stock market/financial ?'s

[wizards8507]

I never ever ever ever ever advise buying single stocks. The risk to reward ratio is just too high.

 

[BleedBlueGold]

 

[Ndaccountant]

I never ever ever ever ever advise buying single stocks. The risk to reward ratio is just too high.

Just to be clear here, I suspect that you mean holding a single stock as your portfolio (or significant share of it) versus owning individual companies as part of a diversified and balanced stock portfolio.

 

[wizards8507]

Just to be clear here, I suspect that you mean holding a single stock as your portfolio (or significant share of it) versus owning individual companies as part of a diversified and balanced stock portfolio.

Nope. I mean I do not own (nor would I ever own) single stocks in any proportion in my portfolio. I believe in diversification upon diversification: not just mutual funds, but many different mutual funds. I just believe that it's arrogant to think you can consistently bet the market by trading single-company stocks when the fund managers and professional investors eat, sleep, and breathe that stuff 24/7. My brother-in-law is an institutional investor and he spends months at a time researching individual companies to include in his firm's funds. There's no way I can dedicate the time and resources necessary to beat the folks who do this for a living.

 

[Ndaccountant]

Nope. I mean I do not own (nor would I ever own) single stocks in any proportion in my portfolio. I believe in diversification upon diversification: not just mutual funds, but many different mutual funds. I just believe that it's arrogant to think you can consistently bet the market by trading single-company stocks when the fund managers and professional investors eat, sleep, and breathe that stuff 24/7. My brother-in-law is an institutional investor and he spends months at a time researching individual companies to include in his firm's funds. There's no way I can dedicate the time and resources necessary to beat the folks who do this for a living.

I think there is a major disconnect between beating the market via trading (which is where I agree with you) versus investing for the long term.

Investing in a balanced portfolio of bonds and companies that pay continuously growing dividends (the aristocrats) has outperformed the market over the last 14 years using whatever ratio of bonds to equity that you want to dream up. Funds usually cannot replicate this perfectly as they are constantly trading to either rebalance (like an ETF) or to bolster returns (traditional mutual funds).

Everyone can have their own view of how to invest and if there was the correct way, everyone would do it successfully. I personally still believe that if you want to hold a balanced portfolio with companies that pay continuous and growing dividends, over time, you will be just fine.

 

[BleedBlueGold]

David Mallach has a few interesting books on investing in single stocks. He's with Merrill Lynch.

Dancing with the Analysts
Walking with the Analysts
Running with the Analysts

Single stocks, growth and income stocks, and option trading.

 

[BleedBlueGold]

I wouldn't mind, down the road once I've established some capital, switching out of some of my mutual funds and into some single stocks using Mallach's methods at Merrill. I don't know all of the details though and would have to talk extensively with my advisor.

 

[RDU Irish]

Behaviorially, people have an easier time holding, say, McDonalds when it is down 30% than the S&P 500. They can wrap their heads around McDonalds and the viability of the company, appreciating that they own something with staying power. The S&P 500 is voodoo though and they think it can go to zero. Technically this is asinine, but it is how people think. The will to stay in the game when times are tough is more valuable than any nugget Jack Bogle can burp out about how no one can beat the "market".

I also like that people obsess about diversification and efficiency only to own nothing but the S&P 500, which has 1/5th of you money in about a dozen names. The 1.8% yield sucks too. I would rather cherry pick 50 from that pack to yield an average of 3% growing twice as fast as inflation. I can project that income twenty years out a lot more reliably than I could guess the value of that same investment.

It kind of amazes me that so much focus is placed on raw performance and virtually none is placed on income. People sleep better at night living off of dividends versus needing to sell stuff every month to create "income".

 

[RDU Irish]

Bonds are another whole story. Buy an individual bond and you know exactly what you will get if you hold to maturity. All the company has to do is stay in business and pay the bills. With a mutual fund, you are a slave to inflows, outflows, interest rates, liquidity of holdings..... you have a hard time figuring out the current Yield to Maturity of the current holdings, let alone what your actual return will be over any given time frame. So you trade over diversification (more likely over exposure to the more highly leveraged companies, or worse.... US government debt) for income certainty.

