Roth IRA (Confused Investor)

[dwilson]

Well I just received my bonus for reenlisting and want to start up with some investing. Currently I just bumped up my thrift savings plan to 9 percent I have about 1500 dollars in it right now. I am looking at opening up a Roth IRA but not sure who to do it with. I was going to open it up through vanguard and put 3,000 into the lifestategy growth fund (VASGX)but then I saw they had those new retirment accounts and was thinking about doing that. The only thing that worries me is that there isnt a whole lot of data on it since it is so new. Also should I use Vanguard? I was looking at TRowe also. The retirement fund I am looking at getting is thevanguard target retirement 2045 fund (VTIVX). I just got done reading mutal funds for dummies and learned alot but as you can see I am still confused. Also I was wondering what to do with the rest of the money. I got a total of about 11 grand and am just going to buy some furniture with it and thats about it. So I was wondering where I should put the rest of the money just for the near future maybe 5 to 10 years out. Thanks for all the help from your website and all the people. You have been very helpful. And for those that don't know I am 25 years old. Thanks again for all the help.

[Pete1]

Yes, Vanguard 2045 would be an excellent place for you to open your Roth IRA. The expense ratio of .23% is incredibly cheap and you will have exposure to the entire U.S. stock and bond market along with a decent 20% allocation to the international market. Go for it without hesitation. Also, your age is completely appropriate for this fund (90% stocks). You will not need to worry about monitoring your account as Vanguard will do it for you. An excellent choice.

[Rolo]

Hello again,Dave!

First, good for you for saying "I have all this money, where do I invest it?". The norm for people in your situation is that they have bonuses spent before they even get it.



Second, a little bit of personal finance. Do you have cash reserves? You should have at least three months' living expenses at your disposal. I keep mine split betweenmy money market account and my brokerage account. At this moment, my MMA (NetBank) yields 2%, paid monthly, and my dividend-paying stock (VLCCF) yields 40%, paid quarterly, and has appreciated nicely since I bought it. The MMA is no-risk, the stock has risk with its dividend and its value.

I can write up to six checks per month and can do online transfers in and out of my MMA. I have a debit card and a checkbook with my brokerage account, however, the catch there is that I will have to sell equities to get cash into that account, but I can do that within one to three days.

This is the "Oh, crap, it is 95 degrees and my air conditioner just exploded." fund. (Or if you live in, say, North Dakota, it is the "Oh, crap, it is -95 degrees and my heater just exploded." fund.



Next, the math lesson. Given the average growth of small and large stocks, 11.4%,...




Every $1,000 of your $11,000 willtriple in ten years, to $3,100,...

will be worth ten times as much in twenty years, just under $10K,...

and finally, thesame $1,000 will be worth $33,700 in 2045.

The full $11K, untouched for thirty-one years would provide an annual retirement salary of $42K.




What is my point? I want to illustrate what each 'K' of that 11K is really worth. If you spent $3K now, it will cost you $12K (28% less income)every year of your retirement, or it will cost you six more years in order for it to grow to the amount produced by the full 11K. Forfeiting money is also forfeiting time, and you only get this point in time only once.

Consider investing the entire $11K. From a spending point-of-view, pretend you never got it. Instead, save for the things that you want to buy. This will make you more selective, find better values, and appreciate the things you have purchased a lot more.



Now, the fun part. Choosing who handles your accounts and choosing which funds to buy should be separate. I refuse to be locked into one company's fund family; this year's stars will likely be next year's has-beens. Look for a large selection of funds andno transaction fees. Read the account agreement and fee schedules.

I have my IRAs with USAA; it seemed like a good idea at the time, but I cannot say I recommend them. They provide a rich selection of Non-USAA funds to buy with no transaction fees or limitations. I went that route because I was starting out (I've only been investing for a little over a year now.) and I did not want to have to pay fees to switch my stuff around as I learned. Caveat emptor: after using USAA for a while, I discovered more funds that I wanted had a $40 transaction fee than no fee at all. I will probably move my IRA's for that reason.

Eventually, I had more money to invest than the TSP and IRA limits allow. I use Scottrade for my taxable investments. I have stocks and mutual funds in that account. All funds available through Scottrade (and there are many) have no transaction fees. I almost went with Ameritrade, but their stock transaction fees are higher, which is relevant to my active trading.

