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(Time)   How much money you should have saved by ages 15, 25, 35, and 50. In this economy, though?   (moneyland.time.com) divider line 256
    More: PSA, Oregon Trail  
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26350 clicks; posted to Main » on 01 Oct 2012 at 3:01 AM (1 year ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2012-10-01 11:30:20 AM

noneyourbase: OK, wise Farkers -

I'm a grad student. I'd like to open a mutual fund, because the $0.25 interest rate just isn't cutting it, frankly. What should I read? How do I start?


It looks like you've been here since 2005.

Did you listen when 3 years ago we told you to invest in the Stock Market?
 
2012-10-01 11:31:36 AM
Saving is really easy. Suppose you're 30 today, and you want to live on the equivilant of $50,000 a year when you retire. Keep in mind that even modest inflation will mean that in you'll need $200,000 real dollars a year when you retire in 2052.

So, you just needed to start saving $16,000 a year back in 1997 when you were 15, or start saving $40,000 a year today. And, you'd better hope that inflation doesnt go to high, of the stockarket doesn't crash, and you'll be fine.

Good luck! Remember, only the loser victim 47% need a social safety net!
 
2012-10-01 11:45:14 AM

BMFPitt: noneyourbase: OK, wise Farkers -

I'm a grad student. I'd like to open a mutual fund, because the $0.25 interest rate just isn't cutting it, frankly. What should I read? How do I start?

70% of mutual funds underperform the S&P 500 (and charge much more for the privilege.) Just buy a cheap (in terms of management fees) index fund and call it a day. VTI would be a good choice, as it gives you broad exposure to pretty much everything. Try setting up a Sharebuilder account and just throwing in whatever you can realistically afford out of each paycheck. Have it set to buy a chunk whenever you have $400 in the account so the commissions are minimal.


^ This was exactly what I suggested upthread.
 
2012-10-01 11:52:13 AM

dragonchild: Retirement isn't a choice. Before FDR's Social Security Act, with very few lucky exceptions, old people would die miserably in inescapable poverty because they were unable to work. The body and mind start to break down until you can't get hired at any price.


This is so true. You may have the intention of working forever, but your brain and body may not be able to. Plus, employers aren't always eager to hire and retain older employees, so getting and keeping a job in those golden years is not always feasible.
 
2012-10-01 11:57:40 AM

johnnyrocket: I like how Mitt Romney has a $100 million IRA fund.

That's a hell of a retirement cushion. He may even be able to squeak by on that in his old age.


Did you read the relevant Vanity Fair article from a couple months ago? Romney took advantage of a lot of loopholes to get his IRA up that high.

Let me quote:

Mysteries also arise when one looks at Romney's individual retirement account at Bain Capital. When Romney was there, from 1984 to 1999, taxpayers were allowed to put just $2,000 per year into an I.R.A., and $30,000 annually into a different kind of plan he may have used. Given these annual contribution ceilings, how can his I.R.A. possibly contain up to $102 million, as his financial disclosures now suggest?

linkamabopper
 
2012-10-01 12:17:00 PM

Krieghund: This is from the Forbes article linked to in TFA:

Here are the guideposts:

At age 35, you should have saved an amount equal to your annual salary.
At age 45, you should have saved three times your annual salary.
At 55, you should have five times your salary.
When you retire at age 67, you should have eight times your annual pay.

That's actually a lot more informative, and happily, I'm on track.


So, if I quit my job and work for minimum wage at McDonalds when I'm 55, I'll be way ahead?

I only joke about it to dull the pain of being way behind. :-(
 
2012-10-01 12:23:44 PM

Ambivalence: itsdan: "Saving 100% of your lifestyle sounds impossible, but it is not. If you earn $100,000 after taxes, you must limit your lifestyle to $50,000 and save the remainder. This strategy will allow you to retire at age 65 with a lifestyle of $50,000."

And if you make $50,000 or less to begin with, as most people do?

This demonstrates everything that is wrong with rhetorical economists (especially Randians). less than 10% of the population makes "$100,000 after taxes". And far far more than half do not make enough that they can afford to sock away half for retirement.

