Investing Thread

[Jenksismyhero]

Can be merged with the Financial thread I'm sure, and maybe it should be in a different forum altogether, but I'll throw it here for now (mods feel free to move as you please)

 

I wanted to get people's opinions on the various online trading sites out there. Does anyone have any horror stories? Any good recommendations? I'm looking at the big guns, Schwab, Fidelity, TD Ameritrade, etc. Fidelity is nice because it's the cheapest of the big firms for equity trades (7.95), but they charge 75 bucks (versus 40 or under) as fees for mutual funds (at least those not in their special group of funds). I'm guessing that without hours and hours of research, I'm going to get hit with these hidden fees no matter what company I choose, but hopefully someone out there has already figured that out.

 

Basically my plan is to invest aggressive, though not crazy aggressive. I'm planning on doing the vast majority in mutual funds/bonds, but I also want to dabble (i.e., gamble) on some stocks for fun.

 

Thoughts/opinions appreciated!

[Y2HH]

Can be merged with the Financial thread I'm sure, and maybe it should be in a different forum altogether, but I'll throw it here for now (mods feel free to move as you please)

 

I wanted to get people's opinions on the various online trading sites out there. Does anyone have any horror stories? Any good recommendations? I'm looking at the big guns, Schwab, Fidelity, TD Ameritrade, etc. Fidelity is nice because it's the cheapest of the big firms for equity trades (7.95), but they charge 75 bucks (versus 40 or under) as fees for mutual funds (at least those not in their special group of funds). I'm guessing that without hours and hours of research, I'm going to get hit with these hidden fees no matter what company I choose, but hopefully someone out there has already figured that out.

 

Basically my plan is to invest aggressive, though not crazy aggressive. I'm planning on doing the vast majority in mutual funds/bonds, but I also want to dabble (i.e., gamble) on some stocks for fun.

 

Thoughts/opinions appreciated!

 

I've used quite a few of those mentioned above, but have ended up sticking with E*Trade for quite a while now. They were usually ahead of the game in terms of online technology, iPhone app, Android app, etc...where the others lagged behind (some still do). But what it comes down too is 1) the minimum required amounts in each account and 2) how much do they charge per trade.

 

Go with whoever is the cheapest if they're a known company.

 

And what do you mean by invest aggressive? How old are you? I ask because aggressive investing is something a person under 30 years old should look into. After 30, balance and diversification are key.

 

Keep in mind the same error 99.999999% of the people who begin investing make is that they tend to buy mutual funds and index funds high, panic at the first sign of trouble (think 2008) and sell low. The market is pretty high right now, so most of these aggressive funds will be at the top end of their 5 year values, which would mean you're buying high. The idea is to find the funds nobody wants and figure out why. Example: Nobody wanted blue chips in the late 90's because the Internet boom was all the rage. Other than the fact that the Internet boom was all the rage, there was no real reason to not want the blue chips, they were profitable (unlike most of the techs were back then), paying dividends (again, unlike most of the techs were back then), etc...but were at bargain basement prices merely because they weren't "the future". It's a different story if nobody wants to invest in a specific company because the company is in debt, losing money, has bad products, etc. Being able to find the bargains is the key to investing, in any market.

Edited December 28, 2010 by Y2HH

[bigruss]

I opened an account with Optionshouse over the summer, as a beginner I have no problem with it, especially the $2.95 fees which are really low. They don't have an Iphone app or anything but I don't mind since I don't have a smart phone anyways.

[Jenksismyhero]

I've used quite a few of those mentioned above, but have ended up sticking with E*Trade for quite a while now. They were usually ahead of the game in terms of online technology, iPhone app, Android app, etc...where the others lagged behind (some still do). But what it comes down too is 1) the minimum required amounts in each account and 2) how much do they charge per trade.

 

Go with whoever is the cheapest if they're a known company.

 

And what do you mean by invest aggressive? How old are you? I ask because aggressive investing is something a person under 30 years old should look into. After 30, balance and diversification are key.

