Posted: 11/5/2006 5:57:57 PM EDT
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Here's the story: I'm a 20 year old single soldier (E-3). I live in the barracks, and aside from food, toiletries, and cleaning supplies, I have no monthly expenses (no gas, insurance, phone, internet, etc.). My goal is to squirrel away as much of my paycheck as possible. I figure I can make it on about $200 a month, given my lack of bills. That will leave me with around $1500-$1800 (after deductions) a month to place into investments and savings. Of that I would like to put at least $1000 (and probably more likely $1200-$1500) towards stocks and/or mutual funds each month. The remainder of my disposable income I would like to put into a money market account for savings. My goal with the stocks and mutual funds would be to earn additional income, which would be redistributed into more investments and savings based on my future goals. My intention with the money market account is to establish an emergency fund of $3,000-$5,000, with anything over that amount being available for luxury purchases (guns, ammo, maybe a vehicle in a year or two). My target growth for stocks and/or mutual funds would be 8-10%. My target for a money market account would be 5%, but I'd take 4% if it meant going with a more reputable firm. Presently, I have $11,000 in cash with which to start. That's my story, and here's my problem: I'm no financial wizkid. I know how to save money, but I don't really know how to make it grow. For example, are my goals realistic? How about if I invest x dollars in y stock that pays z dividend, how much do I make? Do I get dividends quarterly or annually? What do I need to look at to determine which stocks I should buy if I'm buying for dividends and not based on pure speculation? Which firm should I go with? I've been looking into Scottrade, would they be a good choice given my situation? For a money market account, which should I go with based on my goals? Are they easy to set up and maintain, and do they really allow easy access to the money? Can I effectively manage all of this via the internet? These are just a few questions I have right now; I'm sure I'll think of more later. I appreciate any help offered. |
great post! let's see if we can get you off on the right foot here...
ok, so you have a long investment horizon, which is likely to include buying a house and getting married, and maybe a couple of kids. knowing this will help guide how you invest your current funds and your monthly contributions as well.
excellent, you have a handle on your expenses. keep a lid on those and you'll be much better off down the road than your fellow americans, most of whom live by their credit cards.
jesus, this is like a dream come true. a 20 year old who doesn't need a mustang GT, a jetski, and a 46" plasma TV! good going -- you have your head screwed on right.
ok. so you have a monthly expense budget, which is a huge first step. give yourself a little discretionary money in that budget. if you don't need it, drop it into your investments; but if you want to, use it to take your GF out on the town. all work and no play, then suddenly Corporal_Chaos is a dull and sex-starved boy.
now then, let's separate out a few things here. first things first, you need an emergency fund. in your case, this may be a tad smaller than most other folks, as uncle sam is keeping the roof over your head from leaking, and it's not likely you'll lose your job because of "business conditions", etc. so, you probably could get by with just 3-4 months of expenses in your checking acct. i got ahead of myself; you can give yourself some structure by having three money bins: 1) checking account, where you pay your bills out of. 2) money market account, where cash sits while awaiting a purpose. 3) brokerage/mutual fund account, where your securities are held. *most* of the low cost brokerage firms allow you to do all three under one roof. in my case, i use my local bank for my checking account, and Fidelity Investments for 2 and 3. i keep a bare minimum in my checking account, just enough to cover about 2 months of bills. the reason: interest rate in a checking acct sucks. so i keep the majority of my cash in my Fidelity money market fund, where it today is happily earning 5.10% annually. in Fidelity-land, your money market fund is actually part of your brokerage/mutual fund account; it's the "settlement" bin for your trades. through Fidelity's website, i can electronically transfer funds to/from my bank's checking account. this was painless to set up and is painless to use. my employer's check is electronically deposited into my checking account, and subsequently i transfer any "excess" to my Fidelity acct where it immediately is earning more than my checking account could ever pay. my local checking account is handy however when i need a money order or some such -- they do money orders for free at my local bank. and, i have access to a very large number of no-fee ATM machines. let's move on...
