Just starting to invest

[Exterous]

Alright, I thought I had the basics down but maybe that knowledge was too basic. I just became eligible for my companies 401k program. I requested some information on my investment choices and got about 35 prospecti from 8 different firms and I think I'm in a bit over my head

Here's what I got so far-
I'm 23 and in this for the long haul, willing to tolerate a moderate to high amount of risk and will be contributing about $80 a month thus:

Investment Funds:
-Any type of balanced fund seems out due to its poorer long term returns
-Bond funds seem to emphasize income more than growth so I am kinda leaning away from them
-I know the differences between Large- Mid- and Small- Cap funds and it seems like those go from the most stable (large) though the greatest potential/risk (small) but I'm not 100% on that
-I think a Growth Fund would be a good choice due to it's reinvestment in capital vs an Equity Fund (and others) so it's the one I'm leaning most heavily towards

Asset Allocation
-I am not as concerned about fixed income securities/bonds as these seem to either offer additional income which I don't need or offer conservative growth, which I also don't need
- Equity investments (i.e. stocks...right?) should be high (say around 80+%) due to my long term investment choice
- There should be some foreign investment, maybe around 20%?, involved although there is a "Developing Markets Fund" from Oppenheimer that is attractive due to its impressive 10year performance (17% avg across the Classes)and relatively low fees

Class
I'm pretty sure Class B is the way to go since these will be small investments with the long term goal. Thus, there is no front end charge and the load will decrease over time till its nothing - at which point they seem to change to Class A shares (and I'm guessing at that time I would pay a front end charge for class A shares). Class C seems to be for those who want to invest large amounts of money for short periods of time - neither of which applies to me

I know the fee schedule and time periods differ based on fund - but I want to see if I have the above straight to weed out some of the options before I really dig into the number crunching

As for companies - I am guessing that any respectable company that has the fund I want with a decent history (though this is no guarantee of future returns) and low fees will work. Should I be looking at more things?

Any advice would be greatly appreciated. I'm not afraid of reading either, so links work too. I've done a fair bit of research but everything I've found seems to be more basic than I need or waaaaaaaaay over my head

Thanks guys!

 

[DainBramaged]

Put it all on black.

 

[Exterous]

Bump for the morning people

 

[jupiter57]

Well, you've certainly came to the right place!
It seems that over 90% of our members are not only huge investors, but they have a plethora of trading guidelines which seems to be making them a fortune!

OK, now seriously:
You will experience a wealth of advice here, each and every post contradicting the other.
Best take it all with a grain of salt, seek professional advice if possible.

 

[PhoenixOrion]

80 a month contribution? How much is your company's match (ie to what percentage)?

You answered the main question yourself:
"I am guessing that any respectable company that has the fund I want with a decent history (though this is no guarantee of future returns) and low fees will work."

 

[Exterous]

Originally posted by: jupiter57
Well, you've certainly came to the right place!
It seems that over 90% of our members are not only huge investors, but they have a plethora of trading guidelines which seems to be making them a fortune!

OK, now seriously:
You will experience a wealth of advice here, each and every post contradicting the other.
Best take it all with a grain of salt, seek professional advice if possible.

Well, I am looking more for guidelines than exact investment options and to see if I got the items in my original posst right

Phoenix Orion - They will match 3% of your income 1:1 - which equals about $80 a month for me, so $160 invested total a month

 

[AtlantaBob]

http://www.morningstar.com is a fairly good place to go for some conservative financial advice (no, they won't tell you to put money in CD's, but they won't tell you to expect 1000% return weekly, either.) Also, the Intelligent Investor by Benjamin Graham is a good read--and particularly appropriate after this week's downturn in stocks. (There's a fairly good recent edition at Amazon.com that has some updated notes at the end of each chapter). Oh, Peter Lynch and Warren Buffet are good reads too (Buffet's shareholder letters at the Berkshire Hathaway website are really good). Of course, all of that's if you're interested in investing....

Otherwise, chose something that lets you invest in a major index fund with low expenses and wait 50 years...

 

[imported_cheapdude]

Originally posted by: DainBramaged
Put it all on black.

