Finance/Investments

[Whitewashed in '05]

I thought there was a finance thread somewhere, anyway...

 

I've just opened my first brokerage account. I'm doing a lot of reading and taking down notes on how I should start investing. Probably the most common advice is to diversify the portfolio. I've seen formulas with percentages for balancing between equities and fixed income to have a diversified portfolio depending on how aggressive one wants to be. I've also found questionnaires once answered that recommend the percentages of the equities to purchase.

 

What do you veteran investors think of my approach so far? Am I going down the right path?

[southsider2k5]

Find an SP500 fund if you want instant diversification. If you want to go straight into stocks, buy QQQ. Start there.

[Whitewashed in '05]

Find an SP500 fund if you want instant diversification. If you want to go straight into stocks, buy QQQ. Start there.

One fund and one stock for diversification? That easy???

[southsider2k5]

One fund and one stock for diversification? That easy???

 

The QQQ's or SP500 fund (either one, not both, they are the same thing, just in different forms) give you the diversity of all 500 stocks of the SP 500. On a limited budget, it is the best diversification money can buy. It is also simple to track, and it is the lowest fees you will see on any fund, if you go that route.

 

If your budget allows, you can add other stocks or funds from there.

 

For my two cents, I think energy is ridiculously cheap, and I can't see it staying here long term.

[maggsmaggs]

I thought there was a finance thread somewhere, anyway...

 

I've just opened my first brokerage account. I'm doing a lot of reading and taking down notes on how I should start investing. Probably the most common advice is to diversify the portfolio. I've seen formulas with percentages for balancing between equities and fixed income to have a diversified portfolio depending on how aggressive one wants to be. I've also found questionnaires once answered that recommend the percentages of the equities to purchase.

 

What do you veteran investors think of my approach so far? Am I going down the right path?

You're young, fixed income (like dividends) are not as important for you. Don't buy bonds now, they are terrible. Inflation is higher than most bond interest rates. But instead of focusing on fixed income, you should focus on growth. Index funds are generally good for young people with limited investing experience. Depending on the fund, the expenses should be low and you in theory own a piece of a lot, which is the diversification you want.

[caulfield12]

You're young, fixed income (like dividends) are not as important for you. Don't buy bonds now, they are terrible. Inflation is higher than most bond interest rates. But instead of focusing on fixed income, you should focus on growth. Index funds are generally good for young people with limited investing experience. Depending on the fund, the expenses should be low and you in theory own a piece of a lot, which is the diversification you want.

 

 

The general rule used to be the opposite of your age in growth stocks, the remainder in bonds.

 

Let's say you're 20, so that would be 80% in stocks, 20% in bonds....and then becoming more and more conservative as you get older, a 65 year old would be 35% in stocks and 65% in bonds.

 

That rule sort of works still as a concept...but most advisors with the bond markets being so bad (as long as the Fed keeps rates at 0) will argue it should be 90-95% in stocks if you're looking long-term and then you can gradually start adding some more conservative investments when the interest rates make bonds more palatable as a hedge.

 

Considering capital gains and taxes, you're aiming hopefully for a 6-12% rate of return per year, so the bond funds will give you protection on the downside when the market dips but they're not going to lead your porfolio to stellar results unless everything just goes sideways in the world.

[maggsmaggs]

I also should add that I hope you opened an IRA.

[bigruss]

I'm young but I like high yield dividend stocks to supplement my portfolio. Disclaimer: I wiped out my account to buy a condo so haven't really kept up with the market much.

[caulfield12]

You're young, fixed income (like dividends) are not as important for you. Don't buy bonds now, they are terrible. Inflation is higher than most bond interest rates. But instead of focusing on fixed income, you should focus on growth. Index funds are generally good for young people with limited investing experience. Depending on the fund, the expenses should be low and you in theory own a piece of a lot, which is the diversification you want.

 

 

The simplest thing is just to hold the market, and hopefully not pay upfront loads/fees with your funds.

 

Then you want to have some international exposure, as well as small and mid cap stocks (not just large cap growth)...but the simplest thing is just to hold the market.

 

VTSMX or VFINX (500 Index) are two good choices.

 

You can enter those names at yahoo.com/finance and start looking at their charts to get an idea of how they've done...basically, they go up and down with the market, because they essentially are the entire stock market.

 

Just depends on which mutual funds are available to you to invest in...you can also do a little research online about Jack Bogle/Vanguard Funds and Index Investing.

 

If you want a more conservative fund, try VIVAX, which is more value-oriented stocks, the kind that Warren Buffett would hold.

 

OAKLX and OAKMX are two other choices. Oakmark Funds have been very successful over the years.

Edited July 31, 2015 by caulfield12

[Whitewashed in '05]

I also should add that I hope you opened an IRA.

