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Investing Discussion (Stocks, Mutuals, GICs...)

N

NetCadet

Senior member
A friend of mine recently received quite a large amount of money, and he has come to me looking for investment advice.

I would like to hear about some of your investing strategies and what you guys reccomend. I remember one of you stating that over the life of one's investments, they should average a return of about 11% per year. How is this possible? Looking at current interest rates of GICs and savings accounts, the best I am able to find in guaranteed returns are an ING Direct savings account (completely liquid) that pays 2.45% and a 5-year GIC (locked in for 5 years, of course) that pays 5.05%. I am assuming that more aggressive investment techniques are required to make these 11% returns - please elaborate on these if possible.

Thanks very much
 
You won't find guaranteed returns of 11% (except for fraudulent real estate scams, etc.) However, you can hope to average 11% by taking on higher risk investements (tech stocks, etc.) You have to be willing to take the good with the bad, though, and leave your money 'in play' even during the bad times. Buy low, sell high. Too many people forget this and cash out when the market is down, effectively giving your money to someone else. Your loss becomes another's gain.
 

you want 11% a year from nothing but FDIC insured sources? LOL

Now, now play nice.

Hi NetCadet 🙂

If there is a good amount of money to invest, you may want to consider talking to a professional. When you're doing estate planning, you need to make sure you take care of things like insurance, trusts, taxes, residual income, etc. The best long-term strategy may not be just to invest with an online brokerage. There is a plethora of options available and you need to know all the laws to come up with the best solution. There are safe ways to get good 5-7 % returns, and then there are IRAs, VULs and other tax-deferred or tax-free strategies. Make the money work for you.

It also depends on the plans and on the risk. If he wants potentially huge returns, can always try futures and options. Talk to someone, there is alot you need to know to be able to do this sucessfully.

Cheers ! 🙂
 
Yeah, I know that more risk is involved in making 11% returns...

> "I am assuming that more aggressive investment techniques are required to make these 11% returns - please elaborate on these if possible."

So basically, you buy stocks, mutuals, or perhaps an index fund - some years you make 14% on your investments, other years you lose 3%, and in the end it averages to about 11%, even with the relative safety of a mutual or index fund? Or do you actually have to manage your own stock portfolio to average those 11% returns?
 
Looking at current interest rates of GICs and savings accounts, the best I am able to find in guaranteed returns are an ING Direct savings account (completely liquid) that pays 2.45% and a 5-year GIC (locked in for 5 years, of course) that pays 5.05%. I am assuming that more aggressive investment techniques are required to make these 11% returns - please elaborate on these if possible.

higher percentage rate of return = higher risk. With return comes risk.

At this time, interest rates hover near historic lows. Therefore, MMs, Bank CDs, Govt. Bonds, Commercial Paper and GICs just are't paying very much. Indeed, more aggressive investment techniques are required if you would like a shot at 11% annualized returns. Consider equities as well as corporate bonds. Diversify.

First things to consider are 1) What are your friend's goals - short term and long term; and 2) How much risk can your friend tolerate?

Above all - research and ask many questions.
 
you can buy mutuals and let some 28 year old fresh out of grad school MBA manage it for you.......

they only pay themselves obscene amounts of money out of the profits at the end of the year though
 

So basically, you buy stocks, mutuals, or perhaps an index fund - some years you make 14% on your investments, other years you lose 3%, and in the end it averages to about 11%, even with the relative safety of a mutual or index fund?

If you do the research, yes, you should be able to average somewhere in the 11-15 % range. However, this requires research and knowledge.

Or do you actually have to manage your own stock portfolio to average those 11% returns?

Depends. You may be able to find someone who is good and who can get good returns. If you're asking those questions, that signals to me that you're not ready to control your own investment strategy yet.

Cheers ! 🙂
 
Even a 5-7% return is slightly better than what I've been looking at so far...
One thing to remember is that I'm talking in terms of Canadian investments, I don't think we have quite the same systems in place as you guys do. For example, we don't have a 401k, however I believe we have something to parallel all the investments you can make in the states.

I'll speak to him more about his goals, to try to determine what he hopes to achieve. Right now, I think he is just looking for very general "good advice".
 
Very few mutual funds beat the market over the long haul especially when you factor in the expenses. Index funds are designed to follow the market and have much lower expense rates. It is a good idea to have a large proportion of your money in such funds. Picking individual stocks is tricky business, but if you are careful and prudent, you can safely make better returns than market gives. The main use for bonds is to provide income off the money you already have. If you had a couple of million dollars, you could put it into bonds and live fairly comfortably for the rest of your life. Putting your money into CDs and other low interest vehicles should be avoided beyond keeping a cash reserve for 1. emergencies or 2. near term major purchases (i.e. your house).
 
Oh. Canada. Eh.

Well, in that case, take the substantial amount of money, convert it into US currency and hope one of the pennies will be worth something some day.

(sorry, I couldn't resist. 😀)
 
I'll speak to him more about his goals, to try to determine what he hopes to achieve. Right now, I think he is just looking for very general "good advice".

Have a plan. No matter what, devise a strategy and stick with it. Many investors go hunting after "the next big thing" and wind up losing their shirts. And find out your own tolerance for risk. Can you bean a 30 % drop in your portfolio in 1 week? If not, diversify and lower the risk.

Putting your money into CDs and other low interest vehicles should be avoided beyond keeping a cash reserve for 1. emergencies or 2. near term major purchases (i.e. your house).

This can be better done with money market accounts. More liquidity and comperable returns. But yeah, good point, just making a suggestion.

