Investing 102

[Simmo]

Some great advice here!

WSSix - you've made the first step which 9 out of 10 of us dont, and that is ASK! A lot of people dont think they're smart enough, and it would be easy to get half way through Gregs post and feel a wee bit lost, but as car guys we can rattle off what make, model, year, engine code and trim level of that car on the horizon is, and what mods are required to screw x amount of horsepower/shave x seconds off a lap time......it's simply because we've applied ourselves and invested time to educate ourselves in our hobby.

With that level of dedication in investment we'd all be ticking that top box. Reading "Rich Dad Poor Dad" R. Kiyosaki (I know it's outdated and the concepts over-used now, but it's still got to be the best 1st investment book IMO) was a light bulb moment in my life. It's funny how I've more or less forced friends/family to read it and for some, it had the same effect. Okay others did'nt take the message on board....but dont be one of those people, this is 1% brains and 99% mind set.

I'm no where near cracking a million, but I'm certainly on the right track and have totally changed my spending/savings/investment habits and am continually investing in my education to expand my ability to invest. Next time you pick up Super Chevy, put it down and pick up "Investor" or whatever it is you have in your part of the world and get started. Time is your friend, I'm in my 20's and doing it tomorrow is not an option.

Lastly, someone mentioned health earlier. It is your greatest asset. Preserve it. I've had a minor set-back in this area lately and it's never been more true for me, however having made a few savvy investment decisions beforehand I'm well placed to recover nicely.

My 2c... go buy a book now

[WSSix]

Thanks Greg. That does make a lot of sense. My levels are 15% in my 401k, 10%(which is max) in my companies ESPP (I'm with Halliburton), and I max out my Roth IRA every year. I figure I better keep that one up because I may hit the 150K limit eventually. Until then, I max $5k on that at the beginning of each year before I spend a penny on fun stuff for the bikes or the car. I feel like I'm doing well with the retirement portion of my money management. For my savings, I'm definitely looking to do better long term investments than my simple money market account. I'm in this for the long run. I'm too busy with other things to be aggressive and try to play the stock market game.

[Beegs]

Originally Posted by GregWeld

DO NOT BUY GOLD... IF THEY MAKE A TV SHOW ABOUT SOMETHING (House flipping?) RUN FOR THE HILLS... DO NOT INVEST IN IT. YOU'RE ALREADY TOO LATE!

All great advice!! The above is key IMO, if you can master "seeing" where something is in it's value cycle, your financial decisions become much "easier".
Example: When "interest free" home loan ads started playing on TV, I looked at my wife and said this game is over.

[ErikLS2]

Greg has a lot of great advice, especially about diversity. Don't put all your eggs in one basket. Also, if you prefer to not look at individual stocks, you can do just as well with a good mix of GOOD mutual funds. Here is as good a list as I've found and what I chose from:

http://money.cnn.com/magazines/money...nds/index.html

If you just picked a mix of these funds and did no more research and bought them through a Schwab, eTrade, etc. and rebalanced every year at tax time you'd be doing pretty well.

[GregWeld]

A couple of things here.... So I have a bit of mia culpa to my original post.

He is looking at "regular" savings... so really a liquid place to put some money that he may need to use. To me -- that is different than "investing" or "playing in the stock market". I went back to re-read his question - and kinda went OOPS...

OKAY -- so even I keep cash (inside my Schwab account) that earns NOTHING... it just makes me feel good and I'm okay with that. BECAUSE the bulk of my dough is making me money. So to the OP'r - you're doing really really well with your RETIREMENT accounts! Kudos to you!

With your ordinary savings -- just figure out what makes you happy to have some emergency cash available. Hold that right where it is. Then take my advice and invest the excess in some - even one - dividend paying big name big cap stock. BTW -- that is NOT "playing" in the stock market. That is BRILLIANT investing.

Here's why I DO NOT LIKE mutual funds - You're paying them a fee to manage your money. When you break down a mutual fund... you'll find many are overlap invested. If you only have $2500 to invest -- then put that in McDonals - or Coke - or Kinder Morgan Partners - or Chevron.... your returns OVER TIME will be far better. It doesn't take any effort or brains to manage this. Next time you have $2500 - buy another good stock etc. In 10 years (saving just $2500 per year) you'll have your own "mutual fund" with NO fees. If you now have $100K in mutual funds - you're paying about 1 1/2% in fees... and over time that is compounded and affects your returns. Take you're $100K and buy 20 ($5K each) big name dividend payers - and pay NO FEES and you have the same exact investment. On $100K you should be able to "make" $5K a year in dividends invested conservatively - but you should also have CAPITAL GROWTH - so in 7 or 8 years - you should have $200K and be collecting $10K in dividends and so on. Remember that at retirement - you don't just suddenly withdraw all your money! You should live another 25 or 30 years... and that money should still be having capital appreciation! And the dividends should be GROWING in PERCENTAGE PAID. Example - McDonalds paid .38 a quarter in 2008.... they now pay .61 per quarter.... so the dividend is beating inflation and your retirement INCOME is growing without you having to do a dang thing!

