want funds that won't crap the bed relative to their benchmarks on a year to year basis. Managers that add value are usually off the beaten track and will rarely mirror a benchmark, both good and bad. The bad years result in getting kicked off the plan due to short sightedness.

Its pretty much the same way most mutual fund wrap programs work. Buy high, sell low for managers rather than really staying committed to a process long term to reap the benefits.

 

[tussin]

I agree with everything you said except the bolded. There are funds out there that can beat the market. For example, the Sequoia Fund.

Sequoia Fund, Inc.

Another great fund that generally beats the market long-term is Formula Investing U.S. Value Select (FNSAX). It's based on Greenblatt's magic formula investment strategy focusing on low P/E, high ROIC companies.

Anyone that is interested in investing should really read his books, mainly You Can Be A Stock Market Genius and The Little Blue Book.

 

[RDU Irish]

This brings up a question I've been meaning to ask. I used one of his ELPs and they had me transfer my Roth IRA from Chase and my non-retirement investment account from Vanguard to American Funds. I also set up my wife's Roth IRA w/ AF. I have actually heard numerous times where Dave throws out a plug for AF and also mentions that some front-load funds are worth the cost. However, I have heard elsewhere that AF's yearly fees are what really put strain on the growth of your portfolio when comparing it to Vanguard. Does anyone have any insight on this? If this is accurate, it really frustrates me that I chose the wrong place to set up my investments. I definitely understand the thought of using no-load, low fee funds...but are those always the best? That's basically what Vanguard promotes.

The whole ELP thing is nothing more than pay for play. Advisors pay Ramsey to provide, not just clients, but pre programed sheep. You don't even have to do what Ramsey generally says, just invest their money and they will think you are an outstanding Christian because Dave Ramsey lets you affiliate with him. Just like the guys who use their church to rip off widows.

I will admit, it is a tough market for a retail investor to navigate. Interview 100 financial advisors and you might find 100 different ways to manage your investments.

As for A share (5%+ upfront loads), I have two main reasons to dislike them 1) wham bam, thank you mam; what is the ongoing motivation to service that client? The advisor is getting mostly paid upfront and very minimally (.25% per year after a year) ongoing. 2) You end up stuck in that fund family forever and any recommendation to change has incredible conflicts of interest in play.

C share mutual funds cost about .75% more per year on internal expenses and have a 1% sales charge if sold in the first year. The advisor gets paid 1% per year. They now have the same motivation as you, grow this thing so they can make more money per year. They also are building a business instead of only putting food on the table if they can make a sale. If they think you can make more money in a better fund, they can make the change after one year with minimal transactional expenses. Sure the break even is around 7 years but the liquidity and proper incentive structure is more than worth it IMO.

I could go on with the screwed up incentive structures inherent in the industry of financial advice but I have to wrap up so I'm not late for dinner.

 

[zelezo vlk]

These posts are a reason why I'm glad I read A Random Walk for a class. Most managers are slightly less clueless than us laymen and the different strategies to "beat the market" are practiced by a lot of people. I mean, if you can beat the market that's great, but I'm skeptical that you're not just getting lucky.

 

[wizards8507]

Also, a lot of people use Index funds in their portfolio. Can someone point out to a novice what those are exactly and how I can determine if a fund I'm investing in is in fact an Index fund?

Edit: I'm assuming it says Index in the name...as I'm finding out by searching through Vanguard's list of funds.

In this context, an index fund is basically a mutual fund of the stock market as a whole. The most common measure is the S&P 500. Basically, if the S&P 500 goes up 2%, the index fund also goes up 2% because it is built from the stocks of the same companies. The advantage of an Index Fund is that they usually have very low expenses. It's possible for a "managed" fund to "beat the market," but they come with expenses to pay the managers and analysts that build and administer the fund. Index funds can basically be managed by computers.

 

[Ndaccountant]

In this context, an index fund is basically a mutual fund of the stock market as a whole. The most common measure is the S&P 500. Basically, if the S&P 500 goes up 2%, the index fund also goes up 2% because it is built from the stocks of the same companies. The advantage of an Index Fund is that they usually have very low expenses. It's possible for a "managed" fund to "beat the market," but they come with expenses to pay the managers and analysts that build and administer the fund. Index funds can basically be managed by computers.

The key here is how is the fund "indexed"?

If you look at most index funds, a lot of times, they end up falling short in performance to whatever it is they were indexed on. The reason for this is two fold. First, they cannot perfectly mimic the index from a weighting perspective. They are usually pretty darn close, but are not perfect, which leads to performance and risk variance. Again, the variances are small, but they are there. The other reason is expense. Even though they are low expense, they still have expense where as the index in of itself, does not.

 

[Guest]

Once upon a time, I had passed Series 7, 63, and 6 licenses. I used to invest in the stock market, but no more. I don't even take the match with my company because even with the free money, I can beat it long term by staying out of the stock market.

To each his own, and I won't tell you not to invest in the 401K. This is just what I do.

The problem with the stock market is that, historically, it is casino gambling. I can tell you as an former investment advisor we always used to quote the 40 year window, 12% annualized return, etc etc..