i highlighted the word income above since i think that you may need a little clarification on the term itself. with securities, or actually ANY asset, we talk about "growth" and we talk about "income". they differ as follows: if you buy a non-dividend producing stock for $10, and sell it one year later for $20, you could say that you "grew" your investment by 100%. this is growth, sometimes referred to as "appreciation". it works the same way with real estate; you buy a house, it costs you X; sell it 20 years later for perhaps 3X. ok, so what's the problem here? well, until you sell something that has grown, you gain no financial benefit from it. when you do sell it, you get the proceeds as a capital gain. you can take those gains and buy a fishing boat or a restored 1968 camaro. very nice! let's contrast a growth investment with an income-producing investment. let's say you buy a money market fund, one which pays 5%. underlying the money market fund are bonds and other securities which spin off money. every month you get a check for the interest (sometimes referred to as the dividend). a similar situation exists with a rental property; you buy it, rent it out, and (hopefully) a check shows up in your mailbox on the 1st of every month. this provides you with a steady stream of income. very nice! what does this mean to you? well, the trouble starts with taxes. interest and dividends are treated as "ordinary income" and are taxed less favorably than capital gains. from a tax perspective, in your highest income years (you are just starting towards them, btw) you should seek to minimize your additional income in favor of long term capital gains. but, later in life, when you are retired and no longer have/need/want a job, you'll need that income stream to live off AND you'll be in a much better tax position (very low AGI). there is no single answer here but generally early in life you want growth instruments and later in life you want income instruments. and, in the middle of life you want a mix of the two. when folks talk about "asset allocation" they are generally speaking about what percentage stocks (aka equities, things that grow) and what percentage bonds (things that spin off money) they should have. the current "rule of thumb" is that you should have 120 minus your age in stocks. you are 20, so 120-20 = 100% stocks. this is only a guideline, however; some folks don't have the stomach to watch 10% of their money disappear over the course of a few weeks due to market turbulence. but if you can ignore the day to day fluctuations and focus on the long term, you'll be fine.
ok, i covered this partially above, and it sounds like you are already sorted out on the emergency fund part. a money market is a great place to park it, and rates right now are quite attractive.
you have done your homework; that is a very reasonable number. some years it will be higher, a lot higher perhaps. other years, not so great. but your span of 8-10% is in line with historical market averages.
what you get in a money market account has less to do with what firm your money is parked at and more to do with the Federal funds rate and the prevailing wind in the bond markets. there may be 0.25% (25 basis points) difference between competing money market funds but that's about it. when the Fed moves, your money market will move with it; there is little you can do to change that. prepare yourself for 2.5% money market rates if the Fed thinks the economy needs a kickstart and gradually ratchets down the prime rate. this won't happen overnight but we invest in a cyclical environment and there is nothing you can do about that.
no one is. well, Warren Buffet, maybe. but the rest of us just have to do our best AND take a long term approach. getting rich quick happens once in a while; but so does hitting Red/19 on the roullette table. at your age, based on your aptitude, attitide, and willingness to learn you are already ahead of 99% of your peers.
yes.
honestly, i don't think you should be looking at buying individual stocks right now. don't take this the wrong way but you have a little ways to go before you can read and evaluate a company's books and their future prospects. your first stock purchase is probably a year or two or three away; don't rush it. the last thing i want to see is you get discouraged about investing because the first stock you bought lost 20% in a few months. and, it's a two way street; you have to know when to buy and when to sell. the last part can be tricky. there is no more expensive eighth's on a stock price than the first eighth and the last eighth. every time you try to eek out "just one more eighth" you are going to get you ass handed to you. so on that note i think the best bet is to find you several well-diversified mutual funds that will make up the core of your portfolio. no scary ups/downs to worry about, just steady diesel engine-like performance. from that base you can build an investment portfolio with a long time horizon. if you want to pursue individual stocks at that point, you'll be in a much better poisition, and you won't be risking a large percentage of your portfolio.
Fidelity, Vanguard, and T.Rowe Price will all do the job for you. they are competetive on brokerage rates and have fund supermarkets -- not only selling their own funds but thousands of others as well. do not go strictly on what a brokerage trade costs you. you want to be an investor, not a trader. traders look for bare minimum commissions; investors don't trade very often so the last dollar on a trade doesn't amount to much. what an investor wants is research, breadth of services, and reliability.
your money market account should be at the same company as your brokerage/mutual fund account. this will simplify trading, settlement, and taxes. all of your money will be shwon on one screen, save for your checking account if you keep that at a local bank. you will be able to run portfolio analysis on your account and get a quick, accurate view of your asset allocations without having to keep an external spreadsheet in sync with several firms.
