Investment Strategies

[SteadyMercury]

He doesn't need to do anything that someone who calls MSFT "steady" says to do.

Build an emergency fund that is not invested in stocks, because if you have volatile investments in it you can't count on it being there when you need it. If a financial crisis like 2001/2008 happens that causes you to lose your job you might find half of it is gone right when you need it the most.

Then decide investing for the future vs. paying down debt. This depends on the interest rate of your debt but not as a straight comparison vs. potential investment returns.

 

[sameech]

He doesn't need to do anything that someone who calls MSFT "steady" says to do.

Build an emergency fund that is not invested in stocks, because if you have volatile investments in it you can't count on it being there when you need it. If a financial crisis like 2001/2008 happens that causes you to lose your job you might find half of it is gone right when you need it the most.

Then decide investing for the future vs. paying down debt. This depends on the interest rate of your debt but not as a straight comparison vs. potential investment returns.

It is a steady performer in relation to the market. If you want 2.5% "steady" on a Tbill feel free. In the real world, part of financial security is the ability to readily access credit at an affordable rate. You will not be able to do that if you do not have a good credit score. You cannot have a good credit score with no credit history for them to look at. Carrying debt is a necessary part of good financial planning for the future for we mere mortals.

 

[SteadyMercury]

It is a steady performer in relation to the market. If you want 2.5% "steady" on a Tbill feel free.

In the context of an emergency fund an asset that can drop 50% in value isn't a wise choice, for reasons already explained. It isn't about what I want, it is about risk vs. reward for the part of your savings you can't afford to have dropped greatly in value when you need it.

Carrying debt is a necessary part of good financial planning for the future for we mere mortals.

Debt itself isn't bad (depends on the debt and it's use) but claiming it is "necessary" is again wrong.

 

[william the wie]

Look up DRIPs and DSPs on the web. It has a low ceiling for throughput but utilities paying 3-5% discounts for direct purchases of treasury stock meant that I went up 20% in 2000. That was still a bad year for me. Still if you have less than $20,000 moving money through a candycorn style portfolio should generate a 49.9% return most years.

 

[candycorn]

I'm learning more about investing. The main thing that has been holding me back are some feelings of apprehension. Experience is what I need and the only way I'll get it is by trying out more and different kinds of investments.

Dividends are nice, but I think if I wise up and focus on timing, I could make a lot in capital gains. Still learning about earnings per share (EPS), sector index funds, and trying to best understand how to predict the stock market. My reasoning is that the economy is made based on human needs. If I can figure more out about how people are changing, I can use that to figure out how the market is changing. If I were to invest in a sector index, health care would be it, followed by housing (REITs?), and scientific technology. The population continues to grow unhindered, so there will be more patients in need of care: ergo, more hospitals,

Planning to use bye/sell stock limits to make it easier to trade, while preventing slippage. I want the sense of reassurance knowing that dividends will continue pouring in while the index fund slowly grow in value. I feel like the young man who envisions hard-earned wealth through investing and trading... yet has done little with his money because of fear. It's tough, especially when you have to research select companies with whatever resources you have which, sometimes, is just paper and a pen.

I'm not earning enough $$$ to afford recklessness in vestments. If I put $800 into a stock and it crashes, that will be a stinging loss. I'll try a sector index fund first.

Are you totally out of debt with the exception of your housing? If the answer is "no", aside from retirement planning, you shouldn't be investing in anything.

Yeah that is bad advice. If you are paying less than your return in interest, it is still better to invest and pay down the debt overtime. debt is usually dischargeable in bankruptcy so acquiring assets should not take back seat usually unless you are paying loan shark interest rates. Besides, people need to do that which makes them feel the most comfortable.

And your "There is always bankruptcy" approach is "good" advice? If I were reading that, I'd be very dubious of the comment.

One thing Dave taught me (or better put...showed me) was that when you're not paying $350 a month to Visa, JCP, and Discover....you have $350 a month to invest or to give as gifts or to simply enjoy.

In my view (not trying to pick a fight or anything), people do not "need" to do that which makes them feel the most comfortable....kids do that.

 

[sameech]

And your "There is always bankruptcy" approach is "good" advice? If I were reading that, I'd be very dubious of the comment.

One thing Dave taught me (or better put...showed me) was that when you're not paying $350 a month to Visa, JCP, and Discover....you have $350 a month to invest or to give as gifts or to simply enjoy.

In my view (not trying to pick a fight or anything), people do not "need" to do that which makes them feel the most comfortable....kids do that.

