Investment Strategies

[SteadyMercury]

I don't understand the "at this point in your life" I don't think there is ever a point in one's life where correctly managing your personal finances becomes less relevant.

 

[MHunterB]

SM, there is a LOT more emotional stuff attached to how most of us see our money than one might expect.... I think every one of us has made errors which cost us hundreds, if not thousands of dollars.

When we were very young and poor and very first married, the husband signed up for a correspondence-type course in computers. He was in the military, but teaching at the Signal Corps school, and didn't realize that once he changed duty stations a few months later he wouldn't have the kind of time he needed to invest in the course to be successful. And of course it never occurred to him to try to renege on any commitment. (He later learned to not OVER-commit his energy so drastically).

So that course mistake cost us $1500.....seems like small potatoes, no? Except that was nearly 40 years ago, and we were making about $7,000 or so a year in those days (I still have the 1981 tax form where we paid taxes on just over $10K of income). We paid it off for several years at $25/month (our car payment was $47/month and rent was $130 - $180) ..... while putting $25/month into savings bonds.

I get queasy thinking about what that $1500 would've give n us now if we'd put it into savings : (( - but to be honest, I think we'd have spent most of it. Not on anything incredibly frivolous, just maybe a color TV set, or we'd have replaced the furniture the 'low-bid' moving company wrecked for us a few years sooner......

Oh, and I think that was the LAST financial decision the husband made without conferring with me, LOL.

BOTH our fathers had told him "Give her the paycheck, take your allowance, and don't ask questions".......he didn't realize he'd violated a Prime Directive until afterwards. Yes, if all 4 parents gave the same answer/advice, it was a 'PD'. I can't think of more than once or twice when they were all wrong together, curse them!

 

[MHunterB]

DS - I don't understand your POV either, but that doesn't mean you're wrong. It isn't what I'd do, but each of us should do what lets us sleep at night.

We've been very lucky: the husband was unemployed or underemployed for five years running ('02-'06) and we had to pay ALL our medical insurance on our own for most of that time. We were very reluctant to go without insurance, considering that the husband had his first angioplasty in '94 and we knew he'd be needing more with time (he's only had one more round so far). And whenever he's got chest pain, it's an ER/hospital visit for about 10K worth of tests to make sure it's not a $50 K heart attack. Not to mention I'd get an ulcer worrying about how we'd pay for things......

So there were 5 years when we were unable to contribute ANYTHING to our 401K, and we were just thankful we didn't have to deplete it. Instead, we refinanced the house - twice - so we could keep going and pay for the son to go to college (as it was, the kid owes about $25K even though we helped, he worked and he had scholarships) - which is why we'll need that big withdrawal from the 401K. We owe something like $167 K on the house, which doesn't leave near enough equity to buy even a small condo.

 

[Wake]

Mhunter, I'd like to try some compounding. My employer does offer it, but my paycheck doesn't really give me leeway to start doing that just yet. I've been getting ready to start seeking a second job, and should I be successful I'll definitely start putting more money into it.

I'd like to open up a traditional IRA, but I don't know if those compound, too..

Definitely want to make and sock more money away, and I just got a small raise so that helps a bit. I just took $2700 out of my savings to pay off a student loan whose interest increased to 6.8%. It was probably reckless, but I was very scared that the interest would eat me alive, especially if I lost my job. Now my hours have been reduced down to 24 per week, so I've been trying to take on more shifts, and my employers have been trying to hand me some high profile cases, but the families of those clients keep changing their minds at the very last minute. The last one would have had me working 100 hours a week, so now I've had it and am now on the job-seeking war-path. I need job security, where I know I'll have reliable hours that don't constantly fluctuate. Now my mom is asking for help with her dental bill (repairing an old crown), so I will take care of that $970 bill, which is going to hurt like hell.

