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| 5/28 |
| 2005/3/20-21 [Finance/Investment] UID:36778 Activity:very high |
3/20 After not really investing seriously in the past, I'm ready to get
serious about saving both for retirement and buying a house. I have
a pretty good idea what I want to invest in, but no idea how to go
about doing it. Since I mostly want to do exchange-traded funds (ETFs)
I don't care too much about the specific fund offerings of a broker.
I'm looking for a reputable broker with a full-service website, low
fees, and the ability to invest in both domestic and foreign mutual
funds and stocks. What would you guys reccomend or warn me away from?
\_ what's wrong with Etrade?
\_ For retirement, just dump the money into an IRA. Get something like
ING if you want safety. For the rest, I guess you could just go
and buy QQQ for nasdaq and a Vanguard index fund for the S&P.
If you want international there's index funds for various stuff
also. That's bascially all you really need to know about
investing your money. You don't need to really buy any other
mutual fund. You can also buy bonds if you want real safety.
Also, it's somewhat doubtful that you will be able to invest
in a mutual fund that beats an index fund over the long run.
Most of them will lose out on the S&P.
Don't buy individual stock, don't buy precious metals, don't
buy commodities.
\_ what's wrong with precious metal? Gold's beating US dollar like
hell. In fact everything's beating US dollar.
Iraq+war+deficit+Bush=fucked US dollar.
\_ More like Bush->(Spending+Tax Cut+War)->Deficit->F*CKED Dollar
\_ Because buying gold is stupid. You need to take a look at
a historic graph. If you are going to invest seriously
for your retirement, you don't need to invest in knee-jerk
shit like gold or silver. If you are old enough, you'll
remember the silver run-up of the early 80s, or the gold run
up some time after. Precious metals just do not appreciate
at the rate of a good CD over time. Also, if you really
believe that the U.S. economy is going to be fucked long
term, you're better off putting the money into foreign
currency. Again, historically this is very risky.
\_ I think you're off-base talking about "history" and
comparing gold to a CD. Economic realities change, and CDs
are a fairly new instrument, without very much history
behind them. Gold has thousands of years of history,
and it's been a good investment for nearly all of that
time. -tom
\-I doubt that is true. Talking about 100s of
years ago is silly ... you cant compare
today's world to a world without real property
rights, "money" etc. If central banks holding
gold continue to sell [since gold holdings
dont pay interest], that cant be good for the
price of gold. Also while today you can hold
gold "on paper", historically there would
also probably have been a cost associated with
storing gold cheaply. There are many other reasons
comparing 1600 and today doesnt work.
\_ Ah, so "history" starts in 1975. Right. -tom
\- Where did that come from? Gold may have been
a resonable "store of value" but that is
different from an investment.
\_ Bwahahahahaha! Okay, tom, you can go ahead and live
in the medieval ages if you want. In a modern fiat
based economy gold isn't a good investment. What
are you gonna do, propose we invest in railroads or
PG&E? Gimme a break.
Oh, here's a link that will tell you why you shouldn't
invest in gold as a long term investment:
http://www.fool.com/Fribble/1996/Fribble960305.htm
Apparently even the experts believe that buy and
holding gold is not a way to make money. You have
to essentially buy/sell gold to make money. This
is as bad as buying any other commodity.
\_ I'm not saying you should invest in gold, but I
am sure that history says nothing about the value
of CDs vs. gold. Look at the doofus above; he's
claiming on the one hand that "CDs historically
perform better than gold", and then says you have
to discount virtually all of the history because
the world has changed. Here's a hint: The world
can change more. -tom
\_ Gold is a hedge, not an investment itself.
\- maybe you should "invest" in guns as a hedge
against uncertain change.
\_ don't use "long term" too much. try making
money today.
\_ If you don't care about fancy stuff, try scottrade. It's
cheap, and customer service is good, and there are local
branches where you can go in and talk to someone. I used
E*trade, Scottrade and Datek/Ameritrade before. I didn't
like E*trade because it's more expensive, and service is
poor. Scottrade and Ameritrade each have their strong points.
Ameritrade is stronger at mutual fund offerings and after hours
trading, etc., but scottrade has local branches and is also
cheaper.