Well obviously you were reading that or you wouldn't be commenting on it. It is just reality. People lose their jobs unexpectedly. Stocks are more readily accessible assets than they used to be. It makes no difference to what happens in bankruptcy whether you owe Visa $5K or $20K. If you can't pay you can't pay and your credit is screwed.

If you don't use credit, it is harder to get credit at good rates. That is just reality as well. I pay very low interest on my credit cards compared to most people I know. Not intro rates either. I had to buy and finance my brother's boat as a straw party because he couldn't get the credit. He was making about twice what I was but he paid cash for everything, literally had nothing on his credit report except that they checked his credit, and they wouldn't loan him the money.

Adults need to do that which makes them feel the most comfortable. Some people feel better renting, some feel better owning. Some people feel more comfortable buying new cars that are more reliable on their long commutes/travels, and some people feel more comfortable using the difference between what they have and what they could have purchased for other things.

 

[SteadyMercury]

I pay my credit card off every month, so interest rate isn't relevant to me I chose it for solid cash back rewards program and no annual fee.

 

[sameech]

I pay my credit card off every month, so interest rate isn't relevant to me I chose it for solid cash back rewards program and no annual fee.

And my MSFT stock has gone up close to 20% since I bought it last year and my JCP is up over 60% in about the same time frame. No stock in my portfolio is down from when I purchased it and they all are outpacing any interest I am paying on debt. The point is that if you have a good working strategy, then "oh you must be out of debt first" is crap logic for people to stay dependent on their 9-5 paycheck all their lives--people need to find balance. If their debt is well-managed, they need to be concurrently investing as well.

 

[Wake]

Paid off well over half of my $12,000 school debt. Would have paid off the fourth loan, but I paid for a loved one's root canal and permanent filling. I want to get locked into some index funds while I'm still so young, so they have 40+ years to grow.

 

[sameech]

Paid off well over half of my $12,000 school debt. Would have paid off the fourth loan, but I paid for a loved one's root canal and permanent filling. I want to get locked into some index funds while I'm still so young, so they have 40+ years to grow.

If you want to put all your eggs in one basket, I would probably look for funds heavy on the S&P side as opposed to the Dow side if I were you, not that I am a huge fan of funds.

 

[Flopper]

I'm 26, and use Scottrade to invest. It'd be accurate to say I'm an amateur investor.

Currently the only stock I own is GRHpC, and I've been wary since then. That stock is a preferred stock, giving dividends, and the overall value increased quite a bit since half a year ago. That's just being fortunate; there's a reason I haven't bought up more stocks. I fear I'd lose money on bad investments.

So, I'm thinking. It's tough trying to think of stable investments. What I'd like to do is start a dividend reinvestment program utilizing preferred stocks that pay high monthly dividends. The dividends I would have received are instead automatically used to buy even more of that same stock. That way my stocks will keep buying more of themselves, and then, when it's switched back to normal dividend payout, the reward will be greater. The risk in doing that, however, is constantly buying more stocks automatically in a company that eventually goes bankrupt.

Since I'm young, and am considering the odds, should I instead buy 5 preferred stocks at $300 each, and wrap each one into a DRIP? That way even if one or two go belly up the others would succeed. My knowledge in investing is little. More than some reading this not only have more knowledge, but valuable experience, too.

What do you reckon would be wise here?

I've been investing in the stock market about twice as long as you've been alive so let me offer you a few suggestions.

You seem to be interested in investing as oppose to speculation and trading. At your age that's great. Periodic investments whether they be dividend reinvestment programs or just dollar cost averaging will serve you well over the long haul. By long haul, I mean 10, 20 years, or more.

There is nothing wrong with preferred stock it your're interested in income. At your age, you should be considering some investments that allow you to participate more in the growth of the company.

If I were you, I would diversify by putting my money in various sectors. I would invest globally, not just in the US. Lastly, if you don't have enough money now to diversify, consider a mutual fund that does. There's plenty to choose from. Personally, I prefer index funds.

 

[Flopper]

Wake, do you have a 401K available through your workplace? If so, I suggest you try to put in the maximum the company will match - even while you're still paying off that 7K in debt.

The magic of compound interest is best seen through time. If you had 10K invested already, in another 40 years you'd have close to a million even if you never added another cent of contributions. I know that sounds impossible but check it out: Compounding

That's the argument to do it now. Most of us earn more year by year, and so can afford to contribute more in later years - but then you're also likely to acquire more financial obligations with time. The longer you wait, the more per month you've got to shovel into savings to catch up.

