Investing questions

[tussin]

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.

Stay away, both long and short. Either you bought in early, or you're not a part of it. It's an interesting company but it's hard to see future value when it's already valued at 15x REVENUE. You might make money, but at this point it's just pure gambling IMO.

 

[Bobias]

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?

That doesn't seem right at all. The employer cant control how you invest your money so i don't know how that is legal. If you are saying that they will match you if you invest in their fund that is due in 2050 then that could potentially be a very good situation depending on how much you trust the company, their future outlooks, and if you plan to work there till 2050. If not then it seems like it could go south. I need more info about what the specifics of the policy state as the devil is in the details. It really seems a lot like a pension plan, but mandatory, which is not allowed since its your income (after uncle sam) and you have the right to invest your income as you see fit. What company is it?

 

[wizards8507]

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.

Never ever ever ever ever buy single stocks. Your risk exposure just isn't worth the potential upside.

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?

The problem with the "target date" funds is that they're usually too conservative. The "rule of thumb" in those funds is that they'll have "your age" percent in bonds and the rest in stocks. In other words, a target retirement date 2050 fund is for someone who will be 65 in 2050 (or roughly 29 today) and will have about 30% bonds and 70% stock, with the allocation shifting towards bonds as you age. This is WAY too heavy in bonds, especially in the painfully low interest rate market we're currently in. I'd suggest ONLY contributing to the 401(k) up to the employer match and then investing the rest in an IRA that you can manage yourself. You can even open it with Fidelity and pick their funds if you're more comfortable with them.

That doesn't seem right at all. The employer cant control how you invest your money so i don't know how that is legal.

Incorrect. The employer CAN control how you invest your money in an employer-sponsored 401(k). Employers don't even HAVE to offer a 401(k) and, if they do, they can make whatever funds available they'd like.

If you are saying that they will match you if you invest in their fund that is due in 2050 then that could potentially be a very good situation depending on how much you trust the company, their future outlooks, and if you plan to work there till 2050. If not then it seems like it could go south. I need more info about what the specifics of the policy state as the devil is in the details. It really seems a lot like a pension plan, but mandatory, which is not allowed since its your income (after uncle sam) and you have the right to invest your income as you see fit. What company is it?

Everything you say here is 100% incorrect. That isn't what a target date 2050 fund is. It doesn't mean you only get the money in 2050, nor do you have to work for the company until 2050. It's not a pension or a 401(k) that vests in 2050 or ANYTHING even close to that. All it means is that the mutual fund is balanced in a way in which the fund manager believes someone retiring in 2050 would like to balance his fund (see the stock versus bond analysis above). You do NOT have the "right to invest your income as you see fit" in an employer-sponsored tax-deferred account (i.e. a 401(k)).

 

[woolybug25]

That doesn't seem right at all. The employer cant control how you invest your money so i don't know how that is legal. If you are saying that they will match you if you invest in their fund that is due in 2050 then that could potentially be a very good situation depending on how much you trust the company, their future outlooks, and if you plan to work there till 2050. If not then it seems like it could go south. I need more info about what the specifics of the policy state as the devil is in the details. It really seems a lot like a pension plan, but mandatory, which is not allowed since its your income (after uncle sam) and you have the right to invest your income as you see fit. What company is it?

That's not true. Plenty of companies manage the 401k allocation, as negotiated with the provider. The employee is free to invest their money in any way they choose by not participating in the company provided (and matching, mind) product. The employee can simply opt out and find their own provider. But in order for the organization to manage fees, etc... they can demand that if you participate in their plan and take their FREE MONEY in the match, that you play by their rules.

 

[koonja]

That doesn't seem right at all. The employer cant control how you invest your money so i don't know how that is legal. If you are saying that they will match you if you invest in their fund that is due in 2050 then that could potentially be a very good situation depending on how much you trust the company, their future outlooks, and if you plan to work there till 2050. If not then it seems like it could go south. I need more info about what the specifics of the policy state as the devil is in the details.