You may want to choose a custodian bearing in mind that you will have an IRA account as well as a regularbrokerage account, and having one custodian for both would be convenient. Looking ahead, you may wish to open a margin account now. Do research and be mindful of what you are doing on margin. Personally, against all advice, I just jumped right in, but it was a killer bull market at the time and I proceded cautiously to get the feel of it before getting aggressive. Getting my first margin call was like a right of passage, hehe. :cool:



What do you buy? Don't skimp on your research, but don't just sit in cash for fear of making a mistake when you should be in the market. Make the best decision you can and continue to refine your choices (the benefit of not having transaction fees).

Disclaimer: I have stong opinions, most of them right :D, some of them off. Don't take them as Gospel and don't take them as being the only game in town and don't take them as your own. Take them for what they may be worth, feel free to debate them,andform your own opinions. Personally, I find constructingmy own portfolio a fun,rewarding challenge and test ofmy mettle.



VASGX - (heh, I keep thinking, "Invests in feminine hygiene products", lol)

This is a fund of Vanguard funds. A fund of funds? That takes the fun out of fund! Pick your own funds. I don't like it. I don't like the forthcoming TSP L fund either.

Philosophy is one thing, the bottom line is the real thing. With all of that shell-game fund-of-fund stuff, VASGX still managed to under-perform the S&P500 for this and last year. Conclusion: All of their "intelligence" was outperformed by a mindless index fund. Perhaps they would have done better investing in feminine hygiene products?

VTIVX[/b] - Another stock/bondblend fund. I do not like those. Stocks are contrary to bonds, so that guarantees that some portion of your fund will lose, watering down your return. Unless you plan on being in a coma for the next thirty years, I see no reason to buy these funds.

My other issue with this fund is that it has a thirty-year time horizon, yet it is wholly in large and giant companies. Buy-and-hold Diversity 101 (the sole purpose of this fund) professes that you buy small company stocks this far from retirement and not large caps, and certainly not mega-ultra-supersize caps.

http://quicktake.morningstar.com/Fund/TotalReturns.asp?Country=USA&Symbol=VTIVX&fdtab=re turns



I used MorningStar to get the skinny on those. I go there first and check total returns against the funds peers in its category and against the market as a whole. I give the most weight to three-month ranking and 1-year ranking. I also like Kiplinger's site.

http://quote.morningstar.com/TickerNotFound.html (goes right to ticker entry)

http://www.kiplinger.com

Most funds underperform the market. I want the ones that outperform the market.



Finally, subscribe to magazines. Kiplinger's Personal Finance is good, ecclectic, and not too technical. Money, Smart Money, etc.

Books: The Truth About Money (Ric Edelman), Beating The Street (Peter Lynch), How To Make Money In Stocks (Bill O'Neil)

[Pete1]

As usual, you will get two completely different takes depending on who you ask. :)

I do agree with Rolo regarding VASGXbecause Ido notlike the asset allocation fund that is included as a part of VASGX. Currently, the asset allocation fund is trailing the S&P 500 by about 1%. Themore static Target 2045 is right around the domestic market averages.

Personally, I willtake the market average.The numbers that Rolo posted (market averages) are easily attained by simply buying and holdingindex funds. Beating the averages is attained by about 40% of all mutual funds in a given year. However, past performancedoes not guaranteefuture success and so good luck picking this years winners. Several studies indicate that actively managed past winners usually endup becoming subsequentyears losers. Add to the the horrendous fees charged by actively managed funds and it becomes more difficult for the active manager to beat the index.

[azanon]

Another stock/bondblend fund. I do not like those. Stocks are contrary to bonds, so that guarantees that some portion of your fund will lose, watering down your return.


Once again, i agree with ya about 98% Rolo on that post, but I have to disagree with this statement. Actually, Bonds and Stocks are actually slightly positively correlated, mathematicallyprobably about+.2 correlation, give or take a tenth (for those that dont know, correlation ranges between -1 to 1).

Looking at it from an interest rate standpoint for example, a bond fund might be really nice if interest rates are 9% or less, AND dropping, making both bonds AND stocks attractive (falling interest rates are good for bonds, LOW interest rates are good for stocks).* (with the exception of the extremely overvalued market in 2000-2002 where even lower rates couldnt spark buying stocks)

Now for a converse scenario, if interest rates are really high (say 10%) AND rising, both Bonds AND stocks are usually both poor choices; meaning both go down. Money market might be best case here (or G fund for tsp folks).