Now, to do so is criminal in my opinion. Given the historically unprecedented money printing by the Fed, the weak economy, the number of unemployed, total public debt, runaway deficits, lack of industrial production, and international hatred of the US dollar, the future prospects of the US stock and bond markets are pointed down and not up.

Learn your 100-year market history before you invest. Whatever happened in the last 40 years means squat for the next 40 because the factors are different, that I can guarantee you

I can also tell you for a fact that the best long term investment in the US has been productive farmland, especially during economic downturns. Productive farmland has a higher rate of return during recessions and depressions than gold and silver does. Also, most states give you an AG exemption on taxes for hay production. All you have to do is find someone to mow the grass, they take the hay for free (their profit on labor), and you pay almost zilch in property taxes. It's free money, solid growth, and they ain't making any more of it

I have such an investment in my home state, and I feel like I am robbing someone.

Good luck!

 

[zelezo vlk]

My best friend is a farmer actually and his father was almost a little disappointed that this year he had a crop. He makes significantly more in bad years because of insurance than in even really good years. There truly is a lot of money in farming.

Sent from my Desire HD using Tapatalk 2

 

[koonja]

I've read everyone's post and appreciate all of the opinions. I tried to rep you all, but it told me I am a whore.

I am not married with no kids and can live comfortably with my salary as is, so I'm going gravitate towards risky investments.

Since there's so much opinion on this subject, and the fact that I'm a bit of a numbers guy, I'm going to read a couple of the books mentioned and learn to do this on my own.

Couple questions that I hope to answer after I read a book or two are

1) When I'm investing in 'short term' stocks, what exactly does that mean? As in, I need to monitor it monthly, for 2, 5, 10 years?

2) In long term, low risk/low yield stocks (ex, VZ fund 2055), is it safe to simply contribute to that stock and basically ignore it, and spend all of my time controlling 'short term' investments? I want to be in control of this, but I also need to spend my time wisely.

3) What to do when I make a bit of money? Do I take that money out? Re invest it? I'm under the impression I shouldn't touch it no matter what until retirement. So let's say $1,000 makes me $5,000 in a certain stock and I don't think it's going to get any better. Move that money to other stocks is the right move, correct? Or in a 401K, is it the only move (i.e., I can't touch it if I wanted to - or at least it'd be really dumb).

4) How to identify a risk/non-risky stock? I assume fidelity can help me with this.

As you can tell, I'm definitely starting with a clean slate on this subject, lol. Again, thank you all for the input. I will start some homework on this in a week or so (currently reading Kevin Oleary's: Cold Hard Truth on Men, Women, and Money - Very good book so far).

GO IRISH!

 

[wizards8507]

I've read everyone's post and appreciate all of the opinions. I tried to rep you all, but it told me I am a whore.

I am not married with no kids and can live comfortably with my salary as is, so I'm going gravitate towards risky investments.

Since there's so much opinion on this subject, and the fact that I'm a bit of a numbers guy, I'm going to read a couple of the books mentioned and learn to do this on my own.

Couple questions that I hope to answer after I read a book or two are

1) When I'm investing in 'short term' stocks, what exactly does that mean? As in, I need to monitor it monthly, for 2, 5, 10 years?

2) In long term, low risk/low yield stocks (ex, VZ fund 2055), is it safe to simply contribute to that stock and basically ignore it, and spend all of my time controlling 'short term' investments? I want to be in control of this, but I also need to spend my time wisely.

3) What to do when I make a bit of money? Do I take that money out? Re invest it? I'm under the impression I shouldn't touch it no matter what until retirement. So let's say $1,000 makes me $5,000 in a certain stock and I don't think it's going to get any better. Move that money to other stocks is the right move, correct? Or in a 401K, is it the only move (i.e., I can't touch it if I wanted to - or at least it'd be really dumb).

4) How to identify a risk/non-risky stock? I assume fidelity can help me with this.

As you can tell, I'm definitely starting with a clean slate on this subject, lol. Again, thank you all for the input. I will start some homework on this in a week or so (currently reading Kevin Oleary's: Cold Hard Truth on Men, Women, and Money - Very good book so far).

GO IRISH!

You shouldn't be buying and selling stocks within your 401k. There are actually rules about frequent trading within retirement vehicles that have preferred tax status. You don't want any STOCK at all. You want mutual funds. The risky ones will be categorized as "Aggressive Growth". I'd balance them with some Growth, Growth/Income, and International. About 25% in each type of fund is a good approach. You don't need to worry about buying low and selling high because that's the fund manager's job. Never ever take money out of your 401k unless it's to avoid a foreclosure or bankruptcy because you'll get slaughtered with taxes and penalties. It's a retirement vehicle, so no touching until you retire.

Sent from my Samsung Galaxy S III using Tapatalk 4

 

[jerboski]

I've read everyone's post and appreciate all of the opinions. I tried to rep you all, but it told me I am a whore.

I am not married with no kids and can live comfortably with my salary as is, so I'm going gravitate towards risky investments.

Since there's so much opinion on this subject, and the fact that I'm a bit of a numbers guy, I'm going to read a couple of the books mentioned and learn to do this on my own.

