Investing 102

[ErikLS2]

The one point I will make about mutual funds is there are many on the list I posted with acceptable management fees, in the 0.02-0.6% range that perform well and get you instant diversification to an extent. In fact, all the funds on that list have to meet certain strict criteria including management fees. A professional stock picker with vast resources has to only outperform you doing it alone by the management fee he charges for you to be money ahead. Personally I wouldn't feel comfortable putting my first few thousand bucks in one stock, no matter how big or established it is but there are many ways to do this right. It's more important I think that you're doing it than it is how you're doing it but it's also important to make wise educated choices that suit your comfort level.

Greg makes a very good point about time. The general rule (not sure it's my rule) is to be more into stocks the younger you are as you have time to recover from a downturn. As you age you slowly get more conservative by transitioning to bonds. A withdrawl rate of 4% of your retirement account balance per year is a common number to ensure you don't outlive your money. You can use this handy calculator to figure how to achieve your retirement goals:

http://cgi.money.cnn.com/tools/retir...entplanner.jsp

I think Greg's best point is about how you FEEL when you begin to build up a savings. Once you begin to see a growing balance in there you develop a respect for the money and work harder to make it grow.

[GregWeld]

Good points Erik...

Especially the one that you make about it doesn't matter so much how you're doing it - but that you ARE doing it.

Mutual Funds have their place - and most people feel more comfortable letting the pro pick. Nothing wrong whatsoever about this form of investing. But I will point out that PICKING THE RIGHT Mutual Fund is every bit as hard - and as important as picking the right individual stock. Most people just don't understand = nor can name their mutual fund = which means they can not follow (at all) a mutual fund. They tend to buy and hold and not go back and see what's up -- UNTIL they notice they're down 30% from the prior year. Then they SELL -- and then they buy the next mutual fund that had the best performance from the last period. THAT my friends is the fastest way to lose your ass... I see it happen CONSTANTLY.... people wake up and they get their statement and they're down - they panic and sell (at the bottom) and they then "re-invest" at the top. 99% can't even tell you why they bought what they did - nor tell you the top 3 holdings in the fund.

I like the "pride of ownership" of saying -- Yeah -- I own "such and such"... and it's easy to name the 5 or 6 you own - and it's easy to understand and or to hold through a down period because you actually know what they are and why you bought them.

When the market SUCKS --- I remind myself by looking at the stocks on a long term (10 years or 5 years) chart - and I see that - over time that line is low on the left and higher towards the right. Then I "skip the dips"... and I am reassured that I'm on the right course - OVER TIME.

There's all kinds of ways to get there -- you MUST just choose something that you can live with and JUST DO IT! That way there's no right or wrong way.

[CRCRFT78]

I think I need to go to the WELD SCHOOL OF INVESTING! I wish I understood my investments a little better. All good info that I will look over again once I have my portfolio in front of me.

[WSSix]

Thanks Greg. You're correct, this is my savings and I feel I have enough to play with as well as keep on hand should an emergency arise. That's why I called it investing 102. I felt like I had my retirement stuff set up correctly and in their appropriate accounts and wanted to venture into the next thing which I consider less conservative or more risky. Yet, I don't know squat about that stuff so I figured I better ask. This is money I will eventually spend on a house or car stuff I believe so I don't want anything risky. I just want better than 0.80% lol. Besides, who knows how long it'll be before I can actually spend it on a car or house. By that time, I may just leave it well enough alone and start the car fund over again.

For what it's worth, my Roth IRA is through Vanguard and it's their Star account which is a very low management fee mutual fund. I'd have to look it up as to how it's diversified through stocks, foreign and domestic, and bonds. I couldn't begin to tell you what particular companies or bonds the money is in though. Its doing just fine for me though considering it's a long term deal.

Also, I'm 31 and started the Roth at 26 but didn't necessarily max it out at 5k every year.

I'm glad to see others getting some information and knowledge out of these posts as well. That was my intent and I'm glad it's working out that way.

[RECOVERY ROOM]

This thread is a better read than most. Better than most stock watch sites. Easy to understand advice from a person who lives it not someone trying to sell it. Thanks Mr Weld....more please LOL

[Simmo]

Originally Posted by RECOVERY ROOM

This thread is a better read than most. Better than most stock watch sites. Easy to understand advice from a person who lives it not someone trying to sell it. Thanks Mr Weld....more please LOL

+ 1

Hey Greg, have you ever thought of writing a book lol? So far I've focused on property which I really enjoy and I'm comfortable with. I can tell it's not the route you'd take but I am looking to put a small amount of funds (say 20K) into stocks but dont feel confident enough to go ahead yet.

I'm hands on so would be managing things myself...what literature would you suggest I delve into to boost my confidence/knowlegde? Maybe like a "stock market for dummies" type book or similar, heck any knowledge source for a newby would be a start.

Thanks for your contribution to the thread

[GregWeld]

All you have to do is read what I've already written -- that is INVESTING FOR DUMMIES 102 right there!

Can't make it much simpler...

Open an account - with a discount brokerage.... put some money in it.

Buy some big name big cap stocks that pay you a dividend.

Get more money - add to your account -- and repeat the above.

Whether you have a little money, or a boat load, the principles still apply... buy good names - diversify - don't get greedy - keep your investments to 5 ish percent so no single investment can hurt you in the event it goes down and or is a loss (think ENRON -- Too big too fail - BS!)