But yes, until someone has adequate investments to get an adequate level of diversification stick with funds/ETFs.

 

[woolybug25]

There certainly is a place for individual stocks in one's portfolio. Assuming of course, that person has a moderate-high financial accumen.

If someone knows how to read financial statements and understands stock evaluation, then why not invest in value opportunities?

Buying a "hot tip" penny stock is stupid, investing in an undertraded blue chip with good financial performance is simply prudent.

 

[wizards8507]

If someone knows how to read financial statements and understands stock evaluation, then why not invest in value opportunities?

Because someone else who reads financial statements and values stocks professionally has already found those value opportunities and scooped them up. There are no true "value opportunities" available to folks like me and you. Markets are (more or less) semi-strong efficient:

"Asset prices fully reflect all of the publicly available information. Therefore, only investors with additional inside information could have advantage on the market. Any price anomalies are quickly found out and the stock market adjusts."

 

[woolybug25]

Because someone else who reads financial statements and values stocks professionally has already found those value opportunities and scooped them up. There are no true "value opportunities" available to folks like me and you. Markets are (more or less) semi-strong efficient:

"Asset prices fully reflect all of the publicly available information. Therefore, only investors with additional inside information could have advantage on the market. Any price anomalies are quickly found out and the stock market adjusts."

You don't have to find stocks with price anomalies to make money. If a company has strong earnings, isn't oversold and keeps expenses down. That bet can result in increased stock price and dividends over time.

You don't have to be Gordon Gecko to make money in the stock market. I personally have done very well in individual stocks over the years. Investing in strong companies like GE and Honeywell. I buy and hold for the long term, spread the financials and read the notes in the financials. Pretty simple really. I'm not invested in a lot of single stocks, but I have held these for over two years each. Pretty good returns, and I fully expected them over time.

Bought Honeywell at 52 and it's now at 91.62 (+ 5 dividend payouts)

Bought GE about 4 years ago at 14.5 and it's currently at 25.83 (+ 8 dividend payouts)

I'm not trying to get rich on either. But they were no brain picks at the time. Still hold stocks now too. I'm sure a ton of analysts were scooping up too. But that didn't stop the companies from performing.

I don't invest in "new technology" or "breakthrough drugs". I invest in strong earnings and good balance sheets.

 

[wizards8507]

You don't have to find stocks with price anomalies to make money. If a company has strong earnings, isn't oversold and keeps expenses down. That bet can result in increased stock price and dividends over time.

You don't have to be Gordon Gecko to make money in the stock market. I personally have done very well in individual stocks over the years. Investing in strong companies like GE and Honeywell. I buy and hold for the long term, spread the financials and read the notes in the financials. Pretty simple really. I'm not invested in a lot of single stocks, but I have held these for over two years each. Pretty good returns, and I fully expected them over time.

Bought Honeywell at 52 and it's now at 91.62 (+ 5 dividend payouts)

Bought GE about 4 years ago at 14.5 and it's currently at 25.83 (+ 8 dividend payouts)

I'm not trying to get rich on either. But they were no brain picks at the time. Still hold stocks now too. I'm sure a ton of analysts were scooping up too. But that didn't stop the companies from performing.

I don't invest in "new technology" or "breakthrough drugs". I invest in strong earnings and good balance sheets.

Those things are completely anecdotal. For every story like yours there's the exact opposite. By the very definition of the term "average," the "average" investor breaks even against the market. Considering the fact that a good mutual fund can beat the market by a couple of points, that means the "average" individual investor actually loses a point or two to the market. I'd rather make the sure thing* bet than take on the additional risk inherent in single stocks. Woolworth's, PanAm, and Standard Oil once had "strong earnings and good balance sheets" too.

*Sure thing does not mean you'll absolutely make money, but it does mean you should at least keep pace with the market overall.

