MinnesotaEric
Super Member
I hate learning about rigging the system as if the Plebes don't have the wherewithal to money management. Thanks for sharing.
Investing for beginners
- Thread starter General Lee
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I hate learning about rigging the system as if the Plebes don't have the wherewithal to money management. Thanks for sharing.
Racenut
Gold Member
I'm an IT guy, consider myself decently smart. I read Eric's post up there and it sure sounds like he knows what he's doing, but may as well be written in French lol. This stuff makes my head spin. Wish I understood it better, especially how to take advantage of a declining market. Buying stock and holding onto it when things are good is easy.
jjp8182
Platinum Member
Lot of talk on actively managed funds, but depending on investment goals a long-term cost averaged (i.e. not reacting to every market swing) can actually be more advantageous from the data I've seen.
Really the heart of financial investing is to have an idea what you're investing goals are and then doing some backward planning with realistic returns on investment (e.g. <10%) while also considering your own level of risk tolerance/discipline. Yes, year-to-year returns may greatly exceed that, but then there are the things like we're seeing now that can wipe out years worth of gains that will recover over the course of years. Now from the data I've seen in the past there's never been a decade where an index, or conglomeration of assets has been a net negative. Individual companies may collapse, but that's part of the reason for diversification - which is easily done with things like mutual funds, and exchange-traded funds (ETFs). So picking a realistic return on investment and backward planning can be very useful, and there are a great many calculators/tools that can help with that task. One being this Compound Interest Calculator on an SEC site for investors: Compound Interest Calculator | Investor.gov
As has been previously noted when investing in 401k's or other designated Individual Retirement Accounts there can be penalties and limitations on what age you can start withdrawing funds (possibly with some exceptions).
However, I'd say one of the single worst things a person can do with their money (other than spend it on frivolous items they don't need or really want) is to keep it in an account that has an average return that is less than the average rate of inflation. Something like that makes money at a rate that doesn't even offset the loss of value (buying power) due to inflation, and the only practical reason to use something like that is because it provides greater liquidity/ease of access to funds (which is what many traditional savings, and checking accounts do).
For example if a 2% interest rate turns $100 into $102 over the course of the year, and the inflation rate for the year is 3% .... then that $102 is really only worth $98.94. Granted that is still better than $97 dollars the $100 would have been without the 2% interest gain, but it's still case of turning a large amount into a smaller amount.....
For a beginning investor I'd also recommend the Vanguard website for information whether a person chooses to use Vanguard's services or not. Personally I do because they have some of the lowest costs, and they where willing to freely provide educational information -- I prefer to do certain types of business with entities that are willing to help make me a more competent customer/client/individual.
Really the heart of financial investing is to have an idea what you're investing goals are and then doing some backward planning with realistic returns on investment (e.g. <10%) while also considering your own level of risk tolerance/discipline. Yes, year-to-year returns may greatly exceed that, but then there are the things like we're seeing now that can wipe out years worth of gains that will recover over the course of years. Now from the data I've seen in the past there's never been a decade where an index, or conglomeration of assets has been a net negative. Individual companies may collapse, but that's part of the reason for diversification - which is easily done with things like mutual funds, and exchange-traded funds (ETFs). So picking a realistic return on investment and backward planning can be very useful, and there are a great many calculators/tools that can help with that task. One being this Compound Interest Calculator on an SEC site for investors: Compound Interest Calculator | Investor.gov
As has been previously noted when investing in 401k's or other designated Individual Retirement Accounts there can be penalties and limitations on what age you can start withdrawing funds (possibly with some exceptions).
However, I'd say one of the single worst things a person can do with their money (other than spend it on frivolous items they don't need or really want) is to keep it in an account that has an average return that is less than the average rate of inflation. Something like that makes money at a rate that doesn't even offset the loss of value (buying power) due to inflation, and the only practical reason to use something like that is because it provides greater liquidity/ease of access to funds (which is what many traditional savings, and checking accounts do).
For example if a 2% interest rate turns $100 into $102 over the course of the year, and the inflation rate for the year is 3% .... then that $102 is really only worth $98.94. Granted that is still better than $97 dollars the $100 would have been without the 2% interest gain, but it's still case of turning a large amount into a smaller amount.....
For a beginning investor I'd also recommend the Vanguard website for information whether a person chooses to use Vanguard's services or not. Personally I do because they have some of the lowest costs, and they where willing to freely provide educational information -- I prefer to do certain types of business with entities that are willing to help make me a more competent customer/client/individual.
jjp8182
Platinum Member
I'm guessing that no penalty is for state, county and city level government employees using 457 plans?
While the Thrift Savings Plan for US federal employees doesn't have penalties (per se) for taking personal loans (usually paid back with floating interest) from a personal contributions to the TSP there are definitely penalties for early withdrawal (I just learned how bad they can be last December during a retirement planning course for federal employees). Which is where standard investment accounts (i.e. non-IRA/401(k)/etc) can be handy to have in addition to employer provided retirement funds/investments - granted they don't have some of the tax advantages, but the increased flexibility/liquidity can be very worthwhile.
GeneV
Elite Member
Yup, all greek to me too. Ok, I've a question for you know-how guys. Let's say somebody vested 50/50 stocks/bonds in a managed 401k. Wise move right at this moment to rebalance the portfolio to 80/20 stocks favored, and start aggressively contributing to that?
California
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My own opinion - and don't put much weight on it - is the short term future is uncertain but if you have a 10 year horizon before any critical need to use that money, then do it. Riding out the cycles has worked for me.
