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Old 11-07-2021, 07:11 PM   #1
SailinAway
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Default Investment for Beginners

Interesting thread "Investment Options," but largely over my head. Where do you think a beginner should start? Goal: Same as everyone's. Turn a small pile of cash into a large pile of cash. ;-) In a short period of time.
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Old 11-07-2021, 08:38 PM   #2
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Default Marketimer...

I subscribe to Bob Brinker's Marketimer. It is a good resource regarding mutual funds. Here is a list of books recommended on his web site. Up until a few years ago, he had a very popular radio show.

http://www.bobbrinker.com/books.asp
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Old 11-07-2021, 08:39 PM   #3
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Default Personal experience

Personal Experience: while still working, both wife and I, we naively thought that social security would be fine for us. Then I was eligible for a 401k at work. I naively figured why invest more than the company would match (up to 4%). Wife's employer had a simple IRA that was administered by a financial planner. When the wife's employer retired, everyone got to do do what they wanted with their part of the Simple IRA. She chose to stay with the FP.

Not long after that, my mom passed and I was co-owner of two CDs with her. Not a wise way to invest money.

We met with the FP and talked about options available to us. He also looked at my 401k and its options, and gave me general information for guidance on it. One thing he asked was what the max contribution was (16%) and suggested if we could afford it to do the max. We did.

We started with him shortly before 9-11 and endured that downturn and 2008 or 2009. He guided us with mostly medium risk investments. Overall we have done well. I retired 13 yrs ago and my wife 11 yrs ago.

My suggestion is to find an advisor you can deal with. Talk to friends and see who they deal with. Just watch out for fees charged.

Good luck. I feel we were fortunate. We did, on good advice, show patience and were in for the long haul and feel the end result worked.

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Old 11-07-2021, 10:08 PM   #4
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Originally Posted by SailinAway View Post
Interesting thread "Investment Options," but largely over my head. Where do you think a beginner should start? Goal: Same as everyone's. Turn a small pile of cash into a large pile of cash. ;-) In a short period of time.
A financial advisor will ask: Are you looking for more spending money, or just to feel a comfort level with more net worth? What's a short period of time? What's a small pile of cash? People on the Forum really can't give good advice without some sort of personal information that you don't want to (should not) post here. Key factors are age, desired retirement time frame and tolerance for risk. Your other posts indicate (to me) a low tolerance for risk, so making a small pile into a big pile in a short time frame is probably not a good strategy. I subscribe to Morningstar Dividend Investor and put a small % of investments into riskier stocks. (I have a high tolerance for volatility) Moderna (MRNA) was up 500% September to September. On November 4, one day, it dropped from 348 to 288. 17%. Can you tolerate that? What if you bought at 325?
Various TV media report daily fluctuations in the markets, but most investment advisors will tell you to ignore daily fluctuations and re-balance a couple of times a year at most. Most charge a management fee compared to the old time process of charge a commission per trade which encouraged churning. Note that some, who advertise the most, have fees that are twice the going rate.
Or, buy gold and diamond jewelry for your wife. You will be greatly rewarded.
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Old 11-07-2021, 10:40 PM   #5
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Time frame would be the biggest consideration.
When will you need the cash?

I'm a Boglehead.. and really have no time horizon, at least within my lifetime, so mine would be very different than most.
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Old 11-08-2021, 07:53 AM   #6
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Interesting thread "Investment Options," but largely over my head. Where do you think a beginner should start? Goal: Same as everyone's. Turn a small pile of cash into a large pile of cash. ;-) In a short period of time.
The first thing that you need to understand is your risk tolerance. Many people park their money in CDs because they have NO tolerance for risk. In today's higher inflation environment, they are actually losing VALUE even though their principle AMOUNT is not at risk. The $10K they started with is still nominally $10K ("safe") but 5+% inflation has devalued its buying power. The average inflation rate over the last 100 years bounces around 2% - 3%, so if your investment isn't earning at least that much, your investments are losing value.

Investing in anything else will yield higher returns but has more risk. You WILL see the value of your investment bouncing all over the place. The higher the possible return, the more bouncing around in value. That fluctuation drives some people crazy with worry. Seasoned investors have learned to deal with it, like potholes in the spring. To get from here to there (good returns on your investments), you have to live with the bouncing around. Your tolerance for risk is DIRECTLY tied to the amount of growth you can expect. Low risk = lower return. High risk = possible higher return.