 

[woolybug25]

Those things are completely anecdotal. For every story like yours there's the exact opposite. By the very definition of the term "average," the "average" investor breaks even against the market. Considering the fact that a good mutual fund can beat the market by a couple of points, that means the "average" individual investor actually loses a point or two to the market. I'd rather make the sure thing* bet than take on the additional risk inherent in single stocks. Woolworth's, PanAm, and Standard Oil once had "strong earnings and good balance sheets" too.

*Sure thing does not mean you'll absolutely make money, but it does mean you should at least keep pace with the market overall.

For every story like mine, there is a guy that invested in companies that he didn't know enough about. Fact remains, if a company has strong historical earnings, good management and healthy balance sheet. Then they are probably no more risky than a mutual fund full of almost anonomous stocks/bonds/securities picked by some greaser at T. Rowe Price.

While I admittingly use those too, they are paired with balanced risk between the other drivers of my portfolio. I rarely lose on stocks because I value invest and do it for the long term. I don't invest in companies that I dont spread their financials quarterly, I don't invest in companies that have poor leadership and I certainly don't invest in companies without historical earnings.

People lose in individual stocks because they don't know what they are doing and don't have the financial accumen to be playing in that sandbox. But to say that there isn't value is simply incorrect. Or keep believing that... and people like me will keep making money betting on companies that very well may be in your 401k already. Just do it better.

As I said... there is a difference in knowing what a good long term investment looks like and what speculation looks like. I don't speculate, I invest in strong risk profiles.

 

[RDU Irish]

Which is why you follow what you own and sell them when the fundamentals start to fall apart.

If your goal is to keep up with the market, by all means buy the market. I fail to see how that equates to most people's goals.

Person A is way behind on saving for retirement and looks like they will have to work forever. Maybe they need to beat the market to have any meaningful chance at building a nest egg.

Person B has a bunch of money and could retire today if they could get a 4% yield from their investments. Would they rather pick higher yielding stocks, avoid non-dividend payers and get a less diversified 4% yielding portfolio or get 1.8% from the S&P500 and sell shares every year to make up the other 2.2%? Which way is safer for them?


Broad market performance is irrelevant to both of these as it does nothing to address their needs and goals. Most people's goals are grounded in their personal needs, relative performance to a generic market.... doesn't really do much to solve their problems.

If you are talking about an endowment? Sure, go 40% SPY, 20% EFA, 40% AGG, rinse, repeat and call it a day. Infinite time horizon and no taxes, predicated on the benefactor of the endowment being able to withstand sizeable swings in income.

But that is the trick isn't it? Who wants to (or is able to) adjust their annual expenses down 30% when the market is down 30%? Your theory works fine for an accumulation phase but when it comes time to actually live off of your investments you will have to save twice as much to reach the same goal.

 

[Veritate Duce Progredi]

Yes i'm serious how in the world could you be debt free at 30? Unless you virtually have nothing or have a crazy good job.

I have been horrible at investing but my wife and I achieved the debt free status in March of this year (I'm 31). I do have a good job and her job is secure (nurse) but we aren't rolling in money. When we first got married, we discussed what we wanted out of life and wrote it down and it boiled down to this:

• Children - we want to spend time with them
• Freedom - we don't want to be restricted by poor financial decisions
• As debt free as possible as we move through life together

After we got married, I went into consulting and my wife continued working. We lived off of her paycheck and put mine in the bank and paid off debt. We didn't have mounds of debt starting off. I went to a cheap college ($3k/semester) and my grandparents helped pay for it. That is an advantage that not everyone has. We paid off my car, all credit card debt, my wife's education and finally my wife's car. We put all of our money into a savings account to save up for a down payment on a house and create an emergency fund.

That's where the good story ends.

Now my savings are getting eaten up by inflation and I'm trying to devise a plan for investing and a short-term strategy for housing. We are considering the idea of continuing renting for the next 3-4 years which should provide us mobility in case anything should happen to my job market. Per the investing thread, I'm considering putting 80% of our emergency fund in progressively maturing bonds. I'm extremely risk averse, so we've saved enough for 12+ months of living should both of us lose our jobs at the same time.

