Investing 102

[toy71camaro]

Originally Posted by sokoloka

I've been following thing thread fairly closely, first time poster. First off let me say thank you for all the great information and perspective thus far!

My first question is: what proportion of your assets would you recommend investing vs. locking away in savings account? I'm 25 years old, been investing for ~4 years with mixed success, have ~80k in the bank and 55k in the market. Have a work related 401k but haven't really been paying attention to that besides picking the "extremely aggressive" setting 3 years ago.

About 30k of the market money is tied up in some long term DOWN money (namely CitiBank). I have 22ish in cash left in my Etrade after pulling 50k out of the market and putting 25k back in savings.

Currently living in London, most recently from San Diego and would like to return there within 365 days and purchase a house (will eventually need a downpayment).

Need to re-assess what to do with my DOWN Citi, as well as find some better long term plays to put my money into. I like the feeling of having a year of net salary in the bank - but is that the wisest thing to be doing with that chunk of change? I realistically won't be losing my job anytime soon (effectively on contract through October) and have 3+ months of vacation that they'll have to pay me out. What would you guys recommend? I've been reading a lot in here about this dividend investing scheme and I'm quite interested. Seems like a good long term play for me to get into.

Second question: What to do with a 4 year+ 90% loser? I put $700 or so into some oil speculation penny stock and it's currently worth about $40 and hasn't moved in a year. Should I just pay the $9 trade fee and pull clean out that terribly depressing line in my account?

Thanks. Look forward to participating more. Keep this thread alive!

My *personal, non professional* opinion would be:
1. Calculate your monthly bills, whats necessary to survive, and multiply it by 8 for 8 months of an "emergency" fund. put the rest of the money to "work". -- Reason being, IF something were to happen, you got 8 months to "fix it" (find a job, or whatever), and then if you dont, you can start pulling that money out that was working for you.
2. Put the extra money to work:
a. Max out your ROTH IRA each year with Investing 102 stocks (dividend champions that YOU are comfortable with).
b. Put the rest of the money to work in a brokerage account, again with dividend champions. - in case of emergency, you got 8 months backup above to work with, before you have to touch this account.
3. Keep some as an "extra" or normal savings. for those purchases that you dont have cash for in your sock drawer. because we NEVER touch the emergency fund. Not unless you lose your job or some catastrophic event happes. -- that money dont exist.

On a side note, find a bank that gives a decent interest rate. ING Direct has 0.80% interest on all their free accounts. Its not "great" but its still "working for me" while it sits in there.



As for the down stocks, I have a couple in my portfolio that are like that too. Some "bad choices"... I figured, i'd leave them there. They arent worth much of anything at this point, so why spend more money to sell them. and who knows, maybe in 10 years they'll be worth something again. What am i going to gain from selling them at this point? nothing. i've got time on my side (32 yrs old), maybe they'll eventually make a comeback. Im not out any more money to hold them, so its not costing me anything to play the wait and see game.

Just my 2 cents...

by the way, you got a good start for your age!!!!

[GregWeld]

Sokoloka --

Number one -- KUDOS TO YOU MY FRIEND! You're way ahead of the pack!


Just so you know - there is no "right or wrong" guide to investing or how much cash to have on hand etc. It's more your personal comfort level. However.... having said that.... you have WAY too much dead money (savings).

At your age -- you should have maybe 10K in savings for peace of mind - and the rest should be in best of breed high quality stocks. The 80 + 55 - 10 is a nice 125K to invest which should MAKE YOU 6K a year in dividend income.... reinvested - you're going to be very very comfortable in retirement!


I'd hold the Citi.... banks suck right now but that won't be forever. Depending on what you have invested in it ($$ amount) you might see what it takes to average it down. It will pay a "real" dividend eventually as banks return to profitability. Read this thread --- think LONG TERM --- and it can pay handsomely to invest in "normally decent" stuff - when everyone else is running for the hills. Citibank ain't likely to go away. They really just need to get rid of Vicram but that's a different thread! LOL


Now -- on holding a years worth of "income" --- that's just nonsense. You're thinking like a guy that has no assets! When you have assets (liquid) you have options. Keep 10K for emergencies. Invest the rest. If you are unemployed for long term - you only need to sell or cash the dividend checks enough to live on in an emergency situation. You have 100K plus... you could make 5 to 6K a year in dividends alone - with ZERO growth (I figure 4% on average to be extra conservative)... so with minimum growth in capital - you'd have 10K a year (growth plus dividends) before you touched the principle and you still have the 10K emergency cash (so that's 20K for a year) to get you by on top of unemployment etc. You don't' own a house --- so you really just need to get by for awhile.

