Investing for the first time

[justginger]

The topic on the AUD got me thinking - I have GOT to get into some sort of an investment plan. I had a meeting with a financial planner way back in March. He was awful and never got back to me about my plan (terrible bank service). Anyway, I''ve done heaps of research...without any of it really clicking, IYKWIM? There are SO many things to take into consideration (admin fees, expenses/income ratio, dividends, etc), I felt so overwhelmed that I just shoved it all on the back burner. If I had just gotten in there and done SOMETHING in stocks, there''s a good chance I would be better off now than I am (earning 4.5% in interest)!

So - how did you start? Phoenix seems so knowledgable and switched on -- are any others willing to share advice? I''m quite happy to make financial sacrifices for the long term...but I simply don''t know how to get those dollars sitting in my bank account into wherever it is that they need to be! I''m not adverse to anything - direct stocks, mutual funds, property, etc. At the age of 25, I''m quite happy with high risk and don''t plan on putting anything in that I can''t live without. I''d like to start with an intial investment of about $10k and make regular additions to it (dollar cost averaging?).

TIA for any and all guidance you can offer.

 

[arjunajane]

Great thread JG - I will be following with interest.

and good luck!

 

[Phoenix]

Ginger,

Thanks for your kind words. I was just about to go out to dinner but had to jump in!!

Pls do not invest all of your $10k all at once and esp not now when the market is so high!! You're only 25 so you're starting at a very good age. It's always good to start earlier, the earlier you start the more money you'll have later on (such is the wonderful effect of compounding interest and investing over a long time is GREAT!! Plus, you're so young you can afford to take some risks but I still wouldn't risk all of yr savings at the moment. $10k is still a LOT of money, to *anyone*!

And I have to tell you that 4.5% is a very good rate. In SG, saving rates are now less than 1%. I know, pathetic, isn't it?!!

A lot of financial planners (at least those I've met) are not very good, to put it mildly. I hope I don't offend any financial planners out there but I've yet to meet a good one. The only person that seems to make any sense to me is Suzi Orman.

My first advice to you is save save save towards your first home (I assume that you don't own a home yet. Forgive me if you already do). I'd take a BIG portion of that $10k, say $7-8k and put that towards a "home fund".

Then, I'd take a small amount, say no more than $500 a month and put it towards a mutual fund/ unit-trust (I don't know what you call them in Australia - is that where you are?). I'm not so good with stocks (so so but not great, am much better at currency and property investments). I think Socool (I hope you don't mind my mentioning your name here) is a GREAT investor. She and her husband are my HERO'S!! I hope she chimes in with advice. Investing in direct stocks and any kind of derivatives are for more experienced investors. I'd start off with investing a small regular amount (like you say dollar -cost-averaging, which is what we're also doing) on a monthly basis. I'd also spread my risk and invest in various markets (territorially speaking, in Emerging Markets (Asia), Australia and the US); as well as industry-wise (like technology, commoditities, etc).

You have a superannual (pensions) system in Australia, right? I don't remember what it's called, LOL! Does your employer do a match (like they do in the US)? If so, I'd do that too.

I also intend to start threads on currency investing over the forthcoming months. I hope I'm right about my "gut" towards currencies. So far, it's been right!

Oh and also, be prepared to invest in at least two or three properties. Not right now, but when the time is right. Timing is everything. Although you can *never* go in at the lowest and sell at the highest, you can try and be as close as possible. I bought my first home in the UK during the recession of the nineties and made quite a good return a few years later. We also bought our home in Singapore just after SARS and we're now very happy about that. We also wanted to buy another property and loads of stocks during the last recession/ market low but just simply didn't have sufficient money (at least on the property side). I wish we'd invested more in the stock mrkt, but no worries - we can't do anything about that now. You shouldn't worry abt "missing it" either. You'll see plenty of troughs and peaks in yr lifetime, I promise you!! I've seen 3 recessions now and am still in my early forties. I'm sure I'll see at least another one or two before we retire.

If I can think of anything else, I'll let you know.

Good luck, and YAY to you for starting early!

 

[justginger]

Thanks so much for taking the time to respond and give advice, Phoenix. I, by nature, am a very frugal person (except when it comes to jewelery, believe it or not!). I have no explanation, but feel very compelled to simply make as much money as I possibly can. I grew up priviledged, never wanted for anything, and I''m not wanting to live a "rich" lifestyle...I just don''t want to pinch pension pennies, IYKWIM. I should have set up a Roth IRA when I was about 18...not that the tax benefits of that would do me any good in Australia!

