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Investing?
Gafoto
Registered User regular
Registered User regular
Where would a good place to start learning about investing? Also who/what do you invest through? I figure I should squirrel a little money into investing instead of having the money sit in my checking account.
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I kid, but seriously, you should have some sort of emergency fund.
I'm a totally new investor so I don't have a lot of insight, but for most types of investing you are going to need some kind of brokerage account. I have a brokerage account at a large bank (wells-fargo), and it's actively managed which means I have a broker that looks over my portfolio every so often and calls with some ideas. The account nominally has yearly fees, but by going paperless, and maintaining a relatively large balance I get out of paying those. I do pay a commission (I think it's like 3% of the trade value but I'm not sure) whenever I follow my brokers advice. I can also trade things on my own for some small fee (no idea what it is since I've never done it).
Alternatively you can get an online brokerage account (like etrade) where it's basically just an online platform for buying and selling stocks/funds/other investments? It's basically just an online platform for storing your money and executing trades.
I suppose you can also sometimes buy shit directly (like CDs from a bank or bonds from the FED), but I don't really know anything about how that works.
As for what to invest in, my broker seems fine with me holding a few select stocks in large companies, plus a few mutual funds. Supposedly the risks are higher for individual stocks, but you generally have a greater rate of return.
Do you want a new hobby or do you just want to put your money to work?
Answer for the first one is start reading a bunch, the Motley Fool is a pretty decent intro. The answer for the latter one find a reputable index fund with low fees and open an account. (Index funds have professionals do all that troublesome selecting and managing a group of stocks for you, essentially what your new hobby would consist of.)
What Works on Wall Street by James O'Shaughnessy. O'Shaughnessy was the very first author who explained how to use historical data to find undervalued stocks, and what the common mistakes are when looking at stock data. The funds that he started, using the strategies in this book never did that well, so take his strategies with a big grain of salt, but the book itself is a gold mine of how to approach value investing using a systematic, data driven methodology.
How to Make Money in Stocks by William O'Neil. This is the book about technical investing, written by the original technical investor. Lots of people hate technical investing, but the big key is the emotionless, data driven, stick-to-your-strategy style that technical investing forces you to take. The best points of the book cover selling stocks to minimize mistakes, and explaining different monetary strategies, both of which are topics that the vast majority of investing books out there ignore or gloss over, yet are probably the most important topics an investor should understand.
Are you American, British or something else?
If you are British then Tim Hale's Smarter Investing (now up to it's third edition) is a pleasingly boring and thorough book that will explain the fundamentals of investing Time Period, Target, Asset Allocation, Risk Tolerance in a manner suitable for the UK market.
EDIT: A good book with an American focus and helpful for demonstrating the mind set you will need is The Intelligent Investor by Benjamin Graham. It is dated in terms of it's here and now advice (It's last edition was 1973, although another edition which was a reprint of the '73 edition with additional commentary by a third party as released in 2003) but it explains the methodical approach you will need with superb clarity.
I made a game, it has penguins in it. It's pay what you like on Gumroad.
Currently Ebaying Nothing at all but I might do in the future.
Only the first part of this is true. The potential for a greater return is higher, but the average return (which is what you should care about if you're thinking about, say, retirement), is the same. The point of diversification is that it lowers the variability of returns (i.e. risk) without impacting average returns.
There honestly is no reason to be investing in individual stocks nowadays unless you have some emotional attachment to a company. Find some index funds or ETFs that don't have large overhead, put some savings in every so often (frequency depends on how much you're putting away a month), and essentially forget about it until you need it. Do not try to beat the market. You will never have an advantage over people that do this for a living.
Sorry if this is kinda threadjacking; it's my first foray into H/A and I'm not sure if I should make a separate thread or no.
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Opened up a personal IRA to go with the company one a few months ago, thinking of maybe starting a basic brokerage account later this year if I have the spending cash.
Stock picking is a loser's game. So is timing the market. Figure out your target asset allocation (based on your risk tolerance, age, etc.) and then buy the appropriate percentages of bonds/bond funds and index fund shares. Proceed to ignore the market totally save for a yearly (or something like that) rebalance to get back to your target asset allocation.
Be aware that for small amounts of money the stock market is essentially useless as trading fees will consume an unreasonably large percentage of your principal. Also if you haven't already maxed out one of the tax-advantaged retirement account types (401k, IRA, or whatever your local equivalent is outside of the US) you should do that first.
Also, this is all happening after your debt situation and emergency savings are taken care of. If you have high-interest debt you should obviously pay that off first; I'm assuming here that you can do basic math and this money really is better off invested.
For small amounts of money the wind storm law enforcement wanderer is right, trading costs will eat up too big a percentage of your funds when pruchasing ETFs or common stock. That is where Mutual Funds come in, they tend to offer a far cheaper way of buying into the market for small amounts of money (if you are investing a large amount of money then buying an ETF will generally be cheaper over the long term due to the math on the cost_of_transaction + (annual_charage * number_of_years_invested_for) calculation as an ETF will have a loewr annual charge but a higher transaction cost, $15 to execute an ETF trade is nothing to a $10,000 purchase, it's everything to a $50 monthly drip feed).