i have never set foot in a Fidelity office. i do *everything* via the 'net. i have a brokerage/mutual fund account, a 401k, a regular IRA, and a Roth IRA with Fidelity. it could not possibly be easier to manage. i move money electronically to/from my local bank; it takes 5 mouse clicks and a day or two to clear. very simple.
here are you next questions: 1) should i open an IRA? what are the benefits of an IRA? what's this Roth thing? 2) my employer, the Fed Govt, has a plan called TSP. what can it do for me? 3) what are good choices for core mutual funds? 4) how can i get more information on mutual funds? 5) what is an ETF, and damn how do they keep the expense ratio so low? 6) why are some funds better at tax time than others? 7) why should i hardly ever buy a fund in november or december (outside of an IRA)? ps if you are seeing a trend above, it's called "keep the money you make -- don't give it to the IRS". money you keep in your 20's is so very valuable due to the amount of compounding time available to you. do not underestimate this! ar-jedi disclaimers: i am a long time Fidelity customer. across my brokerage/mutual fund, 401k, and IRA accounts i have a non-trivial amount invested in several Fidelity, Dodge and Cox, Third Avenue, Artisan, Bridgeway, and Oakmark funds, and in several ETF's. I have a non-trivial amount in Fidelity Cash Reserves money market fund, awaiting the cash purchase of a house next summer. i have no formal financial education or training whatsover; i have a pair of engineering degrees. |
correct, the TSP is the basically Fed Govt's 401k (tax deferred) plan, www.tsp.gov/uniserv/features/index.html the TSP will be one part of the OP's overall investment plan, as there are significant tax advantages to putting money into the TSP direct from your paycheck. however, like a corporate 401k, the TSP requires that you make your own investment decisions. this is what usually trips folks up and is the kind of info that the OP is looking for above. moreover, they get screwed if they don't understand how to roll the TSP into an IRA when they separate from the military. instead, they take a lump sum payment and get hit with a crippling tax bill. ar-jedi |
| Go to www.tsp.gov and look at the L funds. They're a combination of the five fund classes the TSP offers that automatically rebalance your contributions-heavy on stock indexes while you're young, more conservative as you get older. Choose the date you think you'll retire, invest in the L fund that matches that date, and relax. It makes more sense than tracking individual funds in the TSP. Don't ignore the TSP if you're getting deployed- your contributions from a war zone and their earnings will be tax free. |
I can't imagine why you'd roll the TSP into an IRA when you get out of the military. No IRA is going to be as cheap as the TSP. Some may perform better, but .06% is about as cheap as any fund is going to be for fees. Even Vangard is higher than that. I never knew about the TSP when I was in the Army, nobody ever took the time to explain it to me. I just thought it was some kind of scam to take your money. I am a federal employee now (will be quitting next year) and I intend to keep my TSP account for life. In three years, I have amassed a pretty serious account balance. |
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Corporal Chaos, keep doing what you're doing, follow ar-jedi's advice and you will have it made. I am very impressed at how mature you are with money at your age. The next 20 years will FLY by and you'll be sitting on a pile of money while your friends are struggling to stay on top of their minimum payments. Way to go! Here are some other books you may be interested in reading that will keep you motivated to do what you're doing -- and they're fun reads as well: Richest Man in Babylon Millionaire Next Door One last piece of free advice: stay out of debt! |
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Speaking as a reformed stockbroker and very successful investor, I'd advise you to concentrate on aggressive growth no-load mutual funds. Forget the usual advice you'll get about diversification. At your age, you want your money to grow. Bonds and index funds and REITs and annuities are for much later when you have a lot of capitol to protect. I recommend the following funds to start: FICDX, FLATX, FOSFX, FSEAX, FSMEX and FSLBX. These are all no-load Fidelity funds that you can get into with a minimum starting investment. Start with one or two and ad more as your cash comes in. Keep an eye on things, as you’ll want to move money every now and then. The reason I’m suggesting aggressive funds, is, 1. no brokerage fees, 2. it’s easy to move your money on the website, 3. even if the market goes the wrong way and you get caught, over time your money will still grow more on the average than if you were in more conservative instruments. Have fun, John |
john, with apologies, please don't do this. the original poster wrote,
