Complete noob looking for investing guidance

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Topic Author
pennypincher
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Joined: Fri Jul 05, 2013 1:20 pm

Complete noob looking for investing guidance

Post by pennypincher »

I am so happy I found this website!! It looks like a great community and I can't wait to start reading the wiki page. I thought I would make a post here to say hello and ask for some advice. I am a complete beginner. Not familiar with many of the terms but I am very eager to learn.

I am 29 and single and make about 65k per year. No emergency funds but have about 12k that is not invested.

Debt: 250k school loans 2% interest rate (just graduated)
Tax rate: I THINK 25% federal; 5.3% state (not sure if I did this right, I had to google it..I know its bad that I dont know)
State: Massachusetts
Desired asset allocation: 58% stock/ 36% bonds
Desired international: 10% (my uncle went to a financial advisor and gave me these numbers, I didn't come up with them myself; definitely open to changing them)

I have an account with Fidelity. My money is where it is because of advice from an uncle 6 years ago and I really haven't looked at it since (I know its bad but I was in school making no money, now I have a job and am ready to take control of my personal finances!!)

40k divided inot these stocks/funds (not sure of the correct terminology)
21% Baron asset BARAX
8% Fidelity asset manager 85% FAMRX
37% Fidelity blue chip growth FBGRX
7% Wells fargo asia pacific SASPX
26% Third avenue value instl TAVFX

8k is just sitting in the account doing nothing

5k in a Roth IRA in something called Fidelity cash reserves


I am willing to give this a complete overhaul if need be. I am looking for advice to start, but after a little help I want to be well rounded and able to make decisions on my own I just need some guidance. Any recommendations on how to become more knowledgeable is welcome (other books, websites, forums, tv shows).

Thanks for any help you can offer!
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zebrafish
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Re: Complete noob looking for investing guidance

Post by zebrafish »

Kudos to you for facing your financial situation head on. Paying attention is definitely step 1. Step 2 is educating yourself. You need an emergency fund with at least several months of expenses (3-6 months).

Would recommend reading Wiki and Bogleheads' Guide to Investing. There are a lot of good books recommended on the Wiki. I would recommend a three fund portfolio.

However, I think your major focus should be debt reduction. You have a $250,000 ball & chain around your neck. You're interest rate is pretty good -- only 2%-- however, I think trying to "out earn" your student loan interest by investing (rather than directly paying off debt) will take you decades to come to fruition. There are a lot of people who will disagree with me on this point. I think this is somewhat of a personal choice issue-- but your debt load is pretty staggering.

I would strongly consider using all non-retirement/IRA assets to pay down your student loan debt (while keeping an emergency fund).

You're facing a pretty rough couple years, but if you cut your expenses to almost nothing, you could make good progress and pay off the debt. For motivation, I've found Dave Ramsey's radio show podcast is a good way to keep me focused on paying off my debts. Don't listen to the investing advice he provides-- it is not particularly good. However, I've personally found listening to the stories of debt reduction as a good motivator and way to keep focused on this issue.

Along the way, you could decide to make a yearly Roth contribution if your employer has no matching retirement plan or there is no pretax retirement plan available to you. Something like 10-15% of your income towards retirement and everything else towards debt might make sense.
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pennypincher
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Re: Complete noob looking for investing guidance

Post by pennypincher »

Thanks for the reply. I just wanted to clarify my loan situation. It's actually 2.5% but its through my parents. I have no minimum payment right now and no set time frame to pay it off. However I would like to pay it off in 15-20 years. Wouldn't it be best to start off paying a small amount within reason and use my money to invest since it should be easy to beat 2.5% investing. Isn't the average for the stock market something like 7%?
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zebrafish
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Re: Complete noob looking for investing guidance

Post by zebrafish »

pennypincher wrote:Thanks for the reply. I just wanted to clarify my loan situation. It's actually 2.5% but its through my parents. I have no minimum payment right now and no set time frame to pay it off. However I would like to pay it off in 15-20 years. Wouldn't it be best to start off paying a small amount within reason and use my money to invest since it should be easy to beat 2.5% investing. Isn't the average for the stock market something like 7%?
Over the long-term, sure, you'll almost certainly beat 2.5% by investing rather than paying the debt. Over the short-term, who knows. However, the emotional price to you (and perhaps emotionally and financially to your parents) may outweigh the benefit from this "beating the interest rate by investing" strategy, I don't know. This is something you must decide. I couldn't stand being in debt to my own parents for more than 5 seconds, because they would try to ru(i)n my life, but that is my parents 8-) . My grandparents paid for my college, and one of my parents still makes the occasional bitter comment that I "took" their inheritance even though it wasn't really their money or their choice.