Actually, the risk return ratio isn't so bad on this.

 

[vi edit]

One thing to really look at is the management costs of the funds. Some 401k funds are charging management fees in the range of 3%-5%. That pretty much makes the company match null and void and a Roth IRA that much more attractive. So keep an eye on that. If the management fee is very high, you might want to give Vangaurd a look and hit up one of their .3% management fee funds.

As for the diversification, I'd go something like 70% US index based and try to get something that matches up to the S&P 500. 20% in something that did "international" with represenation for both Asia and Europe. And then do something like either 10% in Emerging Markets (China, Africa, South America, ect), or 5% in EI and the other 5% in cash (bonds/cd's, ect).

You are pretty much correct on the Large/Small cap. Large cap are your big dogs - Cat, Intel, MS, Pfizer, GE, ect. They are "established" companies that really aren't considered growth oriented. You won't typically see double digit returns from these guys. But you won't see huge drops either.

Small caps are a lot more volitile, but are still in their growth/expansion phase as a company. There is a lot of room to get in at the ground level and ride it to the top. Basically all large caps start out as small caps and end up splitting a number of times while watching their stock values go through the roof. There's a lot more room to grow your investment. But there's also a lot higher chance of it failing too.

 

[Sinsear]

Originally posted by: DainBramaged
Put it all on black.

I support this.

 

[Jawo]

Motley Fool has some pretty sound advice. If you are looking to evaluate individual stocks Clearstation is hard to beat since it has an excellent overview of the technical aspects of the market. It is more intended for frequent traders though.

 

[PAB]

Here's what I got so far-
I'm 23 and in this for the long haul, willing to tolerate a moderate to high amount of risk and will be contributing about $80 a month thus:
______________________________

$80/month is $960 a year. You need to contribute more than that, especially if your employer is matching funds.

Investment Funds:
-Any type of balanced fund seems out due to its poorer long term returns
-Bond funds seem to emphasize income more than growth so I am kinda leaning away from them
-I know the differences between Large- Mid- and Small- Cap funds and it seems like those go from the most stable (large) though the greatest potential/risk (small) but I'm not 100% on that
-I think a Growth Fund would be a good choice due to it's reinvestment in capital vs an Equity Fund (and others) so it's the one I'm leaning most heavily towards
______________________________

Balanced/Target funds are NOT my idea of managed retirement. Its ultra lazy investing. You buy the target funds, they buy 10 funds in their family and you have no control over what you own selectively.

Pass on income, buy growth. A good idea is having a blend of small/mid/large/blend funds. A blend fund I am in right now that's done well is JSVAX. A growth fund I am in right now is JAOSX. A growth fund I'd be in right now had I not put money in the last two are JORNX. All are no load. My mid cap value position is RGFAX. Its also no load.

GROWTH GROWTH GROWTH = where you want to be. At 23, you can tolerate higher risk.
______________________________

Asset Allocation
-I am not as concerned about fixed income securities/bonds as these seem to either offer additional income which I don't need or offer conservative growth, which I also don't need
- Equity investments (i.e. stocks...right?) should be high (say around 80+%) due to my long term investment choice
- There should be some foreign investment, maybe around 20%?, involved although there is a "Developing Markets Fund" from Oppenheimer that is attractive due to its impressive 10year performance (17% avg across the Classes)and relatively low fees
______________________________

You should be in 90% or better (more like 98-99 with 1-2% cash) equities. Bonds are a bad choice in a rising interest rate enviroment.

I have about 17% in foreign investments.
______________________________


Class
I'm pretty sure Class B is the way to go since these will be small investments with the long term goal. Thus, there is no front end charge and the load will decrease over time till its nothing - at which point they seem to change to Class A shares (and I'm guessing at that time I would pay a front end charge for class A shares). Class C seems to be for those who want to invest large amounts of money for short periods of time - neither of which applies to me
______________________________

No. Class A is usually what you want to buy if you're buying for the long haul and need to get hit with a load. I'm in wrap, so all my A shares are load free so I dont pay attention to most of this. However, the load does go away after 8 years with the B - but if they change managers and the new guy is an ass, you will shoot yourself in both feet with one bullet. If you are buying in a 401k, usually funds have an R share class or some oddball proprietary letter that they use for 401k investments that is 0% load because you're investing institutionally with a lower 12b1 and expense ratio. Look into it.
______________________________

I know the fee schedule and time periods differ based on fund - but I want to see if I have the above straight to weed out some of the options before I really dig into the number crunching

As for companies - I am guessing that any respectable company that has the fund I want with a decent history (though this is no guarantee of future returns) and low fees will work. Should I be looking at more things?