There are two amendments to my situation that I think are important to mention. First, my partner and I actually do own a house. Bought about 14 months ago and are currently paying between $900-1000/month above our minimum repayment level, which is a sort of investment, I suppose. Also, the $10k I mention has specifically been set aside for investment purposes. I have other savings, so there''s no concern that it''s going to be needed. I started with about 5, but with all of my lollygagging, it''s only built up.

When it comes to your investment properties, how have you actually gone through the process of choosing and buying them? I am intending to view a few properties when I''m back in the States this week for possible rental investments, but I find that easy. I know the bank, I know what areas to avoid, etc. I''ve heard Turkey is a good place to get into around now, but wouldn''t even know how to begin the process.

And finally (for now!), I was wondering how you feel about investing for rental income? Specifically, there is a 4 bed, 2 bath, 2 blocks away from a college campus, in my hometown that I''m interested in. The mortgage with current interest rates would be about $500/month -- and it''s renting, always full, at $800/month. Even after the cut a property manager will take, it''s a positive geared investment straight away (any idea how that would impact my taxes?). However, my hometown is small with low growth potential. The likelihood I would make much in capital is very low. Is that something you would consider, or are you always looking for something that will provide growth in the long run, not necessarily steady income now?

Thanks again -- am very interested in hearing your take on this.

 

[soocool]

Hi Ginger!

Yes investing is a pain in the a** if you don''t know what you are doing. It is all confusing that is why you do have to educate yourself as to what to do and how to do it. Financial planners are in business to make money (sorry if I offend anyone who is a FP) and so while they will try to help you invest your dollars they will also sell you what pays them the most in transaction fees. Yes the return on an investment can look great. But before you look at the return on investment check to see if that return amount is before or after the transaction fees are deducted.

That said, check out the Vanguard site http://vanguard.com/ there is a section on the lower right of the first page for non-US investors. This site can help you plan your investments based on your goals and level of risk aversion. This is a good place to start. You have to do what is right for you. If you need money asap you have to be able to liquidate quickly. If you are financially sound and you can leave money there forever, you might look into securites/funds etc. that may give you a tax break.

I never tell a person what stock/bond/mutual funds to invest in. I am not an expert. I am just someone who does her homework. I have purchased land as investment, but to sell later on when prices suite me to sell. I have another friend who owns properties down the Jersey shore and she rents to businesses, like the US post office, a dentist, a florist, restaurant and a few other businesses because in her opinion she gets a rental payment each month and has never had to worry about her tenants. She has had the same tenants for over 30 years. She was lucky as she inherited these properties. I have never had the desire to rent properties as I don''t ant to have to deal with tenants.

Do your research and don''t drop your entire $10 grand into one pot. Do something short term and something long term. I would have recommended starting last year when prices were very low because prices have come up quite a bit. Once I had thought about purchasing gold but after I researched and saw how high the transacton fees were (to buy and sell), the rate of return wasn''t worth it. Remember everytime you buy, sell, reinvest your dividends, you incur a transaction fee.

Good luck in your investing future!

 

[Regular Guy]

There are changing dynamics which makes things somewhat difficult, I think. Soocool has mentioned Vanguard, which may be the best common sense approach, but I don''t know that. It IS a place to start...but it is merely now a theory...nothing like a "law" of investing.

I have not spent much time on the boglehead list serve (Bogle started Vanguard). People there at least ask questions, though they may be predisposed to be locked into older paradigms. I just don''t think that if there is a new paradigm to be had, based on the fact that it is not the case (if it ever really was) that the market is based on a balance of forces working without prejudice. But...I''ll bet some swath of of the folks posting on the boglehead site will be craning their necks out, looking for this.

 

[Haven]

Do you have an accountant? Or a professional financial adviser? I highly recommend meeting with a professional who can look at your entire financial situation and take that into account. If you find someone on high recommendation from people you trust I imagine you will get very good advice.

 

[Dancing Fire]

Date: 10/19/2009 6:53:59 AM
Author:justginger
So - how did you start? Phoenix seems so knowledgable and switched on -- are any others willing to share advice? I''m quite happy to make financial sacrifices for the long term...but I simply don''t know how to get those dollars sitting in my bank account into wherever it is that they need to be! I''m not adverse to anything - direct stocks, mutual funds, property, etc. At the age of 25, I''m quite happy with high risk and don''t plan on putting anything in that I can''t live without. I''d like to start with an intial investment of about $10k and make regular additions to it (dollar cost averaging?).