It grossly oversimplifies a process that has no basis in reality. It's all pie in the sky bullshiat that doesn't help anyone.


I felt the same with all the models presented in finance class. "If owner of XYZ Cogs keeps $16k in cash a year but the owner of OCD Cogs deposits only $5k in a savings account yielding 7% annually..."

WTF, who the hell gets 7% annually?
 
2012-10-01 12:30:48 PM

Private_Citizen: sid244: Private_Citizen: xl5150: shower_in_my_socks: The "1 in 3" Americans relying on the lottery as their best bet at retirement stat never ceases to amaze me, even though your odds of winning a big lottery jackpot are statistically ZERO.

No, the odds are 50/50. You either win or you don't.

No, the outcomes are "either you win or you don't." The probability of those outcomes is anything but 50/50. For example, the odds on Power Ball are:
You win: 0.0000006%
You lose: 99.9999994%

/but hey, you can't win if you don't play.

I only play when the jackpot is over $100 million,otherwise why play.

You've hit on one of the most important and least understood parts of gambling: Return.

When a casino advertises 96% return on slots, what they mean is: if you win the 100-1 payout, you beat 104.2-1 odds. Your payout is just slightly less than the odds, so that over the long run, more of your cash is kept.

By that measurement, the lottery is pretty poor return until the pot reaches epic proportions. When you're beating 175 million to 1 odds, and the payout on a $100 million pot is around $67.5Mil, your return is about 38.5%.

The attraction is the payout .vs the cost to play. $67.5 million for a $2 ticket? Sounds awesome til you see the odds.

/I've always wanted to offer a dice game to the gullible. They pick their favorite number 1-6, then try to roll that number on three 6 sided dice. If they succeed, I pay them $100. Cost to play is only a buck.


I forgot to mention that on the night of a drawing, I find a thunderstorm, go to a golf course close to said thunderstorm, and hold an umbrella in one hand and the lottery ticket in the other to see which happens first.

Plus, I only consider winning, if I won the jackpot. Winning $3 on a $6 isn't exactly "winning". 

/Scratch offs FTW
//And remember the money goes towards education....right?
 
2012-10-01 12:33:25 PM
I wanted to bring up DRIPs.

I think a lot of people have never heard of them, and it's a GREAT way for people that have limited resources to start investing.

MANY blue chip companies have DRIP programs- they allow you to buy shares of stock DIRECTLY from the company, hence no brokerage fees or transaction fees.

I am talking seriously profitable businesses here- Intel, Dell, Proctor & Gamble, Home Depot, Pfizer, Merck, Halliburton (LOL), Exxon, Nike, Tyson, Staples... The list goes on and on.

Your BFF stockbroker will NEVER tell you about this program. It essentially makes him overpriced and obsolete.

How it works- Some of the companies require an initial investment of $500-$1000, but you can start investing in some companies at only $50. Instead of mailing you a dividend check every quarter, they re invest your money into buying new shares.

It's a really good way to start investing without having much disposable income; Almost everyone can spare a $50 here and there.

dripcentral.com has some good info on it.
 
2012-10-01 12:47:28 PM

noneyourbase: noneyourbase: OK, wise Farkers -

I'm a grad student. I'd like to open a mutual fund, because the $0.25per year interest rate just isn't cutting it, frankly. What should I read? How do I start?

FTFM


Borrow this from the library (you'll save money right there):

Personal Finance for Dummies

This helped me a lot. It will give you the basics on a lot of financial topics. I know you should eliminate credit card debt and build up a 3-6 month emergency fund before investing in anything. You can also go to bankrate.com and find out if there's an online savings account that will do better than $0.25/yr. I am currently pissed at HSBC for cutting their rate down to 0.4% and am shopping for a new high-interest savings account.

Not sure what the game plan is for people with student loans because I had paid mine off before getting the fiscal responsibility bug. But since you can't wipe that out with a bankruptcy, I bet PFfD has some advice on it.
 
