Investment advice

[dan79brooklyn]

I've never invested in anything or bought stocks before.
I'm not clever at math and have very little patience for studying about investment.

With that out in the open, I'm hoping that some astute pelicans can give me some advice. Please leave out the "go to vegas" or "buy vintage ----" ideas

My wife and I (mid 30s, 1 child) have some money that we have saved up over the years which is sitting in an ING savings account earning very little interest.

We moved to Japan a few years ago, so the money is not needed for anything (especially since the Yen is so strong).

Neither of our jobs have any type of savings plan. So this money would very likely go towards our retirement or child's -he's 5 years old- education.

So assuming the above, what should I do with about $30,000 ?

Thanks for your advice.

[Chocaholic]

Divide between 3 or 4 different (stocks, bonds, etc) mutual funds. I've used Janus for years with good results. They also offer some very diversified funds based on your risk/reward comfort zone.

[KFC911]

Though I'm not currently in any Vanguard funds, you won't go wrong with them compared to all others imo. For your circumstances, I'd diversify with a three way split: Total stock fund, total international stock fund, and total bond fund...YMMV.

[stomachmonkey]

Or find a reputable financial advisor.

Split between conservative and aggressive investments and see how he does.

My monthly statements dip one to two times a year but the overall trend is always up.

You want consistent growth, the guy who can make you stupid money overnight can and will most likely lose it overnight.

[Drisump]

If anything has been taught to us the last few years it has been that you can't rely on the "experts" to make money for you. The financial world has been a minefield of inflated IPO's , inflated expectations of earnings and frankly, gross deception on a grand scale. Currently the only people making money in most mutual funds is fund management, making a significant annual percentage of the funds gross worth. There appears to be some value appearing in the markets today but given your admission to having no interest or inclination, I be reluctant to recommend stocks of any kind. I've been nibbling away at what used to be considered "blue chips" (decent dividends, steadily growing revenues, minimal stock dilution) over the last few years and that strategy has done alright for me....no home runs but better much better than the dismal interest rate currently offered. Cheers and good luck.

[GH85Carrera]

The old easy one liner, buy low sell high.

I too am leery of stocks. I have seen a few of my friends spend 20 hours a week or more trying to figure out what stocks to buy. Everyone wants a time machine to go back and buy Apple when it was cheap.

[sc_rufctr]

Originally Posted by Drisump

If anything has been taught to us the last few years it has been that you can't rely on the "experts" to make money for you. The financial world has been a minefield of inflated IPO's , inflated expectations of earnings and frankly, gross deception on a grand scale. Currently the only people making money in most mutual funds is fund management, making a significant annual percentage of the funds gross worth. There appears to be some value appearing in the markets today but given your admission to having no interest or inclination, I be reluctant to recommend stocks of any kind. I've been nibbling away at what used to be considered "blue chips" (decent dividends, steadily growing revenues, minimal stock dilution) over the last few years and that strategy has done alright for me....no home runs but better much better than the dismal interest rate currently offered.Cheers and good luck.

Great advice, This is basically what I've done over the last 10 years. Works for me.

[MRM]

Over time the best investment strategy has been to buy a low expense S&P 500 index fund with dividends reinvested.

Actively managed funds, including mutual funds, frequently beat the S&P 500 in the short term, but something over 90% of all actively managed funds underpreform the S&P 500 over 5 years, and close to 98% of all actively managed funds underperform the S&P 500 over a ten year period.

Stocks still offer the best historical return over time and are a hedge against inflation because stock prices rise as the dollar loses its purchasing power.

The individual investor really doesn't have the tools available to "beat" the market. The level of information and quantitative analysis necessary to arrive at a truly independent value of what a stock should be is possessed only by the big institutional traders. Most people who hold themselves out as stockbrokers or financial planners have the level of skill and training that anyone can achieve by reading financial magazines. Their level of analysis is no greater than reading the newsletters published by Schwab, Ameriprise, etc., because that is where they get their analysis.

The dirty secret of the finaincial services industry is that brokers and planners and advisors are nothing more than salesmen. Other than the unusal few, they really know little about finance and accounting and can't value stocks any better than you or me. Essentially they read the financial press and guess - with your money.

The best an individual investor can do is to hire someone with true academic training in finance and accounting and who has the ability to read 10-Ks, P&L statements, and other public information. I can tell you that people with this level of skill and training almost do not exist at the individual investor level. And this is the bare minimum to be competent to make individual stock picks.

That gets us back to mutual funds. The lure of mutual funds is that an individual investor gets access to the big institutional investment professionals by joining a mutual fund. It's a nice idea, but it just doesn't work. Over time, fund managers do not beat the S&P 500.