A balanded fund would also make a great buy and forget, dummy proof investment. In fact, thrown in an international stock and bond fund and you have a pretty decent portfolio. Balanced funds also only have a losing year roughly one in 10 years. Considering their historical returns and low risk levels, you could do much worse, lets put it that way.

Back to my point - they can at time be "contrary" to each other, but on average, they are actually slightly positively correlated.


I give the most weight to three-month ranking and 1-year ranking.

Well, have to disagree with that too. Ive read multiple times that a typical no-no investing mistake is to chase "last year's winners". The reason for that is whatever they did that worked so well, is probably now a position that's overvalued and because of that is likely to see negative results. I prefer 3 years myself.

[azanon]

Personally, I willtake the market average.

I think that is a wise concession. I've heard it said those that try to make a killing on the market, usually end up being the one that got killed. Sadly, i have first hand experience from 00'-02'.

[Rolo]

I am not saying that Pete is wrong, but I do not agree with him. The same goes for Azanon, too. e.g. It is a personal choice.

Pete1 wrote:
Personally, I willtake the market average.


With the wealth of information readily available and a little effort and intelligence, I would rather not settle for average.

Pete1 wrote:
Beating the averages is attained by about 40% of all mutual funds in a given year.

I think it is actually fewer, like 1/3 or 1/4. Still, why not go for the top 10%, or 20% even?

Pete1 wrote:
However, past performancedoes not guaranteefuture success and so good luck picking this years winners.Several studies indicate that actively managed past winners usually endup becoming subsequentyears losers.


Many state that as justification for buy-and-hold, which is valid. However, that is a reason I do not intend to buy-and-hold. Picking "winners" in mutual funds, as far as I can tell, is not unlike picking stocks. You can see trends in funds and in the market, and adapt accordingly. I haven't had funds in varying markets, so I am no expert by any means; I've spent more time with stocks.

Pete1 wrote:
Add to the the horrendous fees charged by actively managed funds and it becomes more difficult for the active manager to beat the index.


What would you say to a fund that had a 3- and 5-year annualised total return of 38%? A fund that earned 80% in 2001, and 24% in 2002when most everything else was bombing? You would not even look at it because it has a 5.75% load, 2% redemption fee, and 2.09% expense ratio. ING Russia (LETRX)

azanon wrote:
Actually, Bonds and Stocks are actually slightly positively correlated, mathematicallyprobably about+.2 correlation, give or take a tenth (for those that dont know, correlation ranges between -1 to 1).

Looking at it from an interest rate standpoint for example, a bond fund might be really nice if interest rates are 9% or less, AND dropping, making both bonds AND stocks attractive (falling interest rates are good for bonds, LOW interest rates are good for stocks).* (with the exception of the extremely overvalued market in 2000-2002 where even lower rates couldnt spark buying stocks)

Now for a converse scenario, if interest rates are really high (say 10%) AND rising, both Bonds AND stocks are usually both poor choices; meaning both go down. Money market might be best case here (or G fund for tsp folks).

A balanded fund would also make a great buy and forget, dummy proof investment. In fact, thrown in an international stock and bond fund and you have a pretty decent portfolio. Balanced funds also only have a losing year roughly one in 10 years. Considering their historical returns and low risk levels, you could do much worse, lets put it that way.

Back to my point - they can at time be "contrary" to each other, but on average, they are actually slightly positively correlated.


That may be true, but...now, and not for quite a while, bond funds are not the thing to have, and that is pretty dummy-fool-proof. Is the bond market about ready to be like the stock market was in 2000-2002? Could you have honestly recommended stocks in 2001? Not only would you be losing money in bonds, but you would be losing the gains you would have made were you 100% in stocks.






I give the most weight to three-month ranking and 1-year ranking.

Well, have to disagree with that too. Ive read multiple times that a typical no-no investing mistake is to chase "last year's winners". The reason for that is whatever they did that worked so well, is probably now a position that's overvalued and because of that is likely to see negative results. I prefer 3 years myself.





I do use 5- and 10-year histories, if available. However, I want to know what the fund's latest performance has been. Was there a manager replaced within the past to years to explain the fund's dramatic change in performance? Is the fund getting better, worse, or steady? I would say that the Magellan of the funds (funds that sustain outstanding performance for long periods) are harder to find than this years winners.

Then there are sector plays...

[Pete1]

My other issue with this fund is that it has a thirty-year time horizon, yet it is wholly in large and giant companies. Buy-and-hold Diversity 101 (the sole purpose of this fund) professes that you buy small company stocks this far from retirement and not large caps, and certainly not mega-ultra-supersize caps.