I contacted HR and they said to ask fidelity, which doesn't make sense because it's a company change, not fidelity... I'm sure fidelity would rather have 100% control, so I seriously doubt they made the change.

FWIW - they do match up to 6% (which is all I contribute).

But I don't think I'm investing in my company, although it initially sounded like it... My company has target retirement date funds (2015, 2020, all the way through 2055).... Inside of those funds, the have a plan that is the exact same for everyone in a particular year that is supposed to be 'strategic' depending on what year they retire...

For example, I'm in the 2050 company fund, but it's broken up into (18% one market, 2% other market, 20% other, 5% other, yada yada yada)... If I were retiring in 2020, those %'s would be different. Note - I'm not actually investing 100% of the 50% into my company... At least I don't think I am, lol.

So what I think is happening is they're mandating we allow them to control 50% of the contributions so that we retire safely? But it's not investing directly into company stock at all... It's just company controlled (But isn't that what fidelity is for? IDK why my company is getting involved in this at all).

IDK, I'm just very surprised that I wasn't more informed about a manadatory change. I wish it was worded differently, because reading the fine print it sounds a lot like it's going straight into company stock (that's what it straight up says). Still not entirely sure what's going on and I'm going to make a call after work.

 

[tussin]

Never ever ever ever ever buy single stocks. Your risk exposure just isn't worth the potential upside.

While I agree wholeheartedly that he shouldn't just arbitrarily sink $1000 into TSLA, I don't think this is tried and true advice. One can easily maintain a well balanced, attractive portfolio of 15-20 stocks that gives as much downside protection as many all-equity funds. It just takes more work, and a level of market understanding that the common retail investor doesn't have.

 

[LOVEMYIRISH]

So for the time being before I learn more about this, I change my 3% from all to my company, and put it as this:

25% - Small Cap US Small Group
25% - Internaional Company
30% - Blended fund investment Verizon Fund 2055
20% - Bonded Managed Income PIM Real Return


Is this a good start?

Literally no idea what this means. I take it these are mutual funds since I don't pick specific companies? FWIW, Fidelity handles our 401K.

Man, I'm ignorant about this stuff.

All good except the last one I think...if you are young, you want equities...not income. Look for Growth funds, new economy types, etc.

 

[LOVEMYIRISH]

While I agree wholeheartedly that he shouldn't just arbitrarily sink $1000 into TSLA, I don't think this is tried and true advice. One can easily maintain a well balanced, attractive portfolio of 15-20 stocks that gives as much downside protection as many all-equity funds. It just takes more work, and a level of market understanding that the common retail investor doesn't have.

15-20 won't give you the protection from risk that a mutual fund will.

Simply put: avoid buying individual stocks.

REMEMBER THIS ADVICE: You cannot beat the market. Period. No one can, no one has.

You certainly can take more risks, but then you are taking more risks. Options, commodities, etc...all very risky. Even the very best managers put their money in managed funds.

 

[koonja]

Can anyone tell me if this is normal behavior for a large company?

I obviously don't know anything about investing, but I assumed the reason we have fidelity control our investments is to protect us from doing stupid things... Rather than let employees like me just go bananas with individual investments.

I viewed mutual funds that are controled by fidelity as a safe net.... But then what the hell is the purpose of my company thinking they know what's best/smartest, and just leaving me and fidelity to work out the remaining 50%?

IDK why, I'm sure this is a good deal because no one else is complaining or asking questions, but for some reason it doesn't feel right.

 

[LOVEMYIRISH]

Can anyone tell me if this is normal behavior for a large company?

I obviously don't know anything about investing, but I assumed the reason we have fidelity control our investments is to protect us from doing stupid things... Rather than let employees like me just go bananas with individual investments.

I viewed mutual funds that are controled by fidelity as a safe net.... But then what the hell is the purpose of my company thinking they know what's best/smartest, and just leaving me and fidelity to work out the remaining 50%?