The rest of the money could be moved into the market, and while I don't want to "time the market", it seems like an awful time to move a large chunk in right now. I've seen dollar cost averaging discussions but I don't know enough to decide one way or another.

The housing issue is the crux of future plans. We want a home but housing prices seem artificially inflated (some are listed back at their early 2008 price), and wanting to be in a good neighborhood requires us to take on more risk in the form of a larger mortgage. We can still hit the 20% down threshold but it makes me very nervous signing a piece of paper that pledges to make payments for 15-30 years and if I fail, they can take the home and everything I put into it.

Add to that a very low inventory in St. Louis and people are getting caught up in bidding wars resulting in 5-20k above listing price for some homes. I told our agent that I had no interest in bidding wars so any house we see will require 48 hrs for us to think about it, discuss it and then get back to her and if it gets an offer same day, we'll let it go. I won't allow impulse to reduce me to animal behavior. Rarely do impulsive decisions result in sound financial moves.

The biggest issue in the back of my head is interest rates and their historical numbers. Most believe it moves above 5 or 5.5% by EOY. That's a big increase and it's expected to continue. That could be scare tactics to artificially stimulate the housing market but from my very uninformed view, it's probable.

In order to limit risk and increase our cashflow, we looked at buying and living in a multi-family home but only one has met our criteria (pr./sq. ft) and quality neighborhood. But our realtor was too slow in reacting and it went off the market.

Ultimately, this is our decision. And I've never felt more indecisive in my life.

I just purchased the Boggleheads guide to investing and I'll begin reading it after I finish some of my other books.

If anyone is interested in giving me their interweb 2 cents, I'd be happy to read it.

 

[BleedBlueGold]

Congrats on paying off your debt. After reading your breakdown, my input is as follows:

-IMO you have too much in your emergency fund. We keep only 6 months of expenses in a money market account (if your gut says keep 12 months in it, then so be it). And I honestly couldn't care less that it's only growing at 0.09%. It's not an investment. It's insurance for any unforeseen emergencies. I also wouldn't put any in bonds. You want it to be liquid so you have access to it.

-Any extra money you put into the market, do not worry about timing. Just get in. Dollar cost averaging is the process of continuing to invest, every month, regardless of cost. Sometimes you buy high, sometimes you buy low. Just have a plan and stick to it.

-As far as housing, try and keep to a 15-year fixed mortgage. Put at least 20% down. And keep your total payment (mortgage, taxes, insurance, etc) to within 25%-30% of your monthly net income. I also wouldn't worry about rates going up. Yes, it will force you to afford less if you wait, but don't fall victim to that "Hurry up before rates increase" bullsh!t. Buy when you're ready, and only then. If you don't like the rates, buy points or pay off the mortgage faster. Two ways to decrease interest costs. Another concept to consider: Thomas Stanley's Millionaire Next Door suggestion is to buy a home that is 1.49 times the amount of your yearly salary. This helps you not become house-poor and frees up more money for saving/investing.

-I looked into a multi-family unit for my first house as well. It didn't work out for me. I'll just say make sure you really want to be a landlord and make sure you can handle it financially. It's not a bad way to build equity faster and/or use the extra money for investing.

The Boggleheads is a great place to start for someone like yourself who seems concerned with risk. Figure out what you're comfortable with and do that, consistently, over the course of your life. You can't go wrong as long as you do something.


My 0.02. Someone will come along and tell you something completely different. And that's ok. There are plenty of concepts out there.

 

[Wild Bill]

I have been horrible at investing but my wife and I achieved the debt free status in March of this year (I'm 31). I do have a good job and her job is secure (nurse) but we aren't rolling in money. When we first got married, we discussed what we wanted out of life and wrote it down and it boiled down to this:

• Children - we want to spend time with them
• Freedom - we don't want to be restricted by poor financial decisions
• As debt free as possible as we move through life together

After we got married, I went into consulting and my wife continued working. We lived off of her paycheck and put mine in the bank and paid off debt. We didn't have mounds of debt starting off. I went to a cheap college ($3k/semester) and my grandparents helped pay for it. That is an advantage that not everyone has. We paid off my car, all credit card debt, my wife's education and finally my wife's car. We put all of our money into a savings account to save up for a down payment on a house and create an emergency fund.

