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YA(Investment)T

xanis

xanis

Lifer
I'm looking for some general advice on investments. I'm currently only contributing to a 401k and a money market account (which has a stupidly-low interest rate) and I'd like to see if anyone had some general advice on how to make my money work a little harder for me. FWIW, I'm 24.

Would getting something like a brokerage account (E*TRADE, Scottrade, etc.) be a good idea? What types of things would be worth investing in, or at least taking a look at? Would CDs be a decent option to keep a few thousand dollars in?
 
Housing, interest rates at all time low

Stocks only if you know what you are doing, takes a lot of research and staying on top of latest news to make it work
 
rcpratt said:
How much cash (not retirement) and what are your short/medium/long term needs for that cash?
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~$15K. I have no outstanding debt (car and college are paid). My primary short-term goal would be a decent vacation. Medium-term, I'd like to move to a better apartment. Long-term would be a house, mainly.
 
xanis said:
~$15K. I have no outstanding debt (car and college are paid). My primary short-term goal would be a decent vacation. Medium-term, I'd like to move to a better apartment. Long-term would be a house, mainly.
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buy a small house or condo now, make it a rental property when you are ready to move into real house.
 
kranky said:
What 401k investment options are in your plan?
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Currently, it looks like this: Vanguard account, currently at an 80/20 stocks/bonds mix. I have it between two plans: STAR Fund and Target Retirement 2055.

Not sure what else is in there, but IIRC these were the two best options since I don't contribute a lot and had trouble meeting the minimums on some of the options. FWIW, I contribute 3% and my employer matches 3%. I should be up for a raise in June, so I'll likely up my contribution.
 
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crashtestdummy said:
Index fund. Over the long haul, pretty much no one beats an index fund once you include brokerage fees and expense ratios.
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Stocks have no fees or expenses.

I made a thread on May 10 when I started building a test portfolio on Google Finance with 100k of fake money. At that time, HP (which is part of the Dow Jones) hit a 5 year low point. Since I made that thread and "bought" some of it, it's up 17.6% in 20 days; it's returning back to its previous value. Cisco and JP Morgan were good buys as well. JP Morgan was my pick, up 13.1% in 20 days. Someone on this forum suggested Cisco, up 15.8% in 20 days. Even after that jump, Cisco is still a fairly good buy with a PE ratio of 13.6; div yield 2.8.

Here are your 30 Dow Jones companies:
http://money.cnn.com/data/dow30/
Notice that HP, Cisco, and JP Morgan are all Dow Jones companies. If someone asks why I didn't buy the Dow Jones index, I can reply by saying that I did buy that index, but I only want some of the companies. I want to draw your attention to AT&T (link). That one is part of the Dow Jones but it has a PE ratio of 28. If you buy a fund that includes all of the Dow Jones, you would be buying that piece of crap as well, and you don't want that.
Look at each of those Dow Jones companies, pick the good ones, and buy those.
 
STAR is a balanced fund, 60% stocks/40% bonds.
Target retirement 2055 is a lifecycle fund that is currently 90% stocks/10% bonds.

First, you are damn lucky to have those funds in your 401k because they have very low costs - and it's costs that matter in the long term. If a fund has a 1% expense ratio, after 30 years you have lost 30% of your money. Vanguard funds are among the lowest cost funds available. So good for you that you have Vanguard options in your 401k. Just as a comparison, the option in my 401k that is closest to your Target fund has an expense ratio of 1.2%. If I was invested in that fund for 30 years, 36% of the money would be lost to expenses. That's almost 7 times more cost than your Vanguard Target fund.

If your money is split between those funds equally, I feel you are on the right track. I'm a firm believer in the Bogleheads style of investing and recommend a great book called The Bogleheads Guide to Investing.


Spungo, your example is like the useless exercise they make kids do in school where they pick stocks and see who did the best... in a month. Let's focus on long-term investing which IMHO ought to be based primarily on index funds proven to outperform both actively managed funds as well as the vast majority of portfolios of individual stocks. You might be the 1 in a million who can pick stocks time after time, knowing when to get in and get out, but let's assume the OP is not as brilliant. No offense to you or the OP but the odds are none of us are brilliant stock pickers for the long term. I know I'm not, and index fund investing, asset allocation and periodic rebalancing has done wonderfully for me over the long term.
 
kranky said:
STAR is a balanced fund, 60% stocks/40% bonds.
Target retirement 2055 is a lifecycle fund that is currently 90% stocks/10% bonds.