 

Keep in mind the same error 99.999999% of the people who begin investing make is that they tend to buy mutual funds and index funds high, panic at the first sign of trouble (think 2008) and sell low. The market is pretty high right now, so most of these aggressive funds will be at the top end of their 5 year values, which would mean you're buying high. The idea is to find the funds nobody wants and figure out why. Example: Nobody wanted blue chips in the late 90's because the Internet boom was all the rage. Other than the fact that the Internet boom was all the rage, there was no real reason to not want the blue chips, they were profitable, paying dividends, etc...but were at bargain basement prices. It's a different story if nobody wants to invest in you because the company is in debt, losing money, has bad products, etc.

 

I'm 28, so I figured I have a few years to be more risky to start. Any good suggestions on more aggressive funds? I plan to invest a few thousand every couple of months. Maybe aggressive isn't the right word - i'm looking for growth, even if a little risky at this point.

[Y2HH]

I'm 28, so I figured I have a few years to be more risky to start. Any good suggestions on more aggressive funds? I plan to invest a few thousand every couple of months. Maybe aggressive isn't the right word - i'm looking for growth, even if a little risky at this point.

 

What kind of term are we talking here for these investments? Do you want to start buying up funds and just letting them grow over a span of 20 years, or are you talking more short term, like 5 years?

Edited December 28, 2010 by Y2HH

[Jenksismyhero]

What kind of term are we talking here for these investments? Do you want to start buying up funds and just letting them grow over a span of 20 years, or are you talking more short term, like 5 years?

 

Long term, 30-35 years or more (barring something unforeseen), with added contribution on a monthly or quarterly basis. I'm thinking about 10k in the next year to start and maybe 1500 a quarter thereafter.

 

[Y2HH]

Long term, 30-35 years or more (barring something unforeseen), with added contribution on a monthly or quarterly basis. I'm thinking about 10k in the next year to start and maybe 1500 a quarter thereafter.

 

Ok, next comes the account type.

 

Some will say IRA, Roth IRA, etc...I disagree with this for a number of reasons, however, such accounts are good for people with no financial discipline, as it forces you to keep your money there with the threat of penalty for early withdrawal. The only time I think these types of accounts are a good idea is for the reason mentioned previously, or because it's a company sponsored 401k with some sort of % match.

 

Why IRA's are bad (and most people don't realize):

1) Cannot wash

2) Cannot get to your money in an emergency without a huge penalty

3) When you do retire and start using this money, it's taxed as ordinary income, not long term capital gains, which is essentially double the tax at current rates...odds are these will only increase in the future, not decease.

 

All that said...if what you want to do is invest in a mutual fund with a large portion of the money on a quarterly basis, and dabble with some individual stocks, and again, I'm sure people will disagree with me...

 

The only fund you should buy is the S&P500 Index.

 

Aggressive mutual funds, and mutual funds in general tend to have a higher cost basis (meaning the person running the fund gets their cut, usually 1% or more, per year), while the S&P500 Index funds cost basis usually hovers around 0.15%, and over a span of years that alone is a huge cost savings.

 

Add to that, given the period of time you are looking to invest, no fund has EVER consistently outperformed the S&P500. There can be a span of years in which they do, even as much as a decade (for instance look at the lost decade 2000-2010, outperforming the S&P500 was easy), but the further and further you go back, the harder and harder it becomes to do it. Also, due to how low the S&P500 has been, the indexes were cheaper...and that's what you want out of whatever index or fund you do decide to invest in...to buy low, not while they're at the height of their popularity.

 

S&P 500 Index information:

http://en.wikipedia.org/wiki/S%26P_500

 

S&P Index Calculator and a good short writeup on how to understand Annualized Return:

http://www.moneychimp.com/features/market_cagr.htm

 

As you can see by the charts, over the lifetime of the S&P, it will usually equal out to a median annual return of 10% (which seems low, but 10% is NOT low), where it has moments of huge gains or losses, the median is ~10%.

 

Example:

 

Going back 5 years, 50% of mutual funds can show they've outperformed the S&P500 index.

Going back 10 years, 25% can show this.

Go back 20 years, 2% can show this (the number exponentially falls off a cliff).

Go back 30...and 0.01% can show this.