I opened a roth. I'll be opening just a standard brokerage account in a few months and move money from my savings to earn more interest. I'm 28 so I can accept some risk for my IRA, but I don't want to start my brokerage account with a lot of risk until I have a good grasp on things. For the most part I'm looking at passive investing. I don't have the time to focus on day to day buying and selling with work and all.

[Whitewashed in '05]

The QQQ's or SP500 fund (either one, not both, they are the same thing, just in different forms) give you the diversity of all 500 stocks of the SP 500. On a limited budget, it is the best diversification money can buy. It is also simple to track, and it is the lowest fees you will see on any fund, if you go that route.

 

If your budget allows, you can add other stocks or funds from there.

 

For my two cents, I think energy is ridiculously cheap, and I can't see it staying here long term.

Thanks, I'm going to look into these. I definitely want to get in to energy.

[Jenksismyhero]

Well this is f***ed up.

 

http://www.businessinsider.com/sweden-cash...t-rates-2015-10

 

bah, wrong board/thread.

Edited December 31, 2015 by Jenksismybitch

[Harry Chappas]

Well this is f***ed up.

 

http://www.businessinsider.com/sweden-cash...t-rates-2015-10

 

bah, wrong board/thread.

 

Do I read this to essentially mean, invest your money somewhere or spend it, just don't leave it lying around as free cash.

 

Ah the fund managers win again.

[southsider2k5]

Do I read this to essentially mean, invest your money somewhere or spend it, just don't leave it lying around as free cash.

 

Ah the fund managers win again.

 

I would also guess with their tax rates there is very little incentive to invest the money, which is why people are content just leaving it in the bank.

[cabiness42]

OK, financial advice question:

 

I have $8k with which I can pay down some debt. These are the two options I'm considering.

 

1) Eliminate my nearly $8k in credit card debt. Balance is currently under a 5% balance transfer period that will go up to 19% in a year. Even, if I don't use the $8k for this, I can still probably get 60-80% of the balance paid down by the time the rate goes up in a year.

 

2) Pay down $8k of my $25k loan against my retirement account. The interest rate is only 2%, but that extra $8k in my retirement account could earn (or lose) significant amounts based on what the markets do.

 

Or I could split the $8k between the two in some way. Any thoughts?

[southsider2k5]

OK, financial advice question:

 

I have $8k with which I can pay down some debt. These are the two options I'm considering.

 

1) Eliminate my nearly $8k in credit card debt. Balance is currently under a 5% balance transfer period that will go up to 19% in a year. Even, if I don't use the $8k for this, I can still probably get 60-80% of the balance paid down by the time the rate goes up in a year.

 

2) Pay down $8k of my $25k loan against my retirement account. The interest rate is only 2%, but that extra $8k in my retirement account could earn (or lose) significant amounts based on what the markets do.

 

Or I could split the $8k between the two in some way. Any thoughts?

 

For my two cents on the situation you describe, I would get rid of the retirement account loan first. If something happens to you or your job, that comes due instantly. To me, that is the deciding factor.

[iamshack]

For my two cents on the situation you describe, I would get rid of the retirement account loan first. If something happens to you or your job, that comes due instantly. To me, that is the deciding factor.

Yeah, but he isn't going to be able to pay that off. He's still going to owe $17k, which, in your scenario, probably still leaves him in a bind.

 

I'd put about $6k of it on the credit card debt, and add the other $2k to your emergency fund/savings, and then work to pay off the remaining $2k.

[southsider2k5]

Yeah, but he isn't going to be able to pay that off. He's still going to owe $17k, which, in your scenario, probably still leaves him in a bind.

 

I'd put about $6k of it on the credit card debt, and add the other $2k to your emergency fund/savings, and then work to pay off the remaining $2k.

 

If nothing else, it speeds up the payoff.

 

Realistically either of the things helps, my personal view is just more risk averse, which is why a 401k loan scares the crap out of me.

[Chisoxfn]

Recommendation #1 is pay off credit card debt. Recommendation #2 is figure out way to get 401K loan paid off (for points Mike mentions). Recommendation #3 (and this is more forward looking) but I know you've taken vacations and my personal opinion is until you have the credit card debt and 401K loan paid off, you shouldn't be taking vacations. Yes, I'm a scrooge with my money but I truly believe that (unless you have other stashes and you strategically took these steps because you are making a float and generating returns elsewhere, in which case, my tune would change).

 

Given that you know you are not going to be able to catch-up on the CC debt before you are going to come due and the rate will become exorbitant and be a much larger economic hit, that is why (unless you play some sort of balance transfer game, which I think is probably possible) (and knowing that you work for the government so I presume your job has additional security vs. a private sector job).

 

Also, depending on overall liquidity, Shack's suggestion to have some emergency funds would be key as well.

 

Note: Please note, I do realize their can be unforseen circumstances which come up which necessitate the need to have significant liquid cash and that could very well be the case, but in those situations, my best advice, is live as below the means as possible, until you can pull yourself out of those holes (and to be frank...even after...continue to live below the means, develop emergency funds, grow 401k, take advantage of tax advantageous accounts where possible (FSA or HSA's, Dependent Care accounts where relevant).