\_ Your simplest, and arguably best, bet is to invest in a set of
funds that covers as broad a portion of markets/commodities as
possible. Don't forget to invest internationally, and consider
checking out Real Estate Investment Trusts (REITs) as a way to
invest in Real Estate without losing your shirt. I'd highly
recommend reading Malkiel's "A Random Walk Down Wall Street" to
understand why this strategy is worthwhile: http://csua.org/u/bfx
As a previous poster indicated, an ING savings account is a safe
place to keep your short-term liquid cash flow, but will give you
poor returns overall if it is your only investment vehicle.
Personally, I'm a fan of Vanguard for mutual funds. They don't
fuck over small investors (i.e. they were not indicted in some of
the recent stock/mutual fund accounting scandals that a number of
more institutional oriented firms weere), they have solid
educational resources, and low fees. I've heard good things about
Schwab as well, but can't speak from experience in that regard.
Be sure to max out your IRA every year, I believe the maximum
contribution for 2005 is $4000. Also, since you're young, you
should put your money into a ROTH IRA (as opposed to a Traditional
IRA). With a ROTH IRA, you pay tax on the money you put in now,
but get to withdraw your earnings when you retire tax free (if the
benefit is not immediately obvious, here's a hint: compound
interest grows on an exponential curve, which end of the curve do
you want the gub'mint to take its bite out of?). Finally, try to
put together a down payment and purchase a house sooner than later.
The interest on your mortgage is tax deductible, which can be
really helpful if you're in a typical nerd tax bracket. Also, even
if you move and sell the place, you should get the money you paid
in plus appreciation back out as equity. Compare to rent which
just makes a scary sucking sound as it takes a nasty bite out of
your paycheck each month. -dans
-dans
\_ I'm a starving grad student barely making $15,000 a year and
almost all of it goes to rent and living expenses. What is your
recommendation for me?
\- what makes sense for you depends on your
expectation of future income prospects.
if you are an EE or ChemE from Berkeley,
"deficit spending" or running no surplus
may make more sense than if you are in a
10yr phd program in latin grammar with no
future prospect of reasonable income.
Just avoid credit card debt and dont go hog
wild when you start making real $. --psb
\_ I agree with psb on this. Though,
personally, I'm somewhat risk averse with
respect to any debt, but that's a personal
decision. -dans
\_ 15k??? That SUCKS! What type of program are you in?
--not-so-starving grad student
\_ Well, in theory, as a grad student you're making a
(reasonable, unless you're in the humanities :) bet that your
advanced degree will result in enough of an increase in
earning power to offset the cost of tuition and, more
importantly, the opportunity cost of additional years spent
outside of the work force. I've heard that someone did a
study and found that if you want to optimize your lifetime
earning potential via education then you should get a
Masters, and then start working. I'd like to see the actual
study, but the result seems plausible since a PhD candidate
usually spends at least 4 years longer in school than someone
who leaves with his/her Masters. That said, you could just
keep doing the subsistence thing and count on the extra
earnings your advanced degree will generate, and you'll
probably do okay for yourself. If you *can* find a way to
save some money now (even something little, like $100 a
month), it's really worth it. As I said above, compound
interest grows exponentially, so even a small sum invested
now can pay off nicely in the future. As for where to put
it, that's a no-brainer: ROTH IRA invested in a broad-based
no-load (this is just broker speak for low fees) index fund.
If you're just investing in a single fund, I'd suggest
Vanguard's Total Stock Market Index Fund. If you already
have an account at some other brokerage firm, e.g. Schwab,
they should have something equivalent. Just be wary of high
fees as they can really put a dent in your investments over
time. Both Schwab and Vanguard's fees are quite reasonable.
One caveat to that fund is that it only covers the US market,
but you can expand into foreign markets in the future when
you have more income. What's important is to develop good
saving/investment habits. I've seen a lot of investment
advice that suggests putting aside 10% of your gross
income, for you, that's $1500 which is just a touch above
the $100 a month I suggested above. If you can, set up a
mutual fund account that will automatically deduct $100 from
your bank account at the beginning of each month. It's an
easy way to enforce savings discipline and it lets you take
advantage of something called dollar-cost averaging:
http://csua.org/u/bfy
-dans
\_ if you're a first time home buyer, buying sooner rather than
later is probably not too smart, considering we're probably
in sort of a real estate bubble at the moment.
\_ That's a nice idea, and I agree that we're in a real estate
bubble, but that's been the case for a long time. True, it
has to pop sooner or later, but that could be later, as in
five or ten years from now, and holding one's breath and
preying it pops seems like a bad strategy to me. I've seen
advice that suggests you should buy a residence if you are
going to be living in the same area for at least two years.
