Looking to invest some money. Suggestions

[HeluCopter29]

Professionals like Professor Kahneman worked with?

Professionals often oversell to their clients. They also apparently lie to themselves.

Eh. I'll take someone who's job it is to deal with personal finances honestly over a forum.

I'll by pass the obvious irony of dispensing investing advice on extremeskins right after advising that such advice be ignored, and simply point out that many people thought it was going to skyrocket at the IPO, and got burned. This is the danger of picking stocks.

My thought was more on the "wait for it to get lower, and than buy it and hold onto it for a little while and sell it 30 years later." I really don't believe in the idea of short term investing, too risky IMO. Of course, like I said. My advice should never be taken over that of a professional.

[chipwhich]

Maybe, unless and until something happens to that company that changes its profile. The Dow is supposed to be the 30 stalwarts of the American economy. Try comparing the lists of "can't miss" big dividend stocks in the Dow over each decade.

There's no reason to take that risk when you can diversify it away by holding many companies.

I can list all of my dividend stocks such as IBM, MSFT, WEC, INTC, KO. They are all solid dividend stocks. Have more than adequate history, and have minimal volatility. Not to mention dividends on top. That's not gambling.

If I were going to recommend a young person buying something with $500, I would recommend a solid dividend stock.

Funds you mention should be part of your portfolio. But you shouldn't rule out solid blue chip dividend stocks.

I wouldn't recommend FB

[techboy]

Eh. I'll take someone who's job it is to deal with personal finances honestly over a forum.

I prefer experts too, and I'd never take investing advice from a random forum poster either.

The problem we have, here, is that most professionals out there have a serious conflict of interest. The research all shows that the best approach is a broadly diversified, very low cost portfolio, tweaked to the appropriate risk level, but this is not where the money is made. On this path, there are no kickbacks from high expense mutual funds, no bonuses for "skillful" outperformance, no justification of much higher fees to beat the market.

There are a few fee only advisors who add value by helping their clients stay on course, but they are few and far between and they don't generally have a yacht.

The problem is magnified because many "experts" really do think they can beat the market consistently and justify those bonuses, even when the data says otherwise, so they probably don't even feel bad recommending their services to others.

The experts I'd stick to are the researchers who investigate this stuff, but aren't trying to sell something.

My thought was more on the "wait for it to get lower, and than buy it and hold onto it for a little while and sell it 30 years later."

That might work, or Facebook might be the next AOL or even Enron. Why take the risk? Hold a little of everything, and you've got Facebook and Twitter and the company you've never heard of that might put them both out of business.

I can list all of my dividend stocks such as IBM, MSFT, WEC, INTC, KO. They are all solid dividend stocks. Have more than adequate history, and have minimal volatility. Not to mention dividends on top. That's not gambling.

Those sound like good stocks. I'm glad they're in my index funds.

If I were going to recommend a young person buying something with $500, I would recommend a solid dividend stock.

A case can be made for holding individual stocks if one has enough of them to do diversification manually, though there is still the issue of missing out on large parts of the market that might do better in certain time periods.

With only $500, though, that's not possible, and holding just one or two stocks is risky, to say nothing of the costs. $5 to trade might not be much for someone in the 6 figures, but it's 1% of the portfolio in this case!

[chipwhich]

A case can be made for holding individual stocks if one has enough of them to do diversification manually, though there is still the issue of missing out on large parts of the market that might do better in certain time periods.

With only $500, though, that's not possible, and holding just one or two stocks is risky, to say nothing of the costs. $5 to trade might not be much for someone in the 6 figures, but it's 1% of the portfolio in this case!

You can buy good dividend stocks with no fee to get in, no dividend reinvestment fee. Just saying.

The dividend return will more than make up for the fee even if going through a brokerage account like etrade, scottrade, etc. Not only that a number of these sites offer free trades up front and no fee to reinvest dividends.

Just saying, the schwab fund you recommended is at a near record high. It's as volatile as buying a solid dividend stock. It's price can drop tomorrow same as an individual stock. Not saying it's a bad investment. At the $500 level I wouldn't go that route.

Americans can chunk away their real retirement monies in index funds through their 401K. Having a brokerage account and choosing sound investments isn't gambling.

[Dan T.]

I'm no analyst, but I'll make this prediction... Facebook will not last 30 years. Young people who made Facebook a phenomenon are already moving away from it to other things.

[pointyfootball]

So I'm thinking about investing some money, about $500 for now, I figure instead of just putting it in a savings account and getting little return on it, might as well see if I can make it work for me.

Any suggestions on decent stocks to purchase? I mainly want to stick with blue chips for the most part, to be sure my investment is solid, but I don't mind taking some (calculated) risks.