I can't even begin to think about insurance yet. Hopefully if I get a job at a hospital they'll give me insurance. I definitely want to do DRIPs, and get that snowballing while I'm young, but I need to bust my hump and earn more money. I want to sock the max limit in a traditional IRA every chance I get, and look into a 401K and DRIPs. Some preferred stocks and index funds that'll shower me with dividends would help, too. I was looking at a money market account at the bank, because I thought that if I had $2500 in it they'd pay me $17.50 per month in interest, but I later learned that was PER YEAR, which sucks! If it were per month that'd be pretty nifty.

One thing I've been doing is shedding most of my material possessions. If it can all fit in 1-3 plastic bins, besides my car, I'm good. Also I'm not wanting to buy a big, beautiful house when I'm older because of the property taxes. They scare me. One of my clients with ALS owns a beautiful house, but his property taxes are $6,500 PER MONTH. That's not including all the medical expenses regarding ALS, which isn't cheap, especially when you consider insurance, hospice, and the costs of the home care agency.

If I can just make a portfolio where I'm getting cash pouring in from dividends into my investment account, while snowballing other stocks and stuff with compound interest and market appreciation, I'd be pretty happy. That feeling of raking in $400+ in dividends would take a lot of stress out of my life. Currently my one stock, GRHpC, only nets me $7.50 each month, and has appreciated by about 35%. I did have ADKpC, but I was stupid and inexperienced and pulled out before it shot up in value. Dehaeir Medical was another good one that soared upwards, but I was jumpy and never put in while there were signs it was going to skyrocket. Bah, I just want to be set so my wife and I aren't struggling like some of the people I've been caring for.

 

[sjay]

Wake if you don't even know what compounding means,you really need to learn a lot more before you invest on your own.Also indexing is primarily done with indices such as the SP500 not with sectors.Right now your odds are no better than going to a casino.

 

[finebead]

I primarily trade with the Exchange Traded Fund (ETF) called "SPY", which is basically buying the S&P 500 large cap index. The ETF trades like a stock, it is more flexible than using a mutual fund, it is cheaper as the fees are very low for the industry, and you get automatic diversification across industries. It pays out its dividend at the end of each quarter, about 2% annually currently, but you get growth potential with the dividend.

Studies show that VERY FEW mutual fund managers beat the return on the S&P over a 10 year period. If that's true, why pay the higher fees to a fund manager, when you can just but SPY?

 

[Mac1958]

Wake, I'm an advisor, and I probably shouldn't get too far into this, but some completely random thoughts (yeah, I can't help myself, I love this stuff):

... MHunterB is exactly right, first place to look is an employer 401K plan. Most will match your contributions by 3% to 6% of your gross income - think of that, free money. If you're contributing 3% and they contribute 3%, that's 100% on your money before growth, assuming that you stay long enough with your employer to become vested in their matching dollars. Then that money grows tax deferred, love it.

... Next look at an IRA, either traditional or Roth. More tax deferral, and you can open it up online with Vanguard (although I Iike T Rowe Price better).

... I don't like this idea of you taking income from your investments at such a young age, so the whole dividends thing bugs me. You need your money to compound over time, and it won't do that as long as you're siphoning off cash. Plus, don't forget, you'll be taxed on that income. I'd love to see you get away from that whole idea ASAP.

... Over the last 20 years, the average active investor (those who think they can predict and/or time the market and keep moving around) has made only a 3.49% annualized return (DALBAR study). That's less than half the market. Sure, your friends will tell you about their big gains in a stock, but they somehow forget to mention all the dogs they bought.

... Want some free advice? Unless you absolutely have to draw income, invest in an aggressive portfolio (aggressive is fine at your age, you have plenty of time to recover from shit storms) of ETF's that lean towards mid cap and small cap stocks, which outperform the market by quite a bit over time. Then just leave them the hell alone and keep contributing every freaking month.

... I think you're over-thinking this, and that's a very normal thing. Many, many people do that. Don't chase gains, let them come to you naturally using TIME.