I think that's better advice than speculating on a bubble
that we're `probably in sort of'. Just by way of comparison,
New York city is, like San Francisco, in a real estate
bubble. Problem is that a) prices just keep climbing, b)
nobody who owns his/her place in New York is about to leave
the city (unless forced to at gunpoint), so demand outstrips
supply and will continue to do so, perhaps till doomsday.
Ten years ago, you could still buy something cheap in Harlem
because it was perceived to be a slum. Then Bill Clinton
sets up office there, and lots of people flock there, buying
burnt out buildings and either renovating them or tearing
them down to put new ones up. Today you can easily drop $1M
on a place in Harlem, and young white folks think of it as
a nice place to raise their kids. When that kind of
gentrification is fueling your bubble, what will it take to
pop it? -dans
\_ uh oh, someone started a circular, never-ending debate
\_ Depending how much time you want to spend. If you want to spend
minimal time, buy broad based index funds and aim for an 8%
return. If you want a higher average annual return, you need to
spend more time (which has cost), and you may be able to push
your return to 15-20% or higher.
\_ FLPSX has a 60+% return since I switched my 401(k) to it from
FDGFX two years ago. That's 30+%/yr.
\_ You would have gotten a similar performance if you switched
to DVY. Interesting that DVY's chart is so similar to FLPSX's
even though you would think it should look more like FDGFX's
since both are dividend funds. 2003 is an especially good
year though, and 2004 is not bad too, but I am talking about
the long term, so 15-20% is more realistic. I had like a
75% return in 2003, but I started the year with some risky
non-diversified bets on individual stocks (BBY, NVDA, HELE,
etc.) so it should not be used as a gauge. I have been
switching gradually to mutual funds, index funds and close
end funds since end of 2003 cause I don't have time to follow
individual stocks now.
end funds since end of 2003 cause I no longer have time to
follow individual stocks.
\_ Wow. Thanks for all the advice on investing strageties and all but
I'm really asking about brokers. I already know about mutual funds
REITs, ETFs, Roths vs. IRAs, risk/reward tradeoffs, hedging, and all
that. Since I'm young I'm putting most retirement money in high
risk/growth funds and some in foreign emerging markets funds. The
money for a house in a few years is going into a mix of large-cap
funds and some in non-treasury bonds. -op
\_ Vanguard. 'nuff said. -dans
\_ Is their website full-featured, or will I have to get them on
the phone to trade?
\_ I am going to go against the crowd here and recommend that you put
your future down payment in a low or no risk instrument like a
T Bill or Bond or CD. Your retirement money belongs in a Roth IRA
with the most risk you can stand. -ausman
\_ What broker do you like and why? |
| 5/28 |
|
| www.fool.com/Fribble/1996/Fribble960305.htm It's supposed to go up to $450/ounce i n a couple of days, or months, or something. Actually, more than a little---I went to the library and did some reading, and now I know enough about gold to bo re anybody. Like the fact that for many years, the value of our currency was tied to gold. Then, in the middle of the 19th century, we began to move away from the gold standard, and in 1864 the US government issued zero interest bonds that could be used as legal tender. These were prin ted with green ink, and called "greenbacks." They only had the faith of the US Government to back them, not gold, but these notes eventually b ecame today's currency. In the 1930's, the US moved further from the gold standard. Owning gold as an investment became illegal, and its value was pegged at $35 an oun ce. Technically we were off the gold standard, but with the gold price s et at an official rate our currency was still linked to it. In 1975, aft er a number of crises, the US government stopped setting a price on go ld and allowed the average citizen to own it. By the early 80's an ounce of gold had soared to $850, though in recent years it has oscillated be tween $350 and $450. Since most of the world's currencies no longer tie their values to precious metals, much of the allure has faded. Now, since gold doesn't add to its own value, and since it's worth is no longer linked to currency (unless you think society is going to collapse , and the major currencies will become worthless), you probably think yo u can't make money with it. According to the December 1 8, 1995 Hulbert Financial Digest, if you use the right market-timing str ategies, you CAN get a return (buy and hold doesn't work, they say). The winning timing method for an eight-year period is the Elliot Wave. Am I missing something, or is that almost as good as a CD? A five-year period using the Market Logic (Gold Model) gets you an annualized return of 67%. Not quite as high as the Lehman B ond Index, but maybe I expect too much. If society is collapsi ng around you, you can run off with a fair portion of your assets in you r pockets. Of course if that happens you'd probably have more important things to worry about than your wealth. Also, some of those bullish on g old point to its popularity among the newly prosperous in Asia. I person ally question how much the newly prosperous will put into $400 an-ounce gold as opposed to, say, buying VCR's, TV's, cars, and other things. Stock in a company usually grows in value, b ecause of increasing earnings, new products, dividends, stock buybacks, and so on. You can, for the most part, pick a winning stock based on a company's business prospects and the qua lity of its management. But personall y, I'll stick with good old Fool's Gold---stocks. Let's see, for an ounc e of the yellow stuff I can own five shares of Texaco. |