What is the expectation from your parents regarding this loan? It sounds like you're supposed to pay them back. Did you have any formal agreement (sounds like no)? What is their financial situation? Are they depending on this money for their own retirement? How would they like to structure repayment? This might be something to talk to them about. It would also help you formulate a budget.

Again, with regards to investing-- the three-fund portfolio is a very simple and effective long-term investment strategy that will beat the majority of actively managed mutual funds. I think the key for you is to figure out how much of your income you invest versus directly paying down on the debt. I think part of this depends on your parents' expectation(s) and what is available to you at work in terms of retirement plans (401k, etc.).
mikeportfolio
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Re: Complete noob looking for investing guidance

Post by mikeportfolio »

Here is a good starting point to learn about investing the Boglehead way: http://www.bogleheads.org/wiki/Boglehea ... philosophy

You need to first pick an asset allocation that you're comfortable with, as it will determine almost all of the risk and return of your portfolio over time. It needs to match your time horizon and your risk tolerance. The longer the time horizon, the risker you can be (i.e. more stocks). Risk tolerance basically means how much of your portfolio you could lose in a crash or bear market before you feel the need to change your allocation. In other words, you need to pick an allocation that you can stick to in ALL market conditions. If the stock market tanks, and you panic and sell most of your stock position to stop your losses, than that means you were invested well above your risk tolerance. By investing at or below your risk tolerance, you prevent panicing and selling at inopportune times that would devastate your long-term financial goals.

A conservative rule of thumb for long-term investments is your age in bonds. So in your case, 29% in bonds and 71% in stocks. Many find this on the conservative side, but if nothing else it teaches a good principle that as you age, you usually want to increase your bonds and decrease your stocks to reduce the volatility of your portfolio. I am also 29, and I am 90% in stocks and 10% in bonds, and my plan is to increase the bonds by 1% each year. However many other people my age are anywhere from 70% stocks / 30% bonds, all the way up to 100% stocks. It really depends on your own risk tolerance and how long you plan to be invested for. Keep in mind the examples I just gave are for long-term investments. If the investments are shorter term (e.g. you want to save up for down payment on a house in 5 years), you would want the stock exposure to be way less (and possibly even none at all). These are just guidelines to get the ball rolling. Everyone has unique financial needs and a unique personality, and your allocation has to match that.

After you determine an allocation, it would be time to analyze the investment choices you already have and see if they are appropriate. I can tell you right now that your current funds are unfortunately very expensive. Here are the expense ratios of your funds:

BARAX - 1.33%
FAMRX - 0.80%
FBGRX - 0.89%
SASPX - 1.65%
TAVFX - 1.15%

The expense ratio is how much the fund charges you each year as a percentage of your total assets. The weighted average expense ratio of your portfolio is 1.09%. You could easily build a low-cost index fund portfolio averaging say 0.10%. That is a large savings which will compound over time to equal a lot of money in 20 or 30 years. The reason your funds cost so much is because they are actively managed funds, which means there is a manager picking individual stocks and trying to beat the market. He needs a big salary and has to pay for expensive research, etc. You end up footing the bill with a high expense ratio. The alternative is a passively managed index fund, where the fund just tracks an index (e.g. the S&P 500) and buys all the securities in that index. There is very low overhead, and that means a low expense ratio. These funds also are managed in a very tax-efficient way, which means even further savings for you compared to an active fund. It has been demonstrated by many studies that actively managed funds cannot consistently beat passively managed index funds in the long-run due to their high expenses and poor tax efficiency. They can't beat the market by enough to overcome their expenses without being exposed to abnormal levels of risk. Sure, some funds might do it, but you can't predict which ones will, and most (90%+) will underperform the market in the long run.

Hope this helps
fulltilt
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Re: Complete noob looking for investing guidance

Post by fulltilt »

pennypincher wrote:Thanks for the reply. I just wanted to clarify my loan situation. It's actually 2.5% but its through my parents. I have no minimum payment right now and no set time frame to pay it off. However I would like to pay it off in 15-20 years. Wouldn't it be best to start off paying a small amount within reason and use my money to invest since it should be easy to beat 2.5% investing. Isn't the average for the stock market something like 7%?
Welcome to the forum.

Many people on this forum are debt averse and will recommend that you pay off your debt as soon as possible. 2.5% is a pretty low interest rate and you could probably beat that in the market, but that isn't exactly an apples to apples comparison. There are endless threads on when to pay off debt vs investing if you search the forum.