Any advice would be greatly appreciated. I'm not afraid of reading either, so links work too. I've done a fair bit of research but everything I've found seems to be more basic than I need or waaaaaaaaay over my head

Thanks guys![/quote]
______________________________

I think you've got most of the basics down.

 

[dullard]

Oh, I saw a whole lot to comment on here.

#1 rule: STAY AWAY FROM CLASS B. If I could have made that line blinking and flashing and red, I would because it is that important. Class A outperforms class B in probably 99% of situations. And when A outperforms B it is often by a wide margin. In the very rare cases when B outperforms A, the difference is often insignificant. If you don't believe me, search for actual long term comparisons (try Consumer Reports as they showed the math a month or two ago or any other source), or post the numbers and ATOT will gladly show you the math. And of course, class C probably doesn't apply to you.

#2: Diversify. Your post appeared to me like you were looking for the one or two best types of fund. There are no "best" types. Some areas will do better in some years, and other areas will do better in other years. Own them all and you'll do the very best in the long haul. Diversification includes some bonds that you seem to dislike. I switched from 15.3% bonds to 17.5% bonds on Jan 30, 2007. Last week the stock market tanked, but my bonds held strong. If I had only switched to more bonds I would have been very happy. Now that the stock market is down, I'll switch back. I'll sell the bonds that did well and buy myself a big chunk of stocks on the cheap. That small amount of bonds that I had made me a pretty penny. Don't avoid them, even if you think they do bad year after year. When bonds do well, you'll be very pleased you had them (but still don't go more than 20% bonds this early in your life).

#3: Keep the fund fees low. The difference between different fund performances is often just a percent or two. But which one will be 1-2% better is yet unknown. It is a gamble that you take and hope you choose the better funds. Yet the fees also vary by 1%-2% and the fees are known. Why choose a fund with a guaranteed high fee if you have no idea if it'll do you any better? The fee increase would wipe out any possible benefit of that fund over other funds. Instead, pick a diversified array of funds with low fees.

I could type for hours with specifics, but I want you to really focus on #1-#3.

Oh, and good luck. It may be confusing and complex, but don't worry. Early on, what funds you choose really has very little impact on your final tally when you retire. As long as you avoid the funds that are obviously rotten eggs (ie high fees, advertised on the internet, and/or a long history of poor performance year after year), and rebalance once a year, you'll do just fine. :thumbsup: A big thumb up for investing early.

 

[Exterous]

Awesome guys - thanks for the pointers.
I am at work right now and don't have time to peruse the links - but I will
I know I should be investing more than $80 but thats up to the point of match by my employer so anything else (if that happens yet) would go into a RothIRA

I feel kinda silly that I didn't think about choosing more than 1 fund - so I'm guessing I can tell them to disperse the money percentage wise into any of the funds I choose?

Thanks for the heads up on Class B!

 

[jlbenedict]

With your company, how long does it take until you are 100% fully vested?

That employee match doesn't mean squat until you've been there for that required amount of time... whether thats 3 years.. 5 years.. etc..

 

[Exterous]

100% vestment immediately as long as your qualify for the plan

 

[JS80]

Go high risk.

 

[PAB]

Originally posted by: Exterous
Awesome guys - thanks for the pointers.
I am at work right now and don't have time to peruse the links - but I will
I know I should be investing more than $80 but thats up to the point of match by my employer so anything else (if that happens yet) would go into a RothIRA

I feel kinda silly that I didn't think about choosing more than 1 fund - so I'm guessing I can tell them to disperse the money percentage wise into any of the funds I choose?

