Investing for beginners

[Richard]

As a side note on 401ks. I found out by accident that once I reached the age of 59 1/2 I could roll my 401k out of my employers plan into a qualifying 401 without any penalties. I could do that once a year. Most employer plans are limited in choices. Once I found that out in moved my 401 to my financial advisor. I thought I heard something about it actually being a federal law that applies to all 401's but I didn't check it out.

This is correct.

Once you attain the age 59 1/2 you can do an "in service" rollover. You can take your $100K 401K and move it to an IRA, meanwhile, your next paycheck will start rebuilding your (now zero) 401K as per your contribution amount.


Also.... if you have attained the age 55 and LEAVE YOUR company..... you can then take a DISTRIBUTION (not a rollover) of 401K pretax dollars without the 10% penalty. Age 55 is considered early retirement so there is no 10% penalty AS LONG AS YOU LEAVE THE FUNDS IN THE 401K. If you MOVE them to an IRA, you are back under the 10% penalty until age 59 1/2.

So, reworded....if you leave your company and have attained the age 55, LEAVE your 401K there until you at least, hit age 59 1/2. This way you will have liquidity.

You might ask the 401K if they allow multiple distributions, and if the answer is yes, then you can move part of it to an IRA and simply leave behind an 'emergency fund' that you think would cover any emergency between age 55 and 59 1/2. (there are some companies that do NOT allow multiple distributions...at which time, you are forced to move the account to an IRA, that's their polite way of saying please leave)

 

[MinnesotaEric]

An actively managed account usually has a charge as a percent of account value (say 1%).... therefore "churning" is usually not an issue as any stock trading expsnese are part of the management fee.

Interestingly, if you have an actively managed account and they SIT on it for too long, they can get into trouble for "reverse churning"..... meaning, taking the fee without doing ANY trades!!

In today's day & age, most managed accounts will be full of funds and not individual stocks although I suppose an exception to that can be found.

Up until Wednesday, active managers had clubbed passive management. I haven't seen any data on Wednesday but it sure felt like a fund was blowing up and needing to raise cash at any cost. Then it looked like stop losses were triggered and unwittingly piles of managers were fleeing for cash, no matter the losses. I blew through half my cash buying on Wednesday and Thursday and Friday rewarded those who went long.

 

[newbury]

Up until Wednesday, active managers had clubbed passive management. I haven't seen any data on Wednesday but it sure felt like a fund was blowing up and needing to raise cash at any cost. Then it looked like stop losses were triggered and unwittingly piles of managers were fleeing for cash, no matter the losses. I blew through half my cash buying on Wednesday and Thursday and Friday rewarded those who went long.

Did you mean rewarded on Friday with a drop of only 913?

 

[/pine]

Cash is king on a Friday at the close...ten fold in the surreal scenario we are living out right now...!
Good luck to all...

 

[California]

Can anyone recommend the best way to start investing for beginners? For example, opening an account with TD Ameritrade or Fidelity? Broad topic I know, just would like someplace to start. Thanks!

Long ago I looked at the alternatives. I concluded: Vanguard is excellent with the lowest fees. Fidelity is excellent with slightly greater fees for the active investor. But this buys you 24/7 phone access and other customer-service benefits not present at Vanguard. I went with Fidelity because at the time their phone advice was helpful, top quality. No regrets. I suppose other firms now match this top quality. (but several of the firms I considered back then have disappeared!)

And a bit of luck: I have been getting nervous that the market was well into 'irrational exuberance' so we both took our Minimum Required Distributions early in the year.

Then - our kids have been pressuring us to consolidate home and investments into a Trust, well before we are so old that we couldn't understand that. They want eventual estate (or Trust) administration to be more rational than what I had to accomplish in late 2000 for our elders. (Detour - worst example: PacTel had sold its Mobile division to Vodaphone of UK, then as cell phones took off those shares skyrocketed. The British transfer agent representing Vodaphone when I as Trust Adminstrator ordered sale of the shares, had no interest in learning California Trust law and basically told me to get lost. The Vodaphone shares dropped $45k while I made futile requests by phone and mail to liquidate. Finally a friendly transfer agent told me they need to hear the request to sell in Dad's own voice. 'So have Dad call back'. I did, "I'm 'Dad' calling you". That worked. Lots more nightmare drama on other issues but the smartest thing I ever did was follow Dad's advice and liquidate everything possible on the day after he died.)

Anyhow back on topic - The last financial asset we hadn't moved into the Fidelity master account was wife's 457. After urging from the kids to simplify our affairs, a month ago she requested Fidelity to initiate closing that outside 457 and move the proceeds into a Fidelity IRA. (One of the many things full-service Fidelity can do for you!) Blind luck! The proceeds of 40 years 457 savings that sold at the recent market peak is presently sitting in a cash account at Fidelity. That had been about a third of our savings. Now with today's market it could be half. I'm afraid to look.

 

[BoylermanCT]

Are redemptions so high that everybody is selling no matter the cost? Wednesday felt like a big fund was blowing up and just offloading everything including the crown jewels into what are normally thinly traded markets overwhelming them to ridiculous lows.

A 30% hair cut is index level losses. Is everything generally passively managed? ?