Personally, i would start building up your emergency fund right away. Take your time before you make and drastic changes to your investments. Read the wiki, the forums, and check out some books from the recommended reading list.
Walk a single path, becoming neither cocky with victory nor broken with defeat, without forgetting caution when all is quiet or becoming frightened when danger threatens. -- Jigoro Kano
Topic Author
pennypincher
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Re: Complete noob looking for investing guidance

Post by pennypincher »

Wow! Thanks for the great advice. I feel like I'm learning alot already. I was reading something called transparent investing and it sounds just like what you are saying about index funds. Since you are also 29, is this the way you chose to go? Would it make sense to do some index funds and some actively managed stocks? What would you do if you were in a similar situation as me? Can you give examples of funds/bonds that you like? How do I choose? I also was readying its best to put all your bonds in the Roth IRA, is this true? Again, thanks for taking the time! Much appreciated!
Call_Me_Op
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Re: Complete noob looking for investing guidance

Post by Call_Me_Op »

pp,

Here, we do not advocate trading individual stocks - but instead prefer low-cost mutual funds - preferably index funds. You might just choose a 3-fund portfolio and split it 1/3, 1/3, 1/3 - US Stock/International Stock/Total Bond.
Last edited by Call_Me_Op on Sat Jul 06, 2013 9:00 am, edited 1 time in total.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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BL
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Re: Complete noob looking for investing guidance

Post by BL »

For a good example of a well-balanced, low-cost portfolio, take a look at the Three-Fund Portfolio in the Wiki. It has all the diversification you really need: Total Stock Market, Total International Stock Market, and Total Bond (or other fixed income such as CDs, I-Bonds, short-term bonds, etc.). (These are the names of Vanguard funds, but the Spartan funds at Fidelity are also low-cost index funds.) Some here really like some low-cost active funds like Wellington and Wellesley, but they are not as diversified as index funds. The more expensive active funds are often sold by brokers who may get a 12B-1 kickback from the fund companies as well as charge a Load when you purchase, and sometimes other extra costs. All these costs come out of your pocket and when you figure the compound cost over decades, it is astonishing how much of your money gets transferred to their pocket. A 1% charge does not sound like much, but when you think in terms of increase of your portfolio, if it gains 5-10%, you are sharing 20-10% (1/5 to 1/10) of your profits with a broker who has not taken any of the risk.

Do you have a 401k available at work?
pkcrafter
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Re: Complete noob looking for investing guidance

Post by pkcrafter »

Welcome to the forum.
pennypincher wrote:I am so happy I found this website!! It looks like a great community and I can't wait to start reading the wiki page. I thought I would make a post here to say hello and ask for some advice. I am a complete beginner. Not familiar with many of the terms but I am very eager to learn.

Yes, read the Wiki and a few of the recommended books. Here's another Wiki link--

http://www.bogleheads.org/wiki/Boglehea ... art-up_kit


I am 29 and single and make about 65k per year. No emergency funds but have about 12k that is not invested.

Use the 12k to start your emergency fund. Build it up to at least 6 months monthly expenses.

Debt: 250k school loans 2% interest rate (just graduated)

I'm actually concerned about your parents here. Unless they are very well off, they have made a significant sacrifice loaning you that much money at such a low rate, especially while nearing retirement, and considering it's not inflation adjusted. In 25 years it will only have half the purchasing power it does now. But perhaps a more important problem is the loss of compounding power the money would have generated from now to retirement and beyond if it had been invested. For that reason, I suggest you make an effort to pay back with a higher interest rate, or pay back much sooner. You can start with what you can afford and set up automatic monthly payments from your account to theirs. Each time you get a raise, increase the payment amount.

Tax rate: I THINK 25% federal; 5.3% state (not sure if I did this right, I had to google it..I know its bad that I dont know)
State: Massachusetts
Desired asset allocation: 58% stock/ 36% bonds<--odd numbers, but 58% equity would be somewhat on the low side for someone your age, but still reasonable. You might adjust after you do further research on asset allocation and risk.

Desired international: 10% (my uncle went to a financial advisor and gave me these numbers, I didn't come up with them myself; definitely open to changing them)<--Usual recommendations for international run from 20-40% of equity.

I have an account with Fidelity.<--Is this a tax deferred account or taxable? In any case, take a look at the low cost, Fidelity Spartan Index funds. Do you have a company plan such as a 401k?

My money is where it is because of advice from an uncle 6 years ago and I really haven't looked at it since (I know its bad but I was in school making no money, now I have a job and am ready to take control of my personal finances!!)

40k divided inot these stocks/funds (not sure of the correct terminology)
21% Baron asset BARAX
8% Fidelity asset manager 85% FAMRX
37% Fidelity blue chip growth FBGRX
7% Wells fargo asia pacific SASPX
26% Third avenue value instl TAVFX

8k is just sitting in the account doing nothing<--Either invest it according to the plan you will develop, or move it to your emergency fund.