Cheers ! 🙂
 
Wow. I'm amazed at the amount of bad advice given here.

It is possible to get 11% in the market and not be in tech stocks. In fact, there is a fund that I particularly like that has, over the last 10 years, returned an average of 14%. 🙂

My advice to your friend would be to see someone who knows what they are doing. As somone who does this sorta thing on a daily basis, I can tell you there are knowledgable people and there are not. So don't be in a rush to give your money to the first person you see.

If he was my client, I'd sit down with him, figure out what he wants to do with the money, find his risk tollerance and then research some options. Having someone buying and selling stocks for me isn't something that gets me excited, esp when there are many excellent mutual fund choices available.

Things like money market accounts, online brokerages, cd's and gov't bonds probably aren't a good way to go, but that may depend on the age of your friend.
 


<< Very few mutual funds beat the market over the long haul especially when you factor in the expenses. >>



This is true, but if you pick a good fund, you can beat the market.



<< Index funds are designed to follow the market and have much lower expense rates. It is a good idea to have a large proportion of your money in such funds. >>



I disagree about having large portions of ones money in it.



<< Picking individual stocks is tricky business, but if you are careful and prudent, you can safely make better returns than market gives. >>



You can beat the market? You should be a stockbroker!



<< Putting your money into CDs and other low interest vehicles should be avoided beyond keeping a cash reserve for 1. emergencies or 2. near term major purchases (i.e. your house). >>



True. Luckily there are short term gov't bond funds that provide higher interest rates with liquidity.
 
I've got my company 401k with Van Kampen Emerging Growth and the wife and I have automatic deductions that go into our Roth IRA's, a money market account as well as Strong Growth 20 and Invesco Technology...

Very aggressive investments other than the IRA's and money market accounts which are at a credit union(nice interest)

It's true I got lambasted with this recession that we are in, but the 401k has just about broke even and the Strong and Invesco are rebounding..Dollar cost averaging is where its at, but if he has a huge chunk of change..I would probably pick about 5 stocks and sink it into them...Off the top of my head..Intel, IBM, Sun Microsystems, Juniper networks, and Merk or some biotech corp...
 
It sounds like some of you hate mutual funds while others swear by them.

What are the real differences between a mutual fund and an index fund? Aren't they both just a collection of different stocks chosen by some of the higher-ups at some big investing firm? Is it just that an index fund contains only stocks, while a mutual can be made up of stocks, government bonds, commercial paper, and other investments?
 


<< So basically, you buy stocks, mutuals, or perhaps an index fund - some years you make 14% on your investments, other years you lose 3%, and in the end it averages to about 11%, even with the relative safety of a mutual or index fund? Or do you actually have to manage your own stock portfolio to average those 11% returns? >>

Right. DO NOT put money in a GIC. THat is money you're not making but should be. 10% may be more realistic...do not play stocks yourself because most people can't even match the market. They waste hours and hours doing LESS Than the market. Get a decent large well-respected mutual fund or an index fund. Put the money away and leave it. If you tank for a bit just leave it there. Don't be like the investing MORONS who pulled all their cash out after 9/11. The rest of us knew it would come back up and it did. Those who pulled out when the Dow was down in the 8000's are kicking themselves. What goes down must come up. Unless it's the nasdaq but that had to fall sometime.

Don't invest in high-risk mutual funds becaues they are not necessarily going to help you. Just pick something with a history or an index fund based on the S&P 500 or whatever and just leave it there.

Investing CAN be difficult and complex but it doesn't have to be. Not at all; far too many people just waste their free time researching and playing around. While this can be a fun hobby it is absolutely not needed at all.
 
I can only repeat one word, diversify.

Diversify, diversify, diversify.

Some Tech, some energy, some metals, some bank. Some equities, some bonds. Higher equity concentration early in life, higher bonds later.

You might make 30% in one market segment and/or lose 50% in another, but spread it around.

Look for sound companies that are market leaders. Even then you can lose. Look at Nortel & Lucent. Not to mention Enron.

If anyone tells you they have a way to earn 11% in today's environment without the risk of losing just as much, I've got a bridge to sell ya' 🙂

 


<< What are the real differences between a mutual fund and an index fund?[/b]

A mutual fund is run by a single person or a group of people that buy stocks that make up the fund. Usually mutual funds have a directive to comply with -- that is, this particular fund only invests in technology, while another only in new companies, another in established companies, and others in companies that are overseas, to name a few.

An index fund seeks to mimic a given index. A S&P 500 index fund mimics the S&P 500 index by buying and selling stocks when the index does. An index fund will never match the performance of the actual index, because expenses drop it down slightly. So, if you're going to buy an index fund, shop around for the one with the lowest expenses, it only means more money in your pocket.



<< Aren't they both just a collection of different stocks chosen by some of the higher-ups at some big investing firm? >>



Mutual funds are. I believe the S&P 500 has guidelines on which companies can be in the fund, so it changes based on what the companies are doing. So companies can drop in and out of the index, while with mutual funds, it's up to the fund manager if they stay or go.



<< Is it just that an index fund contains only stocks, while a mutual can be made up of stocks, government bonds, commercial paper, and other investments? >>



Mutual funds can be made up of a wide variety of things. If you know what you're looking for, you can research funds that meet your requirements. There are many funds who cannot invest in bonds, because that is in their directive for that fund. Some funds only invest in bonds, because that is their directive. Make sense?

Some people don't like mutual funds because they think they can do better over the long haul. Good for them! Reality is, most of us cannot do that. If we could, we'd all be highly paid analysts or stockbrockers or fund managers.
 
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