Off the top, some of the stocks I'm contemplating are 3M, Alexion and Whole Foods, but I'm trying to get some good starting points and then come up with a plan from there.

I'll be honest, I gave up picking individual stocks a long time ago because I realized I am not good at it, and it would stress me out. I set up AIP with Vanguard index funds and while I'm not filthy rich, $100/month over the years adds up even in the rough market times we're experiencing.

Also, make sure you look into tax implications of stocks/funds, along with expenses. If you only see a 3-4% return for the year, that is going to be offset if you are receiving dividends and have high investment costs.

[Skinz4Life12]

whats the average annual return on an index fund? can I pull my money out at any time or are there restrictions?

I'm thinking of moving 10k from my savings to one of these funds if the return is right

[techboy]

I set up AIP with Vanguard index funds and while I'm not filthy rich, $100/month over the years adds up even in the rough market times we're experiencing.

It's counter-intuitive, but for investors that have the stomach to stay the course (which is part of the ability to take risk), the "rough times" are when the most money is made.

I like the way Warren Buffet put it in his 1997 Chairman's letter for Berkshire Hathaway:

A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

I'm a net buyer of stocks. And hamburgers.

I'm pretty sure that it was William Bernstein that says that younger investors should get down on their knees and pray for a market crash.

This is, however, why money needed short term should not be in stocks.

whats the average annual return on an index fund?

It depends on the index. An index fund just attempts to capture the returns of the market it is shadowing, minus minimal expenses. If, for example, the S&P 500, which many people use for large stocks exposure, goes up 10%, you might get 9.9%.

You won't ever have outsized returns, but you won't lose either.

can I pull my money out at any time or are there restrictions?

You can, but you shouldn't invest in stocks for the short term.

I'm thinking of moving 10k from my savings to one of these funds if the return is right

Past returns do not guarantee future returns. If you're not investing for 20 years or more into the future, buying stocks is a gamble, even in an index fund.

[Skinz4Life12]

TB, in the first part of your response you say "you won't lose" but in the last part of your response you said index funds are still a gamble? So which is it? Will I make money if I put 10k in an index fund for 5-10 years?

[chipwhich]

Also, make sure you look into tax implications of stocks/funds, along with expenses. If you only see a 3-4% return for the year, that is going to be offset if you are receiving dividends and have high investment costs.

You are going to pay taxes on interest/dividends regardless if it is an individual stock, mutual fund, or savings account.

You should be aware of your investment costs.

[techboy]

TB, in the first part of your response you say "you won't lose" but in the last part of your response you said index funds are still a gamble? So which is it? Will I make money if I put 10k in an index fund for 5-10 years?

I was writing in a hurry, so I apologize if I wasn't clear. What I meant was that you won't lose compared to market returns, as you probably will with stock picking/market timing. This is what the research shows.

If the market goes down, though, so does your investment.

There's no way to know what any particular index fund will do in 5 to 10 years. Over the very very long term, the stock market has an upward bias*, but it might take decades to show up that way again. This is why stocks are risky. In 5 to 10 years the market might have gone up, or it might have gone down, or it might be stagnant. No way to know.

If you want certainty of return, you should stick with bonds (treasuries are the safest) or bank CDs.

*The reason for this is that ultimately, the return of a stock is growth+dividends+inflation. With a single company, it could go out of business, but for something like the Total Stock Market fund, you're talking about more or less the entire country. Therefore, unless the US stops growing completely forever (in which case we have bigger problems than the markets), eventually the Total Stock Market should go up.

As we see in Japan, though, this can take decades.

[Skinz4Life12]

Thanks TB. I'm just looking for something that is going to provide a better return than a CD but is as close to risk free as it can get. I also want to be able to access my money whenever I want in case of an emergency, but the money will be invested for the long term barring something unforeseen

[techboy]

Thanks TB. I'm just looking for something that is going to provide a better return than a CD but is as close to risk free as it can get. I also want to be able to access my money whenever I want in case of an emergency, but the money will be invested for the long term barring something unforeseen

If you want to minimize risk, I don't know of anything better than a CD, unfortunately. The markets are scaring a lot of people right now, so the risk free investments don't have to pay much to attract investors (so they don't). Some of the U.S. government's Treasury Inflation Protection Security bonds are actually paying negative right now, and people are still buying them.

If you're willing to do a little work, you might look into rewards checking accounts. They're generally FDIC insured, pay a "good" interest rate (relatively), and would provide you the liquidity you're looking for.

I have an account at Cardinal Bank that pays 2.01% right now, which is pretty good, comparatively.