5k in a Roth IRA in something called Fidelity cash reserves<--Also need to invest this, and if you have not contributed this year, add $5,500 for your 2013 IRA or Roth. In your tax bracket, it may be better to use a regular IRA to get the tax deduction. Consider all accounts as one portfolio, that way you don't get duplication and overlap. First step, learn about building a portfolio, and I think the Spartan funds would be the best choice to use in these accounts.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Cash
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Re: Complete noob looking for investing guidance

Post by Cash »

What I would do (I am also 29...for a few more months):

1. Set aside a few months' expenses as an emergency fund.

2. Establish a reasonable repayment plan with your parents.

3. Figure out if your employer offers a 401(k) or 403(b) and, depending on the choices available, contribute as much as possible (max of $17.5k). Post your choices here, and people will help you figure out a portfolio.

3a. Ideally, you would split your 401(k) funds between an inexpensive U.S. domestic equity fund (e.g., Vanguard Total Stock Market), a foreign equity fund (e.g., Vanguard Total International Stock market), and a U.S. bond fund (e.g., Vanguard Total Bond Market). I would recommend something like 80% equities and 20% bonds for you since you are new to investing. I would also recommend splitting domestic and international 50/50.

4. If you can save more than $17,500, put it in a Roth IRA at Vanguard (max $5,500). I would put it all in Vanguard Total World (or Total Bond Market if you need more bonds).

5. If you can save more than $23,000, put it in your taxable account (see below).

6. As for your Fidelity taxable account and Roth IRA, I would sell everything and put it in ACWI (the commission-free MSCI all-world ETF through Fidelity...note that it does not have small caps). Alternatively, you can transfer everything to Vanguard and buy Total World.
mikeportfolio
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Re: Complete noob looking for investing guidance

Post by mikeportfolio »

pennypincher wrote:Wow! Thanks for the great advice. I feel like I'm learning alot already. I was reading something called transparent investing and it sounds just like what you are saying about index funds. Since you are also 29, is this the way you chose to go? Would it make sense to do some index funds and some actively managed stocks? What would you do if you were in a similar situation as me? Can you give examples of funds/bonds that you like? How do I choose? I also was readying its best to put all your bonds in the Roth IRA, is this true? Again, thanks for taking the time! Much appreciated!
No problem. I'm not familiar with the term "transparent investing". But, yes I do recommend using only index funds. There really isn't a need to use any actively managed funds at all in your case. And it is an even worse idea to pick individual stocks on your own. For reference, here is my own portfolio. It is a variation on the 3-fund portfolio that BL mentioned. 90% is stock (30% of which is International and 70% is U.S.), and the remaining 10% of the portfolio is bonds:

63% - VTSMX - Vanguard Total Stock Market
27% - VTGSX - Vanguard Total International Stock
10% - VBMFX - Vanguard Total Bond Market

Now keep in mind that is just one variation on the 3-fund portfolio. And it might be a little more complicated than this if you're splitting it across multiple accounts (e.g. you may need to own the same fund in more than 1 account). The point is to own those 3 funds (or similar ones) in whatever proportion you are comfortable with based on your desired asset allocation. If you stay at Fidelity, there are comparable funds to choose from. A 70/30 split between international stock and U.S. stock is very common. The bigger question is if 90/10 stock/bond split is appropriate for you or not. I'm ok with such a high amount of equities because I'm young and this money is truly for retirement, so I know I have 30+ years to make back any losses. One way to look at it is to consider that during a bad market crash or bear market, it's not unreasonable for the stock portion of your portfolio to lose half of its value. If you are 90% in stocks, that means your portfolio could lose 45% of its value. How would you react? Would you sell some of the remaining stock to try to cut your losses? Would you do nothing and let it ride? Or would you pump more money into stocks? Your answer to that question is key. Unfortunately you may not truly know the answer until you live through such an event. But you need to consider the possibility.

As for where to put bonds... Yes, putting them into a Roth IRA would be better than putting into your taxable account. That's because bonds make money not through price appreciation but rather from interest income. That income, if held in your Fidelity taxable account, would be taxed at ordinary income tax rates. Therefore it's much better to hold it in a tax-deferred or tax-free account. That could be a Roth IRA, Traditional IRA, or 401k.
mikeportfolio
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Re: Complete noob looking for investing guidance

Post by mikeportfolio »

I just noticed you mentioned you don't have an emergency fund. I second what others have said; get that taken care of first before investing more.

