Yet another investing thread

[Terzo]

I don't know much about stock markets and investments in general. A while ago I read through an investing primer that was talking about 3 "classes" of investments; short term (savings accounts?), medium term (bonds, CoDs?), and long term (stocks). If you want to play it conservatively and have money available at short notice, you invest mostly in short/medium term. If you have a higher tolerance for risk and are willing to wait for long term gains, you can put more money in long term investments.

Based on this, I figure that I want to keep my "emergency money" in a savings account so it can be withdrawn when needed. I figure I could throw the rest of the money into long term investments. And it sounds like the best option for that would be throwing money into an index fund. Is this something I could walk in and discuss with my bank, or would I have to set up an account online (say like Vanguard)?

Cliffs:
Thinking about investing, want to put money into an index fund. Should I reconsider/what are good choices?

 

[maddogchen]

for index funds you want something with a very low expense ratio which rules out banks. Index funds are all done by computing anyway so look for places with very low expense ratios

 

[pontifex]

how do you investint?

 

[mshan]

Vanguard Index Total Stock Market fund (VTSMX) is an excellent core holding for long term investments, especially in taxable accounts, and when you plan to hold that investment for 20 or more years. It is broadly diversified, so it won't go up as much as more concentrated funds, but it's advantage over extended decades of persistent dollar cost averaging is almost 100 percent of your funds is actually in stocks (actively managed mutual funds maybe 95 percent with other 5 percent in cash equivalents), has very low expense ratio (Vanguard even automatically converts you to Admiral Shares with even lower expense ratio when account total hits proper minimums) and portfolio turnover, so returns are not dragged down by hidden trading costs and taxes. Plus you can take required distributions from IRA and 401K and even let this index fund compound for an extra 10 years during early years of retirement.

Because of all of the stock market volatility this year, there are some tremendous latent returns built into some high quality actively managed mutual funds (e. g. http://news.morningstar.com/articlenet/SubmissionsArticle.aspx?submissionid=98212.xml) over next 5 years or so, but like the turtle, VTSMX will pass almost everyone one of them as you go decades out in time horizon. Poor quality actively managed funds with high expense ratio and frequent trading strategy have a performance drag of possibly several percent points that they have to make up just to keep up with index, and this doesn't even account for the bite of taxes. Just google for tyranny of compound interest and John Bogle's comments on it.

Something like Vanguard Prime Portfolio (VMMXX) is an excellent choice for emergency fund (3 - 6 months of living expenses, for example). If you are in a really high tax state, some fedeal or state tax free money market funds "might" make sense, but you have to know what additional risks you are taking on for higher after tax yield.

http://www.amazon.com/Personal-Finan...ecc_rvi_cart_1 (Eric Tyson's Personal Finance for Dummies)

http://www.amazon.com/Common-Sense-M...1285731&sr=1-2 (John Bogle's Common Sense on Mutual Funds)

http://selectedfunds.com/pdf/SFSuccInv4Q09.pdf and http://selectedfunds.com/pdf/SFWGI1209.pdf




:thumbsup:

 

[Juked07]

Your thoughts look logical, although there are likely more informed members than me here. Appropriate asset allocation does depend quite a bit how old you are/how far you are from retirement, in addition to your innate tolerance for risk. How old are you?

In general, there isn't any clear evidence that specific index funds outperform the broad market portfolio, so look for the cheapest (management fees, etc) fund you can find from a reputable provider. Vanguard is probably fine.

 

[iGas]

Index/mutual funds is a good start for someone that want a hands off approach to their investment, and it is best to seek advice from your bank/s and/or financial advisor.

[add]

Funny that Vanguard is mentioned. My retirement fund is with Vanguard at the moment but for last 18 months or so I felt like moving it into something with better yield.

 

[Terzo]

Vanguard Index Total Stock Market fund (VTSMX) is an excellent core holding for long term investments, especially in taxable accounts. It is broadly diversified, so it won't go up as much as more concentrated funds, but it's advantage over extended decades of persistent dollar cost averaging is almost 100 percent of your funds is actually in stocks (actively managed mutual funds maybe 95 percent with other 5 percent in cash equivalents), has very low expense ratio (Vanguard even automatically converts you to Admiral Shares with even lower expense ratio when account total hits proper minimums) and portfolio turnover, so returns are not dragged down by hidden trading costs and taxes. Plus you can withdraw from IRA and 401K and even let this index fund compound for an extra 10 years during early years of retirement.

Something like Vanguard Prime Portfolio (VMMXX) is an excellent choice for emergency fund (3 - 6 months of living expenses, for example). If you are in a really high tax state, some fedeal or state tax free money market funds "might" make sense, but you have to know what additional risks you are taking on for higher after tax yield.

http://www.amazon.com/Personal-Finan...1285708&sr=8-1

http://www.amazon.com/Common-Sense-M...1285731&sr=1-2

http://selectedfunds.com/pdf/SFSuccInv4Q09.pdf




:thumbsup:

Thanks, I'll read through the pdf. I have a $5 amazon credit sitting around, so I'm considering the book as well.

Your thoughts look logical, although there are likely more informed members than me here. Appropriate asset allocation does depend quite a bit how old you are/how far you are from retirement, in addition to your innate tolerance for risk. How old are you?

In general, there isn't any clear evidence that specific index funds outperform the broad market portfolio, so look for the cheapest (management fees, etc) fund you can find from a reputable provider. Vanguard is probably fine.

I am 22, not going to retire for a while. I want to maintain mobility (as in living location) for the next few years as well, though I'm not sure how much that should affect investment allocations. That's why I figured I'd be fine throwing most of my money into long term stuff, and setting aside the rest for my rainy day fund.

how do you investint?

It's a stint in investing, conveniently smashed into one word! Or I was just too lazy to proofread. I prefer the former.

 

[mshan]

If you have a 401K at work with a company match, you should contribute at least up to match because you may be getting 100 percent; return right away, even if there are better mutual fund choices outside of plan.

Roth or traditional IRA don't make difference over long term, though Roth arguably risk getting double taxed if Congress changes rules down the road. If you are currently at lower salary than you anticipate in few years from now, then it does make sense to choose Roth.

And again, VTSMX is a great core holding for retirement intended funds in a taxable account. You can gain an additional 10 years or more during early years of retirement as you draw down required distributions from IRA. You get essentially tax free compounding for all those years, but you have to choose a good steward for your money here so you don't have to sell and reinvest elsewhere if company becomes unethical or changes drastically from what you expected.

 

[DaveSimmons]

^ good advice from mshan.

Right now CDs are mostly paying about the same as an INGDirect savings account (1.x percent), so the savings account makes more sense for your short-to-mid-term money because you have near-instant access with no "substantial penalties for early withdrawal"

For investing, the 401k with employer match is the first thing to do, then the IRA (Roth or traditional), then finally the regular brokerage account.

 

[totalnoob]

Silver is a better investment..