Brokerage account fees can get complicated, always make sure you fully understand what you will be charged for and when.
I made a game, it has penguins in it. It's pay what you like on Gumroad.
Currently Ebaying Nothing at all but I might do in the future.
I went for a mutual fund solely because I do not have time to play or watch the market to any great extent. It performs as well as you can expect from the stock Market (mostly up but occasionally down) and it doesn't give me stress as I look at the returns twice a year and leave it at that.
Satans..... hints.....
2. Pay off High interest, non tax deductible debt.
3. Create an emergency fund of 6 to 12 months of expenses. Short term rates are junk right now, you can put this in a savings account for easy access in an emergency.
4. Max out tax sheltered retirement accounts, Roth IRA, IRA, etc...
Any of the big investing houses are worth looking into, Vanguard, Schwab, Fidelity they all have low fee options for step 4.
If your employer matches %5 of your yearly pay, and that number is 2k
Then you put in 2k, your employer puts in 2k
Your account=4k we'll say super conservative govt bonds so there is no loss.
You will receive ~$2,400 depending on state taxes
If you just earned the money and didn't put it into your 401k you would have ~$1247
However it is most responsible to just leave the money there, and take out a loan against it if you need to buy a house, or need money fast.
Look we've covered the whole emergency fund thing before but holy shit 12 months? 6 months is the maximum amount I've ever seen anybody advocate for. 12 months for someone not wanting to live in poverty is like 20K. That is a gigantic pile of money to have sitting in a savings account earning negative returns.
Otherwise all good advice.
OP: I would echo @Thundyrkatz 's list, except to add a 2a - if you have a credit card, pay off the full balance every month. If you can't afford to do this, then your problem is not looking into investments, your problem is that you are living far beyond your means and may be entering a downward spiral of financial indentured servitude from which it can take your lifetime to escape (and no, I am not being hyperbolic).
I know it sounds dumb but I can't tell you the number of people I know personally who think they have money in the bank to screw around with, but actually have thousands of dollars in debt and are only paying off the minimums in their credit cards. If you have $5,000 in the bank and $20,000 in credit card debt, then you have -$15,000. You have no money to invest. You have negative money.
Thundyrkatz was saying 6-12 months of expenses not salary. If someone had 6 months salary in the bank then barring extravagant living then I'm pretty sure they could eek that out into 12 months of bare minimum living costs, although I agree that 12 months is a long time to consider covering.
I made a game, it has penguins in it. It's pay what you like on Gumroad.
Currently Ebaying Nothing at all but I might do in the future.
If you have a house and only have 3 months or less... I'm so sorry.
Sort of. ETFs have some differences from mutual funds, both in the way they're created, how you can trade them and in the way they handle tax.
ETFs are created and underwritten by brokerage houses or banks. They will come up with the how the ETF is priced, based on some sort of index, bond or commodity product. Unlike a mutual fund, which will actually purchase and sell the individual stocks that make up the index (or the bonds, etc. I'll stick with index-based ETFs for the examples.), an ETF does not have any tie to the underlying product. ETFs do allow large banks and trading firms to buy blocks of the ETF in what they call "creation units". This allows for arbitrage between the ETF and the index. Which in theory should keep the ETF price tracking the underlying instrument price.
Unlike mutual funds, where you're limited to only buying/selling during the redemption periods and trading periods, ETFs can be traded like a stock at any time during the day. You can also short-sell ETFs, unlike mutual funds. And the larger ETFs will have options listed against them, so you can do more exotic strategies like covered calls and volatility spreads.
Finally, unlike mutual funds, which have to take the redemption costs when they rebalance and distribute those capital gains to their members, an ETF has no tax implications until you actually sell it.
What does maintaining equity mean here? Are you saying you always need to maintain the difference in the property value of your house and your current mortgage, on the off chance that you'll need move quickly and the sale wont cover the entire mortgage? Because that seems unreasonable. It's not lake you take the non-emergency fund money and burn it, it's just invested in higher risk vehicles and will most likely be there if you need it. Going from well off enough to be able to purchase a house to can't even afford mortgage payments and have no options with the bank (like short sales) to sell the house and get out from under the mortgage, seems unlikely enough as to not warrant having cash on hand to cover it.
You. Don't. Invest. Safety. Funds. In. High. Risk. Vehicles.
While yes, it might be available, you will get fucked, eventually. If you don't, congratulations, some people win scratch off tickets occasionally.
If you have 12 months and you're investing your entire safety fund you risk losing it entirely. Your entire safety fund. That's why they're high risk. Unless of course you're pocketing the interest you earned and not reinvesting it, but that defeats the purpose of compound interest, eh?
That said, questions are often posed as "I have 1k, 5k, 10k, etc just sitting in the bank, how do I make it make money?" Assuming you are all taken care of with respect to debt and emergency/not-earning-an-income-time funds then there are a few questions i think you should pose to yourself buying "investment vehicles".
Is this money from a windfall event (settlement, gift, inheritance, bonus)?