So as I once read in a Dilbert cartoon (Scott Adams is a big promoter of index funds) given the fact that the S&P 500 beats 95% of all fund managers, and is the single highest-performing investment vehicle widely available to the public, woudn't all rational investors use index funds and put the financial sales industry out of business?

As a final thought, the same index fund advice holds true internationally, so some extent. However, I would tread cautiously in buying international index funds right now. China seems on the verge of a bubble and Europe still doesn't have their debt situation under control. Cash is not a bad place to be while you take measure of the market and decide which way to go.

[74-911]

Originally Posted by MRM

The dirty secret of the finaincial services industry is that brokers and planners and advisors are nothing more than salesmen. Other than the unusal few, they really know little about finance and accounting and can't value stocks any better than you or me. Essentially they read the financial press and guess - with your money.

The above was certainly my experience with them.

Suggest you google "couch potato portfolio" for some very good advice on the most simple, safest and least expensive way to invest your savings with probably the best chance of consistent earnings. Scott Burns developed these suggested portfolios and I have been very pleased by the results of using his suggestions.

[dan79brooklyn]

Thanks for the comments...I think there are a lot of people with experience and common sense that have offered advice.

I guess I like the idea of investing in the S&P if it has such a good historical record. So what is the best (for me that means simplest) way to invest in the S&P 500?

What do you make of these Janus funds:

https://www.janus.com/institutional/strategies/mutual-funds

I will do some investing homework (sorry if I really don't know diddly at this point). :O

[tharbert]

The glory of the stock market exchange index funds, beside the fact that they typically perform better than most other funds, is that the management fees are much lower.

Management fees can literally eat up any profit and are a major reason many funds don't break even.

[MRM]

Jack's suggestion and mine are similar. The individual investor simply doesn't have the ability to pick stocks other than at a rate that beats luck, but that the individual investor can participate in the broad appreciation of the markets over time. So the basic idea is to own a portfolio that broadly reflect the larger market, so that your investment appreciates lockstep with the index.

Index funds are a type of mutual fund that purchases shares in all companies that are listed in the exchange. An S&P 500 index fund would purchase shares in all companies included in the S&P 500 and would maintain an equal investment in each company. The fund manager purchases a weighted amount of stock in each company that results in each company having equal value in the portfolio. A $5 stock is adjusted so that it is given the same weight as a $50 stock. The fund automatically readjusts its holdings so that it always maintains an equal value of all shares. As the $5 stock increases in value, some of it is sold to buy shares in the $50 company as they decrease.

All of this happens automatically by computers. This isn't the scary programmed trading you've heard of. This is a simple buy/sell program. Because the index fund simply buys and maintains equal portions of all stocks in the index, there are few fees and little management expense. The lower the cost the more of your profits are left to reinvest.

This is compared to an actively managed fund like most of the Janus mutual funds. Those are mutual funds where the fund managers try to pick stocks, buying low and selling high - actively managing the portfolio. These are the funds that can beat the S&P 500 for a few years in a row, but almost invariably get beaten by the index at the end of five or ten years, especially after you factor in the higher fees charged by actively traded funds. Your net investment returns are directly affected by the fees you pay. Many high-flying funds charge such high fees that you get below-market net returns. So when you look at a prospectus, you have to determine not just the total return of the fund, but the net return after fees.

If you decide to invest in an index fund, go to Morningstar.com and look for the no-load (no advance commissions) index fund that has the lowest management fees and costs that you can find. All S&P 500 index funds have identical investment portfolios - that is the nature of an S&P 500 index, after all - so the only difference is the fees you pay. The difference can be substantial and with little justification. Make sure you reinvest all dividends so your investment keeps compounding for you.

The couch potato fund is similar in concept, but allows you to buy stocks on your own. You can do it one of two ways. The traditional way is to buy an S&P 500 index with half of your money and buy another fund with the other half. You reinvest dividends and look at your portfolio at the end of the year. At that time you rebalance the portfolio by selling shares in the index that has appreciated the most and buying shares in the fund that didn't do as well. This causes you to sell high and buy low. Over time your portfolio increases many times faster than if you had two individual investments that were left alone without being rebalanced.

Another way to do it is to buy a small number of well regarded larger companies that pay good dividends and have the dividends reinvested. At the end of every year you rebalance your portfolio by selling part of the higher stocks. Assume you started out with three stocks and put $10,000 into each stock and at the end of the year stock A was worth $11,000, stock B was worth $12,000, and Stock C was worth $13,000. Your portfolio is now worth $36,000. You would readjust your portfolio to have 1/3 ($36,000 divided by 3) or $12,000 in each stock.

