Stocks, Funds what are your best investments?

[Zorro]

Yeah I mean if you can max it and still have plenty for everything else sure, but in the end, my 401K isn't earning nearly what my other investments are, so no point in putting extra in there vs. other investments that earn 2-3X as much.  I.E. someone I know is putting 25% in their 401K, however employer only matches 3%, has never matched more.  They have no other investments anywhere and essentially are missing out on making a ton more cash elsewhere.  Their choice, but to me that doesn't make sense.

 

I do not make enough anymore after our comms were removed to straight salary to max out 401K and still invest in my kids college, Roth, and everything else I have, I guess that's my point.  Make sure the funds are placed accordingly to maximize return. 

What are these other investments that you're making 2x and 3x more than 401k? 

 

With 401k, you typically get a match from your employer.  if you take advantage of this match but do no more, you're out of pocket money is gaining a 100% return right off the bat.  Plus, your money is going in to your account TAX FREE so, you're saving ~25% by not getting taxed.  Downside is that you can't touch it until you're 59.5 i think.

[Zorro]

MC,

Are you saying the 401k choices your employer offers aren't that attractive?

If so, I would talk to HR about adding some better ones.  Also, you may be able to rollover your $$ into a Fidelity 401k.  That way you can invest in just about anything, while taking advantage of 401k pre-tax dollars.

Talking to HR, i'm not sure it's that easy.  it's typically up to the provider.

 

Another option is to take your 401k and slice a percentage off in to a self-managed brokerage account.  This allows you to buy stocks/bonds/mutual funds of your choice but still have it apart of your 401k.  I did this in 2005 or 06...right before the boom...err i mean BUST

[Tpoppa]

^^

Our HR ditched some underperforming funds last year and added some better ones.

 

Employer offerings tend to have more safe investments & avoid high risk/reward options.  The last thing they want is a bunch of calls from pissed off employees who lost money.

[bloodninja420]

I'm not allowed putting money in the market. Gamblers Anonymous considers it gambling. (so much for being anonymous.)

Youre kidding? Lol. What about bonds or real estate?

[Zorro]

i never agree with maxing a 401k. I prefer to invest only what the company will match(free money), and then put into a Roth and/or other avenues.  This is also for our government employees with deferred comps.  That money looks great until you realize that your pension puts you in a higher bracket and now you're paying a big chunk to access your retirement.  I like a nice whole life added into a plan as well since it will provide liquidity for any emergencies and a nice death benefit incase of the unthinkable... not to mention a lot of companies are now offering LTC access riders to help cover any nursing home stays.  It is quite a big world this investing game, so there are many different routes.  The key is not to be greedy, but also not to be scared.

I'm currently considering whole life.  It's not the most aggressive options for investing but i like how you can borrow against it tax-free.  Most google searches state "dont do whole, do term".  Well i do term for the "just in case i die, i could help out family".  With the whole, I don't look at it as life insurance.  I look at it as an account that i pay to keep (dislike) that I'll cash out before i die.  it's a nice haven for tax free gains.

[smashweights]

Broad, highly diversified, LOW cost, total-market funds.  Stay the course with regular contributions or dollar-cost averaging and hold til retirement.  It's not sexy, hip, and won't get you rich quick, but it's the only way to go for retirement investment.

 

I own one fund: FFNOX.

[madcat6183]

I'm currently considering whole life.  It's not the most aggressive options for investing but i like how you can borrow against it tax-free.  Most google searches state "dont do whole, do term".  Well i do term for the "just in case i die, i could help out family".  With the whole, I don't look at it as life insurance.  I look at it as an account that i pay to keep (dislike) that I'll cash out before i die.  it's a nice haven for tax free gains.

Thats one of my big ones, a fat whole life policy.  Never paid a premium in my life(parents did way back when), cash value now is enough to basically pay off the house, and the policy coverage is 3 times what my total "debts" equal, house and car.  I was told I should start putting in about 100 a year just to help the cash value grow, but haven't even done that yet.  Policy premium keeps renewing off cash value rollover or some shiat.

 

Yeah I need to look at my 401k here at work and do some changing with it, but I just don't get into it that much as they only match 2%, and then get a small bonus for the holidays in it.  In the end, I know I will make more with my guy so I just give him cash when he asks for it, and then make $$.  Honestly, I don't ask questions, I do what I'm told.  Figure if it's good enough for me to retire by the age I want to, which he said won't be an issue, then it's all good.