Actually, Rolo, the Target 2045 fund includes the Willshire 5000 Total Stock Market Index fund. The Willshire 5000 includes nearly all stocks in the domestic market according to market cap weightings. Currently, the Willshire 5000 is roughly 70% large cap and 30% small/midcap. The portfolio for the Target 2045 fund breaks down as follows:

Large Cap: 50.4% (70% of the domestic stock portfolio)

Mid/Small Cap: 21.6% (30% of the domestic stock portfolio)

International: 18% (20% of the overall stock portfolio)

TotalBond Market: 10%of the overall portfolio

The bond fund percentage increases as you get closer to retirement. Very difficult to beat the .23 expense ratio.

[Rolo]

You posted the stats for {snicker} VASGX (Lifestrategy Milk--I mean Growth--Fund).

Vanguard Total Stock Mkt Idx --- 49.97
Vanguard Asset Allocation --- 24.96
Vanguard Total Intl Stock Index --- 15.18
Vanguard Total Bond Market Index --- 9.68

Heh, I just noticed this...was the "Vanguard Asset Allocation" not good enough that they included it in another allocation fund?

To me, this is just another way to sell their products and to appear to offer more products without actually making a new product.

[line]

VTIVX

http://im.morningstar.com/im/3_0StyleLargeEQ2.gif

Average Mkt Cap $Mil 22,980

Market Capitalization % of Portfolio
Giant 43.64
Large 29.99
Medium 18.50
Small 5.75
Micro 2.11


Only 8% small companies. That's crawling under a rock on Wall St. No asset allocation calculator in the world will tell you to do that 30 years out. I would totally berate the professional (financial planner, etc.) who would recommend that to me.

[line]

Something I meant to say, but didn't since I was literally, falling asleep at the keyboard during my last post:

Pre-Information Age, I would agree that "picking next year's winners" would be difficult and chasing yieldscan get you burned. However, we allhave ubiquitous access toup-to-the-minute fund and market data; this makes is easy to fine-tune a dynamic portfolio.

heh, It's easier for me to "re-allocate" my portfolio than it is to go get my (snail) mail!

[line]

hehe...You still with us, Dave?

[dwilson]

Thanks for all the great info. I was thinking on just starting out with the vanguard 2045 retirement account and maybe doing more as I learn more. I just want somewhere to put the money. Also is there a website for that bank? I want to open a money market account but can never find one with good returns. Should I go through a discount broker like TD Waterhouse maybe and pick out some funds and have a diveresed portfolio? Thanks again for all the great information. I just want to do something soon because Im sick of saying a will do it and want to do it.

[Pete1]

What would you say to a fund that had a 3- and 5-year annualised total return of 38%? A fund that earned 80% in 2001, and 24% in 2002when most everything else was bombing? You would not even look at it because it has a 5.75% load, 2% redemption fee, and 2.09% expense ratio. ING Russia (LETRX)


I would say that it is time for that fund to revert to the mean and I would also, say that at any time a fund like that could also go into a downword spiral of a 70-80% loss over a subsequent 3-5 year period, maybe even a 1 year period:).But seriously,regionalEmerging Markets funds are very risky and sometimes, even with a high load, investors are rewarded for taking on the additional risk. The prudent investor should remember that the reverse is also true, eg, there is alsohuge potential for loss in regional emerging markets funds.I do not believe that I would advisedwilson to use this account fora Roth IRA. Perhaps a seasoned investor with a very large, well diversifiedportfolio with say 5-10%of the total portfolio set aside for short-term speculation in stocks and riskier funds mighttake a gamble on LETRX.

Also,it is not prudent to assumethat smaller is always better. Sure, over the last few yearsU.S. small has outperformed U.S. large but loading up on smallover the nextone ortwo orfive or ten or eventwenty-thirty year periods does not guarantee anenhanced return. How did U.S. small, U.S. large, and internationalfinish over70s, 80s and 90s:

1970s: 1. U.S. Small 2. International 3. U.S. Large

1980s: 1. International 2. U.S. Large 3. U.S. Small

1990s: 1.U.S. Large2. U.S. Small 3. International

Personally, I am a coward and prefer to split my $$ equally across our 3 TSP stock funds :).As dwilson suggests, the Vanguard 2045fund is a goodstarting pointfora Roth IRA but ideally, DW may want to splitthe Rothintofunds specializing inother areas down the road. For his TSP, 34% C, 33% S, and 33%would not be a bad starting point.