IDK why, I'm sure this is a good deal because no one else is complaining or asking questions, but for some reason it doesn't feel right.

You will see this more and more as so many people invested in super-risky items over the years and took it in the shorts.

 

[wizards8507]

Can anyone tell me if this is normal behavior for a large company?

Yes.

I obviously don't know anything about investing, but I assumed the reason we have fidelity control our investments is to protect us from doing stupid things... Rather than let employees like me just go bananas with individual investments.

I viewed mutual funds that are controled by fidelity as a safe net.... But then what the hell is the purpose of my company thinking they know what's best/smartest, and just leaving me and fidelity to work out the remaining 50%?

IDK why, I'm sure this is a good deal because no one else is complaining or asking questions, but for some reason it doesn't feel right.

I think you're confused. The 50% in the 2050 fund is still controlled by Fidelity. My guess is that the fund in question is Fidelity Freedom K 2050 (FFKHX). Fidelity still manages the securities held by the fund, it's just your company saying that 50% of your contribution must go into that "bucket." So your company picks the "bucket," but Fidelity "controls" the bucket.

 

[koonja]

Yes.



I think you're confused. The 50% in the 2050 fund is still controlled by Fidelity. My guess is that the fund in question is Fidelity Freedom K 2050 (FFKHX). Fidelity still manages the securities held by the fund, it's just your company saying that 50% of your contribution must go into that "bucket." So your company picks the "bucket," but Fidelity "controls" the bucket.

So my company tells Fidelity 'OK, the first 50% must go into these markets to keep the Coon safe... You can let this yahoo pick what markets the remaining 50% goes to'...?

 

[wizards8507]

So my company tells Fidelity 'OK, the first 50% must go into these markets to keep the Coon safe... You can let this yahoo pick what markets the remaining 50% goes to'...?

More or less.

 

[tussin]

15-20 won't give you the protection from risk that a mutual fund will.

Simply put: avoid buying individual stocks.

REMEMBER THIS ADVICE: You cannot beat the market. Period. No one can, no one has.

It's easy for a Boglehead to blindly say that you can't beat the market, but that doesn't make it true. There is a catch to extreme diversification: more stocks means ultimately less upside. It's why 90+% of mutual funds underperform the market every year.

There are plenty of value investors that beat the market every year with fairly risk-adverse portfolios of 10-20 stocks. They protect themselves by doing the work to identify quality companies at a discount.

I am not recommending that anyone in this thread invest all their retirement savings into their PA, but to suggest that an investor can't beat the market is dismissing the tried-and-true history of value investing.

 

[wizards8507]

It's easy for a Boglehead to blindly say that you can't beat the market, but that doesn't make it true. There is a catch to extreme diversification: more stocks means ultimately less upside. It's why 90+% of mutual funds underperform the market every year.

Haha, no it's not. 90+% of mutual funds underperform the market because they have loads, fees, and administrative expenses. Without those, exactly 50% of mutual funds would underperform the market.

There are plenty of value investors that beat the market every year with fairly risk-adverse portfolios of 10-20 stocks. They protect themselves by doing the work to identify quality companies at a discount.

You seem like a smart guy so are you seriously trying to debate the efficient-market hypothesis? Capital markets open to individual investors are AT LEAST semi-strong efficient.

 

[tussin]

Haha, no it's not. 90+% of mutual funds underperform the market because they have loads, fees, and administrative expenses. Without those, exactly 50% of mutual funds would underperform the market.

I misspoke. It obviously isn't the sole reason for fund underperformance. But the basic math of diversification can't be discounted.

You seem like a smart guy so are you seriously trying to debate the efficient-market hypothesis? Capital markets open to individual investors are AT LEAST semi-strong efficient.

Eugene Farma may have won a Nobel Prize, but that doesn't mean modern markets are entirely efficient. Market inefficiency is why certain managers consistently overperform and why there are / always will be market bubbles. The housing bubble and subsequent crash were pretty indicative of inefficiency. IMO, market efficiency is really more of an academic argument than one that should ever impact an active investment strategy.