 

Over the long haul, nothing outperforms the S&P500, AND it's the cheapest fund to hold. It's what I recommend. In addition to this, just to cover your bases, you can pick a random International Index or Mutual fund so you have some of your money in foreign companies, but I'd recommend you do this with a smaller portion.

 

Edit: I shouldn't say nothing outperforms the S&P500 Index, obviously things have and can...the odds of you picking that exact fund are very VERY low, since there are millions of funds to choose from. Also, going back far enough where a specific fund does beat the market (when people say beat the market they mean beat the S&P500 index), it will be by an almost negligible % amount...so the risk of holding that fund over the S&P vs the reward isn't enough to justify the added and much higher cost basis.

 

Any questions?

Edited December 28, 2010 by Y2HH

[Jenksismyhero]

Ok, next comes the account type.

 

Some will say IRA, Roth IRA, etc...I disagree with this for a number of reasons, however, such accounts are good for people with no financial discipline, as it forces you to keep your money there with the threat of penalty for early withdrawal. The only time I think these types of accounts are a good idea is for the reason mentioned previously, or because it's a company sponsored 401k with some sort of % match.

 

Why IRA's are bad (and most people don't realize):

1) Cannot wash

2) Cannot get to your money in an emergency without a huge penalty

3) When you do retire and start using this money, it's taxed as ordinary income, not long term capital gains, which is essentially double the tax at current rates...odds are these will only increase in the future, not decease.

 

All that said...if what you want to do is invest in a mutual fund with a large portion of the money on a quarterly basis, and dabble with some individual stocks, and again, I'm sure people will disagree with me...

 

The only fund you should buy is the S&P500 Index.

 

Aggressive mutual funds, and mutual funds in general tend to have a higher cost basis (meaning the person running the fund gets their cut, usually 1% or more, per year), while the S&P500 Index funds cost basis usually hovers around 0.15%, and over a span of years that alone is a huge cost savings.

 

Add to that, given the period of time you are looking to invest, no fund has EVER consistently outperformed the S&P500. There can be a span of years in which they do, even as much as a decade (for instance look at the lost decade 2000-2010, outperforming the S&P500 was easy), but the further and further you go back, the harder and harder it becomes to do it. Also, due to how low the S&P500 has been, the indexes were cheaper...and that's what you want out of whatever index or fund you do decide to invest in...to buy low, not while they're at the height of their popularity.

 

Example:

 

Going back 5 years, 50% of mutual funds can show they've outperformed the S&P500 index.

Going back 10 years, 25% can show this.

Go back 20 years, 2% can show this (the number exponentially falls off a cliff).

Go back 30...and 0.01% can show this.

 

Over the long haul, nothing outperforms the S&P500, AND it's the cheapest fund to hold. It's what I recommend. In addition to this, just to cover your bases, you can pick a random International Index or Mutual fund so you have some of your money in foreign companies, but I'd recommend you do this with a smaller portion.

 

Edit: I shouldn't say nothing outperforms the S&P500 Index, obviously things have and can...the odds of you picking that exact fund are very VERY low, since there are millions of funds to choose from. Also, going back far enough where funds to beat the market (when people say beat the market they mean beat the S&P500 index), it will be by an almost negligible % amount...so the risk of holding that fund over the S&P vs the reward isn't enough to justify the added and much higher cost basis.

 

Any questions?

 

Yeah I was thinking about the Vanguard 500 index fund, but it seems like EVERYONE recommends that. I dunno if that's a good thing or a bad thing.

[Y2HH]

Yeah I was thinking about the Vanguard 500 index fund, but it seems like EVERYONE recommends that. I dunno if that's a good thing or a bad thing.

 

I added some edits to my previous post with a few links where you can read about the S&P.

 

People recommend it for the reasons I stated, it's cheap to hold (very low cost basis), and will perform directly in line with the overall market, which is good when talking about a very long term strategy.

[NorthSideSox72]

I opened an account with Optionshouse over the summer, as a beginner I have no problem with it, especially the $2.95 fees which are really low. They don't have an Iphone app or anything but I don't mind since I don't have a smart phone anyways.