We are currently shoveling in every last penny we're allowed to into our 401 K - but that's only 22.5 K a year. Oh, it sounds like a lot, but not if you're expecting to retire in only 3 more years. We probably have enough to retire on right now - but another $100K or so couldn't hurt!

We have been extremely lucky: husband got hired the last 2-3 months before each company stopped giving pensions! Otherwise we'd need a hell of a lot more in our nest egg: it takes roughly $300K in assets to produce $1K/month of income (at 4% which is about what a 'guaranteed' rate of return tends to be).

If I were starting now, I'd look for a 'no load' mutual fund from someone like Fidelity that was aimed for people retiring in about 35-40 years from now. That's one way to get a pretty diversified investment base when you've got a very tiny portfolio. You've got DECADES: you can afford to make a few mistakes and you'll have time to make up for them.

Oh, very important detail: FEED THE SAVINGS FIRST! Every raise, bonus, or windfall should increase your savings. It's like 'found' money when you get a raise: if you put half of that into savings of some form or another, you'll never have a chance to miss it. We used to do US savings bonds because you had to wait 6 months to cash 'em in and you could buy one for $12.50......

In a few years, re-evaluate your situation: How secure is your employment, are your savings on track for your goal, what major expenses will there be in the next year or so. OH, and that's AFTER you've stashed 3-6 months of living expenses somewhere fairly liquid..... Do NOT!!! buy life insurance unless someone else is depending on your income. And when you DO buy, buy term and invest the difference. (And the one area of car insurance to 'splurge' on is......medical payments.)

Now, if you've got some assets from raises, bonuses, windfalls - that's when you pick a stock and buy a block (100 shares) if you can. You buy it for the DRIPs and to hold.......forever. We're the third generation to enjoy ownership of a lot of Niagara-Mohawk and Proctor & Gamble - and we hope to pass that on to our son.

If you've met your regular investment goals, there's nothing wrong with getting a little wild 'n' crazy with a couple of penny stocks or whatever - just don't get too greedy or quit your day job : ))

There are a lot of 'automated' programs available to assess your risk tolerance and your goals and point you towards a good mix for your particular style and situation. We've used the 'Motley Fool' one and also 'Financial Engines'..... any of them can give you some general idea of what might be appropriate for you now : ))

Absolutely, max out your your your IRA or 401K contribution. If you still have investment dollars then invest in the market. If you really have the investments skills to pick stocks, which not many people have, then buy stocks. Otherwise, invest in mutual funds. One thing I have learned about mutual funds is the type of fund and manger are the keys to the fund's success. The best advice, I ever got as a novice was to have rules for buying and selling and stick to them. Do paper trades for at least a year. If you can't make money on paper, you sure as hell can't make it using real money.

 

[william the wie]

low volatility indices like SPLV are good but I am contemplating using a "Beating the Dow" strategy on the Zambian stock exchange

 

[SteadyMercury]

And my MSFT stock has gone up close to 20% since I bought it last year and my JCP is up over 60% in about the same time frame. No stock in my portfolio is down from when I purchased it and they all are outpacing any interest I am paying on debt.

Congrats. You are taking a brief timeframe in one of the strongest bull markets in history to attempt to make a general point about investing vs. debt.

The point is that if you have a good working strategy, then "oh you must be out of debt first" is crap logic for people to stay dependent on their 9-5 paycheck all their lives--people need to find balance. If their debt is well-managed, they need to be concurrently investing as well.

They don't need to have any debt at all, and you're mistaken if you believe holding debt is necessary for people to escape being dependent on a 9-5 paycheck.

Paying off debt is like a guaranteed rate of return, most people would kill to get a guaranteed rate of return at the percentage most people's debt is held at.

Paying interest on a credit card is just poor personal finance skills, don't spend more than you can afford so you pay off your credit cards every month.

 

[SteadyMercury]

If I were you, I would diversify by putting my money in various sectors. I would invest globally, not just in the US. Lastly, if you don't have enough money now to diversify, consider a mutual fund that does. There's plenty to choose from. Personally, I prefer index funds.

Yep. There are so many index funds with very diversified holdings and extremely low fees, it is an easy way to get started in investing.

Despite everyone on the internet bragging they made blah blah money picking stocks, study after study has shown index funds usually beat active pickers.

 

[william the wie]

If I were you, I would diversify by putting my money in various sectors. I would invest globally, not just in the US. Lastly, if you don't have enough money now to diversify, consider a mutual fund that does. There's plenty to choose from. Personally, I prefer index funds.

