Let's talk about money - The Finance Thread

General Discussion
541

I’m quoting this just as the latest mention of stock investing in this thread.

My summarized story: I graduated two years ago, and have been working full-time since. I’m 26 years old as of two days ago, and I have no money saved at all (aside from 401k). I’m just now kicking myself for it, and have been changing my spending habits (I should be done with my cc debt by next month, God willing).

So my question is - where should I go from here? I just read the last few posts, and putting my money in Emigrant Direct seems like a good deal. But then I also read that investing in stocks (see quoted post) is the way to go. Which should I start with? I guess I have to save money first before I actually invest. How much do I start with? And what kind of knowledge do I need to start investing?

I realize this has probably been asked a ton of times before, and for that I apologize. Thanks in advance for any help you can give me.

542

really simplified answer: opportunity cost.

look at the world this way, everyone goes to school and uses their brain power to learn something that theyre LIKELY going to be using for a long time, making a living off of what theyre doing. people usually decide to go into finance because they want to use their brain power to make money. doesnt have to be i-bank analyst level salary, because the purpose of finance is to take money, and allocate it in a favorable manner.

thats all it is.

youre not the scientist in the labcoat creating drugs to help people. youre not the software engineer at google improving gmail. youre not the politician who can inspire people, gain their favor and represent the ideas of a crowd.

you are the person who makes sure these people receive money. and you are using your brain power to make sure that you or your firm receives a cut of it, because much more often than not, financial firms exist in a for-profit capacity. as a slight libertarian, i dont think theres anything wrong with your decision.

as an economics graduate, i have both a personal interest in having money (enough to play street fighter) AND using my brain power to help the public (which i currently do). but hey, to each his own. i look at the world this way: 80% of the world lives off of $10 or less a day (PPP adj.). i am greatful to have this college education that allows me to live better than this. others might think, hey who gives a fuck, if i wanna use my brain to be a millionaire dont hate me, free country.

i dont hate you, but a lot of other people might. obama could say the same thing about comedians, historians, video game designers, chefs…these people dont exactly make people’s lives better.

543

It’s not very transparent from the front page. It looks more like a brokerage than a fund. I like to be able to dig into any company’s financial data before investing with them. I dunno, be a pal and order a prospectus or something. I’d like to know what their historical returns have been. I did catch a nice link to Canadian oil trusts, and we do like those :smiley:

Now would be a good place to start your investment education. It looks like we’re coming to the end of this bear market, and there are some really great opportunities. I’d recommend you start with the ideas behind value investing. Read Benjamin Graham’s “The Intelligent Investor”. To get you started until then, do a 50/50 mix of a bond aggregate fund like BND, and the other half in a broad market index like SPY.

He’s not downplaying the finance industry. It’s a call to improve the science and technology abilities of the country. We’ve lost our edge in this area compared to developing countries, so he’s trying to bring that back. If you enjoy money, nothing wrong at all with being a finance major. If you enjoy technology, be a tech guy. Everyone has a place.

544

I became interested in europac.net when I learned that Peter Schiff is the CEO. Someone made a thread about one of his vids a few days ago.

He seems like a pretty serious economist and what I liked about his video that I watched was that he didn’t advertise his company any.

545

Yeah I went back for a second look, it’s not a fund he’s running, it’s just a site that specializes in foreign securities. I don’t really see anything being offered that I can’t get through my regular broker, and I’d bet for less money. You don’t need to be a great economist to identify good investments, but you do need to understand the business and be able to tell if it’s profitable with a margin of safety to protect yourself from loss.

546

This Europac site has got me thinking I should mention some things about some of the (surprisingly) less known income investments that are available out there.

There are some very lucrative tax protected companies that are paying large dividend yields, some on a monthy basis even. I had mentioned before, dividends are cash payments you receive just for owning a stock. There’s no need to sell it to profit. It’s not far removed from the interest you might receive on your savings account, but instead of 1-3%, you can get 10%-20%, sometimes even higher.