OH is a great choice for stocks, ETF's and options. They are also getting to be good at mutual funds. But for JIMB, if he wants to direct invest in bonds, OH isn't a good choice.

 

Jenks, are you talking about actually buying bonds, or buying bond funds? If you are just doing funds, then OptionsHouse may be the best choice around.

 

Also by the way, OH does have a mobile site, which plays with basically any mobile OS. Its not a Market-buy app, its just a version of the website that is written to work well in mobile browsers.

 

[Jenksismyhero]

OH is a great choice for stocks, ETF's and options. They are also getting to be good at mutual funds. But for JIMB, if he wants to direct invest in bonds, OH isn't a good choice.

 

Jenks, are you talking about actually buying bonds, or buying bond funds? If you are just doing funds, then OptionsHouse may be the best choice around.

 

Also by the way, OH does have a mobile site, which plays with basically any mobile OS. Its not a Market-buy app, its just a version of the website that is written to work well in mobile browsers.

 

yeah, bond funds. I'll take a look at OH. I'd never even heard of it before.

[NorthSideSox72]

yeah, bond funds. I'll take a look at OH. I'd never even heard of it before.

They started as a niche site targeted towards equity option trading, but then expanded out to catch the general equity crowd (i.e. you). To do that, they added a bunch of tools and dropped their fees to very, very low levels. You can take advantage of that potentially.

 

[lostfan]

I use Schwab. They aren't too bad about the fees and whatnot ($8.95 per trade). I can't really speak intelligently on comparisons between the other ones, and really the only reason I use Schwab is because my aunt had a custodial account for me since I was 12 (I'm the same age as Jenksismyb****) that I didn't find out about until 2007.

 

Right now this is what my portfolio looks like:

2 small-cap financial/real estate stocks, one pays about a 18.5% dividend that will stay that way as long as interest rates stay low

Verizon

BP

Two value/growth mutual funds - the original ones I started off with, lost money in 2008, one is making money like crazy and the other just got back to the break-even point (this is about half my portfolio, between these two)

A Schwab international mutual fund (don't really need this anymore, made a few hundred off it and might sell it to get a small cap index fund for growth)

 

Taking Y2HH's advice from a couple of months ago on the S&P 500 I'm going to get an ETF and push most of my money into that, and just play with a few stocks every now and then for something to do. I just haven't gotten around to it because I don't plan on selling stuff I already own to get it, I'm going to start doing that the old-fashioned way.

 

I really wish I had pumped about 5 grand or so into either of those mutual funds in 2008 or 2009 because I'd have gotten it all back by now.

[Y2HH]

I use Schwab. They aren't too bad about the fees and whatnot ($8.95 per trade). I can't really speak intelligently on comparisons between the other ones, and really the only reason I use Schwab is because my aunt had a custodial account for me since I was 12 (I'm the same age as Jenksismyb****) that I didn't find out about until 2007.

 

Right now this is what my portfolio looks like:

2 small-cap financial/real estate stocks, one pays about a 18.5% dividend that will stay that way as long as interest rates stay low

Verizon

BP

Two value/growth mutual funds - the original ones I started off with, lost money in 2008, one is making money like crazy and the other just got back to the break-even point (this is about half my portfolio, between these two)

A Schwab international mutual fund (don't really need this anymore, made a few hundred off it and might sell it to get a small cap index fund for growth)

 

Taking Y2HH's advice from a couple of months ago on the S&P 500 I'm going to get an ETF and push most of my money into that, and just play with a few stocks every now and then for something to do. I just haven't gotten around to it because I don't plan on selling stuff I already own to get it, I'm going to start doing that the old-fashioned way.

 

I really wish I had pumped about 5 grand or so into either of those mutual funds in 2008 or 2009 because I'd have gotten it all back by now.

 

The only problem with investing in the S&P500 is you will never "outperform" the market, but stay [mostly] even with it, which is the good side of the risk equation. The biggest advantage of the s&p500 indexes is they cost almost nothing to hold (cost basis).

 

You could have pumped 5 grand or so into just about anything in 2008 and you would have made money.