That's where the good story ends.

Now my savings are getting eaten up by inflation and I'm trying to devise a plan for investing and a short-term strategy for housing. We are considering the idea of continuing renting for the next 3-4 years which should provide us mobility in case anything should happen to my job market. Per the investing thread, I'm considering putting 80% of our emergency fund in progressively maturing bonds. I'm extremely risk averse, so we've saved enough for 12+ months of living should both of us lose our jobs at the same time.

The rest of the money could be moved into the market, and while I don't want to "time the market", it seems like an awful time to move a large chunk in right now. I've seen dollar cost averaging discussions but I don't know enough to decide one way or another.

The housing issue is the crux of future plans. We want a home but housing prices seem artificially inflated (some are listed back at their early 2008 price), and wanting to be in a good neighborhood requires us to take on more risk in the form of a larger mortgage. We can still hit the 20% down threshold but it makes me very nervous signing a piece of paper that pledges to make payments for 15-30 years and if I fail, they can take the home and everything I put into it.

Add to that a very low inventory in St. Louis and people are getting caught up in bidding wars resulting in 5-20k above listing price for some homes. I told our agent that I had no interest in bidding wars so any house we see will require 48 hrs for us to think about it, discuss it and then get back to her and if it gets an offer same day, we'll let it go. I won't allow impulse to reduce me to animal behavior. Rarely do impulsive decisions result in sound financial moves.

The biggest issue in the back of my head is interest rates and their historical numbers. Most believe it moves above 5 or 5.5% by EOY. That's a big increase and it's expected to continue. That could be scare tactics to artificially stimulate the housing market but from my very uninformed view, it's probable.

In order to limit risk and increase our cashflow, we looked at buying and living in a multi-family home but only one has met our criteria (pr./sq. ft) and quality neighborhood. But our realtor was too slow in reacting and it went off the market.

Ultimately, this is our decision. And I've never felt more indecisive in my life.

I just purchased the Boggleheads guide to investing and I'll begin reading it after I finish some of my other books.

If anyone is interested in giving me their interweb 2 cents, I'd be happy to read it.

If you're serious about being a landlord and nothing is on the market, I would suggest finding a multi-unit property that meets your needs, search the local records for the owner and make an offer. Everyone has a price.

Rental income is characterized as passive income but it's anything but passive - it can be a pain in the ass. You strike me as a thorough guy who will be obsessed with his home. I'll save you the suspense, you're tenant won't give a shit. Make sure you can live day to day under the same roof as someone who doesn't care about the place as much as you do.

 

[RDU Irish]

Housing market might get interesting in the next year. With the changes afoot at Freddie/Fannie we may be see mortgages privatized going forward which probably means the regular market starts to function like the Jumbo market. This means your less than 20% down payment buyers start to get pinched out of the market, lowering demand. Higher rates would also impact affordability in a bad way, putting more pressure on prices.

Last time around, subprime picked up the slack and housing flourished. Still a bad taste in pretty much everyone's mouth on subprime so it is hard to see that end picking up the slack this time around. More likely, I think rates will be manipulated down to keep the housing market from imploding.

I don't think 5.5% interest rates by end of year are realistic. If it happens for 30 year mortgages I think it will be due to structural changes in the market more so than rising long term interest rates. This will bode well for a strong buyer like yourself (good down payment, no other debt, strong credit score). Finding a divorce, death or relocation sale in a weakened market will make up for the higher interest rate you would end up paying.

Most likely, I believe, is a flattening of the yield curve with short rates increasing to 1% over the next two years and long rates staying about the same, maybe going up .25% to .5%. I don't think the housing market and government debt service can handle much more of an increase than that without a significant uptick in economic growth and jobs. The Fed has shown it is not afraid to purchase trillions in bonds to keep rates down.