2012-10-01 01:10:20 PM

winsecure: cig-mkr: 1) Pay yourself first, be it only 10% of your take home pay.
2) Invest your money in the "Dogs of the Dow" that's the blue chips that pay good dividends.
3) Take the dividends and plow them back into more stocks
4) Consider this money already spent and gone, DON'T TOUCH OR BORROW FROM!
5) The stocks will feed on themselves and grow (slowly at first) but accelerates as time goes by.
6) Stay the course !

Dogs of the Dow does not mean what you think it means


That;s the way I see this.
http://en.wikipedia.org/wiki/The_Dogs_of_the_DowLink
 
2012-10-01 01:14:25 PM
I've recovered from my immediate troubles from 2008 but my 401k took a beating that put me 10 years behind on retirement savings.
 
2012-10-01 01:25:25 PM

Soulcatcher: I wanted to bring up DRIPs.


DRIPs are pretty much an outdated (and expensive!) mechanism these days. Not to mention they're a great way to take on uncompensated risk because you're concentrated on a single stock.

Various mutual fund companies have broad-market, low-cost funds that invest in thousands of companies with low cost of entry and also allow small monthly contributions and reinvestment of dividends. Total cost is far less and you're not taking uncompensated risk that can be avoided from diversifying.

You personally might find it best to stay in your DRIPs due to unrealized capital gains, but for people just getting started they're no longer the best or even a good option.
 
2012-10-01 01:25:40 PM
About a year ago, someone here mentioned that it was a good idea to invest in Smith & Wesson. SWHC Oh, well.
 
2012-10-01 01:29:12 PM

BeSerious: Im just going to enjoy life, and die young and happy.


The world is full of things that I "should have done" and I find out NOW that I've done almost none of them. Well, I do take good care of myself. That costs almost nothing, and so it gets done. Many other things will never get done now, it is too late. So it goes.
 
2012-10-01 01:52:36 PM
My portfolio is sandwich heavy.
 
2012-10-01 02:12:36 PM

xl5150: Came to see a bunch of sniveling, whining, and excuses about why all of your financial instability is everyone else's fault but your own.

Leaving satisfied.

/I could have sworn I read an article recently about a schoolteacher who made herself a millionaire on her own
//oh yeah, that was here
///but wait, that's IMPOSSIBLE!
////exactly why people like you will always, always work for people like me


Successfully self-employed now, I thank God I don't have to work for a self-righteous asshole like you.
 
2012-10-01 02:58:26 PM

noneyourbase: OK, wise Farkers -

I'm a grad student. I'd like to open a mutual fund, because the $0.25 interest rate just isn't cutting it, frankly. What should I read? How do I start?


Read this:

ecx.images-amazon.com

And/or this:

ecx.images-amazon.com

Lurk on the Bogleheads forum. There's a wiki, and a reference library/recommended reading list.

IMO, Fidelity's fine, as long as you stick to the cheapo Spartan funds.

Don't overthink it.
 
2012-10-01 02:59:05 PM
I never quite understood the people who decide to save up money for retirement, yet also have student loans, car payments, and/or mortgages. I don't buy it for a second that average Joe can do better than his lenders.

I'm broke as shiat because I know I wouldn't ever make a higher interest rate on any investment than I am already losing on my loans. It seems foolish to do anything else, so I'm paying them off first. I'm living very modestly at about the 75th percentile for national personal income, but am I "on track" to retire? Not a chance. From where I'm sitting, it looks like I'm fifty thousand dollars below worthless, and I don't even own anything. It'd be so much worse if I had a house or a family to support.

As for the article, "if you earn $100,000 after taxes" includes about 5% of individuals over 25 in this country. Is this advice even relevant?
 
2012-10-01 03:13:48 PM

Private_Citizen: My 401k is with Vanguard. Those guys are always making these wild assumptions and using savings models that encourage you to invest more with them (they call it saving). Vanguard shaves quite a lucrative cut off all your investments (around 2.5% per fund), so the more you invest, the more they make. If you lose, they win. If you win, they win bigger. So when it comes time to gamble, they gamble big.

With your money.

/Don't worry muppet, they have your best interests at heart.