In your case - given your age - I'd put MINIMUM down payment and hold as much invested as you possibly can. Banks would look favorably on a guy with liquid assets. You're going to make money on your investments NOT on your house. That's a common fallacy. Even in good times nobody really makes any money on their primary residence - because as your house rises in value - so does everyone else's. You're just trading dollars. Investments make money and they double and double again.

Your 125K now - should double every 7 years. Let's look at what that looks like.

125K
250K
500K
1 MM
2 MM
4 MM

So in 35 years - 4 Million -- let's say you suck as an investor and only make 7% total return per year.... you're still going to be a couple million. At 2 million paying 5% dividend - you have 100K income.

If your house quadrupled during the 30 years you make payments on it -- back out the payments and interest - then factor in "you must live somewhere therefore you have a cost".... and the house doesn't pay you.

I'm not saying you shouldn't own a house... I'm just saying I wouldn't be robbing your savings which in the long run will make you far more money on your money.

[GregWeld]

Sokoloka --


Get busy and put that money to WORK!


Just to add ======= here's what those dividends start to look like. This is what I've gotten just this month so far -- and is just a snap shot of ONE account .

05/09/2012 JNK SPDR BARCLAYS CAPITAL HIGH YIELD BOND ETF
type: ORD DIV - CASH
$2,462.88
05/09/2012 STDBANCO SANTANDER SA ADR FSPONSORED ADR
type: FOREIGN TAX PAID
-$1,819.81
05/09/2012 STD BANCO SANTANDER SA ADR FSPONSORED ADR
type: QUALIFIED DIV
$8,665.78
05/07/2012 HYG ISHARES TRUST IBOXX $ HIGH YIELD CORP
type: ORD DIV - CASH
$3,307.32
05/07/2012 PFF ISHARES S&P U S PFD FUNDS&P U S PFD STK INDEX FD
type: ORD DIV - CASH
$2,119.42
05/01/2012 T A T & T INC NEW
type: QUALIFIED DIV
$6,600.00

[Bucketlist2012]

Sokolka...

Nice job at such a young age...

I agree with having the emergency fund and putting the rest to work..

It took me a while to convince the Wife to not tie too much money into the house... She understands now..

As Greg said, the house will stay flat in value , while you double your money over time.

For some, paying off more on the house "feels" better, but good luck trying to get the money out if you should need it...Banks suck..

I prefer to have my money at work, 24/7, and my House loan rate low...

Then I control my money.. I have people with paid off houses because they were afraid of the market... Now they cannot access their money and they live on a tight budget...

Of Course , never an annuity, EVER...But I think you know that..

Well done...At your age I was just getting started, and I still ended up retiring at 52...Due to health reasons, but i still was able to do it...

YOU....Oh my, you will retire when ever you want at this rate..

[Woody]

I have to disagree somewhat with the advice on real estate, especially if you are talking about San Diego. Real estate will not stay flat over the long term in San Diego. I live in San Diego and can give you a real life example on one of the houses that I purchased. In 1994 I bought a house with a $30,000 down payment. Sold in 2006. My annual compounded return equates to 29% per year. That would be very hard to beat in the stock market, unless you happened to have put all of your money in Apple. When I bought in 1994, the market sucked and no one wanted to own real estate, just like today. The market stayed flat for a few years, but took off in the late 1990's. I would say now is a very good time to invest in real estate in San Diego, especially with mortgage rates at historical lows.

You might argue that my timing was perfect and I sold at the peak of the bubble. That is probably true, but while the value of the house is lower today, I still would have made a 15+% annual return if I had held and sold today.

Sure you have to make mortgage payments and pay taxes on the home, but don’t forget those are tax deductable and part of the payments are going towards paying down the mortgage.

I don’t disagree that investing in dividend stocks is a great idea, but personally, I would make my first investment in real estate assuming you are planning to locate in San Diego and remain there for the long term.

[pw2006]

Greg's post reminded me to look at my account today and I started cracking up...

Here's interest from the cash sitting in one of my accounts (lazy workers)...

