Investing 102

[captainofiron]

Originally Posted by GregWeld

1) Baird Financial is a HUGE firm with BILLIONS under management. Don't be afraid of them.

2) Read this thread from start to finish - take your time - and you'll be a lot less intimidated

3) It's YOUR future we're talking about... given the amount of time you have to live in retirement... the 400+ pages of this thread is childs play.

4) You have an obligation to yourself and your family to get a grip on your finances. It's EASY... and more importantly - IT'S THE MOST IMPORTANT THING YOU CAN EVER DO.

Like anything else - we all do things that we start out knowing nothing about. We all manage to educate ourselves about clutches - motors - tires - paint etc. Except that NONE of those are very important. Yet me manage to dive in and get involved.

Thanks thats good to know on #1
The guy was a real fast talker, reminded me of Wolf on Wall Street and I was really unnerved

I just started reading through the PDF. but its going to take me a while, haha

and just because its appropriate

haha

SO with that said, rolling over my old 401k to them in the form of a traditional IRA is a good move?
OR should I roll it into my new companies 401k?

I am leaning more toward the new 401, as they pay the fees and stuff, BUT the more choices and the ability to withdraw from the IRA (even though its penalized) is a very attractive "Pro"

[JKnight]

I would talk to someone about the IRA before you go too far in thinking that there are "fees" issues associated with it. Most discount brokers will set you up an IRA for free and there are no account maintenance charges. You'll pay some amount in commissions whenever you trade, but there are no annual fees for your average rollover IRA (I'm sure there are exceptions to this where someone is charging account fees, but there are plenty that don't).

In fact, your company's current 401k with its' target date funds will actually cost you more than holding stocks in an IRA. For example, look at the OER (Operating Expense Ratio) on the target date funds you're holding in your 401k. Most likely, the OER is somewhere in the range of 0.60%-1.50%. That means that the returns for each fund are being reduced by the OER (fee the fund company charges to pay the portfolio managers, keep the lights on, etc.) with whatever's leftover being reflected as an increase in the fund's price (aka your return for the year).

That OER is being taken every year, so ~1.00% per year. That's a fee! There is no such thing happening in an IRA, well, unless you buy mutual funds in it. So, yeah, you'll pay some amount in commissions to buy your stocks (or whatever you choose) in the IRA, but you shouldn't have to pay anything additional on an annual basis. You can even buy ETFs in the IRA and sometimes that can be done commission free.

[captainofiron]

Originally Posted by JKnight

I would talk to someone about the IRA before you go too far in thinking that there are "fees" issues associated with it. Most discount brokers will set you up an IRA for free and there are no account maintenance charges. You'll pay some amount in commissions whenever you trade, but there are no annual fees for your average rollover IRA (I'm sure there are exceptions to this where someone is charging account fees, but there are plenty that don't).

In fact, your company's current 401k with its' target date funds will actually cost you more than holding stocks in an IRA. For example, look at the OER (Operating Expense Ratio) on the target date funds you're holding in your 401k. Most likely, the OER is somewhere in the range of 0.60%-1.50%. That means that the returns for each fund are being reduced by the OER (fee the fund company charges to pay the portfolio managers, keep the lights on, etc.) with whatever's leftover being reflected as an increase in the fund's price (aka your return for the year).

That OER is being taken every year, so ~1.00% per year. That's a fee! There is no such thing happening in an IRA, well, unless you buy mutual funds in it. So, yeah, you'll pay some amount in commissions to buy your stocks (or whatever you choose) in the IRA, but you shouldn't have to pay anything additional on an annual basis. You can even buy ETFs in the IRA and sometimes that can be done commission free.

Well Im reading this whole thread, and Gregs post are really getting me excited, haha

the OER on mine is .78%

The investment guy I have been talking to here at my new job says that I should go with Mutual Funds since I am young (31)

and suggested some from Blackrock

specifically these
1) http://www.blackrock.com/investing/p...nal-class-fund

2) http://www.blackrock.com/investing/p...nst-class-fund

3) http://www.blackrock.com/investing/p...nal-class-fund

[JKnight]

Originally Posted by captainofiron

the OER on mine is .78%

The investment guy I have been talking to here at my new job says that I should go with Mutual Funds since I am young (31)

and suggested some from Blackrock

specifically these

If that's what you're comfortable with, then go for it. It's good that you're talking to a professional and listening to their advice. However, I would have encouraged you to ask a follow-up question of him, "why are mutual funds better suited for a "young" person of my age?". Then you can hopefully learn from his answer, helping you to become more informed about why you're doing what you're doing, or you can find out if he's feeding you a line of bull.