These are all 401A, 401K, 403B and 457 plans which are self directed by the individual employees. Surprisingly, there has been no sell off and movement to safe investments. I think it is because everyone is panicking about their health and getting toilet paper. Retirement accounts take a backseat.

 

[BoylermanCT]

A 457 is "essentially" the same as a 401K with a couple differences:

1. You can't borrow from it
2. No Roth Option
3. The BIG difference....... there is NO 10% penalty on early withdrawal


I'll sometimes ask the crowd I'm talking to (usually with their HR present) "Mr. HR....please cover your eyes for this next question..... (hahahahaha) Now, (to the crowd) is there ANYONE here that plans by design, on leaving PRIOR to age 55???"

Why? A 457 might be a good bucket to put some "walking cash" into. Not that it's a GOOD idea but if you leave and think you will just take the funds from your 401K to say, move to Montana, then maybe it's more prudent to use the 457 and at least avoid the 10% penalty.....

Early withdrawal is usually a bad idea

There are 2 types of 457B plans. The most common is for government employees. These 457 plans offer loans and Roth contributions. Every city and state employee has access to these plans. It is the non-govt 457 plans that do not allow loans and Roth. These 457 plans are for executives at hospitals and non-profits. Interesting when the govt made the rules for retirement plans, they penalize regular workers 10% if they withdraw retirement money too soon. But for their own employees, there is no 10% penalty even if they withdraw all their money at age 21, 31, 41 etc.

 

[MinnesotaEric]

Did you mean rewarded on Friday with a drop of only 913?

I cooked through one half of my cash purchasing on Wednesday. The kind of stuff I purchased went up on aggregate--i.e., #talkingmybook ARR-PRC, ARR, AGNC, piles of MITT (it went to 1/8th its former value), NLY, some more RAD (short squeeze can happen there in light of an on-going recovery made suddenly more interesting by the sudden drop in lending costs), and reestablishing a position that got shopped out, BABA (because China and my own fear of missing out). I don't particularly think I'll experience more capital gains on those purchases in a choppy news risk cycle through the end of summer, at which time I believe we will have a much better handle on the virus issue and our attention will be mostly on economic recovery from what already feels like an immediate ice age recession. I do, however, expect stupidly high dividends to remain until the mREITs common I purchased offers secondaries to better reposition itself with low-interest rates through higher leverage (mREITs take the interest rates from short or long term notes and leverage that against long or short term notes in whatever way makes the most sense), while I anticipate holding the preferreds I purchased until they are called while collecting a 21% dividend on them with a 300% upside when they are called.

I don't watch Cramer handly at all but I noted that on Thursday he too thought an unknown fund was blowing up on Wednesday. Even so, we've got a lot of price discovery to go through a bad news cycle but if we're ever fearful of deploying our cash in the face of irrationally low valuations, then there is little point in hoarding it.

 

[drssg]

MinnesotaEric, I will trust that you know what you're talking about. I sure don't.

 

[MinnesotaEric]

Long ago I looked at the alternatives. I concluded: Vanguard is excellent with the lowest fees. Fidelity is excellent with slightly greater fees for the active investor. But this buys you 24/7 phone access and other customer-service benefits not present at Vanguard. I went with Fidelity because at the time their phone advice was helpful, top quality. No regrets. I suppose other firms now match this top quality. (but several of the firms I considered back then have disappeared!)

And a bit of luck: I have been getting nervous that the market was well into 'irrational exuberance' so we both took our Minimum Required Distributions early in the year.

Then - our kids have been pressuring us to consolidate home and investments into a Trust, well before we are so old that we couldn't understand that. They want eventual estate (or Trust) administration to be more rational than what I had to accomplish in late 2000 for our elders. (Detour - worst example: PacTel had sold its Mobile division to Vodaphone of UK, then as cell phones took off those shares skyrocketed. The British transfer agent representing Vodaphone when I as Trust Adminstrator ordered sale of the shares, had no interest in learning California Trust law and basically told me to get lost. The Vodaphone shares dropped $45k while I made futile requests by phone and mail to liquidate. Finally a friendly transfer agent told me they need to hear the request to sell in Dad's own voice. 'So have Dad call back'. I did, "I'm 'Dad' calling you". That worked. Lots more nightmare drama on other issues but the smartest thing I ever did was follow Dad's advice and liquidate everything possible on the day after he died.)

Anyhow back on topic - The last financial asset we hadn't moved into the Fidelity master account was wife's 457. After urging from the kids to simplify our affairs, a month ago she requested Fidelity to initiate closing that outside 457 and move the proceeds into a Fidelity IRA. (One of the many things full-service Fidelity can do for you!) Blind luck! The proceeds of 40 years 457 savings that sold at the recent market peak is presently sitting in a cash account at Fidelity. That had been about a third of our savings. Now with today's market it could be half. I'm afraid to look.

In light of what you've shared, all of which is excellent, the transferring of investment management to anybody qualified BEFORE you get vascular dementia, strokes, Alzheimer's, or too old to care is the salient point!

The second best takeaway is assigning that money management to somebody nimble enough to have the wherewithal to react to bad news or market cycles in your interest rather than morbidly watching the ship sink.

My only contribution is to include some sort of check and balance as I have two friends who allowed their accountant management and then embezzlement happened and suddenly the song "Postcards from Paraguay" took on new meaning.