TIA for any and all guidance you can offer.

yes, do the opposite of what i do in the stock market and you''ll be rich in no time!!.

 

[Dancing Fire]

Date: 10/19/2009 10:15:38 AM
Author: soocool
Hi Ginger!

Yes investing is a pain in the a** if you don't know what you are doing. It is all confusing that is why you do have to educate yourself as to what to do and how to do it. Financial planners are in business to make money (sorry if I offend anyone who is a FP) and so while they will try to help you invest your dollars they will also sell you what pays them the most in transaction fees. Yes the return on an investment can look great. But before you look at the return on investment check to see if that return amount is before or after the transaction fees are deducted.

true,that's why i never talk to them,if i'm gonna lose money i rather do it on my own w/o paying a fee.

 

[kenny]

If your employer has a 401K contribute the max.
If you can't at least contribute the amount that results in the highest employer match.
Diversity the investment choices with 90% in stocks for a young person with a long time line.

If you have more money also deposit the maximum into an IRA.
Compare traditional and Roth.

Save up and pay cash for cars.

Have automatic payroll deduction into these savings accounts (pay yourself first).

Buy a home, a mortgage is a good tax deduction.

Pay off credit cards every month.

If you must use credit use a home equity line of credit because the interest rate is low and it may be tax deductible.

Live WELL below your means.

Well-invested money doubles every, say, 8 years.
If you wait till you are 45 to start saving that is too late.
Start investing at age 10 if you can.
Youth itself is a kind of wealth.

If you invest when you are young the money can double more often and watching $100,000 doubling is much more fun than watching $10,000 doubling.

 

[isaku5]

Date: 10/19/2009 2:25:36 PM
Author: kenny
If your employer has a 401K contribute the max.
If you can''t at least contribute the amount that results in the highest employer match.
Diversity the investment choices with 90% in stocks for a young person with a long time line.

If you have more money also deposit the maximum into an IRA.
Compare traditional and Roth.

Save up and pay cash for cars.

Have automatic payroll deduction into these savings accounts (pay yourself first).

Buy a home, a mortgage is a good tax deduction.

Pay off credit cards every month.

If you must use credit use a home equity line of credit because the interest rate is low and it may be tax deductible.

Live WELL below your means.

ITA with everything Kenny has said. Buy a couple of Suze Orman''s books for even more detailed advice.

From personal experience, I wouldn''t recommend a financial planner or bank (unless you''re seeking mortgage info). You''re far better to educate yourself about your own money.

Also keep in mind that you should never invest in a product that you don''t completely understand, or one that promises interest rates that are too good to be true.

You''re well on your way to a secure financial future.

 

[TooPatient]

Date: 10/19/2009 2:49:19 PM
Author: isaku5

Date: 10/19/2009 2:25:36 PM
Author: kenny
If your employer has a 401K contribute the max.
If you can''t at least contribute the amount that results in the highest employer match.
Diversity the investment choices with 90% in stocks for a young person with a long time line.

If you have more money also deposit the maximum into an IRA.
Compare traditional and Roth.

Save up and pay cash for cars.

Have automatic payroll deduction into these savings accounts (pay yourself first).

Buy a home, a mortgage is a good tax deduction.

Pay off credit cards every month.

If you must use credit use a home equity line of credit because the interest rate is low and it may be tax deductible.

Live WELL below your means.

ITA with everything Kenny has said. Buy a couple of Suze Orman''s books for even more detailed advice.

From personal experience, I wouldn''t recommend a financial planner or bank (unless you''re seeking mortgage info). You''re far better to educate yourself about your own money.

Also keep in mind that you should never invest in a product that you don''t completely understand, or one that promises interest rates that are too good to be true.

You''re well on your way to a secure financial future.

I work for investment advisors. (I''m not registered & not trained in all the details they are, so this is all just my opinions and observations of what I''ve seen)


Kenny is absolutely right. Great advice. I''d also add that you should pay your mortgage off sooner than required if at all possible. You''ll save lots of money and own your home faster.


Isaku is pretty correct too. You should always research and know your options.
As for using a professional or not, my feelings are mixed.