[azanon]

That may be true, but...now, and not for quite a while, bond funds are not the thing to have, and that is pretty dummy-fool-proof. Is the bond market about ready to be like the stock market was in 2000-2002? Could you have honestly recommended stocks in 2001? Not only would you be losing money in bonds, but you would be losing the gains you would have made were you 100% in stocks.


Spoken like a true market timer. The majority of investors and non-finance experts are best served by putting together a portfolio using asset allocation among various asset classes adjusted for their specific risk level. "What's hot now, and what's not", for a buy-and-hold investor, has a relevance that ranges somewhere between irrelevant and inconsequential.

The, could i have recommended stocks in 01', was a particularily sad question considering the hindsight available. Am I supposed to say yes?



I think it is actually fewer, like 1/3 or 1/4. Still, why not go for the top 10%, or 20% even?

This is the part that amazes me the most about timers; that is that fund managers, probably most of whom have MBAs, paid over 100K/year, only outperform the S&P 500 25-33% of the time, yet several of us, including myself at times, have enough arrogance to think we're better off guessing what the market will do next.

I dont want to link other sites, but if you asset allocate among an all stock portfolio, you'll actually get better than market average returns. This reminds me of a discussion with my dad when he asked would I sign a contract to live till a guaranteed 90 years old if i had the option. Mathematically, i should, but why does the human in us make us go for 95-100, when doing so will probably have us end up dying at 70, or perhaps getting cancer at 55 (equilivant market crash).

[Pete1]

[Rolo]

Pete1 wrote:
I would say that it is time for that fund to revert to the mean and I would also, say that at any time a fund like that could also go into a downword spiral of a 70-80% loss over a subsequent 3-5 year period, maybe even a 1 year period:).
Also,it is not prudent to assumethat smaller is always better. Sure, over the last few yearsU.S. small has outperformed U.S. large but loading up on smallover the nextone ortwo orfive or ten or eventwenty-thirty year periods does not guarantee anenhanced return. How did U.S. small, U.S. large, and internationalfinish over70s, 80s and 90s:

1970s: 1. U.S. Small 2. International 3. U.S. Large

1980s: 1. International 2. U.S. Large 3. U.S. Small

1990s: 1.U.S. Large2. U.S. Small 3. International





Your points are all valid and I do agree; your case (and Az's) actually supports both arguments. Asa result of these facts, I believe there are two fundamental approaches: 1. The hands-free, fire-and-forget approach of diversification; and 2. The routine adapting of your portfolio to market climates--not to be confused with "market-timing", which is taking periodic adjustments to the extreme.

I look at my regular mutual funds once/quarter, or sooner if I see them not acting as they should. I just decided to employ market-timing to my TSP for fun and profit. I will adjust my strategies as I gain more experience, for I know that I can do better.

Should everyone try market-timing? Of course not. Likewise, I do not feel diversification is for everyone, either. It is really a question of personal style, preference, and how much effort you are willing to spend on investing. I will add that I know people who spend as much time balancing their checkbooks as I do on investing. Balancing a freakin' checkbook does not earn you money.

Both strategies have their merits and limitations; I want to mix the best of both approaches as much as possible while minimising the limitations. Euphamistically speaking, "the right tool for the job".

[azanon]

The routine adapting of your portfolio to market climates--not to be confused with "market-timing", which is taking periodic adjustments to the extreme.

Market-timing is an extremely generic term and can correctly be used to mean both. There are varying degrees of market-timing.

Strict, non-market timers dont adapt their portofios to market climates. They might, however, insure that a particular asset class doesnt get overweighted if they've done well recently so they might make some buys and sells to adjust percentages.

[Rolo]

azanon wrote:

The routine adapting of your portfolio to market climates--not to be confused with "market-timing", which is taking periodic adjustments to the extreme.

Market-timing is an extremely generic term and can correctly be used to mean both. There are varying degrees of market-timing.

Strict, non-market timers dont adapt their portofios to market climates. They might, however, insure that a particular asset class doesnt get overweighted if they've done well recently so they might make some buys and sells to adjust percentages.

Right, but there are connotations to the term "market-timing".

Here is how I break it down. Timers adjust based on market swings, very short-term, almost like a video game. "Adapters" (for lack of a better term) adjust based on broad, macroeconomic conditions (climate), such as avoiding bonds right now until interest rates are no longer against them.