Yep. There are so many index funds with very diversified holdings and extremely low fees, it is an easy way to get started in investing.

Despite everyone on the internet bragging they made blah blah money picking stocks, study after study has shown index funds usually beat active pickers.

Yeah but you need to write covered options to reduce the net transactions costs of rebalancing.

 

[Flopper]

If I were you, I would diversify by putting my money in various sectors. I would invest globally, not just in the US. Lastly, if you don't have enough money now to diversify, consider a mutual fund that does. There's plenty to choose from. Personally, I prefer index funds.

Yep. There are so many index funds with very diversified holdings and extremely low fees, it is an easy way to get started in investing.

Despite everyone on the internet bragging they made blah blah money picking stocks, study after study has shown index funds usually beat active pickers.

Yep.

I believe there're basically two types of people who make big money in the market, those that are lucky and quit before their luck runs out and those that invest for the long haul and follow proven investment strategies

People who are new to the market think you play the market. Nothing could be further from the truth. Managing investments is not play, it's work and the competition is fierce which helps explain why over 60 million people invest in mutual funds.
.
The secret to being a stock market guru isn’t to be correct but to make very loud and frequent predictions. As soon as the market moves in your direction you proclaim victory. The key is to make sure that no one ever can precisely nail down your original entry points. – James “Rev Shark” De Porre

 

[candycorn]

And my MSFT stock has gone up close to 20% since I bought it last year and my JCP is up over 60% in about the same time frame. No stock in my portfolio is down from when I purchased it and they all are outpacing any interest I am paying on debt.

Congrats. You are taking a brief timeframe in one of the strongest bull markets in history to attempt to make a general point about investing vs. debt.

The point is that if you have a good working strategy, then "oh you must be out of debt first" is crap logic for people to stay dependent on their 9-5 paycheck all their lives--people need to find balance. If their debt is well-managed, they need to be concurrently investing as well.

They don't need to have any debt at all, and you're mistaken if you believe holding debt is necessary for people to escape being dependent on a 9-5 paycheck.

Paying off debt is like a guaranteed rate of return, most people would kill to get a guaranteed rate of return at the percentage most people's debt is held at.

Paying interest on a credit card is just poor personal finance skills, don't spend more than you can afford so you pay off your credit cards every month.

Carrying debt is just dumb with a couple of exceptions.

One being that if you use your AMEX card at a retailer and their computers are breached, you're not going to lose any money. You use your bank-account linked debit card and depending on the breach...your account can be cleaned out. But AMEX is paid off every month so there is no interest being charged. Of course if you break out the Visa and try that, you'll end up paying a lot of interest.

 

[sameech]

Carrying debt is just dumb with a couple of exceptions.

One being that if you use your AMEX card at a retailer and their computers are breached, you're not going to lose any money. You use your bank-account linked debit card and depending on the breach...your account can be cleaned out. But AMEX is paid off every month so there is no interest being charged. Of course if you break out the Visa and try that, you'll end up paying a lot of interest.

Most people cannot afford to buy a car or a house in cash, so no; and a lot of businesses in my area won't take AMEX because of their terms and the way they operate trying to force retailers to extend terms of sale beyond which they are by holding funds hostage. A high-end furniture store owner told me that he was losing a fortune because AMEX customers would file disputes on the charges for things the warranties wouldn't cover and he would end up losing the items sold and the funds as it was too expensive to send one his trucks 1,000 miles to pick up the merchandise for returns when they decided they didn't like it afterall.

 

[candycorn]

Carrying debt is just dumb with a couple of exceptions.

One being that if you use your AMEX card at a retailer and their computers are breached, you're not going to lose any money. You use your bank-account linked debit card and depending on the breach...your account can be cleaned out. But AMEX is paid off every month so there is no interest being charged. Of course if you break out the Visa and try that, you'll end up paying a lot of interest.

Most people cannot afford to buy a car or a house in cash, so no; and a lot of businesses in my area won't take AMEX because of their terms and the way they operate trying to force retailers to extend terms of sale beyond which they are by holding funds hostage. A high-end furniture store owner told me that he was losing a fortune because AMEX customers would file disputes on the charges for things the warranties wouldn't cover and he would end up losing the items sold and the funds as it was too expensive to send one his trucks 1,000 miles to pick up the merchandise for returns when they decided they didn't like it afterall.

Those are the other exceptions. Cars are manageable in many cases; housing usually isn't.

I have seldom had problems using my AMEX.