There are some very good advisors out there who do great work and make a lot of money (and are able to keep the accounts from losing much when the market goes way down). Yes, they charge fees but are well worth it.

There are also advisors out there who won''t do anything with your account (or even look at it) unless you call and tell them exactly what you want. (what are they getting there fee for then?)

Unfortunately, there are also some really bad advisors out there. The kind who suggest trades just so they can get commissions. Or suggest investments without researching them fully. Or so many other things.

I''ve done the paperwork for many clients to transfer accounts into the advisors where I work because the person who had been handling their accounts lost a lot of money or it just sat and did nothing for many years.


You should talk to some different financial planners. See what they would propose doing with your money. If you use a professional, choose carefully and don''t be afraid to ask questions. If you do your own investing, do your research. Know what you are getting into.

 

[phoenixgirl]

My dad always told me that "capitalism rewards capital," and I think that is the sticky point with getting a good financial adviser. DH would only make approximately $40 a year on a $10,000 account. That''s fine if it''s for a friend or good karma, but the problem is that any adviser who''s worth his/her salt is probably filling the client book with much bigger accounts. One of the big brokerage houses actually does not pay its advisers on accounts less than $100k just to discourage the advisers from going after these "small fish." Nice, right?

So with a smaller amount, you''ll need to read up on your own or find a friend or a recommendation from a friend who is willing to give you attention knowing that there won''t be any direct compensation from your business at the moment. A younger adviser hired on to help out an established adviser might have more time and be looking for new clients, so it could be a win/win. But just like with real estate or other commission based jobs, just because somebody is a financial adviser doesn''t mean s/he''s actually any good at it. My dumbest coworker (I''m a teacher) told me recently that, yeah, he used to be a financial adviser, but he stopped because becoming a teacher was actually like getting a raise. Not that I would have ever expected him to be a competent adviser, but yeesh, everybody knows teachers don''t make any money! I feel sorry for anyone who actually invested with this money because, like I said, this man is just not bright. I find it very hard to believe he could have passed the exams my DH had to take.

I do take offense to people who say that all financial advisers just churn their accounts to make money. I know my DH doesn''t do that. If he did, he''d get a bad reputation among the savvy investors who have worked with him and FIL for many years. It''s easy for people like Suze Orman to decry financial advisers as big bad wolves, but the truth is that a good one is invaluable if you are planning to retire comfortably and don''t want to make educating yourself on financial matters a serious hobby. I would sooner attempt to conduct real estate transactions on my own because at least those have a clear beginning and end and don''t require constant adjustments to strategy. And you must ask yourself, if you mistrust the motives of your financial advisers because they stand to be compensated from helping you, why not apply the same thing to people like Suze Orman, who has built an empire on her products? Well, you figure she wouldn''t be popular if she didn''t give good advice, right? Why is it any different with a successful financial adviser? With the former you pay less; with the latter, you have an ongoing relationship and will receive updated advice based on changes in market conditions. It just depends on what the advice is worth to you and how much homework you''re willing to do on your own.

Best of luck to you.

 

[Dancing Fire]

a financial adviser has no risk,they make a commission either way no matter what advise they give you,if they get lucky they make more money on commission,if not, it is your money.

if any PSer out there want to give me a million bucks to invest then i''ll only charge you a 5 % commission on the $$$''s i make for ya.

 

[Brown.Eyed.Girl]

I asked my boyfriend and he was nice enough to type up this response. Hope it helps.


First, good to see you’re thinking about investing while you’re still so young. It’s very important to get the magic of compound interest working for you.

A few thoughts from someone who spends as much time discussing investing as all of you spend discussing stones:

1) Everybody’s investment situation is unique. In general, however, a diversified portfolio of stocks and bonds (usually achieved via investing in mutual funds) is the best way to go.

2) Real estate investing is subject to a few problems. First, you are taking on a ton of undiversified risk because you are invested in only one or a few properties (what if you were invested in stocks and a couple years ago and only owned AIG, Citibank, and GM?). Second, historically real estate does not appreciate more than the rate of inflation. You do receive rental income, but there are also maintenance, tax, and more transaction costs that erase most (or all) of the income advantage real estate may have over stocks and leaves you only with the extra hassle that comes with owning property.

3) When it comes to investing in mutual funds, commission-based advisors are to be avoided. They are salespeople who usually have very little knowledge of portfolio construction and merely want to earn as many commissions as possible. I worked with multiple advisors at different brokerages during college and did not see one high-quality advisor worth his/her high fees.