Which one am I? It depends, it varies, I am still figuring that out. That is why I like these conversations and make it a point to pick apart the opposing point of view and question my own.

[azanon]

I grasped your personal style of market timing with your previous post. I was justclarifying that I didnt misuse the word, since you seemed to have implied that I did earlier. Glad you agree.

[Rolo]

azanon wrote:
...I was justclarifying that I didnt misuse the word...
Not if you meant it as an epithet. :D hehehe

[Pete1]

Rolo,

Using different approaches within the portfolio is a decent compromise.

1. Primary Approach: Diversified buy and hold with little if any tweaking beyond annual rebalancingcouldbe used for a set percentage of the portfolio, say 90%.OR, Also, one might usea tactical asset allocation model(staying within a set range, eg, 80stocks/20fixed allocation increased to 95stocks/5fixed or 65stocks/35fixed depending on market conditions). The problem with TAA is determining when to increase/decrease the exposure to stocks on a consistent basis. I have not seen anything out there that makes me confident that TAA works although TSPAdvisory claims to have a system that works.

2. Fun Money: Stock picking, speculativefund investments, etc. could occupy 5-10% of the portfolio and be viewed as the fun money part.

Personally, I am back to diversified buy and hold.

[Rolo]

I like that! "Tactical Asset Allocation" Duh, as a gamer, I do not know why I never used the terms strategic and tactical. Very accurate. And they sound cool.

Yes, my IRA's are more strategic. More like "Real-Time Strategy". :) When I started in January 2003, not knowing much of anything at all, except that the market resembled the Valley of Ben Hinnom andeveryoneavoided it. I figured that whatever survives will be profitable. I invested in bonds (mostly junk, hehe) and GNMA's and waited for signs that the market was no longer a sacrificial altar. That happened in March. In May,I ditched everything and got into the market.

I agree with only speculating with only so much of your portfolio. The extent depends on how confident and knowledgable the individual is. I am a quick study, particularly if I am interested in something. When I started, I was cautious. I try to wait for confirmations before jumping into anything, such as the March-to-May delay before I got into stock funds. Eventually, but not in the forseeable future, I wish to learn to sell short, as market conditions will one day warrant it.

I think locking one's self into a fixed, inflexible strategy imposes limitations not only on the portfolio, but on the individual. Again, not everyone is "into" investing, but I am, and I assume at leastto some extent, everyone here is.

Personally, I like pushing myself to my limitations, and then stretching them. Most of what I do is "something I've never done before". At work, I am the go-to guy that everyone asks, "Is this possible? Can this be done?" to which I usually reply, "Not at the moment, but give me a week." :D

Natural curiosity and the fact that I lose attention quicklydrives myneed to find interesting things, and venturing into the unknown with the intent of mastering it is what I need to keep sated.

So, for me, it is not just the money (that is the purpose), it is also a personal challenge, a hobby. "Can I do this? Can I make this work? How far can I go?"

Another reasonwhy I do not care for etching numbers in stone: it is too impersonal.

[Rolo]

P.S. To clarify, Pete, I am not disagreeing with you. What I want to say is that different things work for different people. I want to encourage people to explore those different things to see what suits them the best. That is what I am doing, exploring what works for me, and I enjoy doing that with similarly-mindedcompany.

[Pete1]

You are obviously a smart person. Be careful but have fun exploring and if you find something that works consistently over an extended period (say 5 years) market it :)andthe best of luck in achieving success.

[Pete1]

Of course if you market it, it will stop working, hehe. :D

[Rolo]

Pete1 wrote:
Of course if you market it, it will stop working, hehe. :D
hahaha...LOL!

Yeah, my whole "thing" is that I do not think you can have any one system that will consistently work over a long period of time. Something that I am learning is that the market often has little to do with economics and more to do with human nature. Case in point: when we say "How will the market react?", we are asking little of economics and much about people's behaviour. This is where economists, analysts, and fund managers can wind up being "too smart for anyone's good", for they forget the human "uncertainty principle"* in the overall equation.



*Albert Einstein. Science teaches us a lot about ourselves.

[azanon]

To me, the most attractive thing about diversified, buy-and-hold stock investor is that you're guaranteed not to be the big loser; far far from it. Average really isnt that evil. "On average", you're certainly be no worse off than anyone else. Heck, if one's just using stocks to build their retirement, they're way ahead of the masses. As Tom as alluded to on our main boards, a shockingly small number of people even utilize stocks.