he doesn't understand how to "keep an eye on things" when the funds you profer have such high risk due to both currency fluctuations and energy dependencies. these are not turnkey, foundation funds which can be placed on autopilot while the OP learns the ins and outs of investing. these are sectors-specific funds that require a lot more insight as to how currency and global markets work. i even add that there is a smidgen of "performance chasing" in them as well. as a seasoned investor you know to avoid that. even morningstar warns Do you really need a Canada fund, especially now? and This mutual fund has several strengths, but its recent pace is unsustainable over the long run. and We hate to say "I told you so," but investors need to recognize this fund's risks. that said, the OP is looking for basic investment strategies and information. to that end, already someone in the Fed's TSP has recommended the TSP "L" (lifestyle, aka target retirement date) funds as a way to get started. they are fantastic for folks like the OP to use while getting oriented in the investment world. you wouldn't go to a gun show and buy the first firearm that someone said "buy this!" to you, would you? you'd either have gone to the show with a plan ("i'm going to buy a Glock G19 since i need a reliable CCW pistol") or you would have gone to the gun show with the thinking that if you did see something that interested you, you'd take the idea back home and research it a bit to make sure you aren't buying some POS ("damn, i'm glad i didn't buy that gun at the show, everyone on ARFCOM said it's a jam-o-matic."). same situation here. let's teach our young private how to fish. he'll retire in style. giving him solutions to the problems he hasn't even yet identified doesn't really help. i'm sure that when you were 20 you had your investment head up your ass, just like i did. the internet sure has made it easier to learn; but you have to start at the beginning and work towards then end, and not the other way around. ar-jedi ps: i think that a low cost, all ETF, mixed market, global exposure portfolio will beat the 6 fund mix you wrote above, and do it with less risk and less volatility. check back with us in 5, 10, and 20 years. etf.seekingalpha.com/article/7776 |
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ar-jedi, you make good points about our E-3 keeping an eye on things. For a small amount of money, this guy - http://www.fidelityadviser.com/ - will do it for you. I've been through a lot of so-called fund gurus with mixed success in the last 35 years. This guy is the best I've found by a long shot. Using his advice in my and my wifes self-directed IRAs, we made 23.6% in 2005. We've done better than that some years and not less than 16% in the last 5. This year is lookin' real good! My work no longer allows me the time to analyze and track funds. I doubt that I could do as well if I tried. John |
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Corporal_Chaos, You sound like me when I was the same age, rank and didn't know jack about how to invest (some may still say that's the case). Anyway, here we go: Sometime next week, I will be posting a thread I will call "My 10K Portfolio". It is a real investment with real money (mine) and not just theoretical. I offer no guarantees. It will start with $10,000 and I will keep the thread updated when I make adjustments to the portfolio. I plan on posting for at least a year on portfolio progress. 90% of the makeup will be "buy and hold", with most of those stocks paying a dividend (yields in the 7-20% range). The dividends will be used to buy a mix of higher risk stocks with an eye towards moderate and aggressive growth. I will also periodically add some cash and add to the dividend high-yield stocks. There will be no shorting or buying on margin. I am presently settling some other stock sales and adding some cash. Then I will post the portfolio makeup and restate the goals. The intent is to build a portfolio that does not have to be tinkered with on a daily basis and will increase shareholder wealth. Here is what is already in the portfolio: AHM - 25 shares @ 34.50 MCGC - 50 shares @ 16.64 NEW - 25 shares @ 39.54 HTGC - 100 shares @ 13.10 SAI - 30 shares @ 19.71 Cash - $363. Current value is around $4,600. My current watch list: AHM NEW MCGC HTGC SAI NFI AHR FRO NRF PGH IMH KBH CZN HMB ICF RWR DFC LIFC VC RBC PPL SIRI BLDP PMCS RFMD FNSR EMKR AOG WAVX JDSUD GOOG WMMVY.PK To others following this: I realize mortgage companies (such as NEW) are vulnerable to decrease in future profits due to a higher percentage of high-risk loans (such as interest only loans) in their portfolio. Jim |
jim, if you don't mind, i'd like to play along. however, i'll approach the problem vis-a-vis mutual funds and ETF's. so that fair comparisons can be made and to simplify things, can we agree on the following: 1) a stock or ETF trade is priced at $20 round trip ($10 buy / $10 sell). 2) mutual funds have to be currently open to new investors. 3) tax consequences are not considered. (otherwise this will get impossibly complicated). if you have other suggestions, go ahead with them. we can start dec 1 if that seems like a reasonable date. ar-jedi |