Also, whatever you ultimately decide about how to invest your money, put it into writing. That's called an Investment Policy Statement (IPS), and it's very important to keep you on track and grounded during volatile markets. You can read about it here:

http://www.bogleheads.org/wiki/Investme ... _Statement
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ruralavalon
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Re: Complete noob looking for investing guidance

Post by ruralavalon »

Welcome to the forum :) .

Start here -- Wiki article link: Getting Started .

Try to decide on an asset allocation that suits you, say about 75/25 stocks/bonds. Wiki article link: Asset Allocation .

If there is a plan at work, like a 401k or 403b, look into that and see if there is an employer match and at least a few low cost index funds to use. Whatever else you do, be sure to contribute at least enough to get the full employer match each year.

Try to save and invest as much as can be comfortable for you. In the beginning thats the most important thing you can do. Forum Discussion, The Savings Rate .

When you get a little further along, post more details to get some more specific ideas. Asking Portfolio Questions .
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Bob's not my name
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Re: Complete noob looking for investing guidance

Post by Bob's not my name »

pennypincher wrote:make about 65k per year
Tax rate: I THINK 25% federal; 5.3% state (not sure if I did this right, I had to google it..I know its bad that I dont know)
State: Massachusetts
You're not in the 25% bracket. If you just graduated then in 2013 you will make about $35,000 gross. It's the calendar year that counts, not your annual salary. The standard deduction is $6,100 and the personal exemption is $3,900. Anything you contribute to a tax-deferred (not Roth) retirement plan will also reduce your taxable income. Also, any pre-tax health, dental, and disability insurance premiums withheld from your pay reduce your taxable income.

So at least for 2013 you are in a low bracket, probably 15% federal and 5.3% state. If you paid your last tuition bill this year (i.e., not before January 1), you should be able to take an education credit or deduction. Here's an article on them (it's slightly dated, so check at http://www.irs.gov for 2013 information): http://thefinancebuff.com/how-to-save-4 ... taxes.html

In 2014 you'll be in a higher bracket. Presumably with an education that cost over $250,000 you will be making a lot of money very soon.

Learn about Massachusetts taxes. There's a very high tax rate on short term capital gains. Massachusetts taxes traditional IRA contributions but not 401k contributions. There's a tax break on interest from Massachusetts banks.
Topic Author
pennypincher
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Re: Complete noob looking for investing guidance

Post by pennypincher »

Thanks for all the responses! I have a lot of reading/learning to do and I'm sure I will have lots of questions along the way, but I am so happy I found such a helpful community and website.

I don't have a 401k yet I think I have to wait a year or something like that. Is Vanguard better than Fidelity? Would you recommend I transfer all this money over to Vanguard? It seems like those Vanguard index funds are highly recommended. Or is there not much of a difference?

edit: Looks like I can buy those vanguard funds through fidelity...but still, does one have an advantage over the other?

edit2: Ah there is a fee to buy the Vanguard funds with Fidelity where the Spartan funds are free
Last edited by pennypincher on Sat Jul 06, 2013 10:29 pm, edited 2 times in total.
Topic Author
pennypincher
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Re: Complete noob looking for investing guidance

Post by pennypincher »

Bob's not my name wrote:
pennypincher wrote:make about 65k per year
Tax rate: I THINK 25% federal; 5.3% state (not sure if I did this right, I had to google it..I know its bad that I dont know)
State: Massachusetts
You're not in the 25% bracket. If you just graduated then in 2013 you will make about $35,000 gross. It's the calendar year that counts, not your annual salary. The standard deduction is $6,100 and the personal exemption is $3,900. Anything you contribute to a tax-deferred (not Roth) retirement plan will also reduce your taxable income. Also, any pre-tax health, dental, and disability insurance premiums withheld from your pay reduce your taxable income.

So at least for 2013 you are in a low bracket, probably 15% federal and 5.3% state. If you paid your last tuition bill this year (i.e., not before January 1), you should be able to take an education credit or deduction. Here's an article on them (it's slightly dated, so check at http://www.irs.gov for 2013 information): http://thefinancebuff.com/how-to-save-4 ... taxes.html

In 2014 you'll be in a higher bracket. Presumably with an education that cost over $250,000 you will be making a lot of money very soon.

Learn about Massachusetts taxes. There's a very high tax rate on short term capital gains. Massachusetts taxes traditional IRA contributions but not 401k contributions. There's a tax break on interest from Massachusetts banks.
Thanks for the tip! I wish I had known this because, unfortunately, my last tuition payment was in November of 2012.
Cash
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Re: Complete noob looking for investing guidance

Post by Cash »

pennypincher wrote:Thanks for all the responses! I have a lot of reading/learning to do and I'm sure I will have lots of questions along the way, but I am so happy I found such a helpful community and website.