| csua.org/u/bfx -> www.amazon.com/exec/obidos/ASIN/0393320405/102-7939998-1754521 com It's unlikely that you'll spot many dog-eared copies of A Random Walk flo ating amongst the Wall Street set (although bookshelves at home may prov e otherwise). After all, a "random walk"--in market terms--suggests that a "blindfolded monkey" would have as much luck selecting a portfolio as a pro. But Burton Malkiel's classic investment book is anything but ran dom. Since stock prices cannot be predicted in the short term, argues Ma lkiel, individual investors are better off buying and holding onto index funds than meddling with securities or actively managing mutual funds. Not only will a broad range of index funds outperform a professionally m anaged portfolio in the long run, but investors can avoid expense charge s and trading costs, which decrease returns. First published in 1973, this seventh printing of a A Random Walk looks f orward and does so broadly, examining a new range of investment choices facing the turn-of-the-century investor: money-market accounts, tax-exem pt funds, Roth IRAs, and equity REITs, as well as the potential benefits and pitfalls of the emerging global economy. In his updated "life-cycle guide to investing," Malkiel offers age-related investment strategies t hat consider one's capacity for risk. An omalies can crop up, markets can get irrationally optimistic, and often they attract unwary investors. But eventually, true value is recognized by the market, and this is the main lesson investors must heed." Written for the financial layperson but bolstered by 30 years of research, A Ra ndom Walk will help individual investors take charge of their financial future. Product Description: This gimmick-free, irreverent, and vastly informative guide--with over ha lf a million copies sold--shows how to navigate the turbulence on Wall S treet and beat the pros at their own game. Skilled at puncturing financi al bubbles and other delusions of the Wall Street crowd, Burton Malkiel shows why a broad portfolio of stocks selected at random will match the performance of one carefully chosen by experts. Taking a shrewd look at the high-tech boom and its aftermath, Malkiel shows how to maximize gain s and minimize losses in this era of electronic brokers, virtual gurus, and flashy investment vehicles. Learn how to analyze the potential retur ns, not only for stocks and bonds, but for the full range of investment opportunities, from money market accounts and real estate investment tru sts to insurance, home owning, and tangible assets like gold and collect ibles. Decode the rating game for mutual funds and discover the unique a dvantages of index mutual funds over the wide range of riskier alternati ves. Year in and year out the best investing guide money can buy, this e nhanced edition includes an update of Malkiel's famous "Life-Cycle Guide to Investing," showing how to match an investment strategy to your stag e in life. All Editions Inside This Book First Sentence: In this book I will take you on a random walk down Wall S treet, providing a guided tour of the complex world of finance and... learn more) First Sentence: In this book I will take you on a random walk down Wall Street, providing a guided tour of the complex world of finance and practical advice on i nvestment opportunities and strategies. A s a teacher of corporate finance to law students, I have recommended thi s book to my students for over 10 years. Numerous alumni have told me th at was the best advise they got in law school (a sad commentary on Ameri can legal education, but that's another story). First, modern portfolio theory (MP T), which elucidates the relationship between risk and diversification. Because investors are risk averse, they must be paid for bearing risk, w hich is done through a higher expected rate of return. As such, we speak of a risk premium: the difference in the rate of return paid on a risky investment and the rate of return on a risk-free investment. In the rea l world, we measure the risk premium associated with a particular invest ment by subtracting the short-term Treasury bill interest rate from the risky investment's rate of return. The risk premium, however, will only reflect certain risks. MPT differentiates between two types of risk: uns ystematic and systematic. Unsystematic risk might be regarded as firm-sp ecific risk: The risk that the CEO will have a heart attack; the risk th at the firm's workers will go out on strike; Systematic risk might be regarded as market risk: risks that affect all firms to one degree or a nother: changes in market interest rates; MPT acknowledges that risk and return are related: investo rs will demand a higher rate of return from riskier investments. In othe r words, a corporation issuing junk bonds must pay a higher rate of retu rn than a company issuing investment grade bonds. Yet, portfolio theory claims that issuers of securities