... Just for fun, look into the following portfolio: 20% each of IJH, IJR, IVV, IWC. 10% each of CVY, HGI. If you told me you were pouring after-401K money into that portfolio on a monthly basis, I'd slap you on the back and say, "holy crap, that's aggressive, but you're gonna be very happy later." To be even more aggressive, increase IVV to 30% and drop CVY and HGI to 5% apiece.

My two cents, worth every penny.

No pun intended.

.

 

[candycorn]

I recommend you attend Financial Peace University through Dave Ramsey. I disagree with Dave on a few points though.

His advice is to own 4 mutual funds, on Large Cap, One Growth fund, one other stock fund and one international fund (it's been a few years--don't remember all the details). I rejected the last two and doubled up on the large cap and took the International Fund and invested in a fund that had a mix of bonds and stocks.

These are designed (in the pan) to be held for 5+ years. I have funds with Vanguard, Fidelity, and another company.

The second way I disagree with Dave is to "NEVER" own individual stocks. I own a large chunk of a stock that pays $0.60-$0.70 per quarter so every 3 months from that company, I get a check for a few hundred dollars. A second company is set up similarly but is on a "different clock" and it pays every 3 months as well but on different months. So, in September, company A will pay off and in November, company B will pay off.

So I can take a mini vacation just about every 3 months. Sometimes, I re-invest the dividends, sometimes not.

A third way I disagree is with his wanting 15% of your earnings into IRAs. I was vested from my public health days so I'm a bit insulated by my pension. Even if I wasn't, I would not put that much into the IRA. My family has a history of dying early so I don't put that much interest into retiring gracefully. Never quite understood why people would wait until they are immobile and of poor eyesight to travel and see the sights. I'm seeing what I can see NOW!!!

There is a bunch of religious stuff in FPU as well. I think it's best ignored although I do follow his advice about giving regularly.

 

[sjay]

I recommend you attend Financial Peace University through Dave Ramsey. I disagree with Dave on a few points though.

His advice is to own 4 mutual funds, on Large Cap, One Growth fund, one other stock fund and one international fund (it's been a few years--don't remember all the details). I rejected the last two and doubled up on the large cap and took the International Fund and invested in a fund that had a mix of bonds and stocks.

These are designed (in the pan) to be held for 5+ years. I have funds with Vanguard, Fidelity, and another company.

The second way I disagree with Dave is to "NEVER" own individual stocks. I own a large chunk of a stock that pays $0.60-$0.70 per quarter so every 3 months from that company, I get a check for a few hundred dollars. A second company is set up similarly but is on a "different clock" and it pays every 3 months as well but on different months. So, in September, company A will pay off and in November, company B will pay off.

So I can take a mini vacation just about every 3 months. Sometimes, I re-invest the dividends, sometimes not.

A third way I disagree is with his wanting 15% of your earnings into IRAs. I was vested from my public health days so I'm a bit insulated by my pension. Even if I wasn't, I would not put that much into the IRA. My family has a history of dying early so I don't put that much interest into retiring gracefully. Never quite understood why people would wait until they are immobile and of poor eyesight to travel and see the sights. I'm seeing what I can see NOW!!!

There is a bunch of religious stuff in FPU as well. I think it's best ignored although I do follow his advice about giving regularly.

Get back on your meds as soon as possible.

 

[Wake]

I'm learning more about investing. The main thing that has been holding me back are some feelings of apprehension. Experience is what I need and the only way I'll get it is by trying out more and different kinds of investments.

Dividends are nice, but I think if I wise up and focus on timing, I could make a lot in capital gains. Still learning about earnings per share (EPS), sector index funds, and trying to best understand how to predict the stock market. My reasoning is that the economy is made based on human needs. If I can figure more out about how people are changing, I can use that to figure out how the market is changing. If I were to invest in a sector index, health care would be it, followed by housing (REITs?), and scientific technology. The population continues to grow unhindered, so there will be more patients in need of care: ergo, more hospitals,

Planning to use bye/sell stock limits to make it easier to trade, while preventing slippage. I want the sense of reassurance knowing that dividends will continue pouring in while the index fund slowly grow in value. I feel like the young man who envisions hard-earned wealth through investing and trading... yet has done little with his money because of fear. It's tough, especially when you have to research select companies with whatever resources you have which, sometimes, is just paper and a pen.