In short, and as a collective whole, (if i were guess), if one invest 10% of what they make, and invests the majority/all of it in stocks, they'll have a retirement package someday that will easily be better than 90% of their peers for the simple reason thatmost dont save 10% and most dont use stocks fot the little they do invest.

If you go the timer route though, there is certainly a chance you'll be you're own worst enemy. Is it really wise to gamble that modern portfolio theory is wrong? Considering you only get one retirement, and one chance to get it right, I just dont think so.

Azanon

[azanon]

One comment about the investing for fun, getting bored so you change your portfolio concept: The best advise i've heard on this is, we all like to have fun. Dont make your fun with your retirement package though, cause the consequences can just be too severe. If you just cant resist, i like pete's advise; play with 5-15% of your portfolio, but not the whole 9 yards.

[Rolo]

azanon wrote:
To me, the most attractive thing about diversified, buy-and-hold stock investor is that you're guaranteed not to be the big loser; far far from it. Average really isnt that evil. "On average", you're certainly be no worse off than anyone else. Heck, if one's just using stocks to build their retirement, they're way ahead of the masses. As Tom as alluded to on our main boards, a shockingly small number of people even utilize stocks.

In short, and as a collective whole, (if i were guess), if one invest 10% of what they make, and invests the majority/all of it in stocks, they'll have a retirement package someday that will easily be better than 90% of their peers for the simple reason thatmost dont save 10% and most dont use stocks fot the little they do invest.

I wholeheartedly agree.

Most do not fully utilise their 401(k)s, even with funds matching (What!? Turn down free money!?) and most do not max out IRA contributions. That is nuts. This is why we still have Socialist Security Tax.

azanon wrote:
One comment about the investing for fun, getting bored so you change your portfolio concept: The best advise i've heard on this is, we all like to have fun. Dont make your fun with your retirement package though, cause the consequences can just be too severe. If you just cant resist, i like pete's advise; play with 5-15% of your portfolio, but not the whole 9 yards.


I agree here, too. It goes back to risk mitigation. One should only play with what one is comfortable with losing (Stock Speculation 101: Only risk money that you can afford or are willing to lose). The degree of your own competence is also relevant to how much you should risk. Personally, my retirement accounts are in aggressive, above-average funds, somewhat diversified between fund families and market sectors and my taxable brokerage account is 40% stock funds and 60% stocks. Depending on my mood, my stocks are split between long-term holders and fun-play-try-my-hand-in-stock-timing.

My plan right now is to dump as much as I can into my taxable account before the TSP max is lifted in 2006. In 2006,what I normally contribute to my taxable account will go into the TSP instead and my brokerage account working capital should be large enough to grow it substantially without further contributions. The tax savings from TSP contributions should offset my tax liabilities from my brokerage investment earnings to some extent. Basically, I am "priming the pump".

[Rod]

So, what would be a great fund for the Roth IRA???

I would like to know that answer myself. It seems everytime I've asked on other forums, I get the run around because it ends up turning into a debate over this fund and that fund. I realize we all have our preferences, BUT there has to be at least ONE GOOD FUND out there.

What is it?

My Wife and I each have$5,500 in a Roth IRA Share account earning 2% quarterly.

I know I can do better, I just need to be led.

Thank you & God Bless:^

[Rolo]

Welcome, Rod!

Yes, Az keeps picking fights with me and clouding the topic. (hehehe, that is so untrue)

Barring few historical exceptions, like Magellan in Lynch's day, I do not believe in a holy grail of funds. Even if there were, my personal style at the moment, would likely have me pass on such a fund.

The question for you, Rod, is what is your "style"? What are you looking for in a fund? Do you want to buy with confidence and hold it indefinitely or stomach more risk for a greater return, managing it every-so-often?

Approximately 60% of all funds underperform the S&P500 index. There is your baseline, an index fund. To begin your search, try to find funds you like that have consistently outperformed the index; it is harder than you think.

[Rod]

Thanx Rolo:)

To be quite honest, I'm not very familiar with investing in funds. But common sense tells me that I need to move my Roth out of the share account, and into something more aggressive. I guess my risk factor would be above average- Perhaps a Beta 2.

I recall someone telling me to invest in Scudder funds. I realize there are thousands of funds out there, but I'm really confused as to where to begin since I don't know too much about reading the market. At least not yet.;)

If I was your brother, what would you recommend? I do realize all recommendations are at my own risk. So please don't be afraid to recommend a good performing long term fund for my Roth. I'll take everything into consideration.