The investments fall into these classes. Business Development Corporations (BDCs), Real Estate Investment Trusts (REITs), Master Limited Partnerships (MLPs), and Canadian Royal Energy Trusts (Canroys). The businesses vary in how they operate, but the general rule is if they distribute 90% of their profits as dividends, they are exempt from paying corporate tax, so instead of focusing on retained earnings, they pass through their earnings to you.

I’ve got a couple of these in my portfolio. Right now I’m holding Kimco REIT, and Harvest Energy Trust. Both have yields near 20%. Also holding Kinder Morgan Energy Partners, yielding about 9%. Harvest Energy pays every month, and that’s really nice. The price on these things can jump up and down a lot during any given trading day, but I just view that as a chance to pick up more for a good price.

Some other companies that look to be good right now, Pennwest Energy Trust, the yield there is about 19%, another monthly dividend payer, and sporting a low price to earnings ratio to boot. Apollo Capital had a rough year, but I think going forward things are looking up. They just cut their dividend, but it still yields over 30%

For more reading, I’d recommend “The 25% Cash Machine” by Bryan Perry and Tobin Smith. The book reads like an infomercial, but does do a good job of educating you about what’s out there.

547

Hey CD,

What’s the smallest amount I should take and put into stocks? I’ve basically been dumping out my savings to break even on my debt. I’ve had one guy tell me not to start putting money in to stocks until I get around 5,000 dollars.

How much would you put in, and in what? I read your list of companies in your last post.

Care to enligthen me? Because I don’t know shit about finance. =\

548

You should probably work on having at least some amount in savings. If you lose your job you don’t want to have to be stuck selling your stocks. I’ve had to do that a few times and it got expensive. As far as stocks go, there’s no minimum amount you need to start with. I frequently make investments under $100, but be aware that you will be charged trade fees each time. Use a low cost broker like www.zecco.com or www.sharebuilder.com. To keep fees down, I’d recommend purchases of no less than $200 at a time with these guys.

I’d have to understand your overall financial picture to say what your ideal use for money would be. If you have a lot of debt, it may be best to continue paying on that, especially on credit cards.

Get yourself a monthly budget put together, and decide on what would be an appropriate amount to put in your brokerage each month/payday etc., and then stick to it. Make that deposit every time you get paid, and do it before you spend money on anything else. It’s that consistent deposit that will make you successful. When you get a couple hundred in the account, make your purchase. Repeat until retirement.

549

Yeah I actually have a retirement plan via the military, where I take like 15% of my basic monthly pay and put it into stocks. This is all done for me through plans set in place for servicemembers.

As for my debt I’m almost done paying them off (student loans), so while I’m enjoying almost having a clean slate, I’m also aware that besides my military retirement plan, I don’t really have anything else going on.

I guess I could start talking to a broker at said point when I am debt-free.

550

I’ll tell you straight up, that’s a piece of advice I should take more often. I still have some credit card debt. I am making it a point to pay them down aggressively, but I just love the stock market too much to step away. Plus I think right now that the long term gains buying at today’s prices are going to make me an even higher percentage return than I’m paying on my highest of credit cards, and I like those dividends a whole lot.

551

Yeah. I understand your reasoning for wanting to buy today.

I have been losing money for like the past three quarters of my statements, but I’m also buying and holding stocks… When I’ve asked some people if I should get out to avoid losing money, they’ve all replied “no”.

This is because right now, since I am so far away from retirement, keep taking a few risks because the stocks I am buying now for cheap will be up again sooner or later. Take risks now, and eventually start trading off potential gain for secure stocks.

552

Yeah the shit is going to hit bottom soon enough. I understand there’s risk, but why would anyone sell low after buying high? If anything people should probably buy while everyone is so damn pessimistic. The only trick is sticking to your guns until the prices pick back up.