I'm not earning enough $$$ to afford recklessness in vestments. If I put $800 into a stock and it crashes, that will be a stinging loss. I'll try a sector index fund first.

 

[candycorn]

I'm learning more about investing. The main thing that has been holding me back are some feelings of apprehension. Experience is what I need and the only way I'll get it is by trying out more and different kinds of investments.

Dividends are nice, but I think if I wise up and focus on timing, I could make a lot in capital gains. Still learning about earnings per share (EPS), sector index funds, and trying to best understand how to predict the stock market. My reasoning is that the economy is made based on human needs. If I can figure more out about how people are changing, I can use that to figure out how the market is changing. If I were to invest in a sector index, health care would be it, followed by housing (REITs?), and scientific technology. The population continues to grow unhindered, so there will be more patients in need of care: ergo, more hospitals,

Planning to use bye/sell stock limits to make it easier to trade, while preventing slippage. I want the sense of reassurance knowing that dividends will continue pouring in while the index fund slowly grow in value. I feel like the young man who envisions hard-earned wealth through investing and trading... yet has done little with his money because of fear. It's tough, especially when you have to research select companies with whatever resources you have which, sometimes, is just paper and a pen.

I'm not earning enough $$$ to afford recklessness in vestments. If I put $800 into a stock and it crashes, that will be a stinging loss. I'll try a sector index fund first.

Are you totally out of debt with the exception of your housing? If the answer is "no", aside from retirement planning, you shouldn't be investing in anything.

 

[sameech]

I'm learning more about investing. The main thing that has been holding me back are some feelings of apprehension. Experience is what I need and the only way I'll get it is by trying out more and different kinds of investments.

Dividends are nice, but I think if I wise up and focus on timing, I could make a lot in capital gains. Still learning about earnings per share (EPS), sector index funds, and trying to best understand how to predict the stock market. My reasoning is that the economy is made based on human needs. If I can figure more out about how people are changing, I can use that to figure out how the market is changing. If I were to invest in a sector index, health care would be it, followed by housing (REITs?), and scientific technology. The population continues to grow unhindered, so there will be more patients in need of care: ergo, more hospitals,

Planning to use bye/sell stock limits to make it easier to trade, while preventing slippage. I want the sense of reassurance knowing that dividends will continue pouring in while the index fund slowly grow in value. I feel like the young man who envisions hard-earned wealth through investing and trading... yet has done little with his money because of fear. It's tough, especially when you have to research select companies with whatever resources you have which, sometimes, is just paper and a pen.

I'm not earning enough $$$ to afford recklessness in vestments. If I put $800 into a stock and it crashes, that will be a stinging loss. I'll try a sector index fund first.

Are you totally out of debt with the exception of your housing? If the answer is "no", aside from retirement planning, you shouldn't be investing in anything.

Yeah that is bad advice. If you are paying less than your return in interest, it is still better to invest and pay down the debt overtime. debt is usually dischargeable in bankruptcy so acquiring assets should not take back seat usually unless you are paying loan shark interest rates. Besides, people need to do that which makes them feel the most comfortable.

 

[SteadyMercury]

If you are paying less than your return in interest, it is still better to invest and pay down the debt overtime.

How will he know what his returns will be to make this decision? That is why it isn't an apples to apples comparison, you can't compare the known interest rate of debt to a potential return (or loss).

 

[SteadyMercury]

Sure, your friends will tell you about their big gains in a stock, but they somehow forget to mention all the dogs they bought.

Same friends always win in Vegas too.