First, you are damn lucky to have those funds in your 401k because they have very low costs - and it's costs that matter in the long term. If a fund has a 1% expense ratio, after 30 years you have lost 30% of your money. Vanguard funds are among the lowest cost funds available. So good for you that you have Vanguard options in your 401k. Just as a comparison, the option in my 401k that is closest to your Target fund has an expense ratio of 1.2%. If I was invested in that fund for 30 years, 36% of the money would be lost to expenses. That's almost 7 times more cost than your Vanguard Target fund.

If your money is split between those funds equally, I feel you are on the right track. I'm a firm believer in the Bogleheads style of investing and recommend a great book called The Bogleheads Guide to Investing.


Spungo, your example is like the useless exercise they make kids do in school where they pick stocks and see who did the best... in a month. Let's focus on long-term investing which IMHO ought to be based primarily on index funds proven to outperform both actively managed funds as well as the vast majority of portfolios of individual stocks. You might be the 1 in a million who can pick stocks time after time, knowing when to get in and get out, but let's assume the OP is not as brilliant. No offense to you or the OP but the odds are none of us are brilliant stock pickers for the long term. I know I'm not, and index fund investing, asset allocation and periodic rebalancing has done wonderfully for me over the long term.
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That can't be right or after 100 years, you would have no money left and afterwards you would owe them money. Is it 1% per year on your account total or 1% on gains?
 
JTsyo said:
That can't be right or after 100 years, you would have no money left and afterwards you would owe them money. Is it 1% per year on your account total or 1% on gains?
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The expense ratio is the amount they skim off every year. 1% per year on the entire balance, gains or no gains (assuming a fund with a 1% expense ratio - they vary widely).

I should have phrased the loss amount more clearly. After 30 years, you will have 30% more money if you reduce expenses by 1% per year. After 100 years, you'll have 158% more money if you reduce expenses by 1% per year.
 
JTsyo said:
That can't be right or after 100 years, you would have no money left and afterwards you would owe them money. Is it 1% per year on your account total or 1% on gains?
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It's not right.

It's dependent on a lot of other variables, obviously, like how much you invest, at what pace you invest it, the return on your investments, etc.

Put together a spreadsheet real quick - if you invested $10,000 per year for 30 years (growing 3%/yr for inflation) and received a 7% return on that investment, you're looking at $1.25M after 30 years assuming a 1% expense ratio. If you magically were able to avoid all fees, that nest egg would be $1.51M, meaning that the 1% fee over 30 years really took about 17% of your total investments (including gains).

Raising the fee to 1.25% lowers that amount further to $1.196M. It's definitely a significant consideration.
 
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kranky said:
The expense ratio is the amount they skim off every year. 1% per year on the entire balance, gains or no gains (assuming a fund with a 1% expense ratio - they vary widely).

I should have phrased the loss amount more clearly. After 30 years, you will have 30% more money if you reduce expenses by 1% per year. After 100 years, you'll have 158% more money if you reduce expenses by 1% per year.
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I think you're oversimplifying the math a little bit, but the thrust of your point is certainly correct.

http://www.demos.org/sites/default/files/publications/TheRetirementSavingsDrain-Demos_0.pdf

In particular, look at Fig. 7 on page 12, which shows compares what you could make without fees vs. what you actually make.
 
rcpratt said:
If your 401(k) allows for trading of individual stocks other than your company stock, good for you, but that's highly abnormal.
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Not really,a lot of companies offer PCRA option, in which you can trade your own. But I haven't seen anyone give free transactions.
 
kranky said:
You might be the 1 in a million who can pick stocks time after time, knowing when to get in and get out, but let's assume the OP is not as brilliant. No offense to you or the OP but the odds are none of us are brilliant stock pickers for the long term. I know I'm not, and index fund investing, asset allocation and periodic rebalancing has done wonderfully for me over the long term.
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We'll check up on this in a year. I'll expect an apology when my fake portfolio outperforms the Dow Jones.


Does anyone have any interesting ideas how to compare against the index? I'm thinking it might work to make a second Google portfiolio and have that portfolio always buys and sells the same value of the index. Example: buying $5,000 worth of Cisco in portfio A then also buying $5,000 of the index in portfolio B and just keep matching transaction values like that? Over x months, it should be easy to look at the two and say which one is clearly winning at that time. If the index consistently matches or beats what I'm doing, then that's a good hands on lesson. I'll just invest in the index when my debts are all gone and it's time to put real money in the game.

edit: yes I know the market is going up like 20% per year after the biggest crash ever and it makes sense to invest NOW instead of focusing on debt, but I really really don't like being in debt. It's an emotional thing, not a logic thing.
 
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