They do have some restrictions, though (some require 12 debit card transactions a month, for example), so you'd need to research it before committing to something. The Fatwallet Finance forum has a couple of threads dedicated to these, and you might also look at depositaccounts.com.

[Skinz4Life12]

ugh, so CDs are still around 2% right now? I remember I bought a 5k CD 4-5 years ago and it paid 5%

[techboy]

ugh, so CDs are still around 2% right now? I remember I bought a 5k CD 4-5 years ago and it paid 5%

I hate to tell you this, but a lot of CDs are under that, especially if you're going shorter. That 2.01% I referenced is actually a checking account at a local bank. You can go a bit higher if you're willing to jump through a few hoops and are investing $10,000 or less.

Check out depositaccounts.com... they have CD rates as well.

[TheDane]

The fundamental of any investment is the evaluation of risk versus return. The higher the risk, the higher the expected return. The counter also applies.

That is why, if you have high interest rate loans (i.e., credit card loans in excess of 15%), then this is an absolute no brainer. Paying down these loans represents no risk with a large, identifiable return (future cash flow from lower interest payments, better credit score).

Unless you want to try to beat a 15-20% return with your gut instincts and the advice of internet forum goers, then pay down your debt.

Of course, if you have no high interest debt, then ignore all this.

[Elessar78]

I hate to tell you this, but a lot of CDs are under that, especially if you're going shorter. That 2.01% I referenced is actually a checking account at a local bank. You can go a bit higher if you're willing to jump through a few hoops and are investing $10,000 or less.

Check out depositaccounts.com... they have CD rates as well.

Nothing related to the quote, but how often should the individual investor rebalance?

[S.T.real,lights,out]

I'm no analyst, but I'll make this prediction... Facebook will not last 30 years. Young people who made Facebook a phenomenon are already moving away from it to other things.

I agree 100%.

[renaissance]

Frozen Concentrated Orange Juice futures.

[techboy]

Nothing related to the quote, but how often should the individual investor rebalance?

Opinions differ. Some say yearly, some say quarterly, some do it by bands, which is when the investments get a certain percentage or more off track.

Some don't rebalance at all, and just invest new money in the underrepresented funds, which is effectively the same thing.

Assuming a tax free account, it doesn't really matter. In taxable, every sale to rebalance could be a taxable event, so it might make sense to do it less frequently.

Personally, I use a 5/25 band approach. If any of my asset classes are more than 25% off of their target, or 5% of the total portfolio, I rebalance (just did it last week, in fact).

For example, in this approach, if my portfolio was a simple 40% Total Stock Market, 30% Total Bond Market, 10% REIT, and 20% Total Bond Market, I'd rebalance REIT if it got to 12.5% or higher, or 7.5% or lower (25% off of 10%). Ont he other hand, I wouldn't wait to hit 50 or 30 on the Total stock market, I'd rebalance at 35 or 45 (5% of the portfolio).

This tends to prevent too much fiddling (which can give a false sense of precision anyway), but triggers action when things get too out of whack.

A nice bonus that Swenson talks about in an article from the post I linked here, is that rebalancing forces an investor to buy low and sell high, though the real reason is that it moderates risk. A portfolio should be selected for its risk profile, and allowing it to get way off can change that profile.

[the burgundy and gold]

I was actually just about to make a thread regarding stocks, so as not to clutter the board I'm just going to piggy back with this one. I don't want to hi-jack the thread or anything, I'm just looking for 2 or 3 ES members who are financial service professionals or "investing pros" who I can PM with to bounce some ideas and questions off them. I'm a recent college graduate with a concentration in accounting and finance that is about to start investing and just want a few "veteran" traders' opinions. If anyone is willing to help, I'd certainly appreciate it. Feel free to shoot me a PM or just reply to this post. Thanks!

Sorry to hi-jack your thread SSM, carry on.

[pointyfootball]

Nothing related to the quote, but how often should the individual investor rebalance?

I personally do it annually with my 401K by readjusting my contributions (contributions to bond index funds & treasuries increase each year I get older) as well as transferring money btwn funds if for some reason one of them gets way out of whack either due to over/under performance.

[techboy]

If anyone is willing to help, I'd certainly appreciate it.

I'm always willing to help as I can, and I have actually answered questions from a few folks by PM, but for the most part I'm just going to reference the research I noted in this thread regarding the wisdom of low cost, diversified passive investing following Modern Portfolio Theory, so if you're looking for someone to share the latest stock tips or hot sectors, that probably isn't me.

[Skinz4Life12]

if I had 50k more in my savings account i'd buy an investment condo in the USVI and rent the **** out of it

if i'm gonna lose money, i'd rather lose and still have a place to vacation for a few weeks out of the year than lose money and have nothing to show for it playing the stock market