Outside the box, we found our last house by sending letters to houses in a neighborhood we liked that were not listed. Out of 40 or 50 letters, we saw 12 houses that were not on the market. We used a buyer agent which I was surprised a number of home owners appreciated, liked keeping it more arms length/legitimate feeling and didn't seem as concerned as me about saving 3-6%. Zillow has a wealth of info out there as well.

As for investing, its been covered well here before but:
1) Get your 401k match
2) Roth IRAs
3) Back to the 401k
4) Taxable investment account

I agree that you are losing to taxes and inflation if you are getting less than a 3% return. For home purchase money you don't have many options though, given a 1-3 year time frame and a strong feeling on rising interest rates there really aren't many places to get a real rate of return without taking more risk than it sounds like you are comfortable taking.

 

[Veritate Duce Progredi]

Congrats on paying off your debt. After reading your breakdown, my input is as follows:

-IMO you have too much in your emergency fund. We keep only 6 months of expenses in a money market account (if your gut says keep 12 months in it, then so be it). And I honestly couldn't care less that it's only growing at 0.09%. It's not an investment. It's insurance for any unforeseen emergencies. I also wouldn't put any in bonds. You want it to be liquid so you have access to it.

I believe the reason for putting some of it in bonds is because these expenses are set aside for a year, I wouldn't need them all at once. More likely to need, say $8k and keep that in a money market account and invest the rest in progressively maturing bonds so that enough is maturing each month to pull on a rolling basis for expenses should the worst case scenario come to fruition.

-Any extra money you put into the market, do not worry about timing. Just get in. Dollar cost averaging is the process of continuing to invest, every month, regardless of cost. Sometimes you buy high, sometimes you buy low. Just have a plan and stick to it.

-As far as housing, try and keep to a 15-year fixed mortgage. Put at least 20% down. And keep your total payment (mortgage, taxes, insurance, etc) to within 25%-30% of your monthly net income. I also wouldn't worry about rates going up. Yes, it will force you to afford less if you wait, but don't fall victim to that "Hurry up before rates increase" bullsh!t. Buy when you're ready, and only then. If you don't like the rates, buy points or pay off the mortgage faster. Two ways to decrease interest costs. Another concept to consider: Thomas Stanley's Millionaire Next Door suggestion is to buy a home that is 1.49 times the amount of your yearly salary. This helps you not become house-poor and frees up more money for saving/investing.

If I were to go with this idea of spending 1.49 times my yearly salary, I believe the most effective plan would be to take our down payment money for a house and put it in the market, then add to it as each month allows and choose to withdraw when the market has great enough returns that we can pay outright for the home with no morgage. This would require an elastic mindset, in that if the market was down, we'd simply continue renting and hope the following year would rebound to offer us an opportunity to pull the money we needed to buy a home. Surely there is a reason I shouldn't do this but I can't identify it. Any help?

-I looked into a multi-family unit for my first house as well. It didn't work out for me. I'll just say make sure you really want to be a landlord and make sure you can handle it financially. It's not a bad way to build equity faster and/or use the extra money for investing.

The Boggleheads is a great place to start for someone like yourself who seems concerned with risk. Figure out what you're comfortable with and do that, consistently, over the course of your life. You can't go wrong as long as you do something.


My 0.02. Someone will come along and tell you something completely different. And that's ok. There are plenty of concepts out there.

Thanks for your two cents, I solicited them and I appreciate your input

If you're serious about being a landlord and nothing is on the market, I would suggest finding a multi-unit property that meets your needs, search the local records for the owner and make an offer. Everyone has a price.

Rental income is characterized as passive income but it's anything but passive - it can be a pain in the ass. You strike me as a thorough guy who will be obsessed with his home. I'll save you the suspense, you're tenant won't give a shit. Make sure you can live day to day under the same roof as someone who doesn't care about the place as much as you do.