I don't have a 401k yet I think I have to wait a year or something like that. Is Vanguard better than Fidelity? Would you recommend I transfer all this money over to Vanguard? It seems like those Vanguard index funds are highly recommended. Or is there not much of a difference?

edit: Looks like I can buy those vanguard funds through fidelity...but still, does one have an advantage over the other?
Vanguard is better for holding Vanguard funds (you can trade them for free). Fidelity is probably better for any other funds (you will have to pay a commission for Vanguard funds). You will generally find Vanguard funds recommended here (the namesake of the site, John Bogle, founded Vanguard), but that does not mean that comparable funds are not as good. It seems that most new people end up switching to Vanguard.

Even if you can't yet contribute, I would recommend investigating your 401(k), its investment options, and any employer match so that you can plan accordingly. In the meantime, max out your Roth IRA, save in a taxable brokerage account, and start paying back the loan.
mlipps
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Re: Complete noob looking for investing guidance

Post by mlipps »

Cash wrote:
pennypincher wrote:Thanks for all the responses! I have a lot of reading/learning to do and I'm sure I will have lots of questions along the way, but I am so happy I found such a helpful community and website.

I don't have a 401k yet I think I have to wait a year or something like that. Is Vanguard better than Fidelity? Would you recommend I transfer all this money over to Vanguard? It seems like those Vanguard index funds are highly recommended. Or is there not much of a difference?

edit: Looks like I can buy those vanguard funds through fidelity...but still, does one have an advantage over the other?
Vanguard is better for holding Vanguard funds (you can trade them for free). Fidelity is probably better for any other funds (you will have to pay a commission for Vanguard funds). You will generally find Vanguard funds recommended here (the namesake of the site, John Bogle, founded Vanguard), but that does not mean that comparable funds are not as good. It seems that most new people end up switching to Vanguard.

Even if you can't yet contribute, I would recommend investigating your 401(k), its investment options, and any employer match so that you can plan accordingly. In the meantime, max out your Roth IRA, save in a taxable brokerage account, and start paying back the loan.
There's no appreciable difference between the Vanguard funds suggested & FIdelity's Spartan Funds. Save yourself the hassle & leave them at Fidelity. Just my two cents.
Cash
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Re: Complete noob looking for investing guidance

Post by Cash »

The wiki has a nice summary of Fidelity v. Vanguard: http://www.bogleheads.org/wiki/Fidelity
Topic Author
pennypincher
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Re: Complete noob looking for investing guidance

Post by pennypincher »

So I've been reading quite a bit on the wiki and I really like everything about the three fund portfolio. It is simple and makes sense. I am ready to get rid of my current funds and go with the index funds but I had a couple questions first.

Will I have to pay fees or taxes on gains since I bought my current funds if I sell them to buy the index funds?

I was looking at some of the numbers for the current funds and they seem pretty good for example Fidelity Blue Chip Growth (FBGRX) has a YTD of 16.23%, 1 yr 20.89%, 10 year 7.3%. What else should I look at to really evaluate a fund? I just want to make sure getting rid of these is the right decision.

I was talking to my dad about the state of the treasury or something they are about to do which would make bonds less appealing right now. Any thoughts on this?
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BL
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Re: Complete noob looking for investing guidance

Post by BL »

The Wiki here has a good chart on the Fidelity version of the three recommended Vanguard funds: total Stock market, Total International, Total bond.
http://www.bogleheads.org/wiki/Fidelity

Note the Spartan funds are usually the low-ER choices. They require $2500 to start, IIRC.
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ruralavalon
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Re: Complete noob looking for investing guidance

Post by ruralavalon »

pennypincher wrote:I don't have a 401k yet I think I have to wait a year or something like that. Is Vanguard better than Fidelity? Would you recommend I transfer all this money over to Vanguard? It seems like those Vanguard index funds are highly recommended. Or is there not much of a difference?
In my opinion Vanguard is better. Vanguard has a much larger selection of low cost mutual funds. Fidelity has only a dozen or so low cost funds, called Spartan funds.

If you want to use Vanguard funds, its best to have the account there. No advantage I can see to having the account elsewhere if you want Vanguard funds.
pennypincher wrote:I was looking at some of the numbers for the current funds and they seem pretty good for example Fidelity Blue Chip Growth (FBGRX) has a YTD of 16.23%, 1 yr 20.89%, 10 year 7.3%. What else should I look at to really evaluate a fund? I just want to make sure getting rid of these is the right decision.
Look primarily for a very low expense ratio, thats the best predictor of future performance. High fees kill your returns. Stopping the silent killer of returns . Look also for broad diversification, such as a total market type fund, since nobody is able to consistently predict what part of the market will do well next. Investing in Total Markets .