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ar-jedi That's fine, although right now I have free trades. I was going to mention tax, only because I'm investing in some REITs, which carry a higher tax burden. However for the purposes of the investment, I agree they won't otherwise be factored in to the portfolio. I was thinking of kicking it off on 1 Jan, because of some distributions that will pay in Dec. Otherwise, I may be calling it "My 9K portfolio". I was going to buy NFI IMH AHR KBH next week, although I'm still weighing the risk of NFI. I may buy CZN instead, since this will be weighted heavy in the mortgage and real estate sectors. The NFI dividend is probably going to take a significant hit in 2007. It sure pays good at the present time. Jim |
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jim, ok, i think we have a plan. since a month and change isn't going to make any real difference in investing philosphy, i can write out my selections now. my $10K funds portfolio is mapped out as follows, in 4 equal $2500 chunks: 25% international fund: DODFX, Dodge and Cox International Stock Fund 25% balanced fund: FBALX, Fidelity Balanced Fund 25% midcap value stock index: IJJ, iShares S&P MidCap 400 Value Index ETF 25% go-anywhere value find: TAVFX, Third Avenue Value fund for you style box-literate folks, this works out to 20 15 14 19 13 10 04 03 02 the above portfolio currently holds 7.3% cash, 48.32% US stocks, 33.68% foreign stocks, and 10% bonds. the geographic composition is 63% US and canada, 14.6% europe, 10.4% japan, 2.3% latin america, and 8.8% pacific rim excluding japan. the overall portfolio ER (expense ratio) is 0.67%. put another way, you pay the fund managers a total of $67 per year. the total commissions paid to get to this portfolio would be $20 (in and out of IJJ) at the above agreed-upon transaction cost of $10. here is a single yahoo page with all four of the selections above: finance.yahoo.com/q/cq?s=DODFX+FBALX+IJJ+TAVFX click on the symbols to "drill down" for more detail. here is a portfolio charting tool, an accurate one in that the pricing data accounts for fund distributions. most other charts (e.g. yahoo and MSN) do not, and therefore can not be used to compare portfolios as the fund NAVs are not adjusted to account for annual distributions and resultant step function NAV changes. stockcharts.com/charts/performance/perf.html?DODFX,FBALX,IJJ,TAVFX note: use the slider along the bottom of the chart to expend the timeline. --- best of luck with your stock picking jim. ar-jedi ps#1: the holding info for any portfolio can be found by using Morningstar's excellent free analysis tool, called Instant Xray. portfolio.morningstar.com/NewPort/Free/InstantXRayDEntry.aspx?tsection=toolsxray&dt=0.7055475 simply enter your stock or fund symbols with their corresponding values, and hit "Show Instant Xray". if you want to know the makeup of a single fund you are considering, put the fund symbol in and use $100 as the holding value. ps #2: if you are wondering where additional money might be invested, i would add two other asset classes: small caps and REITs (real estate investment trusts). with only $10K it doesn't make much sense to have 6 differet asset classes. but if you had $15K, i'd add to the above portfolio by putting $2500 into IJS (iShares S&P SmallCap 600 Value Index), and $2500 into TAREX (Third Avenue Real Estate fund). hence, the resultant portfolio looks like this: finance.yahoo.com/q/cq?s=DODFX+FBALX+IJJ+TAVFX+IJS+TAREX corresponding style box: 13 13 12 12 14 09 12 09 05 ER=0.68% 4.94% cash, 59.1% US stocks, 28.6% foreign stocks, 6.71% bonds. 71.2% US and canada, 11.9% europe, 7% japan, 1.8% latam, 7.6% pacrim ex japan. and finally, the purchase/sale of IJS would cost another $20 in commissions. stockcharts.com/charts/performance/perf.html?DODFX,FBALX,IJJ,TAVFX,IJS,TAREX *** edited to fix a typo in one of the links. |
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measured for only a year? this seems easy to call omar's porfolio is a either a big win or big loser. given he chooses interest rate sensitive concentrated holdings now, i think it will be the loser. ar-jedi's portfolio predictably can be a steady gainer and most likely will have a positive return of some sort after only a year... |
good advice; here is the link to the financial version: www.amazon.com/Bogleheads-Guide-Investing-John-Bogle/dp/0471730335 ar-jedi |
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Update: Here's what is now in the portfolio: AHM/25 AHR/100 CHDX/50 FXI/10 HTGC/100 NEW/25 SAI/30 BIDU/3 Still looking at these: NBIX PGH EWS IIH SHLD AHR and HTGC are DRIPS, so their dividends will be used to purchase additional shares of each stock at no additional cost. Edited to add Cash: $1425, total portfolio value: $8700 |
I've had mine for two years, contributing 15% the first year and 20% this year. It's doing pretty decently as well. 