The next thing you need to evaluate is, how dependent are you on the funds? Are they required to pay monthly bills? Are they needed to replace a car in the near future? Are they needed for possible long term goals? Are they your kids inheritance? Monthly bill assistance may require you to park money in bonds or a bond fund that pays a reliable dividend and somewhat safeguards the principle. If the money is for your kids inheritance, you can be more aggressive because short term losses will likely be covered by long term gains. However, these types of investments are NOT for the faint of heart. You can lose 20+% of your value if the market takes a deep dive. If that terrifies you, don't play in the "skate board park" and seek out the "swings and the teeter totter" instead.

Personally, I target a 7% return (stock market historical average) which comes with a moderate risk. I also am heavily in equities (stocks, a piece of ownership of a company). You pay no taxes on gains in value until you sell the stock and it is taxed at a maximum of 15% (for most people). In early 2020, my investments lost 16% when the market dived. It has nicely recovered, thank you, but those types of swings are NOT rare.

Stocks also have all sorts of evaluations of their performance. One is a measurement called "Beta". That is a measurement of their volatility, bouncing around in value. Smart Beta stocks won't usually fluctuate as much; good in that big dips are unusual, bad in that it limits the opportunities for gains. HOWEVER, such measurements are NOT a GUARANTEE that the stock won't nosedive in the future.

IMO, it is critical that you find a financial advisor that really UNDERSTANDS the type of investor you are and matches you with the type of investment that meets your needs and personality.

Oh, low fees are definitely good. However, fees are part of the cost of advised management of investments. There are all types of fee structures. Some are a flat amount based on the overall value of your account. Some are also based on sales and purchases made in your account.

Also, don't be "wedded" to your investment advisor. Talk with friends. If the person you are working with is not meeting your expectations over a few years, consider someone else. However, if the market is tanking it is not your advisor's fault. Nor can he stop it. Nor should you be selling and buying to avoid it. It is too late. If you have have moderate risk investments, hopefully the damage will be limited. Also, if the investments are well structured, you should see a bounce back in a few months unless the country is in a recession. If, after a while the damage is worse than average and there is no bounce back, you were invested unwisely and may have the wrong advisor.

I have seen a lot of people give "advice" about "good" investments. In the end, investments are like clothes; they have to fit you, look good on you, and be well made. The choices are highly personal. Advisors that push the latest whiz-bang "winners" to make "lots of money" are NOT doing you any favors.

Most of all, YOU need to become educated about the broad investment choices you have (stocks, bonds, funds, ETFs, laddered investments, etc.). If you were buying some clothes and you couldn't check yourself in a mirror and instead asked an "advisor" how they look, would you be surprised when you got home to a mirror that you might not like them? You don't need to be an expert but if your advisor starts tossing out terms you don't know, you SHOULD know them before you approve that investment. Your advisor's role is to provide you with good choices for your needs and investment temperament. YOU should understand what you are going to "wear".

Good luck.
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Old 11-08-2021, 10:05 AM   #7
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When we retired here a few years back we moved our investments to a local advisor and have been pleased with the results. Many advisers in this area have or are changing their focus to retirement investment as the areas retired population has boomed.


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Old 11-08-2021, 04:34 PM   #8
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I tried doing it myself and had some success but decided to let the pros handle it from here on.

I have managed accounts with TDAmeritrade, Vanguard, Fidelity, T.Rowe Price and Edward Jones, and an annuity with Symetra.

All have done very well.
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Old 11-08-2021, 05:00 PM   #9
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Quote:
Originally Posted by SailinAway View Post
Interesting thread "Investment Options," but largely over my head. Where do you think a beginner should start? Goal: Same as everyone's. Turn a small pile of cash into a large pile of cash. ;-) In a short period of time.
I'd visit the Vanguard web site to read their information on the performance of index funds vs active management and also the impact of costs (such as financial planners who charge, say, 1%/year) on the value of your portfolio.
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Old 11-08-2021, 05:48 PM   #10
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FlyingScot has it right - keep it simple. Warren Buffett advised to invest in a low cost index fund (specifically mentions Vanguard by name) - 90% of your cash and let it ride, don't play, don't try to time, just let time be your friend. The historical averages of the SP500 are pretty remarkable and any investment manager that says he can beat them you should ask to see his tax return, its a high bar. Index funds (whether its Vanguard, Fidelity or others) should have minimal fees as there is little to no management, just follow the index, rebalance periodically and don't get fancy.

One step up might be a Weathfront or Betterment account which charge about .25% to provide a few additional services than a standard fund. Both are effectively managed by computers and can do some additional work with rebalancing and tax loss harvesting. Again, only .25% but that's in addition to the fees charged by the funds themselves.

Both Wealthfront and Betterment guide you through a simple risk analysis to help build your portfolio.

In the end, I would argue that controlling fees is the biggest benefit you can provide yourself - if you are aiming for a 7% return but have a 1% fee - the fee is a significant portion of your return (you can do the math) - Warren Buffett goes on to provide examples of the real cost of excess manager fees on your savings.

