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Investing Thread

FP's Boyfriend says:
To begin with, the original stated investment horizon was 10-years. If that is the time horizon, an IRA/ Roth IRA makes no sense as it's an investment vehicle for retirement. I presume the person posting the question is young and, if so, and you put your money in an IRA/Roth IRA and try to take it out in 10-years, you will pay a penalty to withdraw.

If the investment time horizon is retirement age, then an IRA/Roth IRA is definitely something the OP should consider. It is simply an investment vehicle, not an investment. The underlying investment(s) can be various things: stocks, bonds, mutual funds, etc.

Second, the stated total amount of investable dollars was $7k-$8k. If you had $700k-$800k to invest, then yes individual stock investing makes more sense than mutual funds...$70k-$80k, maybe...$7k-$8 - no way. Mutual funds give an investor access to a wide range of companies; anywhere from 100-200+ in many cases, and therefore spreads your company-risk across a wide range of investments. Instead of putting all of your eggs in one basket and potentially having your company tank (i.e. Enron, etc.) you spread your risk. Mutual funds make a TON of sense for people who want to invest with limited funds.

The statement, "If a company seems to offer a product or service that makes sense to you, buy it." shows a completely novice understanding of investing. There are many companies that have products or services "that make sense" or you might like... that doesn't mean they are run well for the long-term, doesn't mean their capital structure is strong, doesn't mean there are not micro or macro economic forces that may be poised to impact the company adversely, doesn't mean that there isn't a company or companies in their space that have even better products/services and are managed better. There are a LOT of factors to be considered when investing in a company...not just "gee, this company seems to offer a product/service i can understand".

Unless you view the $7k-8k as "Vegas" or Monopoly money that you don't really care about, unless you don't mind having your funds tied up in just a limited number of investments and unless you want to spend the time and effort to research a lot of companies and thoroughly understand them, their financial health, their management, their competition, etc., then invest in stocks. But if you do mind and you're investing with real dollars, then pick a couple or few good mutual funds to start off with. You can choose funds that are professionally managed and therefore will charge a percentage fee on annual basis OR you can invest in index funds that are based on the underlying stock index it's tied to and is NOT managed and therefore doesn't have the same fee structure.
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i haven't really provided my own advice, but if it were me, i'd invest in index funds. i read an article about millionaires under the age of 21 a few years ago and a young woman really inspired me. she invested $500 per month in index funds and made a killing. she paid cash for her education, owned several rental properties and had quite the nest egg. i'll see if i can locate the article...
 
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FuturePig's BFF said:
The statement, "If a company seems to offer a product or service that makes sense to you, buy it." shows a completely novice understanding of investing.
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I was quoting Warren Buffet. :\


FuturePig's BFF said:
There are a LOT of factors to be considered when investing in a company...not just "gee, this company seems to offer a product/service i can understand".
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Which is why I followed up with "Do your own research".

Saying someone needs $700,000 or even $70,000 to make investing in stocks over mutual funds worthwhile is dumb, or something an investment banker or fund manager would say. Saying picking your own stocks means you're treating your money like Monopoly money is dumb too.

Reasons NOT to invest in a mutual fund:

-80% of them underperform the stock market's average return

-Dubious management. Given how many funds there are, not everyone can be above average. Many mutual fund managers have proven no better at picking stocks than the average nonprofessional, but charge fees as though they are.

-No control. Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of somebody else's car.

-Dilution. When mutual funds own too many holdings, even insanely great performance by their best ideas gets watered down when you look at their overall performance.

-Buried costs. Many mutual funds specialize in burying their costs and in hiring salespeople who do not make those costs clear to their clients.

Soft money, 12b-1 fees, overtrading, market timing, and other management practices lower performance and virtually guarantee that most mutual fund returns will fall short of their benchmark, such as the S&P 500. Furthermore, for-profit mutual fund companies have a fiduciary obligation to their stockholders, not to their investors, and this relationship "inevitably resolves in favor of the bottom line."