4) There are some good advisors who charge you via yearly fees or as a percentage of assets under management. At least these advisors do not have a financial interest in “selling” you as much as they can. Of course, sometimes these advisors may have their own relationships with mutual fund providers that will trump their fiduciary duty to you and encourages them to use investment options that aren’t optimal. There are some good advisors in this group, but they are still in the minority.

5) Thus, educating yourself and taking control of your own portfolio is the cheapest AND best way to manage your portfolio. Plus, it’s not that complex despite the attempts of many to complicate matters.

6) I am a big fan of Vanguard mutual funds and of the bogleheads.org message board. Note, the Bogleheads are not in any way associated with Vanguard; most of those who post on the board do subscribe to the investment tenets espoused by Vanguard’s founder, John Bogle, however. Bogleheads has a fantastic wiki, a wonderful book list that includes the best books written on investing and excludes the drivel that makes up most of what is on the bookstore shelves, and an incredible number of helpful posters who will patiently help educate you and help you devise an appropriate portfolio for your situation and appetite for risk.

7) Most posters on the Bogleheads board believe in minimizing expenses and investing in index funds (mutual funds that mechanically buy every stock in a particular market or benchmark in order to “match the market”) instead of active funds (mutual funds that try to buy and sell different stocks in order to “beat the market”). The primary reason behind this is that every credible study ever conducted has shown that expense ratio is the only reliable predictor of future mutual fund performance (the lower the better). There is no evidence to show that past performance can be used to predict future performance (which is why all mutual funds prospectuses must state this). Since it is impossible to predict which mutual funds will outperform and index funds are invariably much cheaper than active funds (because they don’t have to hire legions of managers to pick stocks), Bogleheads generally prefer index funds.

One final note. Investing regularly, while it is exactly what you need to be doing, is, technically, not dollar cost averaging (DCA). DCA-ing would occur when you have a chunk of money (say, the $10K you have now) and you invest it regularly over a period of time (e.g. $2.5K once a month for four months) instead of all at once. There is lots of debate over this topic on the investing message boards.

If you’ve made it this far, congratulations! You definitely have enough interest in the topic to learn enough to manage your money yourself. Devising a proper investment plan and investing regularly is not difficult and the best way to secure your financial security. Of course, sticking to your plan through thick and thin is the hard part! I sincerely encourage you to head on over to the bogleheads.org board and check it and its wiki out. Good luck!

 

[justginger]

I appreciate everyone''s very thoughtful answers. It''s interesting to see what asset area/s that everyone is drawn to. For example, I''ve always known real estate to be one that people are quite passionate about, one way or the other - generally they''ve made a mint on it, or their investments have been far below average.

Kenny, great advice. Unfortunately some of it I can''t follow because I''m in Australia and things are set up differently. As an American citizen I could still start an IRA -- but would have no tax benefits because whatever it would earn would be considered "foreign income" and be taxed by the Aussie government accordingly! And to the very best of my knowledge, the Aus govt doesn''t have anything similar that I could start up.

The lifestyle habits I already have - bought my car outright, don''t have a credit card (debit only), have a mortgage that we''re making additional payments on, etc. It''s the sticky business of actually INVESTING that I don''t know how to do. I had already heard good things about Vanguard, but was put off them because their most recent PDF available was from 2007. So it looked like their funds'' last year earnings were something like 11%, when it reality they were probably in negative territory, like everyone else. I''ve also heard good things about Dodge and Cox - anyone have an opinion on their funds?

BEG, please thank your partner profusely. I have joined the site he mentioned and plan to fully explore the wealth of information it offers. Additionally, could you ask him 2 further questions for me? First - how do I know if a mutual fund advisor is commission based? Also -- if I were to choose a fund to invest in, a Vanguard one for example, how do I actually go about DOING it? Do I contact Vanguard directly? Or do I have to meet with some sort of financial guru?

Cheers again.

 

[Abril]

Date: 10/20/2009 6:21:31 AM
Author: justginger
Also -- if I were to choose a fund to invest in, a Vanguard one for example, how do I actually go about DOING it? Do I contact Vanguard directly? Or do I have to meet with some sort of financial guru?