 

[SteadyMercury]

The second way I disagree with Dave is to "NEVER" own individual stocks. I own a large chunk of a stock that pays $0.60-$0.70 per quarter so every 3 months from that company, I get a check for a few hundred dollars. A second company is set up similarly but is on a "different clock" and it pays every 3 months as well but on different months. So, in September, company A will pay off and in November, company B will pay off.

You know stock mutual funds throw off dividends every quarter too right?

I would not put that much into the IRA. My family has a history of dying early so I don't put that much interest into retiring gracefully. Never quite understood why people would wait until they are immobile and of poor eyesight to travel and see the sights. I'm seeing what I can see NOW!!!

Seeing things now isn't mutually exclusive to using tax advantaged retirement savings vehicles.

 

[sameech]

If you are paying less than your return in interest, it is still better to invest and pay down the debt overtime.

How will he know what his returns will be to make this decision? That is why it isn't an apples to apples comparison, you can't compare the known interest rate of debt to a potential return (or loss).

doesn't matter. if you put it all into debt and you lose your job, you have nothing but a smaller amount to discharge. At least with investment you have a potential to have something to cash out and survive on.

 

[SteadyMercury]

doesn't matter. if you put it all into debt and you lose your job, you have nothing but a smaller amount to discharge. At least with investment you have a potential to have something to cash out and survive on.

That is a completely different issue, he might already have an emergency fund parked in something safe. If he doesn't then we aren't talking about investing, we're talking about first building up an emergency fund in something like a savings or money market account, then looking to invest. He's talking about stock funds so we can assume he's investing.

And what are you talking about discharge?

 

[sameech]

doesn't matter. if you put it all into debt and you lose your job, you have nothing but a smaller amount to discharge. At least with investment you have a potential to have something to cash out and survive on.

That is a completely different issue, he might already have an emergency fund parked in something safe. If he doesn't then we aren't talking about investing, we're talking about first building up an emergency fund in something like a savings or money market account, then looking to invest. He's talking about stock funds so we can assume he's investing.

And what are you talking about discharge?

You have a couple assumptions there. I can go on the interweb and put a sell order in and have my money in a few day. That is emergency fund enough. second, I already posted to him my strategy of buying individual stocks. even if you buy steady stocks like MSFT that don't burn the doors down, you are going to be better off over time than putting the money in a .45%APR savings account. If it works for him, great. If it doesn't, so be it. Different people have different tolerances for risk, goals, etc.

 

[SteadyMercury]

I can go on the interweb and put a sell order in and have my money in a few day. That is emergency fund enough.

No, it isn't. An emergency fund doesn't belong anywhere that can lose money.

already posted to him my strategy of buying individual stocks. even if you buy steady stocks like MSFT that don't burn the doors down, you are going to be better off over time than putting the money in a .45%APR savings account.

You clearly don't understand what an emergency fund is, it doesn't get invested in individual stocks.

MSFT steady? That is hilarious, steady except for those occasional > 50% drops:

There is a place for stock investing, but it sure as hell isn't individual tech stocks in an emergency fund and it also isn't comparable to paying off debt based on speculative returns. You are giving absolutely terrible personal finance advice.

 

[sameech]

I can go on the interweb and put a sell order in and have my money in a few day. That is emergency fund enough.

No, it isn't. An emergency fund doesn't belong anywhere that can lose money.

already posted to him my strategy of buying individual stocks. even if you buy steady stocks like MSFT that don't burn the doors down, you are going to be better off over time than putting the money in a .45%APR savings account.

You clearly don't understand what an emergency fund is, it doesn't get invested in individual stocks.

MSFT steady? That is hilarious, steady except for those occasional > 50% drops:

There is a place for stock investing, but it sure as hell isn't individual tech stocks in an emergency fund and it also isn't comparable to paying off debt based on speculative returns. You are giving absolutely terrible personal finance advice.

No You are just johnny come lately. I todl Wake already what I look for based on my investing pattern and he would need to do the same. Putting money in a savings account at 1/2% APR with over 1% inflation means you are losing real value in your money.