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Take it from someone who ran $8K up to 152K and back down to -22K. "Playing" stocks has a downside. However, if you DON'T have and DON'T ever get a margin account, you should be fine. PS: Cheap stocks are cheap for a reason. Jim |
Sorry man. The internet connection I was using started sucking pretty bad; I couldn't even log on long enough to check my LES. Decided to pony up for my own internet and it just got turned on today. Just getting up to speed on everything right now. I'll post more later on my progress and intentions. Until then, feel free to keep firing off the great information; it's very helpful for a novice like me. |
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I think you should look at mutual funds. Professional Management, Diversification. etc etc etc.... check out the performance history. I market Legg Mason funds primarily and our 3 or 4 fund approach has consistently averaged 12%. Your money will double appx every 6 years at that %. How many doubling periods do you have left in life? :) My goal is 100k by 30.... meaning I want to save 100 grand by the time I reach 30 yrs old. Im 24 now. W/ 100k doubling every 6-8 years, you get my point. |
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This is a great beginners thread to investing. Thanks for the great information arjedi and all. Mayabe this trhead could get a tacky at the top of the page. I have several questions for you all but am still folowing the links and processing all the information. |
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Read all you can... stand. Invest in a few (5 or 6) really good companies. At my age I am looking at a good dividend stream as well as stock value appreciation. I am not a day trader. I am an invest and hold type. Simplier. I own NFI in my self directed Roth IRA, regular brokerage account, and I buy it through the direct stock purchase plan. My grand kids have it in their accounts as well. No, they do not know about the accounts. They are 1 & 3. I also put about 12% in the TSP C, S, & I funds. I am retired Army (SFC) working as a GS10. Join USAA when you are able. They have a discount brokerage firm. They will help you keep track of your investments, insure your home one day, insure your car and so on. Websites: www.investorvillage.com www.nfi-info.net www.ncans.net www.thesanitycheck.com Do your due diligence and good luck. Sam PS: I am looking at DNDN. I do not own it so far. It has possibilities. Cancer vaccine. |
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Damnit all to hell. I just tried to open a Fidelity account (FINALLY got around to it), and was denied because they couldn't verify my identity online. Now I'm going to have to waste more time mailing in an application if I want to open an account. I hate the errornet sometimes. P.S.- AR-Jedi, could you do me a favor and answer those questions you posed in your first post? P.P.S.- How's the $10,000 portfolios looking Jedi and Omar? |
later in life, when you are sitting on a pile of money, you will not have considered that "wasted time". many folks DO NOTHING ABOUT THEIR FUTURE because they would have to fill out a form, lick an envelope, stick a stamp, and walk to the blue box on the corner.