553

it does not make sense to be buried in credit card debt @ 29% apr, when you are investing and the market has historically given 12% annual rate of return. unless you are confident you can beat the market.

these and many more simple things are never mentioned on this thread and it makes me feel sorry for some of the poor suckers out there. here’s more:

-you should have 3-6months worth living expenses (that means food, rent, insurance, utilities) in liquid form (meaning easily withdrawable).
-in this economy, it should probably be 6-9 months.
-your rent/mortgage should not exceed 1/4 of your income, and 1/3 AT MOST.
-your 401k gives you a tax advantage that is nothing to sneeze at.
-for intermediate/adv level investment advice read the following: random walk down wall street, intelligent investor

done giving my annual rant on this thread for 2009.

CD- whats the latest ror on your portfolio now? im still curious to see if its beating the s&p

554

Over the last 12 months I’m ahead of the S&P by 21% overall. I feel pretty good about what I’m doing with my money right now. When prices start to get higher I will probably start going back to focusing on credit cards more.

The two books you listed there are opposing viewpoints on how the market works. You’ve got The Intelligent Investor telling you how to get a good handle on valuing the worth of a company and it’s future earnings vs. it’s current price, and then you’ve got the other, the Random Walk telling you that’s a waste of time because the markets are completely efficient. Hmmmm…

555

ninja edit: more sound advice for people piquing interest in investing I MEAN GETTING RICH QUICK

it is good to be open minded. a lot of people say read both and absorb what you personally feel is suited for yourself. they do not entirely contradict each other blow by blow. come on, you should recognize the application of covariance here.

i dont think theres anything wrong with telling people two generally different philosophies and letting them make a choice. its bottlenecking oneself to a single source of information that gets people into deep shit.

likewise i would not limit myself to reading a single analyst’s report or being loyal only to morningstar.com when it comes to decisionmaking. i dont go on here like jim cramer blurting out personal stock picks because i have a personal interest in seeing people learn the tools themselves. my conscience would kill me if i pulled a duc do and some schmuck who didnt understand some basics of investing lost all his money on a bad stock pick and told me “you recommended this.” as a slight libertarian i would say that that was their fault, but id also feel like i had a responsibility to lay down the basics. and the basics are covered in those books.

but hey +21% over an index must mean youre doing something right in the short term.

556

Here’s a really handy service for the aspiring value investor:

You can request hard copies of annual reports and 10-Ks from hundreds of companies at no charge. I just ordered about 60 of them. I like to read them when it’s slow at work. You need to be familiar with how a business operates if you’re going to put money into it.

557

I don’t see how these two points are mutually exclusive. Both of these books are saying that what’s important, is that you should buy into a company that you know is good and you are willing to hold onto for the long term. I’ve read Random Walk and I liked it quite a bit, Malkiel does admit there are occasional inefficiencies in the market that people can exploit, but for the average person it is useless. Unless day trading is a job for you it’s pointless, for the average investor, someone who doesn’t want to spend all day doing this, an index fund is sufficient.

I think both books have their place, if you’re interested with having a greater control over your portfolio, the Intelligent Investor is a must. If you just want a simplified perspective of how to invest, Random Walk is a great introductory. Ultimately, both books are emphasizing that you are investing into a business, you’re not purely speculating on stock prices.

558

wowsers. I’m gonna have to come back in here, once I finish paying off my debt. I don’t know the first thing about investment or what to do with money other than save it or pay off debt with it.

I mean, I’ve got my 401 K started at work, but I’m not putting away 10% yet due to aggressively paying down my outstanding debt so I can purchase a house before the end of this year.

Speaking of that? Is anyone well versed in the 8K tax incentive being offered for first time buyers?

-ac
financially inept

559

The point I’m sort of trying to drive home is that I do spend a lot of time on research. I expect better than average results for that reason. It’s also why when I post something I usually recommend some educational reading along with it. But yeah, it’s worth noting that if you aren’t willing to do any work, then an index fund would be a good choice.

I just don’t want people taking away from this thread that putting extra effort into something won’t pay off. Beating the market isn’t that hard. Beating it by a lot, well that’s really hard. Does that help?

560

I agree, if you are putting in the effort and making good decisions you should be able to beat the market. I just wanted to point out for those who are less informed and less dedicated, passive investing is still a very viable alternative. It’s not like your method and index investing is significantly different, the end results may be different, but the principles upon which they are based on are the same.