Couple questions that I hope to answer after I read a book or two are

1) When I'm investing in 'short term' stocks, what exactly does that mean? As in, I need to monitor it monthly, for 2, 5, 10 years?

2) In long term, low risk/low yield stocks (ex, VZ fund 2055), is it safe to simply contribute to that stock and basically ignore it, and spend all of my time controlling 'short term' investments? I want to be in control of this, but I also need to spend my time wisely.

3) What to do when I make a bit of money? Do I take that money out? Re invest it? I'm under the impression I shouldn't touch it no matter what until retirement. So let's say $1,000 makes me $5,000 in a certain stock and I don't think it's going to get any better. Move that money to other stocks is the right move, correct? Or in a 401K, is it the only move (i.e., I can't touch it if I wanted to - or at least it'd be really dumb).

4) How to identify a risk/non-risky stock? I assume fidelity can help me with this.

As you can tell, I'm definitely starting with a clean slate on this subject, lol. Again, thank you all for the input. I will start some homework on this in a week or so (currently reading Kevin Oleary's: Cold Hard Truth on Men, Women, and Money - Very good book so far).

GO IRISH!

1. short term stocks or other money market instruments such as commercial paper or treasury bills. If you are just talking stocks then it sounds like you are thinking of speculating or day trading, which has been proven to be a bad strategy and usually doesn't turn out well for the speculator.
2. Long term investments don't need to watched daily however if you have one like the Vanguard index that follows the S&P 500 then it is fairly easy to see how it is doing daily as you just watch the S&P500
3. Almost everyone will tell you to reinvest the capital gains or just leave them in the mutual fund or index you are invested in, even dividends should be reinvested into the fund. If you are talking about your short term stocks then the key to any day trader is to buy low and sell high so if you are speculating on individual stocks then yes sell them when you believe they are at their highest value however as I said earlier I wouldn't recommend day trading. Don't touch your 401, leave the money in the account and let it work, it is okay to rearrange asset allocation but don't pull the money out, huge tax hit.
4. All stocks have some risk, there are numerous capital asset pricing theories that you could look up on numerous sites mentioned on this thread however I believe you should implement a buy and hold strategy in one of the index's rather than trying to predict individual stocks, diverse portfolios protect against this.


Hope this helps

 

[koonja]

Again, thank you guys. So sounds like I just need to diversify, with 25% in aggressive, 25% in growth, 25% in growth income, and 25% in international? Or maybe 20% in each, with 20% in the Verizon 2055 fund.

THEN, let fidelity handle the rest. Much better in their hands anyways, lol.

 

[ginman]

Well, since you hooked me up with a million vbucks......
1. Invest more money - beyond the company match the Roth people have mentioned is a good option.
2. Increase the percentage you invest 1 or 2% every year or when you get a raise.
3. Diversify and reallocate to maintain the percentages that you want for each investment annually
4. Don't mess with your investments too often - you are right, Fidelity can handle that

 

[koonja]

Well, since you hooked me up with a million vbucks......
1. Invest more money - beyond the company match the Roth people have mentioned is a good option.
2. Increase the percentage you invest 1 or 2% every year or when you get a raise.
3. Diversify and reallocate to maintain the percentages that you want for each investment annually
4. Don't mess with your investments too often - you are right, Fidelity can handle that

I'm not going to invest more than the 6% right now, but I have it set and plan on sticking to increasing 1% every year. I still have 50K in student loans to pay off, so I'm aggressively paying them off (sucks when your parents don't help with a dollar through college!).

I mean, at this pace by the time I'm 35, I'll be investing almost 15% and I think that's good enough. At least I hope so, lol.

 

[koonja]

Here's what I set my fidelity to:

US Large CO Index - 15%
US Large Company - 15%
US Small Company - 20%
International company - 20%
Verizon 2055 Fund - 15%

Thoughts? It's diverse if nothing else, lol.

 

[BleedBlueGold]

3 years ago I had $1000 to invest. I wanted to go all-in on Tesla at $25 per share. I chose to pay off a medical bill instead w/ that money. Tesla is currently at $250 per share.

I bring this up because recently, analysts suggested that the more accurate value of the stock is around $320 per share. It's been going up ever since. Also, it was announced that Tesla wants to build the biggest car factory in the world in the near future.

My question is do you think it's too late to get in on this potential giant? I still have only $1000 to invest so 4 shares is hardly anything to get excited about. But alot of people feel Tesla is more of a tech company than automotive and could be another Google.

Just curious.

 

[koonja]

My company has a new policy starting next month and IDK how I feel about it.

As is, I can have fidelity invest 100% of my contributions, however I want... Currently, the 100% is spread out across 6 markets, ranging from 10-20% allocated.

Starting next month, it's mandatory that 50% of out contributions go to 'company fund with a target date'... For instance, my target date is 2050. So basically, my company will invest 50%, and choose stocks that make sense for someone retiring in 2050...

With the remaining 50%, I can still choose for fidelity to invest in markets of my choice. IDK how I feel about this. Seems a little controlling. Does anyone else have this or have heard of these target date funds?