I also invest with Vanguard. The reason I do so is that they are the least rapacious of the various investment houses.

What Vanguard funds are you buying that have a 2.5% expense ratio? Are you misplacing a couple decimal points? Because I think the most expensive fund they have is Vanguard Emerging Markets Select Stock Fund (VMMSX) with an expense ratio of 0.89%.

Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) has an expense ratio of 0.18%. The Admiral shares (which require a $10k investment) have an ER of 0.06%.

It could be that the 2.5% haircut is being taken by the plan administrator, which is not necessarily Vanguard.
 
2012-10-01 03:41:32 PM

Ambivalence: itsdan: "Saving 100% of your lifestyle sounds impossible, but it is not. If you earn $100,000 after taxes, you must limit your lifestyle to $50,000 and save the remainder. This strategy will allow you to retire at age 65 with a lifestyle of $50,000."

And if you make $50,000 or less to begin with, as most people do?

This demonstrates everything that is wrong with rhetorical economists (especially Randians). less than 10% of the population makes "$100,000 after taxes". And far far more than half do not make enough that they can afford to sock away half for retirement.

It grossly oversimplifies a process that has no basis in reality. It's all pie in the sky bullshiat that doesn't help anyone.


The gross oversimplification is start early.
 
2012-10-01 03:42:14 PM

bacongood: My portfolio is sandwich heavy.


maybe u should buy ARBA or CMRC
 
2012-10-01 03:46:25 PM

PallMall: That $50/yr retirement means crap to a 15 year old in 2062, when you spend every dime of it for a can of Chef Boyardee Ravioli and some creek water.


They typically talk about terms in 'today's dollars'.
 
2012-10-01 04:05:15 PM

Parthenogenetic: Private_Citizen: My 401k is with Vanguard. Those guys are always making these wild assumptions and using savings models that encourage you to invest more with them (they call it saving). Vanguard shaves quite a lucrative cut off all your investments (around 2.5% per fund), so the more you invest, the more they make. If you lose, they win. If you win, they win bigger. So when it comes time to gamble, they gamble big.

With your money.

/Don't worry muppet, they have your best interests at heart.

I also invest with Vanguard. The reason I do so is that they are the least rapacious of the various investment houses.

What Vanguard funds are you buying that have a 2.5% expense ratio? Are you misplacing a couple decimal points? Because I think the most expensive fund they have is Vanguard Emerging Markets Select Stock Fund (VMMSX) with an expense ratio of 0.89%.

Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) has an expense ratio of 0.18%. The Admiral shares (which require a $10k investment) have an ER of 0.06%.

It could be that the 2.5% haircut is being taken by the plan administrator, which is not necessarily Vanguard.


But when all has been said and done, is your van really any safer?
 
2012-10-01 04:45:49 PM

stappawho: PallMall: That $50/yr retirement means crap to a 15 year old in 2062, when you spend every dime of it for a can of Chef Boyardee Ravioli and some creek water.

They typically talk about terms in 'today's dollars'.


Then they should mention that $50k/yr retirement IN TODAY'S DOLLARS is about $10k/yr given that average wages were under $5k/yr 50 years ago.
 
2012-10-01 05:11:23 PM
Don't worry, you guys. Saving for retirement is totally easy, just follow my 7-step plan:

1) Get somebody else to pay for you to go to college so you don't have to take out any loans
2) Get a really great, high-paying job when you get out of college
3) Don't become involved in anything that results in legal proceedings, like divorce
4) Don't buy a house
5) Don't have kids
6) Don't ever lose your job
7) Don't develop any health problems that cost lots of money to treat

See? Easy.
 
2012-10-01 05:45:38 PM
Listen to Parthenogenetic, he knows what he talks about.
 
2012-10-01 06:27:49 PM

Father_Jack: i had a nice 401k till my divorce. it got lost.
then i rebuilt it, and then had to go back to court. lost it again.