1) an IRA is a tax-advantaged account which holds securities (typically mutual funds and stocks). a standard IRA is "deductible" in that the amunt you contribute each year is deducted from your gross income, thus lowering your tax bill. in effect, you are funding your standard IRA with "pre-tax" money. your IRA grows tax free, which is huge leverage. current law is that you can contribute up to $4000 each year to your IRA, and after age 70.5 there are mandatory distributions. a Roth IRA has a different twist. you contribute to a Roth IRA with "after tax" dollars, and thus a Roth is termed a "non-deductible" IRA. the Roth IRA is advantageous over a std IRA in that withdrawals are never taxed, and there is no age when you are forced to begin withdrawals. why doesn't everyone use a Roth over a std IRA? the IRS has income limits which prevent high AGI taxpayers from using a Roth, that's why. you can contribute $4000/year as well to a Roth IRA. in general, you should choose a Roth IRA over a std IRA -- assuming you meet the IRS's requirements for a Roth. more on Roth IRA's: en.wikipedia.org/wiki/Roth_IRA 2) the TSP is a post unto itself. for now, you get a link: en.wikipedia.org/wiki/Thrift_Savings_Plan ---------- 3) good choices for core mutual funds include so-called "Balanced" funds that hold both stocks and bonds. these funds try to provide growth in bull markets and ballast in bear markets. Fidelity Balanced Fund (FBALX) is one example. ---------- 4) a ton of info on mutual funds is available at the websites of the excellent fund analysis company Morningstar, and at the large mutual fund companies of Fidelity, Vanguard, and T. Rowe Price. ---------- 5) an ETF (exchange traded fund) is a basket of stocks; typically the basket is a defined index of some type. this differs from a mutual fund in that the criteria for stock selection is defined externally, rather than internally. for example, the ETF with the symbol "SPY" contains all of the stocks in the S&P 500 index. you buy and sell ETF's just like a stock, except you get the diversification associated with holding many stocks. a mutual fund's stock holdings are at the whims of the manager, and thus you are dependent on the manager for good calls. an ETF tied to an index means that your return will be the same (or nearly so) as the index. there is a lot of data supporting that most active mutual fund managers are unable to beat market averages, hence index funds (mutual or ETF) can be an effective investment tool. since ETF's require very little manager involvement, their expense ratios are very low. ---------- 6) mutual funds held in non-tax advantaged accounts (i.e., outside of an IRA, TSP, or 401K) should be viewed not only on a total return basis but also on how tax efficient they are. the reason you want tax efficient funds is that they minimize the bite that the IRS takes out of your profits. in an IRA or 401K, it doesn't matter at all how tax efficient a mutual fund is -- the IRS is getting none of it. tax efficiency in a mutual fund takes thinking on the part of the fund manager (low portfolio turnover, for example). tax efficiency also requires that you put the right funds in the right place. bond funds are NOT tax efficient and therefore should be put in an IRA versus a taxable account. ---------- 7) from a tax perspective, mutual funds are "pass thru" investment vehicles. you give the mutual fund manager money; he/she attempts to make more money using your money by investing (buying and selling) securities like stocks. if there are profits from this investing, the NAV (net asset value) of the fund increases -- which is good for you. however, eventually someone has to pay the taxes on the profits made from trading the stocks inside the mutual fund. the mutual fund manager isn't going to pay the taxes, it wasn't even his money being invested -- it was yours. hence, you have to pay the taxes on these profits. for most mutual funds, november and december is when this happens. the funds declare what are known as "distributions", which is a fancy way of saying "here is the tax burden for having owned this fund for a year". if you purchase a fund in november or december, you will be burdened with a year's worth of taxes despite the fact that you have only owned the fund for a few months. the IRS does not discriminate between you and the the guy who has been in the fund for an entire year. so you will end up owing taxes on profits you never even saw. hence, don't buy funds late in the year -- you will get a tax bill for FREE with it -- not good. note that this is a "don't care" inside an IRA, TSP, or 401K -- these are tax protected accounts.
did you really just ask how a portfolio is doing after only two weeks time???  ar-jedi disclosure: i hold positions in FBALX and the ETF's IWS and IJJ --- edited to correct a few spelling and grammatical errors... 
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Update: What is in the portfolio: AHM 25 AHR 100 CHDX 50 HTGC 100 NBIX 50 NEW 30 SAI 30 Share value as of 11 Dec: $6,699 Cash: $2,326 Net Asset Value: $9,025 I am planning to increase SAI to 100 shares, buy 100 shares of LVLT, increase AHR and buy one other undetermined stock, possibly PGH - Pengrowth Energy Trust The rest will be in cash and I plan to have the account at $10,100 Net Asset Value on or soon after 1 Jan 2007. The extra $100 is to pay for the stock purchase @ $10 per trade. I currently have free trades, but I'm including that purchase cost so all expenses are included for anyone who decides to do something similar. I've been waiting for SAI to drop, as approx 100 million shares are in lockup after the IPO. They announce earnings today, which should be a good news story. I expect a spike up and then trend back down. After late January, I expect this thing will start a steady rise, definitely a long term hold. NBIX: I don't recommend this stock. It is my contrarian pick. It took a major haircut in the summer (80% drop). I'm waiting to see if some drug trials come out in their favor. The company is worth about $5/share, so most of the bad news is out and priced into the stock. It had to really suck for anyone who held this in the $70 range and still has it . Anyone who was short NBIX in the summer made a huge amount of money on the way down. I expect NEW to drop further and will buy more if that happens. Jim |
You roll it into an IRA to avoid tax penalties on a lump sum distribution. You can roll it into an IRA and still keep contributing to it, one where the employer continues to match contributions. Also, if you are under FERS, you may not be vested unless you have 3 years service under FERS, and lyou will lose the agency automatic contribution back to TSP when you seperate. |
FWIW, Fidelity, among others, does not charge a custodial fee for IRA's. ar-jedi |
No, they take it right off the top when you deposit it.