If you look at the aggregate results of the mutual fund industry on an after-fee, after-tax basis and adjust it for survivorship bias, the probability that you are going to end up with market-beating returns is de minimis.
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i'll ask my boyfriend if he'd like to follow up later, but i thought i'd add my own comments since i actually work for the same investment banking firm he does.

first, thank you GM for the link, but we are both aware of who Warren Buffett is - as well as David Swensen. second, i am aware that Warren Buffett's approach is to first find companies he understands and then research the company as a business owner, not a shareholder, and as if he were acquiring the entire company. i think we can all agree that simply stating "buy companies you like" is not good advice. and to follow Warren Buffett's approach, you must be very business savvy and you should expect to spend a great deal of time understanding companies, economic trends and market factors.

so you understand, my boyfriend is offering his advice on his own accord. he isn't being paid and isn't gaining anything except the pleasure to share his own investing techniques as well as what he's learned in his experience and during his education. perhaps you feel investment bankers or investment advisors are all out to exploit poor investors but in this case, that is simply not true.

further, stating his suggestions are "dumb" is unfortunate; i don't think he's in the position he's in because he made dumb decisions. the OP has a small amount of investable funds and isn't an investment professional. to suggest she invest it in 4 or 5 different stocks is simply risky. though he did not delve into it, he provided the example of Enron which, as we all should know, before it went bankrupt and lost investors billions, looked great on paper and was a blue chip stock... perhaps even similar to one of the tickers you provided.

GM, the article you pulled your information from but failed to cite was actually very good in giving advice on how to select good mutual funds; i'm unsure if you ventured to the following pages. but should anyone wish to, here's the link: fool.com

based on the concern of associated fees, my boyfriend's final suggestion, and mine, was index funds... which are actually very recommended by your good buddy, David Swensen.

GM, are you actually a shareholder for the companies you listed?
 
Some, yes.

I didn't call his suggestion dumb. I have no problem with Index Funds. They don't have all the problems of Mutual Funds that I listed. What I did call dumb was the notion that someone should have tens of thousands of dollars before considering choosing their own stocks over some managed fund with fees. I called it dumb because it is dumb.

I also didn't suggest the OP purchase 4 or 5 stocks. I listed 10 examples in my last post alone.

perhaps you feel investment bankers or investment advisors are all out to exploit poor investors but in this case, that is simply not true.
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I don't believe that, no. I do believe that they were incompetent enough to bring the World economy crashing to its knees though. Maybe they had too many shares of Enron.
 
Scratch that. I thought I listed Aflac(AFL) in my post, which I have in my Roth IRA. No, I don't currently own any of the stocks I listed.
 
4000 US? You would be foolish to invest it in anything but US Savings Bonds, double your investment with infintismally low risk. Of course it is extremely long range but that is what investing is all about.

4000 is not going to do much of anything, 8 shares of Google? Buy a Bond.

I have to add after reading the thread, anyone giving you advice on 4000 aside from a Money Market, CD or govt Bond has no idea what they are talking about. Investing requires real money. 4000 would be laughed at by any Planner and I am not saying it derisively to either the OP or those who generously offered advice. Simply to say that you have to be very realistic and all the more so with regard to Risk because IF you are gambling 4000 you don't have a lot to play with. Please play it safe.

(Edited for last paragraph)
 
I invest in Assessment Liens from the City I live in. If the lien matures in 12-months, U get 20%. (If they pay it off sooner . . . 5% if they pay off in 3-months, 10% 6-months, 15% 9-months.) After one year, U can collect the money from the person who didn't pay the assessment. If they don't pay U, U get their house/business. The city sells the liens once a year.

I once got a house for $350 but sold it back to the owner for $350 + $1000. (Couldn't kick him out . . . that would be bad karma.)

If there was a bank mortgage on the house & the mortgage company did not pay, I'd get the house & sell it back to the person who lived there . . . almost got one that way.
 
^ To be perfectly honest, I think it is bad karma (or plain ol' horrible) to participate in ANY action that would take a roof off of someone's head. Regardless of what they did. Shelter and food should never be touched as sources of income, IMO.

I'll be perfectly honest with you, I don't think this is ethical at all.
 
We should start an investment ideas thread where we post our new investments and then follow up with how much we made/lost when we close them. That'd be fun. :)
 
I was always under the impression that most longterm gains came from reinvested dividends due to compounding.
 
Wow, so many good replies. I know I said somewhere up there that I'd reply to each of you at some point, and give feedback... I've been horribly neglectful of this thread and now it's old news... So, I appreciate all your guys feedback. If I think of something to say to any of you in regards to it, I may drop ya a PM.

However, I've been thinking a lot about the future and one way I can use this money to help me out may be a down payment on, not exactly a house, but a double/duplex. Was talkin' with my mom (used to sell real estate) about how being the owner of one of 'em can really pay off as you own the house/property, you rent and have the renter basically pay your mortgage. Yeah you gotta be able to afford the property on your own, but yeah. This is just something down the line I've been thinkin' about... In the meantime though, I'll probably invest in a CD or somethin'... I want this money to do somethin' instead of just sit there. And a CD seems better than the nothing atm.

But, I will be re-reading this thread once I'm more awake/sober.

Sorry for my pointless rambling.
 
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