Thanks for the heads up on Class B!

....then put it into a roth IRA.

It depends on how they have the 401k structured. A lot of them have very limited options, and according to my broker you can roll a 401k over to an IRA and gain more control over your retirement account.

 

[alrocky]

Originally posted by: Exterous
Alright, I thought I had the basics down but maybe that knowledge was too basic. I just became eligible for my companies 401k program. I requested some information on my investment choices and got about 35 prospecti from 8 different firms and I think I'm in a bit over my head.

Any advice would be greatly appreciated. I'm not afraid of reading either, so links work too. I've done a fair bit of research but everything I've found seems to be more basic than I need or waaaaaaaaay over my head.

Thanks guys!

What are the names of the 8 different mutual fund companies?

You want to stay the heck away from LOAD (A shares, B shares... ) mutual fund companies and other high costs; ie including high Expense Ratios.

Your asset allocation is very important: a Total Stock Market fund (or an S&P 500 plus a Small Cap Stock Index fund) and an EAFE index fund and perhaps a bond fund should represent the core of your retirement holdings.

Bernstein's The Four Pillars of Investing
Malkiel's A Random Walk Down Wall Street
Ferri's All About Asset Allocation
Belsky & Gilovich Why Smart People Make Big Money Mistakes

 

[Jadow]

at your age, you shoudl be 100% in equities (stocks). I'd go about 50% large, 25% medium, 25% small. Also mix in some international funds.

 

[Exterous]

[/quote]What are the names of the 8 different mutual fund companies?
[/quote]
Oppenheimer
American Funds
Evergreen
Goldman Sachs
Van Kampen
Fidelity
Vanguard
Oakmark


Vanguard seems to have, by far, the lowest fees at around .07% and they have options for small, mid, large, growth, and total stock market index funds. Everyone else seems to be in the 1.5% range.
The performance seems to be in the 6-8% (Class A) return range over 12 years and the only one that seems to be significantly better when factoring the fees would be the oppenheimer developing markets fund with a 1.37% (Class A) fee but an avg 16% return over 25 years.

Is there any reason to go with the higher fee ones from the other companies?

 

[alrocky]

Originally posted by: Exterous

What are the names of the 8 different mutual fund companies?
[/quote]
Oppenheimer
American Funds
Evergreen
Goldman Sachs
Van Kampen
Fidelity
Vanguard
Oakmark

Vanguard seems to have, by far, the lowest fees at around .07% and they have options for small, mid, large, growth, and total stock market index funds. Everyone else seems to be in the 1.5% range.

The performance seems to be in the 6-8% (Class A) return range over 12 years and the only one that seems to be significantly better when factoring the fees would be the oppenheimer developing markets fund with a 1.37% (Class A) fee but an avg 16% return over 25 years.

Is there any reason to go with the higher fee ones from the other companies?[/quote]Generally speaking, no. The ~5.50% (loads) of your investment ($$$) go straight to the brokers pocket and has absolutely no benefit to you at all. Costs, particulary LOADS, high Expense Ratios, and taxes are a drag or detriment to your investment and should be avoided. Costs are one of the few things you can control so it's better to start off looking for mutual funds with NO LOADS, low Expense Ratios, and low portfolio turnover.

I highlighted the 3 NO LOAD mutual fund companies (Fidelity has some LOAD funds.) Fund names with an A, B, C etc. at the end of the name means that fund has a LOAD. If the 3 NO LOAD mutual fund companies were not on your list, I'd first look at American Funds.

Asset Allocation is your primary consideration. I see that you've already discovered Vanguard has low Expense Ratios. Their Total Stock Market Index could represent the major or core holding in your retirement portfolio. If their Total International Stock Market Index available to you, then you just about have a fairly well diversified 2 stock fund retirement portfolio right there. An acceptable asset allocation range of the 2 funds could be 50:50 to 80:20, domestic to foreign.

Please list the available Vanguard funds in your 401(k).

There are two other major factors that determine how much money you will end up with in retirement: how soon you start and how much you invest. The sooner you start the better. Kudos to you for starting early.