[Tpoppa]

Broad, highly diversified, LOW cost, total-market funds.  Stay the course with regular contributions or dollar-cost averaging and hold til retirement.  It's not sexy, hip, and won't get you rich quick, but it's the only way to go for retirement investment.

 

I own one fund: FFNOX.

 

That's an interesting approach. 

 

I sort of do the same thing, but I look for sector funds not total market.  I look for sectors (like Bio-Tech, Healthcare, Retail, and Tech) that I think will outperform others for the short to medium term. 

[Zorro]

Broad, highly diversified, LOW cost, total-market funds.  Stay the course with regular contributions or dollar-cost averaging and hold til retirement.  It's not sexy, hip, and won't get you rich quick, but it's the only way to go for retirement investment.

 

I own one fund: FFNOX.

Owning one fund doesnt seem to diverse...but that one fund seems diverse.  interesting strategy.

[magley64]

Owning one fund doesnt seem to diverse...but that one fund seems diverse.  interesting strategy.

Back when I had a 401K and stuff, I had 1 fund, but it was a very diverse fund.

[smashweights]

That's an interesting approach. 

 

I sort of do the same thing, but I look for sector funds not total market.  I look for sectors (like Bio-Tech, Healthcare, Retail, and Tech) that I think will outperform others for the short to medium term. 

 

Sectors are still risky and over long term (in general) too many investors and funds fail to do better than total market funds.  I should also add that index funds are what I would look at, as with your initial fund, FBSOX, you're not necessarily betting just on the IT sector, you're betting on Kyle Weaver's (the fund manager) ability to predict the IT market and buy/sell appropriately.  Overall, research has shown that MOST fund managers fail to beat their index fund before and especially even after fees.  IMO, if you want to be more "active" in your funds, then get a blend of Total Stock Market, Total Bond Market, and Total International Market index funds and manipulate your ratios as you mature.

[magley64]

GA book

 

Investing in mutual funds or tbills isn't exactly gambling.

If you were day trading, or something, then yeah, but investing for retirement... seems like an overreach.

 

Like if AA told you not to drink diet coke because it has sugar alcohol in it.

[owndjoo]

Yea whole life is a great option. Guaranteed growths which are often beaten with dividends on top. Like you said after so long it self funds an just keeps growing and you can access tax free without penalty. I don't even sell anymore and I still push it because it is a great product to add to your overall financial plan. I have my own small policy because I know I can convert my term rider down the road when I need more coverage and I'm locked in for life at the top health rating for a 27 yr old

[owndjoo]

Also with 401k's, you can take control of where the money is being invested. I moved all o mine into a different fund that I heavily researched. 20% ytd gains in my 401k.

[smashweights]

Owning one fund doesnt seem to diverse...but that one fund seems diverse.  interesting strategy.

 

It's a single fund that owns a fixed percentage of 4 extremely low-cost underlying funds:

- 48% Spartan 500 Index (tracks the S&P 500)

- 12% Spartan Extended Market Index (tracks a Dow Jones small/mid cap index)

- 25% Spartan International Index (tracks international index)

- 15% Spartan US Bond Fund (tracks the obvious)

 

So yes, it's only one fund, but I technically own thousands of stocks across all company sizes.  When I can afford the individual underlying funds, I'll own them individually to reduce costs by more than 50%.  The advantage of index funds, as part of their long-term out-performance of high-cost actively managed funds, is FEES.  Think about that FBSOX: expense ratio is 0.86%.  These Spartan funds are 0.10%.  Seems menial, but in a $1,000,000 portfolio (which is not an unreasonable retirement savings, especially given inflation over our lifetimes but as an example here for ease of math), that's a difference of $7,600 per year.  Even consider that when if your portfolio was half that value while you're still working($500,000) that difference is $3,800.  That's $3,800+ each year you've not only lost, but won't be compounding yearly as your fund's value grows.  It adds up over time.

 

Also, say I bought FBSOX so I had more funds.  Odds are many of the companies in that fund I already own via FFNOX, all I'm doing is weighting those companies more heavily in my portfolio.  I made this mistake early on thinking that owning a dozen or so funds was a better idea, but when you really think about fund compositions and what you actually own, it just doesn't make sense and does nothing for diversification other than overcomplicate your portfolio.