1. Nobody said anything about drawing it out. If you draw it out and don't roll it into something else within the time period, you're correct, you will face tax penalty. 2. Yes you could. Or you could leave it alone and start another IRA where your employer may match contributions 3. Under FERS, you are NOT vested unless you have 3 years. I'm not sure there is any exception to this. You are correct in that you will lose your 5% if/when you separate prior to the 3 years. |
no. i have both a Roth IRA and a traditional IRA at Fidelity, along with my brokerage and 401k accounts. i've not been eligible for the Roth IRA for about 5-6 years but i have been contributing the max allowable to the traditional IRA since then. there is no custodial fee. ar-jedi |
hey C_C, any updates for us? ar-jedi |
vanguard is an excellent operation. i will note one thing for you, however: beware the fees associated with low balances at vanguard. other than this, vanguard has an outstanding reputation when it comes to minimizing costs to the investor. they certainly have some of the lowest cost index funds in the industry. you'll want to peek in at the Vanguard forum on Morningstar once in a while... socialize.morningstar.com/NewSocialize/asp/AllConv.asp?forumId=F100000015 ar-jedi |
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My quarterly account statement from TSP stated the following: "After December 31, 2007, separated TSP participants withdrawing their money and active participants taking age-based withdrawals will be able to transfer money directly from their TSP accounts to Roth IRAs. However, in the beginning, transfers to Roth IRAs will not be available to participants who have an average gross income of $100,000 or more or to participants who are married, but filing separate tax returns. More information about this opportunity will be provided once the IRS issues regulations." This sounds like tax-deferred savings will be able to be withdrawn tax free (from Roths). I am definitely keeping my eye on this. |
paging Cpl Chaos, paging Cpl Chaos... ar-jedi |
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Investment Noob here, have a few questions. What are the fees both up front and and ongoing in regards to a Roth IRA? Is there a minimum balance? If you are trading online how does that work if you have say a scottrade account or something similar? Also, I would like any advise form anybody here that is into day trading. Thanks |
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Investment Noob here, have a few questions. What are the fees both up front and and ongoing in regards to a Roth IRA? Is there a minimum balance? If you are trading online how does that work if you have say a scottrade account or something similar? Also, just for the hell of it anyone into or thinking of buying a position of ASPV, what say ye? Thanks |
i only have direct experience with Fidelity Investments. there are no account fees associated with a Roth IRA at Fidelity, either up front or ongoing.
yes and no. if you want to do a one-shot deal, the minimum IRA (std or Roth) at Fidelity is $2500. however, you can sign up for something they call a "simple start IRA" which requires only a $200/month deposit. info link
i don't understand what you are asking here. please restate the question. but i'll take a guess at what you are getting at: within a Roth IRA account, you can hold securities of many types -- including stocks, mutual funds, ETFs, and bonds. trading inside a Roth is the same as trading inside of any other brokerage account, with one big difference: immunity from the IRS. this cuts both ways, however. while your gains are not taxed, you also can't write off your losses. at Fidelity, stock trades in a regular brokerage or IRA account (std or Roth) are dependent on your total assets at Fidelity and/or the number of trades you make a year. for example, i pay $10.95 for a stock (or ETF) trade. i believe the highest rate is $19.95 per trade and the lowest is $8.00 per trade. info link that said, i am not a "trader" per se, as i usually buy and hold positions for the long term. i think i made a total of 7 trades in 2006. the pluses for me are that Fidelity's "fund supermarket" is larger than at any other online brokerage, and their tax tracking summary is second to none. ar-jedi disclosure: i am a long time (>15yrs) Fidelity customer with brokerage, IRA, Roth IRA, and 401K accounts. |
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