I have a Schwab account - it has a boat load of dough in it - but I still only own 21 stocks in the account. I don't need a lot of stocks - I just need good ones. I take a bit more risk because I can afford to. SO while I have McDonalds - I also own JNK - HYG - and NLY. That is an entirely different level of investing and not suitable for most on here if you're asking these basic questions. I live off my dividends and bond income. I raise my dividend income "average" by taking some positions that are riskier - therefore they pay higher dividends. SO my COKE (KO) is offset with some Annaly Capital Management (NLY).

My biggest gainers so far this year ---

Phillip Morse -- cigarettes! = Symbol PM - pays approx 4.7%

Altria -- more smoke... symbol is MO - pays approx 6.4%

Kinder Morgan Partners - oil and gas pipelines -- symbol KMP - pays 6.2%

McDonalds - junk food - symbol MCD - pays 3.3%

Con Edison - power - symbol ED - pays 4.8%

I offset the 3% stuff with the high risk as mentioned above - Annaly pays like 14%... I can afford to play that game I'm not trying to build capital or increase my retirement account... so don't you guys go there.

Just go to YAHOO finance -- or Google finance -- and put in those symbols -- then go to a chart and look at 5 year or 10 year or whatever they'll let you choose for time -- and look at the chart for each one. You'll see all manor of ups and downs in the squiggly line -- but the basic course over time is UP... so if you can train yourself to IGNORE the "noise" = hold steady - don't freak out - collect those dividends -- add to your account when its down the most and buy MORE stock when it's DOWN... YOU WILL BE REWARDED in time.

[GregWeld]

Originally Posted by RECOVERY ROOM

This thread is a better read than most. Better than most stock watch sites. Easy to understand advice from a person who lives it not someone trying to sell it. Thanks Mr Weld....more please LOL

You just need to keep working.... You ain't retiring 'til you're finished with "da bubble".

[Musclerodz]

very good read Greg, thanks......

[GregWeld]

Okay - So I was re-reading my latest posts -- to make sure the verbage was generally correct...

I want to add some info - because this whole discussion also involves RETIREMENT --- some of you are young bucks with TIME on your side. Some of us - sadly - are far older and or already retired. Personally I'm 58 "already".... so I have an equal amount of investment in TAX FREE MUNI BONDS. That is a separate account - and is professionally managed. I don't understand the bond market - I don't want to learn it - it's BORING - but takes some skills to understand all the nuances. I have a LADDERED bond portfolio - it's laddered out 5 years. There is NO GROWTH in the capital (if you're not trading them - which I'm not). There is RELATIVE SAFETY in a bond portfolio - if a bond is held til "term" you get your investment back 100% - and in the meantime you collect an INTEREST PAYMENT (usually every 6 months on bonds). So this portfolio is - to me - SUPER SAFE - and just throws off income that is tax free. For the tax free part - I get LESS income than I could get if I bought stocks or something else... but that is where the pro comes in - he'll do the math and let's say you could make 7% TAXABLE -- then 4% TAX FREE is the same "net". WHAT BONDS DO NOT DO is they don't grow the capital. AND they can lose big time if interest rates are against you. THAT is why I'm only out 5 years and I'm LADDERED. Each year 20 % of the portfolio comes due so we re-invest that cash in the next one year out. EXAMPLE

1,000,000 invested in bonds due 2012
1,000,000 invested in bonds due 2013
do this out til 2015

The bonds due in 2012 will be re-invested in bonds due in 2016
The bonds due in 2013 will be re-invested in bonds due in 2017

and so on.

I just checked -- there are 81 individual bonds in my account and 13 "preferred" stocks (preferreds pay a higher interest rate but are really just like stocks and are taxed - not tax free).

Bonds are what you vote on -- say -- They want to build a new school and there is a SCHOOL BOND on the ballot - authorizing your county to issue "X" amount of bonds at "X" rate - Due "X" time (maturity)... you voted YES -- so the county sells the bonds - I buy some... and they pay me interest and give me back my principal when they "mature".

What happens to the "FACE VALUE" of a bond if interest goes UP? The face value of your bond goes DOWN. SO a bond that pays 5% and you have 100K in it - and now interest rates are 6%.... and I want to SELL my bond. I'd have to discount the price til the buyer gets a return of 6% on that same bond - even though the "issuer" is only paying 5%. But that 5% coupon was on the original 100K -- if the guy only pays 90K for it - it's like he's getting 6%.

I don't buy and sell bonds -- some do. I actually have a nice gain on almost every single one of them in my account - but THAT is not why I bought them - I bought them for the income they produce and I'm happy with that. SO I'll sit on them and do as I said above.

OLDER people need some bonds in their accounts -- they're safe (unless they're issued by Greece or Italy! LOL)... and usually will "counter" the stock market. So on big down days in the stock market - my bond account will be UP. And vice versa. Not dollar for dollar - but it HELPS balance out your total investment. I've never owned bonds until last year. Never felt I needed them. I was apartments - and stocks. But now - I've actually come to see that they "fit" what we're doing NOW.

I don't think anyone needs bonds until they're really quite well set. Stocks will get you where you need to be over the long run. Even if you're 64 you're not going to cash out "what got you there" (stocks) and suddenly go into all bonds. People with big incomes need bonds - remember that tax free status - that really helps bring down a high earners "income tax" liability -- but now we're getting into that whole 1% vs 99% thing and it's just a lot more complicated than that. If there wasn't a bond market - you wouldn't have new schools or fire stations - or stadiums - or streets.... but we digress.


And I said I wasn't going to write a book!!