my little portfolios in the green.. how about you? investment thread
- Thread starter Penis Envy
- Start date
Ape is really a 10 year old girl pretending to be a 12 year old boy in a 24 year old girls disguise!
eileenbunny
Druish Princess
I feel I'm in over my head with the whole investing thing, and I have to get smart about it really quick. I think at this point hiring a financial advisor is a must for Dan and I. Anyone else do this? What are your thoughts?
Bah, get a couple of books and do it yourself. Its not as hard as you think. Additionally, its impossible to get a impartial financial adviser, since you have no way of knowing what kind of behind the scenes bonus they are getting for signing you up for a plan...
Stay away from just about every annuity and every actively managed mutual fund.
what? I'm canadian. it was only very recently that i began to consider an american retirement plan.
I will admit, I kind of leave all that stuff up to Knyte. I handle the day to day expenses and HATE every minute of it, so he asks, how much money do we have to do this with, I give him an amount, and he handles it. I probably should be more involved, but simply don't care to at the moment. He lets me know what amounts we are up to every few months.
Okay, there are basically two kinds:
Traditional IRA: This type of IRA essentially grows tax free (similar to a 401k) and then taxes are collected when you start making withdrawals. I say 'essentially' because any money you put into it has likely already been taxed (like your paycheck), so what happens is that your tax liability is reduced. For example, if you put in $5k this year (which is the limit), then your taxable income is reduced by $5k. Additionally, if for some reason, you need the money back from the IRA for an emergency, there is a 10% penalty and the taxes on that money become immediately due. Generally, traditional IRAs aren't your best place to start.
Roth IRA: A Roth IRA is an IRA that is funded with post-tax money. This means that you're taxed as you're putting it in, so its tax free at withdrawal. The advantage of this is that you're likely to be in a lower tax bracket now than you will be as you retire (you do plan on making partner at the firm eventually, right?) so end up paying less taxes with a Roth. Another "advantage" is that any of the money you put into the Roth (not any of the earnings) can be withdrawn at any time.
For most people, the BEST strategy is to max your 401k (if your company does any sort of matching), then max your Roth contributions ($5,000 for 2008), then max out your traditional IRA (another $5,000). If you have anything left over, only then should you get into taxable investments...
edit: Oh, and one more thing. You should NEVER have more than a 60/40 mix of stocks and bonds. If you do, there should be a VERY damn good reason. Being young and in the market for a long time isn't a good enough reason.
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so an IRA is an investment account. I would open one with a brokerage then decide what stocks/bonds to buy with the money? do I then have to tell it each month what to buy when I make a contribution, or do I just set guidelines that when the money is deposited it buys automatically based on my preferences?
Sorta, not really. It IS an investment account, but it has much different tax rules than a standard brokerage account because its strictly for retirement. And since its more for long term investing, you'd mostly be interested in funds rather than individual stocks (but you could buy indie stocks if you really wanted to - but I wouldn't recommend it).
Simply because I don't know your experience level, do you know how a fund works?
The idea of funds is risk mitigation. If one stock tanks, you don't lose everything. So mutual funds contain many different blends. Some contain all bonds, some are all stocks, some are just tech sector stocks. So your answer is yes, you would have different funds in your portfolio to balance out your stock/bond ownership to around 60/40.
The problem with mutual funds is that they are actively managed and that eats into your profits. First, they have to pay someone a shitload of money to manage these funds (8 figures is waay too common for the bigger ones). Second, they have a huge problem hiding their money when they try to buy stock. For example, a mutual fund thinks they've found a good company and they want to start buying stock. They have $100 million in shares they'd like to pick up. Let's say the shares are $100 a piece when they start buying. Well they can't buy a million shares all at once, they have to pick them up somewhat slowly. This gives everyone else on the Street time to see them buying! Now guess what happens? Everyone else wants a piece and the price starts to go up! Now they can no longer buy a million shares because by buying the stock, THEY MOVED THE PRICE! This costs you money as a holder of the mutual fund. Let's conservatively say that these moves cuts your profits by 1%. Over the course of many years, this can cost you hundreds of thousands of dollars or more.
Even better than mutual funds though are stock and bond index funds. Index funds work differently and since they are much simpler, they have MUCH, MUCH lower costs. An index fund simply tracks a specifica market. For example, you've heard of the "Dow Jones Industrial Average". It tracks a total of 30 stocks. An index fund would keep a proportional balance of every stock in the DJIA.
Anyway, I'm ranting, sorry. What was your original question again?
edit: And btw, there are also items called target funds. These have a specific retirement date in mind, for example Target Fund 2040 would contain more stocks than bonds, but as we approach the target date, the fund would automatically starting moving more of the fund to bonds...
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