These are very good points, and I appreciate them from someone with first hand experience. Do you have any suggestions on screening processes? Credit reports, screening services, etc? The only part I worry about is if we were to go this route, we'd have a newborn in the home. I wouldn't want a newborn crying if I were renting.

Housing market might get interesting in the next year. With the changes afoot at Freddie/Fannie we may be see mortgages privatized going forward which probably means the regular market starts to function like the Jumbo market. This means your less than 20% down payment buyers start to get pinched out of the market, lowering demand. Higher rates would also impact affordability in a bad way, putting more pressure on prices.

Last time around, subprime picked up the slack and housing flourished. Still a bad taste in pretty much everyone's mouth on subprime so it is hard to see that end picking up the slack this time around. More likely, I think rates will be manipulated down to keep the housing market from imploding.

I don't think 5.5% interest rates by end of year are realistic. If it happens for 30 year mortgages I think it will be due to structural changes in the market more so than rising long term interest rates. This will bode well for a strong buyer like yourself (good down payment, no other debt, strong credit score). Finding a divorce, death or relocation sale in a weakened market will make up for the higher interest rate you would end up paying.

Most likely, I believe, is a flattening of the yield curve with short rates increasing to 1% over the next two years and long rates staying about the same, maybe going up .25% to .5%. I don't think the housing market and government debt service can handle much more of an increase than that without a significant uptick in economic growth and jobs. The Fed has shown it is not afraid to purchase trillions in bonds to keep rates down.

This is good to know. It sounds like there are two likely future outcomes: lower prices or similar interest rates. The first one makes me hesitant to spend if my purchase will lose value in the coming year(s). The second further solidifies my feeling that renting isn't the worst idea right now

Outside the box, we found our last house by sending letters to houses in a neighborhood we liked that were not listed. Out of 40 or 50 letters, we saw 12 houses that were not on the market. We used a buyer agent which I was surprised a number of home owners appreciated, liked keeping it more arms length/legitimate feeling and didn't seem as concerned as me about saving 3-6%. Zillow has a wealth of info out there as well.

As for investing, its been covered well here before but:
1) Get your 401k match
2) Roth IRAs
3) Back to the 401k
4) Taxable investment account

Wife's 401k is matched plus some, but we aren't maxing her 401k contribution yet. My employer doesn't match so I'm pushing enough to be close to maxing out the 401k. This serves two purposes, helps lower our AGI so we can contribute to Roths and helps me make up for lost time. I contributed very little to my 401k when I first joined the work force. After that, we are looking at consolidating our investments into all Vanguard funds and perhaps a few hand picked funds. We've seen mention of Betterment (even though they tack on fees). What other avenues are available for investing? I'm so new to this, I started the Bogleheads' guide to investing last night because I'm tired of not making our money work for us.

I agree that you are losing to taxes and inflation if you are getting less than a 3% return. For home purchase money you don't have many options though, given a 1-3 year time frame and a strong feeling on rising interest rates there really aren't many places to get a real rate of return without taking more risk than it sounds like you are comfortable taking.

I don't mind taking the risk that we can't buy a home, I don't want to risk buying too much home too early. So if I can put that money in the market and keep our decision elastic or variable based on condition of the market and current income, then I'd be all for it. Since I haven't actually considered that, I'm going to talk to my wife about it as well. Thoughts?

 

[woolybug25]

I don't mind taking the risk that we can't buy a home, I don't want to risk buying too much home too early. So if I can put that money in the market and keep our decision elastic or variable based on condition of the market and current income, then I'd be all for it. Since I haven't actually considered that, I'm going to talk to my wife about it as well. Thoughts?

What do you think will appreciate more, your current short-term investment of your equity, or the value of a home?

 

[Veritate Duce Progredi]

What do you think will appreciate more, your current short-term investment of your equity, or the value of a home?

That's a good question and unless it's rhetorical and I should know that answer: I'm guessing based on housing market reports, I should expect homes to continue to increase at a higher than normal clip until 2018. The last two years were the big gaining years, so if I would've purchased a home in 2012/or early 2013, I'd have likely seen a 5-10% appreciation (not sure if this is total or year over year increase) just due to recovery from the last subprime bust.