My ultimate point is that, while diversification into funds (although I'd suggest ETFs instead) is most advisable for the retail investor allocating their retirement funds, blindly championing a mutual fund only strategy in all situations is ignoring niches of the market where an informed investor can consistently and predictably outperform. Buffett puts it best: "Diversification is protection against ignorance, it makes little sense for those who know what they’re doing."

 

[Bluto]

Looking to open a Roth IRA. Any suggestions?

 

[wizards8507]

Looking to open a Roth IRA. Any suggestions?

Do it. Retirement investing pecking order:

1. 401(k) up to employer match
2. Roth 401(k) if offered (rare)
3. Roth IRA up to IRS limit
4. 401(k) in excess of match
5. Traditional IRA

Max your retirement savings at 15% of household income. At that point, start throwing money at kids' college funds or paying extra on the mortgage.

Sent from my Samsung Galaxy S III using Tapatalk 4

 

[Bluto]

Do it. Retirement investing pecking order:

1. 401(k) up to employer match
2. Roth 401(k) if offered (rare)
3. Roth IRA up to IRS limit
4. 401(k) in excess of match
5. Traditional IRA

Max your retirement savings at 15% of household income. At that point, start throwing money at kids' college funds or paying extra on the mortgage.

Sent from my Samsung Galaxy S III using Tapatalk 4

Thanks for the advice man! Workin on the first three along with refinancing too.

 

[Irishokie]

Perhaps y'all can help me out. I have a Rollover IRA with Fidelity that came from my company's 401k plan after I got laid off in '09. Is the Rollover IRA the same as a Roth? Since Roths are taxed before the money goes in, would I need my deposit to come directly from my paychecks? People say to get an advisor but I'm clueless on what to look for. Should I go with a Fidelity consultant since I've had an account with them since '05 or should I go elsewhere?

I've read Ramsey's Total Money Makeover and plan to purchase other books that have been mentioned so I can hopefully gain knowledge on investing.

 

[wizards8507]

"Rollover" doesn't mean anything at this point. It just refers to the way the money got in the account in the first place. That money has NOT been taxed yet because it was excluded from your income when you contributed it to your 401(k) in the first place.

There's no additional taxes on Roth contributions other than your normal income taxes. The difference is that traditional plans are excluded when arriving at AGI so it's like you never earned 401(k) income as wages in the first place.

Sent from my Samsung Galaxy S III using Tapatalk 4

 

[koonja]

So I was wrong about my assumption that it was 50%, and that it was a 'target fund'.

Here's the change that's happening to my 401K plan:

Company matches 6%. So if I put in $50, they will put in $50. Of the $ the company puts in, 50% must go to the company. So, I put in $50, they give me an additional $25 to invest however I want, and then $25 goes into their stock in my name...

I don't like this, because I don't want to invest 25% in one company, even though it's a great company. But I get it, because it's technically not my money, it's half of their contribution.

After 3 years, I can take that money out and move it however I want, because at that point I'm 'vested'.

IDK, just seems deceiving so say '6% match' and then force me to invest half of their match in them, but I guess I can't complain.

 

[wizards8507]

So I was wrong about my assumption that it was 50%, and that it was a 'target fund'.

Here's the change that's happening to my 401K plan:

Company matches 6%. So if I put in $50, they will put in $50. Of the $ the company puts in, 50% must go to the company. So, I put in $50, they give me an additional $25 to invest however I want, and then $25 goes into their stock in my name...

I don't like this, because I don't want to invest 25% in one company, even though it's a great company. But I get it, because it's technically not my money, it's half of their contribution.

After 3 years, I can take that money out and move it however I want, because at that point I'm 'vested'.

IDK, just seems deceiving so say '6% match' and then force me to invest half of their match in them, but I guess I can't complain.

Pretend you get zero match and do your investing based on that. It's a super-conservative approach and the money that's put into your company's stock will basically be "free money" at the end of the day.