[ptatc]

Here is something I came across while thinking about investing more. We were looking at increasing 401K vs. deferred income. I read that deferred income is not guaranteed. It is a promise to pay in the future. however, if the company declares bankruptcy they can just say there is no money to pay it.

 

My questions is: did I interpret this correctly and being a state employee how would this apply to a government agency.

 

Any help wold be appreciated. With two kids getting close to college, we were thinking the deferred income may help with decreasing FAFSA income assests.

[Chisoxfn]

Here is something I came across while thinking about investing more. We were looking at increasing 401K vs. deferred income. I read that deferred income is not guaranteed. It is a promise to pay in the future. however, if the company declares bankruptcy they can just say there is no money to pay it.

 

My questions is: did I interpret this correctly and being a state employee how would this apply to a government agency.

 

Any help wold be appreciated. With two kids getting close to college, we were thinking the deferred income may help with decreasing FAFSA income assests.

I haven't looked into this in detail (as I'm not yet eligible for any deferred comp, but something I will consider in time as a way to potentially manage taxes + another potential option to stagger for long-term future in regards to helping kids with college), that said, my understanding from a high level read I did of my companies policy lead me to believe what you mention above is true. Not sure how it works in terms of government employees though. I'm curious what happened for some of the counties in the country that have BK'd (if deferred comp was lost).

 

Is their someone within the state who you could discuss with in more detail?

[ptatc]

I haven't looked into this in detail (as I'm not yet eligible for any deferred comp, but something I will consider in time as a way to potentially manage taxes + another potential option to stagger for long-term future in regards to helping kids with college), that said, my understanding from a high level read I did of my companies policy lead me to believe what you mention above is true. Not sure how it works in terms of government employees though. I'm curious what happened for some of the counties in the country that have BK'd (if deferred comp was lost).

 

Is their someone within the state who you could discuss with in more detail?

I'm going to do that once the semester gets going again. I was curious if anyone here knew.

[southsider2k5]

I haven't looked into this in detail (as I'm not yet eligible for any deferred comp, but something I will consider in time as a way to potentially manage taxes + another potential option to stagger for long-term future in regards to helping kids with college), that said, my understanding from a high level read I did of my companies policy lead me to believe what you mention above is true. Not sure how it works in terms of government employees though. I'm curious what happened for some of the counties in the country that have BK'd (if deferred comp was lost).

 

Is their someone within the state who you could discuss with in more detail?

 

Yeah, typically deferred comp that isn't an actual pension plan is not a priority in a corporate bankruptcy. You'd be below the bond holders in priority for sure, and there is a distinct possibility you could get nothing from it, if it were to happen.

[Y2HH]

OK, financial advice question:

 

I have $8k with which I can pay down some debt. These are the two options I'm considering.

 

1) Eliminate my nearly $8k in credit card debt. Balance is currently under a 5% balance transfer period that will go up to 19% in a year. Even, if I don't use the $8k for this, I can still probably get 60-80% of the balance paid down by the time the rate goes up in a year.

 

2) Pay down $8k of my $25k loan against my retirement account. The interest rate is only 2%, but that extra $8k in my retirement account could earn (or lose) significant amounts based on what the markets do.

 

Or I could split the $8k between the two in some way. Any thoughts?

 

In this instance, I'd recommend using the Dave Ramsey debt snowball. As someone else already stated, the loan against your 25K retirement account is dangerous because if you lose that job it becomes due immediately...so let's pretend you won't lose your job.

 

1) Put 1,000 of that money aside for an emergency. Let's pretend you pay off that 8K, and tomorrow your alternator dies...now you get to borrow money again to fix your car because you just spent all of it. That 1,000 is NOT to be touched for anything outside an emergency such as a medical bill, or a car repair, etc...no, wanting to eat at the Capital Grill is not an emergency.

 

2) Put 7,000 to the smallest debt, which in your case is the credit card. Then, after you pay off the remainder of that credit card balance in the coming months, roll any money you would have paid against the credit card into the 401k loan. This is the "snowball", so if you were paying $200 to the credit card and $200 to the 401k loan, AFTER the credit card is gone, the snowball rolls down the hill a little and gets bigger -- now you're paying 400$ against the 401k loan. Get it?

 

3) While his get out of debt advice is solid, do NOT take any investment advice from Dave Ramsey.

Edited January 7, 2016 by Y2HH

[cabiness42]

Thanks to everybody. We ended up going with a 50/50 split. $4K against the credit cards and $4k against the retirement account loan. This $8k was a windfall, on top of money we are already putting monthly to both debts, plus vacation funds and emergency savings. The credit card debt should be gone in about 9 months and then the extra money can go to the retirement account loan.