If I understood what I read the other night, most are forecasting home appreciation to slowly decline from it's high percentage the last two years to the historical average of (~3%)? So one could expect perhaps a 4-5% increase the next few years assuming what RDU Irish posted doesn't occur. Meaning lenders don't tighten restrictions and the fed ensures rates stay low. Either of those could decrease values, which could put our family in a bad place because our family is growing and the home we can afford would likely be overloaded 6 years in.

On the other hand, historical returns on the market after inflation are close to 6%, so it appears that the prudent move would be to move the money to the market, continue renting and saving, allowing the money to compound. The only way I'm not on the receiving end of the greater appreciation is if housing sees a soaring appreciation (I don't know what factors would cause that: laws passed to attract transplants, big companies moving operations to StL & increasing the need for housing, continued short supply for whatever reason).

I have quite literally no background in economics/finance, that's why I'm soliciting advice while I learn about my options.

 

[woolybug25]

It wasn't rhetorical, I didn't know what your short term investment strategy was or what type of return you considered fair for your risk tolerance.

One thing you seem to be discounting in your inflation comment was the fact that you are compiling more equity through your house payment than your savings alone.

As you know, not a ton of your monthly mortgage payment is going to equity at the beginning, but some certainly is, which is better than the $0 dollars you are stacking away while paying rent. If your mortgage is similar to your rent payment, than that small amount of equity you are collecting is in addition to your monthly savings %.

We are currently in the best mortgage environment than you may see in the rest of your life. While inventories are declining across the country, home prices are still very deflated. Pair that with attractive interest rates, and your home itself becomes a long term equity play.

If you plan on renting and waiting say… 3 years before buying. Then I think you are missing a low risk investment mechanism (don't listen to the Dave Ramsey crowd when they tell you that a home isn't an investment. Any vehicle you hold equity in is by nature an investment) that hits you in two ways; 1) equity and 2) low rate investment. It will also open a myriad of other investment opportunities through home equity loans, greater net worth and comparable debt.

 

[Veritate Duce Progredi]

It wasn't rhetorical, I didn't know what your short term investment strategy was or what type of return you considered fair for your risk tolerance.

One thing you seem to be discounting in your inflation comment was the fact that you are compiling more equity through your house payment than your savings alone.

As you know, not a ton of your monthly mortgage payment is going to equity at the beginning, but some certainly is, which is better than the $0 dollars you are stacking away while paying rent. If your mortgage is similar to your rent payment, than that small amount of equity you are collecting is in addition to your monthly savings %.

We are currently in the best mortgage environment than you may see in the rest of your life. While inventories are declining across the country, home prices are still very deflated. Pair that with attractive interest rates, and your home itself becomes a long term equity play.

If you plan on renting and waiting say… 3 years before buying. Then I think you are missing a low risk investment mechanism (don't listen to the Dave Ramsey crowd when they tell you that a home isn't an investment. Any vehicle you hold equity in is by nature an investment) that hits you in two ways; 1) equity and 2) low rate investment. It will also open a myriad of other investment opportunities through home equity loans, greater net worth and comparable debt.

Thanks Wooly. When stepping back and taking a global view, this is how I understand the equation: If we take into account the minimal amount of equity earned in the first 3-4 years coupled with the amount paid in interest and the average appreciation on homes vs. money paid in rent (complete loss) and down payment placed in the market with expected average gains ~ 6% with the added benefits of mobility (should we need to move).

If my current contract would allow us to have enough saved to pay cash for the same amount of home 4 years from now (even more if the market is strong when we withdraw), would that influence the decision? 4 years from now, homes could be 3-4% more expensive (year over year) or what RDU Irish posited could come to fruition and lending restrictions continue to increase and housing prices drop due to a surplus in the market.

That's a massive swing. Am I way off base in how I'm viewing this? Before this house hunting started, I'd never entertained the idea of buying a home. I was a bachelor and was content with a meager existence.