You can open an account with Vanguard directly. The easiest way, IMO, is to do it online:

link

All of Vanguard''s funds are no-load and you won''t pay any commission to buy or sell. The minimum investment for most funds is $3,000, which can be transferred electronically from your bank account (even an overseas one, I think). I suggest putting the money into a money market mutual fund, where it won''t lose value and you''ll earn interest, until you decide which funds to get into. Once you decide, it''s simply a matter of "exchanging" from the money market into the desired fund. In general, stick with the index funds (Vanguard has one of the largest selections of index funds) and try to diversify as much as possible. Perhaps the most important thing to figure out initially is how to divide your money between stocks and bonds. A 60-40 or 50-50 split is a good starting point. Ask Bogleheads for advice on which stock and bond funds to choose.

Also try to figure out your tolerance for risk (read: stocks WILL lose money at some point, guaranteed). Taking on too much risk won''t do you any good if you bail on the fund because it''s lost 30% of its value, for example. You would just lock in your losses in that case. Whatever % loss you can stomach times two is approximately how much % you should have in stocks. The rest should be in relatively safe bonds.

That''s some of the nuts and bolts for now. Don''t worry, investing is actually quite easy once you gain some experience. It''s up to you whether to hire a financial advisor or not.

 

[Regular Guy]

I'm a long term Vanguard investor, and they are now certainly primary for me.

A secondary source had been Forbes Honor Roll for many years, causing me to not only also invest in Dodge & Cox, but to also keep it as the sole holding later apart from Vanguard, and my company holdings. Unfortunately, yes, they've had an unusually bad ride, lately, also worse than the S&P. As a result, starting new, frankly, I'd be reluctant now to suggest your valuing them over the S&P, but I'm not choosing to dump them yet.

Per my notes above, I'm not surprised (almost glad!) that their recent pdfs are old. The paradigms that provide the fundamental logic for the goodness of the broad stock market are just not what we would like them to be.

Based on a long view, consider 3 funds from Vanguard...only.

Total Stock Market
Total Bond Market
Total International fund.

Study what others have to say about apportioning them by your age. You may need no others.

Best of wishes,

 

[kenny]

I'll add . . . don't buy individual stocks.
Only invest in stocks through well-managed mutual funds.

Unless you have inside information (which is illegal to use to buy or sell) your buy and sell decisions will be based on information that is public - and late.

By late I mean the stock price has already gone up or down based on that information.

Also mutual funds are managed by highly educated people who's full time job it is to pay close attention to everything going on that may affect their stocks.

You don't have the education, connections or the time to do as good of a job.

If you still insist on gambling on individual stocks do so with a relatively small amount of money.
Just like when in Las Vegas, only gamble what you can afford to lose.

 

[Brown.Eyed.Girl]

I''m glad you found some of my previous post useful. IMHO, Bogleheads is by far the best investing resource on the web.

1) I think Abril gave you some great answers and advice. It is easy to invest directly with Vanguard (or with any other mutual fund company). Just check out their website.

2) If you want to know how an advisor is paid, just ask him/her! Usually, commission-based advisors will invest in mutual funds that take about 5% of your investment right off the top (or, alternatively, they will say there is no upfront fee, but they will invest you in C shares that have a higher annual fee). Plus, the funds that commission-based advisors use are not high-quality funds. They will often use whichever funds will put the most money in their pockets, not yours.

3) If you have the interest to elicit responses here and to go register on the Bogleheads board, I think you have more than enough interest to do it yourself. Plus, it is very difficult (especially for someone new to investing) to figure out which advisor is best (or even just good). Most importantly, with only $10K to invest at the moment, you do not have enough money yet for most reputable advisors to take on. It''s the perfect time to start handling your own investments and get comfortable with it before the monetary value becomes much higher.

4) What Abril said about risk is very true. The biggest determinant of how risky your portfolio is is the stock/bond ratio (more stocks=more risk (but potentially higher return)). I think 50/50 or 60/40 might be a little conservative (the usual advice is "age=bonds" or "age-10=bonds", which would give you a stock bond ratio of 75/25 or 85/15), but Abril was right that your portfolio must be tailored to how comfortable you are with risk. The "largest % loss you''d be comfortable with X 2 = % in stocks" is generally a very good rule of thumb to use in conjunction with "age=bonds" rule. The key is to know what maximum loss you would be comfortable with. In the last market crash, many people found out that they were not as comfortable with large losses as they thought they would be. It''s always best to err a little on the side of caution at least until you have gone through your first market crash.