04/27/2012
SCHWAB1 INT 03/29-04/26
type: INTEREST
$6.52

Here's the dividend from about the same amount of money parked in a fairly conservative investment (more productive workers)...
05/07/2012
LQD ISHARES IBOXX INVESTOP IBOXX $ INVESTOP CORP
type: ORD INC DIV REINV.
$1,014.80

The point is, it is better to have your money working (even in something boring like LQD), versus lazing under a shade tree collecting dust. After puking in my mouth a little, I put some of those lazy dogs back to work today.

[Rybar]

Originally Posted by Woody

I have to disagree somewhat with the advice on real estate, especially if you are talking about San Diego. Real estate will not stay flat over the long term in San Diego. I live in San Diego and can give you a real life example on one of the houses that I purchased. In 1994 I bought a house with a $30,000 down payment. Sold in 2006. My annual compounded return equates to 29% per year. That would be very hard to beat in the stock market, unless you happened to have put all of your money in Apple. When I bought in 1994, the market sucked and no one wanted to own real estate, just like today. The market stayed flat for a few years, but took off in the late 1990's. I would say now is a very good time to invest in real estate in San Diego, especially with mortgage rates at historical lows.

You might argue that my timing was perfect and I sold at the peak of the bubble. That is probably true, but while the value of the house is lower today, I still would have made a 15+% annual return if I had held and sold today.

Sure you have to make mortgage payments and pay taxes on the home, but don’t forget those are tax deductable and part of the payments are going towards paying down the mortgage.

I don’t disagree that investing in dividend stocks is a great idea, but personally, I would make my first investment in real estate assuming you are planning to locate in San Diego and remain there for the long term.

Good point, Vancouver, BC, Canada is very similar.

I know of alot of Italian construction companies that are local that are building and developing in San Diego. That is really good news for you.

Up here there's a huge influx of cash and investors from Asia buying real estate and prices just keep going up and up to the point where crack shack homes in certain parts of town are $1 million or more. I have more than doubled my money on my home if I sell. But I think GW is preaching the slow and steady investing approach here. Real Estate investing is timing and holding as well.

[GregWeld]

My point about real estate vs investing is that your primary residence is NOT an investment. It's overhead/cost... and it's a time proven fact that the stock market outpaces ANY other investment including real estate.

If you want to invest in real estate as an INVESTMENT -- that is an entirely different discussion. I own commercial and residential investment properties. But they are INVESTMENTS not my primary residence.

My point to the original question was to invest the most he can since he's young - and put as little down as possible in his primary residence. Since everyone has costs of living somewhere - just make it that. And make some money in the invested assets.

[GregWeld]

Originally Posted by pw2006

Greg's post reminded me to look at my account today and I started cracking up...

Here's interest from the cash sitting in one of my accounts (lazy workers)...

04/27/2012
SCHWAB1 INT 03/29-04/26
type: INTEREST
$6.52

Here's the dividend from about the same amount of money parked in a fairly conservative investment (more productive workers)...
05/07/2012
LQD ISHARES IBOXX INVESTOP IBOXX $ INVESTOP CORP
type: ORD INC DIV REINV.
$1,014.80

The point is, it is better to have your money working (even in something boring like LQD), versus lazing under a shade tree collecting dust. After puking in my mouth a little, I put some of those lazy dogs back to work today.

SUCH A GOOD EYE OPENER!!

I love it!!

[GregWeld]

FACEYBOOK


Okay -- I've had about a zillion emails / PM's / Calls asking if "I should - could - would" buy into the FACEBOOK IPO. So here's my take on it - it's GAMBLING - it's HYPE - but it also appears to be BIG....

SO because of my "accounts" -- I've been "allowed" to get into the IPO at offering price ($28 to $35) one of my brokerages. I have asked for 2000 shares. Remember that this is 'over subscribed' so I might not get any - I might get 100 I might get 10.... I'll get what I get and pay the "set" price at OPEN.

I would NOT buy RETAIL -- in other words --- the first trades AFTER the IPO set price! That could be 60 - 70 - 80 - 100 who knows -- but since I can get in at the set price - I stand a chance of having a gain.

I'm sharing this - as I do my other "investment life" as a "here's how all this crap works investing 102 experience". So as usual -- this is a "it takes money to make money" moment. I wouldn't be allowed into the IPO if I didn't already have a substantial account! The guy that needs it the least - gets the most... I don't happen to like that morally but it is what it is.

This is expected to price TOMORROW --- so you can all live vicariously and see if I sink or swim. I don't like Facebook - I don't use it - but EVERYBODY but me does... I think it's a fad but I'm not against making money - regardless of what I think.