Past performance does not predict future performance, so I tend to just ignore past performance numbers.
Last edited by ruralavalon on Sun Jul 07, 2013 9:00 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
dbr
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Re: Complete noob looking for investing guidance

Post by dbr »

ruralavalon wrote:
pennypincher wrote:I don't have a 401k yet I think I have to wait a year or something like that. Is Vanguard better than Fidelity? Would you recommend I transfer all this money over to Vanguard? It seems like those Vanguard index funds are highly recommended. Or is there not much of a difference?
In my opinion Vanguard is better. Vanguard has a much larger selection of low cost mutual funds. Fidelity has only a dozen or so low cost funds, called Spartan funds.

If you want to use Vanguard funds, its best to have the account there. No advantage I can see to having the account elsewhere if you want Vanguard funds.
Yes, an investor who wants to hold exclusively Vanguard mutual funds should do so at Vanguard.

Let's just be sure that no one is confused that buying Vanguard funds and buying and holding the investments "at" Vanguard are two completely different things. The same applies to Fidelity. I have money in Vanguard funds/etf's and have no accounts "at" Vanguard.
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ruralavalon
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Re: Complete noob looking for investing guidance

Post by ruralavalon »

dbr wrote: Yes, an investor who wants to hold exclusively Vanguard mutual funds should do so at Vanguard.

Let's just be sure that no one is confused that buying Vanguard funds and buying and holding the investments "at" Vanguard are two completely different things. The same applies to Fidelity. I have money in Vanguard funds/etf's and have no accounts "at" Vanguard.
Yes thats right, if you want all or mostly Vanguard funds its best to have your account(s) there. Likewise, if you want all or mostly Fidelity funds, its best to have your account(s) there.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: Complete noob looking for investing guidance

Post by eddiejov55 »

pennypincher wrote:I was talking to my dad about the state of the treasury or something they are about to do which would make bonds less appealing right now. Any thoughts on this?
Dude, you're a little ahead of yourself!! Slow down. You started by saying you needed to learn investing terminology and now your hesitant to put money in bonds because of the actions of the Fed. Learn to walk before trying to race Usain Bolt.

If you want to pay back your $250k loan in 15 years then you need to find a way to cut a check for around $1650 per month for the next 15 years. That should be your priority. This will be tough for the first several years, but will be easier once your salary increases. I'm going to assume you are in a medical field since you are 29 and just getting started with $250k in debt.

As far as investing: block out the noise. Focus on 401k to the match, building up emergency fund, IRA, and throw everything else at the debt. Go with the 3-fund portfolio and keep it simple. At your current level of investing, the monetary policies of the Fed should not discourage you from keeping a portion in bonds. Don't worry about market fluctuations - you are investing for the long haul. At worst, picture drops in mutual fund prices as opportunity to own more shares at a lower cost.
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pennypincher
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Re: Complete noob looking for investing guidance

Post by pennypincher »

eddiejov55 wrote: Learn to walk before trying to race Usain Bolt.
Haha!! Ok, ok..you have a good point. I'm just excited to get my personal finances under control and to finally start getting a grasp on these finance concepts that I always thought were too complex.

I was trying to get ideas of where to keep the emergency fund money. I have found a local bank that is offering a rewards checking account with 2.50% up to 25k then 0.5% after that. Sounds pretty good. Are there any more attractive solutions for the emergency fund money?

Oh and will there be some kind of tax or penalty for removing money from my current funds?
Bob's not my name
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Re: Complete noob looking for investing guidance

Post by Bob's not my name »

eddiejov55 wrote:Focus on 401k to the match, building up emergency fund, IRA, and throw everything else at the debt.
Again, Massachusetts taxes TIRA contributions but not 401k contributions, so unless your 401k has no good fund choices you should contribute there before a TIRA. If the recommendation is a Roth IRA, then the emergency fund and Roth IRA priority can be blended, since the latter can serve as the former. If the OP is a physician who will later be making bank, then getting in on the Roth now makes sense, and maxing the 401k now makes sense.
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Re: Complete noob looking for investing guidance

Post by Cash »

pennypincher wrote:
eddiejov55 wrote: Learn to walk before trying to race Usain Bolt.
Oh and will there be some kind of tax or penalty for removing money from my current funds?
Yes, if there are gains and depending on your tax bracket. Might be worth the tax hit if the gains are small and/or you expect your income to rise in the future.
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Re: Complete noob looking for investing guidance

Post by pennypincher »

Bob's not my name wrote:
eddiejov55 wrote:Focus on 401k to the match, building up emergency fund, IRA, and throw everything else at the debt.
Again, Massachusetts taxes TIRA contributions but not 401k contributions, so unless your 401k has no good fund choices you should contribute there before a TIRA. If the recommendation is a Roth IRA, then the emergency fund and Roth IRA priority can be blended, since the latter can serve as the former. If the OP is a physician who will later be making bank, then getting in on the Roth now makes sense, and maxing the 401k now makes sense.
Just wanted to make sure I understand what you are saying. I currently have a Roth IRA with 5k. I don't have a 401k and think I have to wait a year for that.