 

[PAB]

Originally posted by: alrocky

Originally posted by: Exterous
Alright, I thought I had the basics down but maybe that knowledge was too basic. I just became eligible for my companies 401k program. I requested some information on my investment choices and got about 35 prospecti from 8 different firms and I think I'm in a bit over my head.

Any advice would be greatly appreciated. I'm not afraid of reading either, so links work too. I've done a fair bit of research but everything I've found seems to be more basic than I need or waaaaaaaaay over my head.

Thanks guys!

What are the names of the 8 different mutual fund companies?

You want to stay the heck away from LOAD (A shares, B shares... ) mutual fund companies and other high costs; ie including high Expense Ratios.

Your asset allocation is very important: a Total Stock Market fund (or an S&P 500 plus a Small Cap Stock Index fund) and an EAFE index fund and perhaps a bond fund should represent the core of your retirement holdings.

Bernstein's The Four Pillars of Investing
Malkiel's A Random Walk Down Wall Street
Ferri's All About Asset Allocation
Belsky & Gilovich Why Smart People Make Big Money Mistakes

I disagree with this. A shares have made me a lot of money as of three weeks ago. Just because something has a load dosent mean its evil, it just means you have to be careful investing with it.

I'm wrap eligible, so my advisory fee saves me about $2000 a year just in loads.

I disagree with total market funds being the "core" of a good portfolio. I think growth/blend management is a far better idea for three reasons.

1. Competent money managers understand sector rotation. If you're holding a total market fund, you are by virtue of the namesake of the fund holding shares in the entire market.

When the cyclical economy begins to show signs of transition, a decent money manager moves out of cyclicals and into secular industries. Total market funds continue to own the 100 or 1000 + stocks comprising the large caps.

2. Sure, your expense ratio is lower - but the ratio is expressed as a component of the assets under management. More assets = easier way to hide fees expressed as a ratio. Just because something has a 1.5% expense ratio dosent make it all bad.

3. Vanguard - specifically, has a tendency to run together. Almost ALL their equity funds overlap in some form, and effectively - they're all selling the same thing. Thats your low expense ratio at work. Their funds also have large capitalizations, so they are asset bloated and dont have the agility smaller funds do.

If one of the big funds wants to sell a position, they've got to sell into it very gingerly or risk taking a chainsaw to the bid.

My .02.

 

[alrocky]

Myths

This financial urban legend holds that under certain market conditions, active managers?through skill, acumen, or superior research?can pick winning stocks and avoid losers.

A second, equally specious, myth about indexing...: Actively managed funds fare better than index funds in down markets... past results indicate that index funds are no more vulnerable to market declines than their actively managed peers... the broad market benchmark held up quite well relative to active funds during two of the most severe market declines of the past 30 years. Perhaps more important, during the recovery period following sharp market drops, index funds have rebounded well ahead of actively managed funds.

Over a span of many years, indexing outperforms the vast majority of actively managed funds. The reason is that index funds have a sustainable advantage: low costs. A low-cost index fund has annual expenses as low as 0.12%. The average general equity fund has an expense ratio of 1.45%, plus estimated transaction costs of 0.50% or more. The aggregate net handicap of nearly 2.00% makes it virtually impossible for the majority of active funds to outpace low-cost index funds over the long term.

Actively managed funds generally offer no greater protection than index funds in a down market, and lag during the eventual rebound. While the cash held by an active fund may cushion the decline, their higher costs serve as a drag in up and down markets.

Outfox the Box: Play the Outfox the Box game and beat the index.

the stock market average consistently beating 75% to 85% of all mutual funds

B. Malkiel's A Random Walk Down Wall Street pg 267- 268

A remarkably large body of evidence suggests that professional investment managers are not able to ourperform index funds that buy and hold the broad stock-market portfolio... Two-thirds or more of professionally managed funds are beaten by index funds. Similar results can be shown for different time periods and using different indexes for comparison:

Percent of Large-Cap Funds Outperformed by the S&P 500:
20 years - 82%
10 years - 79%
5 years - 68%

 

[sandorski]

Buy Low, Sell High(not drug induced )