Investing 102

[captainofiron]

So the Baird people called me and were all ready to set up the rollover and IRA and were really pushing the mutual funds

I told them what I learned here that I was thinking that the funds work more for the benefit of the fund managers, and I was thinking more about stocks. They didnt agree.

I also asked about why they suggested mutual funds as a good thing for a younger person

the only thing they could answer was because I didnt have a lot of capital to invest so mutual fund would be better.

Basically my old 401k is 20k, I was looking at GregWelds suggestion (https://lateral-g.net/forums/show...&postcount=380)

I was thinking to do something similiar

suggestions on my thought process?

[JKnight]

Originally Posted by captainofiron

I also asked about why they suggested mutual funds as a good thing for a younger person

the only thing they could answer was because I didnt have a lot of capital to invest so mutual fund would be better.

Basically my old 401k is 20k, I was looking at GregWelds suggestion (https://lateral-g.net/forums/show...&postcount=380)

I'm going to keep my comments limited to a part of your post, but I'm hoping Greg or someone else will comment on the "really pushing" aspect of your experience with Baird.

If your goal/preference is to achieve a high level of diversification with your $20k portfolio, then yes, mutual funds will be good for that.

If your goal/preference is to buy a basket of best-of-breed stocks in various industries to achieve a lower (but still significant) degree of diversification, then stocks will be the better way to go.

This $20k from your prior 401(k) isn't likely to represent the lion's share of your retirement savings. Meaning, it's not the end of the world if you don't get this one right the first time, particularly if you learn something along the way. If you'd like to use it to get your feet wet with trading stocks or other investments, then that's something to consider. You might find out that form of investing isn't for you, but you will have learned something. If you'd rather stick the money in mutual funds and check your balance once per quarter to see how it's doing, that's ok too. Really up to your personal preferences.

Investing is not a one-size-fits-all game, so when I hear a company pushing you toward an option and saying, "that's the best way to go", I have to wonder if they are really listening to you, your ideas and your interests. Keep in mind that you can roll those dollars over to any custodian, it doesn't have to be the one your company uses. These are your dollars/employees!!....Jeff steps down from soapbox...

[toy71camaro]

Originally Posted by JKnight

I'm going to keep my comments limited to a part of your post, but I'm hoping Greg or someone else will comment on the "really pushing" aspect of your experience with Baird.

If your goal/preference is to achieve a high level of diversification with your $20k portfolio, then yes, mutual funds will be good for that.

If your goal/preference is to buy a basket of best-of-breed stocks in various industries to achieve a lower degree of diversification, then stocks will be the better way to go.

This $20k from your prior 401(k) isn't likely to represent the lion's share of your retirement savings. Meaning, it's not the end of the world if you don't get this one right the first time, particularly if you learn something along the way. If you'd like to use it to get your feet wet with trading stocks or other investments, then that's something to consider. You might find out that form of investing isn't for you, but you will have learned something. If you'd rather stick the money in mutual funds and check your balance once per quarter to see how it's doing, that's ok too. Really up to your personal preferences.

Investing is not a one-size-fits-all game, so when I hear a company pushing you toward an option and saying, "that's the best way to go", I have to wonder if they are really listening to you, your ideas and your interests. Keep in mind that you can roll those dollars over to any custodian, it doesn't have to be the one your company uses. These are your dollars/employees!!....Jeff steps down from soapbox...

Great points.

I'd be leary of any fast talking pushy people in this scenario. How do these guys get paid? My guess is they take a % off the top.

That's kind of what started my Journey and ended me up in here. I talked to a local rep (that I do some side business/IT consulting for) and he gave me his suggestion. The fee's were like 4% off the top. And the average returns were 7-8%. That got me thinking... I'm only making 8% return, and I'm giving them HALF? Thus i'm only earning 4%? I think I can manage 4% on my own, and anything on top of that is icing on the cake. Talking about this with an old member here (SolarGuy/Mike, hope he's doing OK) and he led me to this thread. At exactly the right time.

I didnt have a huge amount to start with. I couldnt do individual stocks in my 401k, so i basically had to start fresh with a Roth IRA to invest. (I did re-do my 401k after learning here, but I only had certain options to pick from. I just had a better understanding of how/why to pick what i did and not just throwing darts at it).

Am I doing better than the 4%? You betcha. Do i sleep better at night? You betcha. I'm much more comfortable with myself managing my money than relying on someone else who doesnt have my best interest at hand, but just getting their cut of the pie.

Now that doesnt answer about going Stocks Vs Mutual Funds. But, as Greg discussed way back when in the thread you can build your own mutual funds, and NOT have to pay them the fee's. Just make sure you have no more than 5% of your entire nest egg in any one stock. Personally, I bought in $1k increments and am up to about a dozen or so stocks in my own "mini mutual fund". Am I as diversified as a standard mutual fund? No, they're in 50-250 stocks at any given time. But, my best of breed's mini-fund will likely out perform them, as i dont have a bunch of lagging employees pulling my total return down.

[sik68]

On a car, just remember to add the depreciation + finance rate to see what your money will really be worth in the future. That's how I talk myself out of buying a car every time I get tempted by EZ financing.