[southsider2k5]

The only problem with investing in the S&P500 is you will never "outperform" the market, but stay [mostly] even with it, which is the good side of the risk equation. The biggest advantage of the s&p500 indexes is they cost almost nothing to hold (cost basis).

 

You could have pumped 5 grand or so into just about anything in 2008 and you would have made money.

 

IE, if it had been something like Copper or Gold, it would have been multiples.

[Y2HH]

IE, if it had been something like Copper or Gold, it would have been multiples.

 

I bought 500 shares of SIRI (SiriusXM) in early 1999 at .13 cents per share. It's up 998.97% since.

 

Woulda, coulda, shoulda. I wish I had bought 50000 shares.

 

I bought Ford at the same time at $2.23. It's up 645% since.

 

There were so many things you could have bought when the market tanked and made huge multiples off of, that were WAY cheaper than gold or things of the sort.

[southsider2k5]

I bought 500 shares of SIRI (SiriusXM) in early 1999 at .13 cents per share. It's up 998.97% since.

 

Woulda, coulda, shoulda. I wish I had bought 50000 shares.

 

I bought Ford at the same time at $2.23. It's up 645% since.

 

There were so many things you could have bought when the market tanked and made huge multiples off of, that were WAY cheaper than gold or things of the sort.

 

Citibank comes to mind too.

[Y2HH]

Citibank comes to mind too.

 

Surprisingly, Citibank hardly moved.

 

I think it bottomed out at around 1$ and it's still not at 5.

[southsider2k5]

Surprisingly, Citibank hardly moved.

 

I think it bottomed out at around 1$ and it's still not at 5.

 

That is almost 500%.

[Y2HH]

That is almost 500%.

 

Indeed it is, I don't know why my brain fuzzed that math up. :/

 

But it goes to show you, when the market "crashed" in 08, you could have picked just about anything and made money on it...Gold was already pretty high back then, and while it went up...it's a s*** investment for people unwilling to let go of the past, and it always will be.

[Iwritecode]

So I'm starting to get some information from my new job about our 401K plan. There is a 3% match (pre-tax only) but I basically have no control over it other than how much I put in it.

 

I'm told that the people that handle it are "very conservative".

 

I'm trying to decide if I should take this or do something on my own. I don't know much about this stuff myself but I have a good friend who is a financial adviser that will help me if I go on my own.

 

I also have some money from my previous employer that I need to roll into something.

Edited January 12, 2011 by Iwritecode

[southsider2k5]

So I'm starting to get some information from my new job about our 401K plan. There is a 3% match (pre-tax only) but I basically have no control over it other than how much I put in it.

 

I'm told that the people that handle it are "very conservative".

 

I'm trying to decide if I should take this or do something on my own. I don't know much about this stuff myself but I have a good friend who is a financial adviser that will help me if I go on my own.

 

I also have some money from my previous employer that I need to roll into something.

 

The difference between pretax and posttax means you would have to out perform by whatever your tax rate is, to make the same amount of money. That is pretty steep hill.

[NorthSideSox72]

So I'm starting to get some information from my new job about our 401K plan. There is a 3% match (pre-tax only) but I basically have no control over it other than how much I put in it.

 

I'm told that the people that handle it are "very conservative".

 

I'm trying to decide if I should take this or do something on my own. I don't know much about this stuff myself but I have a good friend who is a financial adviser that will help me if I go on my own.

 

I also have some money from my previous employer that I need to roll into something.

First of all, that 3% is free money - for every dollar up to 3%, they contribute another dollar, so those investment dollars are doubled. Do not, ever, pass that up. You should contribute at least that 3%.

 

And as SS said, the pre-tax part is also a big benefit.

 

Anything you try to do independently, unless you are some trading genius, won't compete with that, especially up to the 3% level.

 

[StrangeSox]

Right, that free money makes it very hard to beat. Check into vesting, though, if you don't plan on staying at that job for a while. Some companies put the money into your account and you invest as you see fit, but it's not really yours until x amount of time.

[Iwritecode]

Right, that free money makes it very hard to beat. Check into vesting, though, if you don't plan on staying at that job for a while. Some companies put the money into your account and you invest as you see fit, but it's not really yours until x amount of time.

 

6 years to 100% vested.