5) In the end, as Regular Guy says, it is easy to have a completely diversified portfolio that meets your needs using as few as 3-4 funds. Many people use more, but it is not necessary.

6) If you are interested in real estate, Vanguard has a REIT (Real Estate Investment Trust) Index Fund that you can invest in. It invests directly in a broad portfolio of real estate properties. It is generally considered a much better way of investing in real estate because it diversifies your risk. You won''t make a fortune investing in REITs, but you are also not subject to the specific dangers that come with only owning one or a few individual properties.

 

[Abril]

Date: 10/20/2009 3:56:40 PM
Author: Brown.Eyed.Girl
I''m glad you found some of my previous post useful. IMHO, Bogleheads is by far the best investing resource on the web.


1) I think Abril gave you some great answers and advice. It is easy to invest directly with Vanguard (or with any other mutual fund company). Just check out their website.


2) If you want to know how an advisor is paid, just ask him/her! Usually, commission-based advisors will invest in mutual funds that take about 5% of your investment right off the top (or, alternatively, they will say there is no upfront fee, but they will invest you in C shares that have a higher annual fee). Plus, the funds that commission-based advisors use are not high-quality funds. They will often use whichever funds will put the most money in their pockets, not yours.


3) If you have the interest to elicit responses here and to go register on the Bogleheads board, I think you have more than enough interest to do it yourself. Plus, it is very difficult (especially for someone new to investing) to figure out which advisor is best (or even just good). Most importantly, with only $10K to invest at the moment, you do not have enough money yet for most reputable advisors to take on. It''s the perfect time to start handling your own investments and get comfortable with it before the monetary value becomes much higher.


4) What Abril said about risk is very true. The biggest determinant of how risky your portfolio is is the stock/bond ratio (more stocks=more risk (but potentially higher return)). I think 50/50 or 60/40 might be a little conservative (the usual advice is ''age=bonds'' or ''age-10=bonds'', which would give you a stock bond ratio of 75/25 or 85/15), but Abril was right that your portfolio must be tailored to how comfortable you are with risk. The ''largest % loss you''d be comfortable with X 2 = % in stocks'' is generally a very good rule of thumb to use in conjunction with ''age=bonds'' rule. The key is to know what maximum loss you would be comfortable with. In the last market crash, many people found out that they were not as comfortable with large losses as they thought they would be. It''s always best to err a little on the side of caution at least until you have gone through your first market crash.


5) In the end, as Regular Guy says, it is easy to have a completely diversified portfolio that meets your needs using as few as 3-4 funds. Many people use more, but it is not necessary.


6) If you are interested in real estate, Vanguard has a REIT (Real Estate Investment Trust) Index Fund that you can invest in. It invests directly in a broad portfolio of real estate properties. It is generally considered a much better way of investing in real estate because it diversifies your risk. You won''t make a fortune investing in REITs, but you are also not subject to the specific dangers that come with only owning one or a few individual properties.

Excellent advice, BEG (BEG''s boyfriend). One of the best summaries I''ve seen.

 

[Gayletmom]

I''ve been following this thread and just wanted to say thank you to all of you for the advice. It''s very helpful!

 

[phoenixgirl]

Date: 10/19/2009 6:42:24 PM
Author: Dancing Fire
a financial adviser has no risk,they make a commission either way no matter what advise they give you,if they get lucky they make more money on commission,if not, it is your money.


if any PSer out there want to give me a million bucks to invest then i''ll only charge you a 5 % commission on the $$$''s i make for ya.

You don''t think that people would stop investing with an adviser who''s just drumming up commissions while losing his/her clients'' money with bad advice, and therefore, this would indeed be risky to the adviser?

It''s the same principle that a real estate agent gets more commission when the sales price is higher, and yet I have time and time again seen real estate agents negotiate prices down for buyers to the detriment of their commission check.

Even if we don''t believe in any human goodness and just think that everyone is out to squeeze the most money out of each other that they can, it still doesn''t follow that successful advisers or real estate agents would receive any repeat business if they were unscrupulously doing their clients a disservice just to earn a little more commission.

Many advisers can set up a fee based account for the investor wary of commission, so that the adviser only receives a set fee yearly and the client doesn''t have to worry that there are any ulterior motives to the advice.

BTW, I WISH DH made money no matter what happened to his clients'' portfolios. Then this past year would not have been so rough, and I would probably be a stay at home mom instead of just starting my maternity leave.