Anyone down to talk about student loans for a minute? What a crock that government student loans never adjusted with QE and rate-cutting, and banks won't refinance the loans either probably because the Fed won't let them. Fortunately, there are a few private companies popping up that will refinance debts. We are applying to SoFi.com which will cut our average rate from about 7.5% down to hopefully 4%-ish.

I only bring this up because a 4% refi gives us 2 options instead of just 1 at 7.5% (which has been to pay down like banshees):
1) Keep the monthly payments the same to pay down the loan more quickly.
2) Invest the difference in monthly payment into the market.

If you already own a home with equity, I have also read (but have no first hand knowledge) that refinancing your house and using the home equity to pay off BIG student loans (JD, MD, MBA) can also be a smart decision too. Just planting some seeds for the 102'ers to look into.

[GregWeld]

Glad you other guys are beginning to chime in -- and your responses tell me that you've been good students -- more importantly - the responses show me you're all THINKING and understanding that there's no one particular answer. Once you get there... you've got the fire power to actually be independent! That's fantastic!



CapitanofIron...

Mutual funds are generally the "milk toast" of investing. They're the dumbed down version of one size fits all mentality. While I absolutely agree that they are the BEGINNING for many people - as they allow you to just put in 20 or 50 bucks a week... without thinking. SOME savings is better than NO savings... and if the company will match some percentage of yours -- then it's easy and painless... and done automatically.

Here's the ISSUE I have with Mutual Funds once you have enough to do any kind of investing on your own. As stated above -- when you look at what makes up a Mutual Fund... the top ten stocks are usually pulling the wagon - and then there's the other 100 that are the lamest of of the lame.. and they are what drag you down... AND when you add to that - the fund must earn something as they have management costs... then that further cuts into your return.

The entire point of this last 400+ pages is to teach people to think - and to be able to MIMIC a mutual fund on their own. Mutual Funds aren't the magic bullet -- they're the dumb bullet. The go up when the market is going up and they go down when the market goes down. Some of their investments pay a dividend - and most do not. So you own "everything" in their portfolio and when you look at the returns... most are super mediocre.

If you simply take your 20K and buy 10 good names or even 7 good names and have the dividends reinvested... You own your own mutual fund - but your performance will begin to really compound. You'll still go up with the market and down with the market. But as explained here many times. When the market is DOWN the dividends buy MORE shares at lower prices... THAT IS GOOD!! Every share you own pays you a dividend - the more shares you have the more dividends you collect and pretty soon you're on a roll.

Keep reading and keep posting.

[captainofiron]

Originally Posted by GregWeld

Glad you other guys are beginning to chime in -- and your responses tell me that you've been good students -- more importantly - the responses show me you're all THINKING and understanding that there's no one particular answer. Once you get there... you've got the fire power to actually be independent! That's fantastic!



CapitanofIron...

Mutual funds are generally the "milk toast" of investing. They're the dumbed down version of one size fits all mentality. While I absolutely agree that they are the BEGINNING for many people - as they allow you to just put in 20 or 50 bucks a week... without thinking. SOME savings is better than NO savings... and if the company will match some percentage of yours -- then it's easy and painless... and done automatically.

Here's the ISSUE I have with Mutual Funds once you have enough to do any kind of investing on your own. As stated above -- when you look at what makes up a Mutual Fund... the top ten stocks are usually pulling the wagon - and then there's the other 100 that are the lamest of of the lame.. and they are what drag you down... AND when you add to that - the fund must earn something as they have management costs... then that further cuts into your return.

The entire point of this last 400+ pages is to teach people to think - and to be able to MIMIC a mutual fund on their own. Mutual Funds aren't the magic bullet -- they're the dumb bullet. The go up when the market is going up and they go down when the market goes down. Some of their investments pay a dividend - and most do not. So you own "everything" in their portfolio and when you look at the returns... most are super mediocre.

If you simply take your 20K and buy 10 good names or even 7 good names and have the dividends reinvested... You own your own mutual fund - but your performance will begin to really compound. You'll still go up with the market and down with the market. But as explained here many times. When the market is DOWN the dividends buy MORE shares at lower prices... THAT IS GOOD!! Every share you own pays you a dividend - the more shares you have the more dividends you collect and pretty soon you're on a roll.

Keep reading and keep posting.

Thanks Greg,

I really appreciate your input as well as the effort you and everyone here have taken to help the investing-layperson gain understanding.

I am now definitely going to roll it over into my own IRA and go with stocks

My wife and I have started writing down some names of stuff we use/like

I even downloaded a mobile app that lets me track stuff, and it even shows the stocks graph over time (max five years)

Now I just need to find a place to open my IRA, I looked and Schwab has some local offices that I need to make an appointment with to sit down and chat.

Im going to do a little more digging, we have about 18 names right now, and I want to look through each of them to narrow them down to the 10 that we will go with.

I will definitely keep posting!

[Flash68]

Originally Posted by Payton King

For discussion's sake in this thread, I would be more than happy to run some numbers and post them up here so other people might understand how different types of life insurance works, pros and cons of different policies and how they might fit into a person's financial plan.

Not trying to sell anything here, just trying to educate like our Jedi Master.

I like it Payton. How about a scenario for some $500k policies?