Keep it simple.
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Old 11-09-2021, 01:45 AM   #11
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I suggest starting with a few reliable mutual funds, probably from Vanguard and Fidelity.

Let the pro's do the thinking, you just kick back and ... hope.
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Old 11-09-2021, 11:29 AM   #12
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Don't forget about real estate. Rental income property is a good thing to have in your portfolio and I wished I'd known how good it is earlier in life.
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Old 11-09-2021, 11:43 AM   #13
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Never forget: Money isn't everything but it sure does help!
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Old 11-09-2021, 02:06 PM   #14
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Default Real Estate

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Don't forget about real estate. Rental income property is a good thing to have in your portfolio and I wished I'd known how good it is earlier in life.
I agree--a good part of diversification--but it certainly isn't fast money. The best part is the leverage if you borrow to buy, and (after the mortgage is paid) great cash flow. If I were stating out, I'd make an effort to do commercial instead of residential. Less tenant turnover, no midnight calls.
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Old 11-15-2021, 09:48 PM   #15
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Thank you to everyone who has offered information and advice here. I've read it all and will read it again and use it for further research. I appreciate the time that people put into their replies to my question.

So far no one has mentioned using home equity for investing. Any thoughts on that and how to do it?
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Old 11-15-2021, 10:05 PM   #16
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You would borrow against your home.

HE is generally used to improve the home/property itself. But it has been used by some investors to leverage purchase of other investments - most often another property.
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Old 11-16-2021, 07:02 AM   #17
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Thank you to everyone who has offered information and advice here. I've read it all and will read it again and use it for further research. I appreciate the time that people put into their replies to my question.

So far no one has mentioned using home equity for investing. Any thoughts on that and how to do it?
The problem with using Home Equity (HE), or any other form of BORROWING to finance investing, is that the interest payments for the loan diminishes your overall return.

For example, if you a getting a 5% return on your investment but paying 3% on a HE loan, your actual overall return is only 2%, barely keeping ahead of inflation. You have the option of accepting a lower rate of return overall or seeking better earning on your investments. However, seeking a better rate of return on investments comes with higher risk.

Plus, loans, even HE loans, require repayment of principal as well BUT your principle is tied up in your investments. As you shrink your HE loan principal, your investments will have to shrink as well.

Further, how are you going to pay your HE payments? Are you planning to take it out of your investment earnings? Suppose the market tanks and your earnings for the year are $0. Can you afford the extra HE bill out of pocket until the earnings recover?

On top of that, suppose your investment collapses and becomes worthless. This is unlikely but CAN happen. Now your house is tied up in your investment debacle. You still have to pay off the HE loan with no assistance from your investment.

Having your home disencumbered and free from risk is one of the benefits of old age and retirement. All investment carries some risk and you don't want that to transfer to your home, IMO.

There is adage: "Only Invest What You Can Afford to Lose". If you are putting at risk money (or assets like your home) that you NEED for day to day living, you are probably making a mistake.
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Old 11-16-2021, 09:42 AM   #18
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one comment on mutual funds. You can get a big tax surprise( non cash since you haven't sold anything) in December. ETF's less so. An advisor can help. Not as a recommendation Edward Jones i think just charges for transactions which most advisors charge based in the value of you acct. I don't use Jones and have an advisor that does charge. Also as everything the fee could be negotiable
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Old 11-16-2021, 11:24 AM   #19
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Default Borrowing to invest?

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question....So far no one has mentioned using home equity for investing. Any thoughts on that and how to do it?
I think nobody brought it up because it generally has a lot of pitfalls as noted by JeffK.

I think HE for a leveraged investment such as income generating real estate can work.

If you have $xxx in a particular stock and you have to sell it to buy a property, then HE might be OK because, if forced, you could sell the stock. The problem is, selling the stock (at a lower price?) to buy something else incurs a capital gins tax, so to get $100K you have to sell $120k and give $20K to the IRS. If I can afford to buy something with credit, like a car, at 6%, then using HE to buy the car at 3% tax deductible interest might make sense if you have the self discipline to pay the loan off promptly. Again, using credit to buy depreciating items like cars and boats is not the best plan, but it certainly is part of our economy and lifestyle. It wasn't that long ago that there were boats and boat slips being auctioned by banks around the lake. Save your money--there will be bargains in the future.
Last item on HE loans--remember also when banks were foreclosing on performing loans because the market value dropped precipitously and the debt/equity ratio dropped below standards?
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Old 11-16-2021, 02:00 PM   #20
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Jeff, thank you very much for that explanation of the risks of using home equity. Very helpful.
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