 

[koonja]

So indexing basically means that the mutual fund manager will monitor it less and set it on 'auto pilot' in line with metrics, such as S/P 500? What do you guys think of indexed vs. non-indexed investments?

 

[koonja]

I've decided to step up the risk. Currently have 55% in domestic stock (15% US Large, 15% US Large Index, 20% in US Small),

25% international (13% international, 12% international index),

10% in a target retirement fund,

15% in PIM REAL RETURN INV (Bonds).

 

[tussin]

So indexing basically means that the mutual fund manager will monitor it less and set it on 'auto pilot' in line with metrics, such as S/P 500? What do you guys think of indexed vs. non-indexed investments?

If you are going with an indexing strategy it may make more sense to look at ETFs (if possible) as opposed to mutual funds.

 

[tussin]

I've decided to step up the risk. Currently have 55% in domestic stock (15% US Large, 15% US Large Index, 20% in US Small),

25% international (13% international, 12% international index),

10% in a target retirement fund,

15% in PIM REAL RETURN INV (Bonds).

I don't know the specifics of each fund, but I'd guess this allocation actually has less risk than the one you described in Post 62?

 

[koonja]

I don't know the specifics of each fund, but I'd guess this allocation actually has less risk than the one you described in Post 62?

You're right, but I made some changes since then to make it safer. Back to the wild side!

 

[LOVEMYIRISH]

It's easy for a Boglehead to blindly say that you can't beat the market, but that doesn't make it true. There is a catch to extreme diversification: more stocks means ultimately less upside. It's why 90+% of mutual funds underperform the market every year.

There are plenty of value investors that beat the market every year with fairly risk-adverse portfolios of 10-20 stocks. They protect themselves by doing the work to identify quality companies at a discount.

I am not recommending that anyone in this thread invest all their retirement savings into their PA, but to suggest that an investor can't beat the market is dismissing the tried-and-true history of value investing.

Simply not the case. If you are a value investor, you are measured against other value investors. You can certainly beat the INDEX, but you cannot beat the market. To do that means you know things others don't. That's why even Buffet does not beat the market.

 

[Bobias]

Simply not the case. If you are a value investor, you are measured against other value investors. You can certainly beat the INDEX, but you cannot beat the market. To do that means you know things others don't. That's why even Buffet does not beat the market.

Buffet doesn't beat the market because he has such a large percentage of it relatively speaking. Berkshire is worth roughly $140 billion in market cap, and he just can't play with the market like you and I. Relatively small investors have a distinct advantage in certain markets because of their ability to invest significant portions of their total portfolio value without significantly disturbing the volatility or price of the stock while leveraging certain circumstances to return unusually high yields.

Warren Buffet has spoken about how his investment strategy would be completely different if he "only" had a couple million to invest. This would occur because of his ability to not significantly effect individual stock dymanics, could use more agressive, risky, and personalized investment strategies, and because he wouldn't be famous if he were "only" a millionaire since his investment decisions wouldn't be mercilessly scrutinized by stock analysts, shareholders, and common people alike.

Otherwise you are pretty much right about your market advantage being based on knowledge that others don't have. "the knowledgeable always take advantage of the unknowledgeable in the markets" is what I hear in my investment classes all the time so it rings true for the most part. However there are many more pockets of market inefficiency and opportunity available to take advantage of than old world finance and economic professors would lead you to believe. The fact that several of the most widely used advanced investment strategies and principles are based on assumptions that are just completely false such as "the price of any security or asset is the sum of all applicable pricing knowledge which fully digested by all investors and calculated correctly" AKA The Market Efficiency Hypothesis. Anyways, the key to beating "the market" is identifying opportunities that "the market" has not identified, and taking advantage of those opportunities before "the market catches on", which is easier said than done.

I'm just drunk and rambling now, but I love when this thread comes up cause I can learn a lot about people, how they react to money and investments, and get exposed to issues that I am actively learning how to solve with my internship. Still rambling...