God Bless:^

[tsptalk]

For what it's worth, I've heard real good things about the Hussman Strategic Growth Fund. http://www.hussmanfunds.com (http://www.hussmanfunds.com). The folks at decisionpoint.com have some great things to say about the manager of the fund.

Disclosure: I'm not in it myself currently.

[Rod]

Thank you for the info!

BTW, I want to also thank you for investing your talent & time into this website. It is VERY helpful for folks like me who want to familiarize ourselves withour TSP options and gain a better understanding of general investing.

Please know that you are truly appreciated!:^

God Bless:)

[Rod]

Please look at some of these facts & figures of the Hussman Strategic Growth Fundand let me know what you think.

http://www.hussmanfunds.com/theFunds.html

Thanx!

[tsptalk]

Please know that you are truly appreciated!
Thanks Rod!!

[Rod]

Well, Morningstar does give this particularHussman Fund 5 stars.:^

[Rolo]

hahahannnnggghghhhhhaaaaaah!

stars

heh



THAT looks like the fund to have during bear markets, eh? (Or for people who don't like to lose...ever.) It should get a more deserving name than "Strategic Growth".

The only thing I do not like about it is the 1.5% redemption fee. Of course, with a beta of 0.13 and given its track record, it would be hard to part with this fund...except during bull markets, such as we had in 2003; but I do not think that is going to happen again for a long while.

I could have used this puppy in January. It is going in my contrarian category buy list.

[Rod]

Since I'm first beginning to learn about all of this, what is the average redemption fee?

Correct me if I am wrong, but is the redemption fee the fee you pay when you begin distributions?

Since this would be the Roth IRA, does that mean I would pay a fee of 1.5% on every distribution I would make, or is that a one time only fee at a particular point in time?

Thank you!:^

[Rolo]

Nonono. OK.

An IRA is not an investment. It is not something you purchase. It is nothing tangible. It is merely a set of tax rules. It stands for "Individual Retirement Arrangement", (not account).

Think of it as a container. You can put anything in that container (funds, stocks, bonds, CD's, etc.) and the only difference is that taxes are handled differently than regular taxable containers.

So investments are independant andhave nothing to do with IRA's. Treat them separately.


[line]


A Redemption Fee is what you pay when you sell shares of a fund before holding it for a reasonable amount of time. This is to prevent actively trading in and out of the fund. It is a fund-thing, not an IRA-thing; keep them separate.

From HSGFX Prospectus:



REDEMPTION FEE
A redemption fee of 1.5% of the dollar value of the shares redeemed, payable to the Fund, is imposed on any redemption or exchange of shares within six months of the date of purchase. No redemption fee will be imposed on the redemption of shares representing reinvested dividends or capital gains distributions, or on amounts representing capital appreciation of shares. In determining whether a redemption fee is applicable to a particular redemption, it is assumed that the redemption is first of shares acquired pursuant to the reinvestment of dividends and capital gains distributions, and next of other shares held by the shareholder for the longest period of time.

This is not unreasonable. Just be sure to look for it before trading funds, otherwise you may get hit with a fee by surprise. (Yes, that happened to me...once.)

[Rod]

Thanx Rolo. I dounderstand that the RothIRAis basically a tax shelter, and not to be confused with an investment. My bad.

But what about when the IRA is "invested" into a mutual fund, such as the Hussman we've been discussing?

Is that when it becomes an Individual Retirement Arrangement, as was mentioned?

Thanx for helping me to understand.

God Bless

[Rolo]

An "IRA" is not a tangible thing, so it does not "become" anything. It is always an arrangement, not an account. An accurate semantic would be IRA account, which is the same as a regular taxable investment account except that you agree to follow the IRS rules with your "IRAa".

It does not matter what is in your IRA account. You could put baseball cards in it. For many reasons, that would not be wise, but you could do it. Any investment can be treated with IRA rules, because it is merely an arrangement on taxes, and nothing else.

The only time you will notice a difference between a regular account and an IRA account is when you file your tax return.

[Rod]

This is worse than theology, and I'm pretty good at theology!:P

I think I got it now.

:^

[Rolo]

Oh, I agree, the tax code has had my head spinning much faster thanPaul of Tarsusever has!

Like theology, stick with it and pick it apart, and it becomes clear as you go.