Or, how long did it take you to save up this investment money and without it affecting your lifestyle how long will it take you to save up this amount again?
How is this materially different from mutual funds with respect to risk? Besides management and transaction fees what is the difference to me the investor between holding VOO and VFINX?
A fund is going to create a portfolio of holdings that will match the index they use. For VFINX, they are going to use the funds capital to purchase shares to match the index composition and hold those shares, with occasional rebalancing to keep it in line with the index.
VOO has no underlying instrument. It just trades on it's own. Since it's value tracks an index, if it starts to get out of line from the index value, large investors will buy the index and sell the VOO ETF. Or vice versa. ETFs can and will be off from the index that they track. This happens more often in the more exotic ETFs and very rarely in the large index tracking ETFs.
That statement you get every year from Vanguard showing the capital gains on VFINX? That's one key difference. You do not control capital distributions in mutual funds. If the fund has to rebalance or gets dividend income, that is immediately declared and distributed to the holders of the fund. VOO? You won't pay any capital gains until you actually sell your shares.
When you buy VFINX? That's going to be effective end of day when you make the purchase. VOO can be bought and sold at any time. VFINX is pretty good in that it doesn't have an early redemption fee like a lot of mutual funds.
For larger investors, the tax implications are one of the more immediate issues.
I mean agree to disagree about risk assessment, since in the entire history of the stock market it has never hit 0. So saying you will lose it entirely is grossly inaccurate. Unless you're implying that someone in here has suggested that the right course of action is putting it all in a single stock. If you have 6 months in cash and the rest in an index fund you are virtually guaranteed to never have less than 9 months worth at a moments notice.
But on the off chance the OP is a home owner and not a renter, I still don't see why you would suggest a 12 month safety net for one and not the other. Like that is some serious mother effing cash sitting around doing nothing. Is it just because it would take you longer to sell a house than move out of an apartment? I guess I could see wanting some extra time to sell the house if job prospects didn't look good after 4-6 months.
Re: Investments - the first thing you want to do is maximize your retirement vehicles, such as a Roth IRA account. Unless you're really just planning on screwing around with the money and day-trading, there's no point in investing in the stock market unless you are first making sure that you are avoiding as much taxes as possible over the long run (which is exactly what those retirement accounts are designed to mitigate). Once that's done, there are honestly a lot of places you can put the money within the account itself. The S&P 500 is a decent standard against which most stock mutual funds are traded, and is a good place to start if you are young and looking to invest over the long term (read: decades). Nowadays a lot of brokerages are offering age-targeted retirement accounts, which ask you how old you are, how much you are looking to put away, and when you plan to retire, and then automatically distribute your funds across a mix of stocks, bonds, money market accounts, etc. etc. etc. designed to maximize your return and minimize your risk over that period of time. Generally speaking it just means that you will be stock-heavy in the beginning and bond-heavy in the end. However, what it does do is it takes all the legwork out from having to make all those decisions yourself.
- my brain is broken.
How can it trade on its own if there is nothing underlying it? Why would anyone buy my quatloos that are each good for one "unit" of S&P 500 index? On my guarantee that it tracks an index? How do I guarantee that?
I get the tax considerations, and the liquidity aspect of being able to trade in/out and get a value other than the closing price. I just don't get why anyone would buy it if it isn't backed by anything. ETFs aren't currency, or bonds.
I foresee a 3 week long headache like when I was trying to puzzle out what the fuck QE was.
So, an ETF share does represent a small fraction of whatever the ETF's underlying assets are, although you can't redeem it directly (only an institution that assembles enough shares to buy back a creation unit can directly redeem them for the underlying assets). For an index ETF that operates by some effective method of sampling the underlying index (for example, simply buying everything in the index in the appropriate proportion), the differences between the share price of a traditional index fund and the ETF will be minimal. Not all ETFs use this "replication" sampling, though, especially when the underlying assets aren't very liquid (i.e. are seldom traded), and so may drift further off of their benchmark due to this sampling error.
Anyway, none of this is really meaningful in an immediate sense to a retail investor, except to convince him that it's not all strictly hocus-pocus financial voodoo.
It's pretty damn close.
Let 'em eat fucking pineapples!
Do you mean there is leverage involved?
If the initial creation units are in exchange for stock and if the other institutional players can hold them accountable to dislocations of price to NAV (via buying/selling the creation units and the underlying stocks), then I wouldn't really say the ETFs retail investors are backed by nothing. It's essentially an abstraction of mutual fund operation.
youtube.com/watch?v=CEeqCbEFIJw
Unless you can use TSP. At ~0.027%, that's about one-tenth of Vanguard's funds. But eh, you don't get the wide variety though.
Let 'em eat fucking pineapples!
You can easily find mutual funds with zero buy fees, zero sell fees, and very low yearly maintenance fees. For example, Vanguard's S&P500 index fund has no buy/sell fees and a 0.05% yearly maintenance fee (that's a 50¢ fee per $1000 invested).
The reason you want a very low fee fund is because the best way to invest in a mutual fund is the same way your 401(k) works - by consistently investing $N into the fund every month.