You and I are the same age, so I get where you're coming from. As a young person, you can afford to have stocks rise and fall quite a few times before you need the money. So the logic of using highly-diversified mutual funds for a young person seems a bit odd. For me, I also utilize commission-free ETFs in a rollover IRA because I know that over the course of 40 years of compounding, not losing out on ~1.0% a year in returns due to expenses can make a real difference in the ending balance.

In Greg terms, I would use the commission-free ETFs to "park" cash if you don't have a stock or other investment you're interested in.

As a reminder: we're not telling you what to do, just telling you what we do or how we think about things so you can learn.

[captainofiron]

Originally Posted by JKnight

If that's what you're comfortable with, then go for it. It's good that you're talking to a professional and listening to their advice. However, I would have encouraged you to ask a follow-up question of him, "why are mutual funds better suited for a "young" person of my age?". Then you can hopefully learn from his answer, helping you to become more informed about why you're doing what you're doing, or you can find out if he's feeding you a line of bull.

You and I are the same age, so I get where you're coming from. As a young person, you can afford to have stocks rise and fall quite a few times before you need the money. So the logic of using highly-diversified mutual funds for a young person seems a bit odd. For me, I also utilize commission-free ETFs in a rollover IRA because I know that over the course of 40 years of compounding, not losing out on ~1.0% a year in returns due to expenses can make a real difference in the ending balance.

In Greg terms, I would use the commission-free ETFs to "park" cash if you don't have a stock or other investment you're interested in.

As a reminder: we're not telling you what to do, just telling you what we do or how we think about things so you can learn.

Man, I wish I would have found this thread before I talked to him. I didnt start googling until after I spoke with him, and then I stumbled upon this gem of a thread.

Im curious if he suggested that because I told him I am a more conservative person. That was like the second question he asked me.

I guess the more important thing right now is to get the old 401k rolled over into an IRA, then later on start looking at the commission free ETF that you and Greg are talking about

[GregWeld]

I would suggest you do absolutely NOTHING until you're done reading....


You're only 31 --- and couple more weeks isn't going to kill you right now. Read thru the thread -- go back and re-read parts you don't quite get... it will start to all come together for you. THEN you can come back here with better questions.

Ditch the fast talking bozo --- if you decide to go with them - call them and ask to work with a different representative. NEVER EVER NEVER EVER work with a fast talker. It's way too important for you!!

Don't get caught up in thinking you need to do this or that. Wait until you understand ALL your options! There are income tax implications if you do it WRONG.... and there are many other considerations that will all greatly affect your decisions now and into the future.

When you get a little more comfortable with all these "terms" --- ask what it would look like to roll your 401K over into a ROTH IRA. This may take an accountant to factor in the taxes... but if I was your age (without knowing another single detail about you or your income level) I'd want my money in a ROTH IRA.

[WSSix]

Roth IRA or Roth 401k are fantastic if available to you. I don't really have anything to add that hasn't already been said expect to second the be patient part. I do hope though that someone has mentioned to you that you shouldn't move the old 401k until you have decided on what account to put it in. It must also go directly there meaning under no circumstances should your 401k money come into your hands before going into whatever new retirement account you choose. It must be an institutional transfer or you will get hit with taxes on that 401k money. Good luck. Keeping reading and asking questions.

[GregWeld]

Rather than just add to the post count here - repeating what's been said in the last 400 pages over and over again... I've been holding back waiting for "events" in the market that would be NEW and of possible interest to all of you.

I think the Apple (AAPL) news - both the rise and the fall (yesterday) - and their upcoming events next week give me that opportunity.

Remember that I am never recommending WHAT to do or what to buy or sell. That's not this thread. I just want to use this as an example of a way to THINK.

Here we have a watershed moment which comes along every once in awhile in the market. You have a company that is just kicking butt... The stock recently split 7 for 1 - thus making it more affordable... so I would ASSume that is a good thing. You have a company that makes a TON of money... and is constantly in the news. Mostly all speculative and favorable.

And here's the INVESTING 102 info:

Let's ASSume for a minute that we're holding the name. We know there's a big product launch coming. We know we're going into the 4th quarter - and in RETAIL that's "everything". And all of a sudden the stock gives us a "buying opportunity" (meaning the stock DROPS). What to do?? Do we add to our positions?? Is the stock suddenly "broken"? Should we average down? Should we get in if we're not already owning?

This IS NOT about this stock - this is about a SITUATION - using this stock as a current example.

I own this particular name (5000 shares). I have a nice gain in the name. I've been in EXACTLY this same situation many times in the past with various other names.

I'd call this situation - standing on the railroad tracks. Why? Because you KNOW there's a train coming. You can jump on the train and get a free ride OR you might get run over. Those are the two things you can count on in the stock market. One is going to make you "the smartest guy in the universe" - the other is going to kill you. EITHER WAY --- it's pure gambling. You're betting that you're smart enough and quick enough to step out of the way - grab the handle and swing yourself on board for that big ride up. But if you're not - and you're timing sucks just a little, you are UNDER that train.