 

Taken with the fact that most fund managers fail to beat their index (http://www.forbes.com/sites/rickferri/2012/10/11/indexes-beat-active-funds-again-in-sp-study/

) in combination with lost money to higher fees and the always real potential that when the active manager of the fund changes (on average every 5 years) the funds performance could suffer, no way I'd invest another way for the long-term.

Edited October 24, 2013 by smashweights

[smashweights]

Good basic article on whole life:

http://whitecoatinvestor.com/8-reasons-to-avoid-whole-life-insurance-and-4-reasons-to-consider-it

 

I'm very much a proponent of term-life when needed only.

[Tpoppa]

It's a single fund that owns a fixed percentage of 4 extremely low-cost underlying funds:

- 48% Spartan 500 Index (tracks the S&P 500)

- 12% Spartan Extended Market Index (tracks a Dow Jones small/mid cap index)

- 25% Spartan International Index (tracks international index)

- 15% Spartan US Bond Fund (tracks the obvious)

 

So yes, it's only one fund, but I technically own thousands of stocks across all company sizes.  When I can afford the individual underlying funds, I'll own them individually to reduce costs by 50%.  The advantage of index funds, as part of their long-term out-performance of high-cost actively managed funds, is FEES.  Think about that FBSOX: expense ratio is 0.86%.  These Spartan funds are 0.10%.  Seems menial, but in a $1,000,000 portfolio (which is not an unreasonable retirement savings, especially given inflation over our lifetimes but as an example here for ease of math), that's a difference of $7,600 per year.  Even consider that when if your portfolio was half that value while you're still working($500,000) that difference is $3,800.  That's $3,800+ each year you've not only lost, but won't be compounding yearly as your fund's value grows.  It adds up over time.

 

Taken with the fact that most fund managers fail to beat their index in combination with lost money to higher fees, no way I'd invest another way for the long-term.

 

 

I've not looked into FFNOX before today, but it seems like a fairly conservative fund.  It seem like a great way to diversify, but by being that diverse it almost (by rule) has to have ''average'' returns because it includes above and below average investments (stocks and bonds).

 

FBSOX, for example, has consistently out performed it for 1, 3, 5 & 10 year returns (admittedly with higher risk). 

 

http://www.marketwatch.com/investing/fund/fbsox  $10k invested in 1999 would be worth $32k today

http://www.marketwatch.com/investing/fund/ffnox   $10k invested in 1999 would be worth $17k today

 

The Lipper numbers seem to bear that out also.

[smashweights]

The simple response is past returns have no bearing on future returns.  The question is not "how has this fund performed in the past?" but "how will this fund perform going forward?"  Could you have known that this fund would perform better in 1999?  Can you know this will repeat over the next 14 years?  Are you investing at the peak value of this fund?  The other problem with past performance graphs as well is that if you pick the right time point to invest, you can make any fund look better than another.

 

Here's an example that will hopefully clarify this concept: if you look at a comparison of performance on Google Finance and limit your data from 2000-2007 performance (ie: you're looking to invest the end of 2007), you would see that FBSOX is down 4.32% while FFNOX is up 7.96% over that time span.  Top this off with cheaper fees over that time and clearly FFNOX has outperformed and is the better choice, so based on past performance you would argue you should put your money in FFNOX if we were having this debate in 2007, just a little more than a year before FBSOX posted big gains.  If you KNEW that FBSOX was about to take off, sure you'd make a lot more money with it, but you couldn't.  Interestingly, around the time FBSOX starts pulling away from FFNOX is when Kyle Weaver takes over asset management of the fund (Feb 2009).  What will happen when he moves to another fund (as most asset managers only stay on an average of 5 years)?  Could you have known Kyle Weaver was going to post great gains?  See the difficulty in picking a winner?

 

You are correct: index funds, by definition, chase average market returns.  Key here being average MARKET returns, not average mutual fund returns.  80% of actively managed funds do not beat index funds.  So "average" market returns of an index fund are actually well above the average mutual fund return.