NOW --- ABOUT "TIME" --- If you are 21 years old - and you save $2000 each year for 10 years and then you stop and do nothing from then 'til you retire -- you will have near 1 million dollars.

Money doubles about every 7 years -- so here's an example for time. First number is @ AGE

@ 21 $2000 - @ 28 $4000 - @ 35 $8000 -@ 42 $16,000 - @ 49 $32,000 - @ 56 $68,000 - @ 63 $136,000

That is 42 years -- so 21 plus 42 - is 63 (retirement age)... NOTE the last "double". That is HUGE!


IF you start this saving at 31 and save $2000 dollars until you retire - you'll have about HALF of that. So example:

@31 - $2000 @38 - $4000 @45 - $8,000 @52 - $16,000 @59 - $32,000

So you start to see how far behind you are with "LATE" savings/Investing?


Can you tell I like this stuff??

[frankv11]

Well this is one subject I know nothing about but really interested. I would like to purchase some long term stocks and not interested in trading. What should be my first step?
Maybe Greg can have a crash course on investing and how to use some tools

[GregWeld]

Originally Posted by frankv11

Well this is one subject I know nothing about but really interested. I would like to purchase some long term stocks and not interested in trading. What should be my first step?
Maybe Greg can have a crash course on investing and how to use some tools

First step is to "SAVE" some money. Nobody can just save a hundred grand... but if you start saving $200 a month - that is $2400 per year! And if you read my example above -- you'll see that can grow into a hundred grand OVER TIME.

I tell my kids -- if somebody gives you $100 bucks for a gift. Blow half - and save half. BTW -- "Saving" is not saving to spend.... that is a different bucket.

If you need to save to spend (buy something) make that a different account. Save $100 a month - 50 to buy something - and 50 for REAL savings so you'll have money when you need it most. If you get a raise - or a bonus - SAVE IT.

The key to all of this -- is once you actually accumulate some savings -- you'll be amazed at the mind set CHANGE you'll see. You just won't want to piss it away - it takes some work and sacrifice to save - and all of a sudden you have 10 or 20 grand - blowing it on that new truck just doesn't seem to be as good of an idea. It becomes very satisfying to have "some money".

[RECOVERY ROOM]

I knew Greg would have something to say...Good advice for you younger guys to start saving early, Cut back on the weekend parting..LOL. Fifty bucks a week will be alot in 30yrs.

[GregWeld]

Tracy --

I think that is the biggest "mind set" that has to change for people to become better money managers.... The thought is -- I can't save "enough" or I don't have $500 to save. Yep - you're right - and you'll never have $500 if you don't start by saving $50! Save $50 a month and in less than a year you'll have $500!

I'm using really low numbers so people just need to slug in their own. A guy making $80 grand a year - should be able to save $500 a month. Dude! That's 6 grand a year! That 6 grand in 42 years is $336K!!

$336K at 6% dividend (what AT&T pays currently) is 20K per year in dividends -- and if you figure that is a return on the 6K you originally invested... I'd say that's a pretty damn good return! Save 6k ONCE @ 21 years old - and you get back 20K every year for the rest of your life when you hit 63 years old! Not bad!

[GregWeld]

Wanna really make a difference in your KIDS lives??

When they're born - put a grand away - add a grand every year til they're 63 years old...

Net result at retirement compounded at 9% (so you need 6% reinvested dividend AND capital growth of 3% a year - this is super super conservative and not even realistic! It should be far more over time!)

If you were a long term investor, the worst twenty years delivered a return of 7% a year. This occurred over the twenty years ending in February 2009. The best twenty years delivered an average return of 18% a year, which occurred over the twenty years ending in March 2000.

$2,976,771.57


Tax free MUNI BOND return on that balance PER YEAR at what I earn currently (5%) -- that's $150,000 in income per year NET NET TAX FREE off your silly little $1,000 per year from birth.

WAY better than college!