The idea is to keep yourself from actively trading stock but to rebalance your portfolio to sell stocks as they appreciate and buy other stock as it loses value. Usually investors do the opposite. We usually buy stocks as they increase in value because we want to get in on an appreciating asset. Then, as the stock starts to lose value, we all want to sell it. As a result, most investors tend to buy high and sell low. I know, I'm as guilty of that as anyone.

The Janus funds specifically have a mixed reputation. In the 1990s before the internet bubble burst it was one of the highest flying funds with insane returns. Their shtick was that they weren't located on Wall Street so they kept a better perspective on the market because they didn't have the same herd mentality. But after the bubble burst they were badly burned and pretty much lost their pre-bubble gains. They also got caught front running where they purchased shares for preferred clients in advance of the big investments the fund made. Whenever a big fund buys a stock it always goes up because there's more demand, so there is an opportunity for someone who knows what stock the fund is going to buy to "front run" the purchase and get in on the stock before it has its run up. Then, a few years later when they were doing well again, their main portfolio manager retired. It took several years for the replacement team to match his returns. Lately they have been doing much better, but this illustrates the problem with investing in an actively managed fund.

There is nothing you can't educate yourself to do on your own as well as pretty much any investment adviser, stock broker of financial planner would offer you. Besides, it's fun. The only financial professional I would ever pay for is a financial planner who has a good reputation who charges by the hour and does not take any commission from your trades. Paying a stockbroker or financial planner a commission is, in my opinion, pretty much like walking up to a car salesman and asking him if it's a good idea for you to buy a car from him. The answer you get will sometimes be tainted by the salesman's own self interest. It's hard for a commissioned stock salesman to resist the incentive to encourage you to trade.

[patssle]

After playing around and buying individual stocks in the market for a couple years after college, I no longer look at the stock market. You can research all you want, but that company that has great financials may have their stock price go down and the company that reports loss may go up.

I put my money in mutual funds that are ran by a large company (T Rowe Price) and no longer deal with it. 4 year annual average is 8.5% (minus ~.8% for fees) or so and that's plenty fine for me - I have more important things to do with my time than to try to figure out what those people on Wall Street are doing.

[Cannonball996]

I have always kept my investments simple, and try to give people similar advice: dont invest in something that is over your head, or to complex. do your homework, know exactly where your money is going. plan an entrance strategy and and exit strategy, and dont be afraid to get out of a position. pay attention, keep an eye on your positions.

[enzo1]

Apple...AAPL

[dan88911]

+1 to what MRM has posted.
You may want to check Vanguard.com & Bobbrinker.com
Good stuff at RicElderman.com as well.
Any book by John Bolgle.

[RWebb]

I largely agree with MRM's posts above. Call Vanguard and ask them for some introductory brochures on investing by paper mail.

While waiting for them to arrive search on Vanguard here in OT and read the comments by me and pwd72S (Paul Donkin).

My view is, that if you work at it, you can do the stock picking thing a bit better than a low cost mutual fund -- say by using Valueline (tho they fired their old-timer resident genius a few years ago). Most people should NOT do this and no one should do it exclusively.

same for finding the rare outstanding mutual fund managers of low cost funds out there -- most of whose funds are closed to new investors...

SO, we wind up (again) at a low cost index fund - e.g. Vanguard's total stock market index

You will need some bonds also -- for your purposes (long term appr.) a fairly low amount, and to be used as risk-mgmt. or hedging strategy as vs. the stock fund(s).

Be sure to see if your state has tax advantaged accounts for college tuition building.

[VincentVega]

Good advice. Big part is how hands on you want to be. Good thing is there are so many good options out there whatever you answer is there are few options. Make sure you read the risk statements in anything you invest in, if you dont understand after reading read again and/or ask for help. Asset allocation is a big part of investing, since most of us have a time horizon when we'll need the $$. Make sure you understand risk/reward of whatever you buy.

I've been very happy with Vanguard, great fee's, good performance, easy to use website/tools and simple $$ transfers via the website.

[Bill Douglas]

All I can recommend is don't listen to me. The amount of money I have lost in the last year and a half is phenomenal.

[dan79brooklyn]

Wow, MRM ! Thanks for the great explanation.
And everybody else that is offering advice, Pelican's are the best

I think I'm starting to understand about Index funds; they look like a sound investment strategy.

I also keep hearing about diversifying my savings by purchasing government bonds.

So, I spent some time on the site:

Individual - Treasury Securities & Programs

But I'm a little confused about all the different products, I see bonds and T-notes that mature in different amounts of time what do you folks recommend ?

I also spent some time on the Vanguard site:

https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc

What it be an OK move to spread the 30K over an index fund, a bond fund and one additional fund (for example energy or healthcare or ?) what percentage should I put towards each?

Thanks again.