From the article I posted above, the Vanguard benchmark is an All-Index fund:

 

So my strategy is to play the odds and the best data, and the best odds of successful investing are in low-cost index funds.  I'm fine with knowing I'll never be the next guy who invests in Apple and makes hundreds of thousands in the stock market.  But there's virtually no chance I'll be one of those guys who loses his retirement savings.  There's just too much good evidence that this strategy works.

Edited October 24, 2013 by smashweights

[Tpoppa]

^^

As I said before, I think that an interesting strategy.  And well thought out.  I still see it as a more conservative fund.  That's why it lost less during the economic downturn, and why it gained less during the recovery.  

 

In the OP I mentioned that I am betting on a decent run up over the next few years.  Today, I have  pretty large tolerance for risk.  10 years from now I won't.  I think I'll add it to my watch list. 

 

The point of this thread is to look for investment ideas and strategies that I haven't considered.  Yours qualifies

[smashweights]

No doubt, but I hope I'm getting across that even in the 5-10 year range index funds still give you good odds of coming out better.  That graph was a 5-year study and as time goes on even less than 18% beat the index funds.  But I think your choice of words betrays you "betting on a run up" sounds more like you want to gamble than invest ;-)

 

The risk/reward concept in index investing is shifting your asset allocation.  The gains and diversity make my fund seem "conservative" but in reality it belies more risk mitigation.  15% bonds is actually a pretty aggressive portfolio.  If you want more risk/reward potential, you can skew yourself toward one category, but stay within index fund investing.  There are low-cost small-cap, REIT, value, growth funds from Vanguard.

 

FWIW: since 5/08/12 with regular contributions I've made a combined 25.16% gain using just this one fund.

[Mj 88]

I like this topic. I'm here to learn more.

[Tpoppa]

http://www.forbes.com/sites/rickferri/2012/10/11/indexes-beat-active-funds-again-in-sp-study/

 

One thing this article assumes is staying with the same fund(s) for 5-10 years.  If that is your plan, I do see how index funds would win out in the long term (about 80% of the time according to the article).  No doubt sectors and individual funds & stocks will go hot and cold over that period.

 

I use a different strategy.  I reevaluate about ever six months, and change sectors when necessary or to enter one that is gaining momentum. 

 

FWIW: since 5/08/12 with regular contributions I've made a combined 25.16% gain using just this one fund.

For sake of comparison, I've made about 47% over that same period using a mix of 4 sector funds with high Lipper scores (actual growth, not counting contributions).

 

Granted, I am taking advantage of favorable market conditions (as is 25% for an index fund).  Furthermore, those numbers just aren't sustainable long term unless you happen to be a Senator.  I do see favorable market conditions continuing for several more years.  If that changes then it's time to adjust accordingly.   

 

I think the name of the game is finding an investment strategy you are comfortable with.  That answer is going to be different for everyone, and it's going to change over time...

[smashweights]

Sounds like market timing ;-)   FWIW, higher past performing index funds you could consider if you wanted more aggressive funds: VISGX, VISVX, NAESX.  All indexed (no manager risk), have lower fees, lower holdings turnover (lower taxes), and all outperformed FBSOX.  Interestingly, some of the same top 10 holdings are comparable.

[zx3vfr]

My investments are in my employees. I hire people only 85+ either work from home to answer phones as costumer service or as a greeter inside the store. The trick is to take out a $20,000 dollar life insurance policy on them. Ya I gotta hire at least one new person every week, but heck most the time I pay them pretty much minimum wage and hire them on as independent contractors so I don't gotta pay taxes.

Teehee

[zx3vfr]

But no really I have diddly in investments right now. We fell on some hard times when Katie lost her job in 2012 and she has a job now but it's only 30 hours a week so it kind of screwed up our financial plan. But we are back on track and everything is nearly paid off, the good thing about her job is when the baby gets here we won't have to pay for day care because she does work only 30 hours and the company pays for full health benefits.

I do like the idea of hiring our daughter and paying her under 6000 and doing the max into a Roth IRA. Katie already has a Roth IRA and I'll probably open one eventually.

But once we are out of debt money will be going to safe investment for Isabella's college. We'll probably stick with mutual funds and municipal bonds, maybe some individual stocks, but that's not going to be for 5 or 6 years when she would be starting kindergarten and we sell our house and move into the house at my families business.