Are you saying my priority should be maxing the Roth IRA ($5,500) first because it can serve as emergency fund due to the fact that there is no penalty on taking out what you have put in?
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Re: Complete noob looking for investing guidance

Post by Bob's not my name »

Yes. Double check the 401k rule. Some employers don't allow you to contribute for a period of time (a year in your case). Some employers don't match for a period of time (a year in my case). Make sure you can't contribute. If you can contribute and if you are a physician with an expected monster income later, contributing even without a match is a good idea. However, unmatched contributions in early 2014 may be worth more to you than unmatched contributions in 2013, because your marginal rate will be higher in 2014.
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Re: Complete noob looking for investing guidance

Post by zebrafish »

pennypincher wrote:Are you saying my priority should be maxing the Roth IRA ($5,500) first because it can serve as emergency fund due to the fact that there is no penalty on taking out what you have put in?
I'm not a huge fan of thinking of the Roth (or any other retirement fund) as an "emergency fund". There are circumstances where you can make withdrawals w/o penalty; however, I think it is much healthier to think about retirement funds (Roth, 401, 403b, etc. etc.) as pretty much sacred and not touching them (or taking loans on them, etc) unless you have NO other options (until you retire, of course).

I would keep a cash emergency fund in a money market account. It won't make you any money, but that isn't what an emergency fund is for. You need liquid cash for when bad things happen. No one thinks an emergency will happen to them, until it does. Let's say your Roth is your "emergency fund"-- what if the market drops 20-30%, and then you have an emergency, or you have an emergency and withdraw money right before a 10-20% bull run. It can really cost you badly.
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Re: Complete noob looking for investing guidance

Post by Bob's not my name »

zebrafish wrote:Let's say your Roth is your "emergency fund"-- what if the market drops 20-30%, and then you have an emergency, or you have an emergency and withdraw money right before a 10-20% bull run. It can really cost you badly.
When your Roth is serving as your emergency fund you don't invest it in the stock market.
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Re: Complete noob looking for investing guidance

Post by Default User BR »

Bob's not my name wrote:
zebrafish wrote:Let's say your Roth is your "emergency fund"-- what if the market drops 20-30%, and then you have an emergency, or you have an emergency and withdraw money right before a 10-20% bull run. It can really cost you badly.
When your Roth is serving as your emergency fund you don't invest it in the stock market.
Right. When there isn't enough available money to do both a Roth and an ER, then it makes sense to put the ER in the Roth, as Roth space is lost forever if not used. You keep it in safe assets while building up outside the Roth. Then money can be re-purposed from ER to investment.


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Re: Complete noob looking for investing guidance

Post by pennypincher »

Are there different ways to sell my current funds if I am going to convert to the 3 fund portfolio to minimize taxes/fees?
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NightOwl
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Re: Complete noob looking for investing guidance

Post by NightOwl »

Bob's not my name wrote:
zebrafish wrote:Let's say your Roth is your "emergency fund"-- what if the market drops 20-30%, and then you have an emergency, or you have an emergency and withdraw money right before a 10-20% bull run. It can really cost you badly.
When your Roth is serving as your emergency fund you don't invest it in the stock market.
Penny,
Along these lines, please see Roth IRA as an emergency fund in the Wiki.

Please do have a meaningful allocation to bonds -- I'd suggest a minimum of 20% to start -- and please don't worry about rising interest rates. You're 29, perfectly positioned to weather the effects of interest rate increases on bond fund NAVS and to benefit from resulting increases in yield. See Duration in the Advanced Topics portion of the Wiki entry for Bonds.

I have a Fidelity 401k and hold around 30% of my portfolio in FSITX, Fidelity's Spartan U.S. Bond Index Fund. It has a duration of 5.13 years.

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Cash
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Re: Complete noob looking for investing guidance

Post by Cash »

pennypincher wrote:Are there different ways to sell my current funds if I am going to convert to the 3 fund portfolio to minimize taxes/fees?
Does anything have a loss? If so, you might be able to offset some of the gains.
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