One comment on strategy from Warren Buffet or somebody was: You can never time the market. But long term its more costly to be out, rather than in. This is because the increases that create superior overall return appear on random days and you miss those if you are out.
I've stayed at least 60~70% stocks (mostly S&P Index fund) through the downturns of 2000 and 2008 because I didn't need the money short term, and believed that the concept above was valid.
Buying today is a 50/50 gamble on the short term - that's what determines today's stock price, today's price is quite simply the balance of today's greed and fear. But long term I expect the US economy to continue to make money and pay dividends so I want to be a participant.
Another theorem: 85% of individual investors underperform the S&P 500. I want to be in the top 15%! So an S&P index fund with the lowest fees is my preferred investment. 'It will fluctuate' but in the long view I think these are the companies so powerful that they create their own opportunities (or buy competitors) while everyone else just tries to compete against them. Back in the late 90's I was newly retired and made some money day-trading in the dot-com boom of then. I felt I understood technology better than some, and made some good choices. Way back then Forbes seemed to have good forecasting ability, I don't know about now. But subsequent to the tech boom of the 90's I haven't felt I was wiser than the average investor so this S&P index strategy is now the better choice for me - and it doesn't require any attention to the investment news of the day.
My wife watches market commentators and reads Kiplinger etc. She is more bold, comparing overseas funds etc. Yes dear
. I've never compared her choices to the hands-off S&P but the results seem to be similar. As we get older I don't want to stay fine-tuned to today's news but rather just let things perk along. Tesla is the one stock stock today where I think their product will bury the competitors. But that's priced into the stock. So while it may be the next winner, it will take years for an investor to be rewarded.
Whatever. What works for someone may not fit changing times. YMMV.
GeneV
Elite Member
California, thx. Yeh, I'm 47, I ain't gonna be dipping into the pot for a long time still. I'm not privy to this stuff besides sticking money into my 401k, but figured it's wise to start sticking more into stocks now that there's such a fire sale going on.
jjp8182
Platinum Member
Just for consideration (at 37 ...and aiming to retire at 57) I've been going 100% stock portfolio with the mix being 40% large domestic/40% small to medium domestic, and 20% non-US markets (just so I'm not fully dependent on the US economy being good). I actually regret the past few years where I deviated from that and had money in bonds & treasuries.
Of course, I also agree with what California quoted with "You can never time the market. But long term its more costly to be out, rather than in. This is because the increases that create superior overall return appear on random days and you miss those if you are out." ...and I've seen data that backs that that statement.
When it comes to "long-term" (i.e. greater than 10yrs) that's also what the independent financial advisor recommended in the retirement planning course I took last December. Now when you're inside of 10 years to using it for retirement, it's probably better to be shifting to a less stock heavy portfolio. Recommendations vary on that (in part do to lifestyle costs, and life expectancy) , but me I'll probably slowly move toward each of those percentages being half what they currently are and move the funds into a mix of bonds and government securities once I'm within 10 years of retiring. So personally I figure there's a good chance I'll need to be pulling from it for a good 30-40yrs based on how long my family members have lived -- which means I'll probably be a bit more stock heavy just to maintain solid growth.
Biggest thing is to have an idea of what you want to retire into do and about how much it's going to cost annually, and then back plan from there being conservative in the estimates..... running out of cash isn't fun, and from what I've seen running out of cash when you're past "retirement age" is even worse.
Of course, I also agree with what California quoted with "You can never time the market. But long term its more costly to be out, rather than in. This is because the increases that create superior overall return appear on random days and you miss those if you are out." ...and I've seen data that backs that that statement.
When it comes to "long-term" (i.e. greater than 10yrs) that's also what the independent financial advisor recommended in the retirement planning course I took last December. Now when you're inside of 10 years to using it for retirement, it's probably better to be shifting to a less stock heavy portfolio. Recommendations vary on that (in part do to lifestyle costs, and life expectancy) , but me I'll probably slowly move toward each of those percentages being half what they currently are and move the funds into a mix of bonds and government securities once I'm within 10 years of retiring. So personally I figure there's a good chance I'll need to be pulling from it for a good 30-40yrs based on how long my family members have lived -- which means I'll probably be a bit more stock heavy just to maintain solid growth.
Biggest thing is to have an idea of what you want to retire into do and about how much it's going to cost annually, and then back plan from there being conservative in the estimates..... running out of cash isn't fun, and from what I've seen running out of cash when you're past "retirement age" is even worse.
Racenut
Gold Member
Sounds like I'm doing about what California is... S&P seems to be the benchmark funds try to beat, so rather than trying to find one, just put most of my stuff in Vangard S&P index fund. And it has been good for me. I have played a few "bets" in individual stocks with smaller amount of money. I did triple up on GoPro in just a few months... but that's the best I've ever managed to do. At this point I'm still in, and I'm still 49 so this money isn't going to be needed for a while, but I'm still questioning riding it all the way to to the bottom just because that's the way it's always been done before.. this all just feels different to me.
jjp8182
Platinum Member
..agree it does, but there's a few things I keep in mind for myself:
1) losses are only realized when you sell (or you invested in an individual company that goes under)
2) most market downturns (>90%) no matter how severe are overcome within 10 years (or less)
3) there really aren't any better options out there for long term investments (at least not that I've seen in all my looking)
Thing that puzzles me is where are all these people selling at such low prices putting the money the received from the reduced price sale? In their mattresses? ...or where they really that over-leveraged?