need not compensate investors for unsy stematic risk. In other words, investors will not demand a risk premium to reflect firm-specific risks. There is a mathematical proof, whic h relates to variance and standard deviation, but Malkiel explains it in a way that is quite intuitive. Investors can eliminate unsystematic ris k by diversifying their portfolio. Diversification eliminates unsystemat ic risk, because things tend to come out in the wash. Thus, even though the actual rate of ret urn earned on a particular investment is likely to diverge from the expe cted return, the actual return on a well-diversified portfolio is less l ikely to diverge from the expected return. If you hold a no ndiversified portfolio (say all Internet stocks), you are bearing risks for which the market will not compensate you. You may do well for a whil e, but it will eventually catch up to you (as it has recently for tech s tocks). The second pillar of Malkiel's analysis is the efficient capital markets theory (ECMH) The fundamental thesis of the ECMH is that, in an efficie nt market, current prices always and fully reflect all relevant informat ion about the commodities being traded. In other words, in an efficient market, commodities are never overpriced or underpriced: the current pri ce will be an accurate reflection of the market's consensus as to the co mmodity's value. Of course, there is no real world condition like this, but the securities markets are widely believed to be close to this ideal . There are three forms of ECMH, each of which has relevance for investo rs: **Weak form: All information concerning historical prices is fully r eflected in the current price. Price changes in securities are serially independent or random. Do I mean that we can't predict whether the stock will go up or down? No: obviously stock prices generally go up on good news and down on bad news. What randomness means is that investors can n ot profit by using past prices to predict future prices. If the Weak For m of the hypothesis is true, technical analysis (a/k/a charting)-the att empt to predict future prices by looking at the past history of stock pr ices-can not be a profitable trading strategy over time. And, indeed, em pirical studies have demonstrated that securities prices do move randoml y and, moreover, have shown that charting is not a long-term profitable trading strategy. A s such, investors can not expect to profit from studying available infor mation because the market will have already incorporated the information accurately into the price. As Malkiel demonstrates, this version of the ECMH also has been well established by empirical studies. Implication: if you spend time and effort studying stocks and companies, you are wast ing your time. If you pay somebody to do it for you, you are wasting you r money. This version must be (and is) false, or inside r trading would be profitable. In the last section of RANDOM WALK, Malkiel distills all this theory into an eminently practical life-cycle guide to investing. Second, no one sys tematically earns positive abnormal returns from trading in securities; in other words, over time nobody outperforms the market. Mutual funds ma y outperform the market in 1 year, but they may falter in another. Once adjustment is made for risks, e... |
| csua.org/u/bfy -> flagship4.vanguard.com/VGApp/hnw/content/PlanEdu/InvestorEdu/PEdIEMFBasicsDollCostAvgContent.jsp Dollar-cost averaging Dollar-Cost Averaging One of the great conveniences of investing in mutual funds is that most f und companies make it easy to put your investment program on autopilott hat is, to invest on a regular basis. Investing regularly is a great hab it to develop, not just for helping to build wealth, but also for managi ng the ups and downs of the market. Investing a fixed amount in a particular fund at regular intervals is a s trategy called dollar-cost averaging. Because the amount you invest is c onstant, you buy more shares when the price is low and fewer when the pr ice is high. As a result, the average cost of your shares is typically l ower than the average market price per share during the time you're inve sting. Youre already benefiting from dollar-cost averaging if youre participat ing in an employer-sponsored retirement plan that withholds money from y our paychecks. This is a convenient, systematic way to build an investme nt portfolio. Because the amounts you invest remain constant, you can ea sily budget for them. Dollar-cost averaging cannot eliminate the risks of investing in financia l markets. It doesn't ensure a profit or protect you against a loss in d eclining markets, nor will it prevent a loss if you stop dollar-cost ave raging when the value of your account is less than your cost. You should also consider your willingness and ability to invest continuallyeven t hrough periods of market declinesince the advantages of dollar-cost ave raging depend on your making regular purchases through thick and thin. No investment method can guarantee a profit if you sell at the bottom of the market. But if youre a patient investor who contributes a fixed amo unt of money in regular installments, you can greatly reduce a loss that would result if the market dropped sharply right after youd made a lar ge investment. Open an account Open a Vanguard account or transfer assets from another financial instit ution. |