When you have so much "anticipation" that something big is going to happen in a name -- don't think that you're the only guy on the planet that is thinking this way. Remember there are TWO SIDES to every transaction --- and that huge anticipation can bring with it - huge disappointment. Think of the basketball game where there's 1 second on the clock - your guy is inbounding and you MUST make this shot to win... sometimes the player sinks the shot... and sometimes they miss and lose. There's jubilation if he makes it - and much head hanging if he doesn't. It's VERY emotional!!

What I'm trying to say - in too many words - don't get caught up in the hype and just throw you're money in the ring by buying (HOPING) that the big event is going to just make you money hand over fist. Lots of times when the hype outstrips the actual fact - the sellers pour in and take the big event into the trash can with the missed shot! Sometimes the big event is even bigger than the hype and the stocks sails off and leaves you wishing you'd tripled your investment (bet).

So before a guy just goes crazy --- THINK ABOUT HOW THIS INVESTMENT FITS YOUR PLAN. Are you buying because it's a name on your list you just want to own for the long term. And here it has dipped a bit - and now's your chance to buy. FINE. That's a PLAN -- that's not gambling. You've been patient - saved up your cash - you wanted to own the name regardless and here's as good an opportunity as any. BUT please don't be indiscriminate. Never invest (gamble) that you're going to buy and it's going to pop UP. You'll only be disappointed if it doesn't - and that plays on your mind in a very negative way. We have enough things to stew over... let's not have it be our long term investments.

20 years ago I'd have doubled down or tripled down on the "big" drop yesterday.... only to now own 2 or 3 times as many shares and watch them go down even harder after the big "earnings news" or the "big event" (that didn't happen)... or the big whatever. I rode the hype and got my azz handed to me many times. Sometimes I scored huge... most times the little man on Wall Street took me to the woodshed - doing exactly the opposite of what I expected (I was just certain!) to happen.

Don't take little moments in time and get all jacked up about 'em. Take the longer view and be patient. Look at any name and ask yourself if you think LONG TERM this is a company I want to own come hell or high water. If that's the case - fire away! But if you're just thinking that now's the perfect time to score big money quickly. Please don't. You'll be sorry more times than you can imagine.

My impulse yesterday was to be a buyer. It's a great company with great products - it's a company whose products my whole family uses... I already own it... and there's the key. I already own it. If it jumps up I get the ride... if it goes down - I have a good position and I'll just hold. But I'm NOT going to just blindly stand in front of that train....because I just can't sleep well knowing I gambled because I just knew the big event was going to make me money. NO! I'll make money if I already own the name (insert any name).

I'm not talking anyone out of buying anything - and I'm not saying to buy... what I'm saying is to UNDERSTAND WHY YOU'RE BUYING or SELLING and to keep the emotion out of the sale or the buy.

[toy71camaro]

Keep emotions out of it.. good point.. a tough one, but a tried and true one.

Thanks Greg.

[captainofiron]

Originally Posted by GregWeld

I would suggest you do absolutely NOTHING until you're done reading....


You're only 31 --- and couple more weeks isn't going to kill you right now. Read thru the thread -- go back and re-read parts you don't quite get... it will start to all come together for you. THEN you can come back here with better questions.

Ditch the fast talking bozo --- if you decide to go with them - call them and ask to work with a different representative. NEVER EVER NEVER EVER work with a fast talker. It's way too important for you!!

Don't get caught up in thinking you need to do this or that. Wait until you understand ALL your options! There are income tax implications if you do it WRONG.... and there are many other considerations that will all greatly affect your decisions now and into the future.

When you get a little more comfortable with all these "terms" --- ask what it would look like to roll your 401K over into a ROTH IRA. This may take an accountant to factor in the taxes... but if I was your age (without knowing another single detail about you or your income level) I'd want my money in a ROTH IRA.

Thanks Greg

Im almost halfway done with the thread

When I talked to him, I asked if I should consider a Roth IRA. He said no, and I really didnt have anything to challenge back.

Right now things are shifting in my life.

1) I got the new job, where I am earning way more than I used to and now my wife can stay at home

2) We are expecting, baby will be here in December

3) To take the new job we had to move, and currently our house is on sale in a tepid market

4) We have more debt than I am comfortable with, BUT we have a surplus every month. Right now, we only owe on my car, the wife's car and a couple hundred on a no interest jewelery card I got

What I wanted to do is pay off the cars with a snowball, then use that to hit the mortgage on a new house (once ours sells)

We had been doing great prior to buying the house, we had our emergency fund, and were snow balling my wife's old car, but then it got totaled. My paid off car bit the dust a couple months later

In my mind, I should be getting debt free (minus the house) first then start investing (outside of my 401k contributions of course), do you agree?