3 years ago i moved to switzerland and got on board my company's fantastic pension scheme, and dribble into the US IRA a bit at a time. Saves about 2k a month. Socked away as much as the other two pt together.

here i get 80% of my salary if i get laid off for up to a year, i dont worry as much about what happens if i get laid off. this means i dont keep as much cash on hand because getting 7k unemployment a month were it to occur here in zurich vs 450 a week in California is a slight difference.

isnt it awesome how the american system has put all the burden of everything onto the workers?

You get fired? too bad. no liveable unemployment for you, you lazy socialist.
You wanna retire didnt save with discipline on your own in a crazy unstable american stock market? Too bad, you lazy socialist.


The EU goes broke from bailing out Greece, too bad you lazy socialist.
 
2012-10-01 06:30:55 PM

Khanmots: Soulcatcher: I wanted to bring up DRIPs.

DRIPs are pretty much an outdated (and expensive!) mechanism these days. Not to mention they're a great way to take on uncompensated risk because you're concentrated on a single stock.

Various mutual fund companies have broad-market, low-cost funds that invest in thousands of companies with low cost of entry and also allow small monthly contributions and reinvestment of dividends. Total cost is far less and you're not taking uncompensated risk that can be avoided from diversifying.

You personally might find it best to stay in your DRIPs due to unrealized capital gains, but for people just getting started they're no longer the best or even a good option.


The total cost is far less than ZERO?

What color is the sky on your planet?
 
2012-10-01 06:42:54 PM

Parthenogenetic: Private_Citizen: My 401k is with Vanguard. Those guys are always making these wild assumptions and using savings models that encourage you to invest more with them (they call it saving). Vanguard shaves quite a lucrative cut off all your investments (around 2.5% per fund), so the more you invest, the more they make. If you lose, they win. If you win, they win bigger. So when it comes time to gamble, they gamble big.

With your money.

/Don't worry muppet, they have your best interests at heart.

I also invest with Vanguard. The reason I do so is that they are the least rapacious of the various investment houses.

What Vanguard funds are you buying that have a 2.5% expense ratio? Are you misplacing a couple decimal points? Because I think the most expensive fund they have is Vanguard Emerging Markets Select Stock Fund (VMMSX) with an expense ratio of 0.89%.

Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) has an expense ratio of 0.18%. The Admiral shares (which require a $10k investment) have an ER of 0.06%.

It could be that the 2.5% haircut is being taken by the plan administrator, which is not necessarily Vanguard.


Vanguard handles my 401K too, and I pay only extremely nominal fees. Besides the 2008 reaming we all got, they have done a pretty decent job for me.

Of course I expect to work until the day my heart seizes up and I drop dead, but I'm more saving for my kids, so at least they'll have a chance to have a bit of money to bank or invest in other ways.

When my Dad died all he left me were some Benchley, Thurber, and Perlman books.

Greatest Dad ever, but not too swift in the financial planning area.
 
2012-10-01 07:18:57 PM

Soulcatcher: Khanmots: Soulcatcher: I wanted to bring up DRIPs.

DRIPs are pretty much an outdated (and expensive!) mechanism these days. Not to mention they're a great way to take on uncompensated risk because you're concentrated on a single stock.

Various mutual fund companies have broad-market, low-cost funds that invest in thousands of companies with low cost of entry and also allow small monthly contributions and reinvestment of dividends. Total cost is far less and you're not taking uncompensated risk that can be avoided from diversifying.

You personally might find it best to stay in your DRIPs due to unrealized capital gains, but for people just getting started they're no longer the best or even a good option.

The total cost is far less than ZERO?

What color is the sky on your planet?


Many DRIPs have yearly fees associated with them. A $30 yearly fee makes a big difference for someone with a small portfolio. There may well be zero-fee DRIPs out there, but I'm guessing there's games played in the bid-ask spread when they price the shares you buy. In any case however, the *big* problem with them is the lack of diversification. Research shows that historically a minimum of 30 different stocks have been needed to be decently diversified with recent research showing that correlations have been rising and you likely need a new minimum of twice that. Managing 60 different DRIPs is going to be a PITA.
 
2012-10-01 07:21:27 PM
"If a wagon train averages 10 miles a day for the first half of the Oregon Trail, how fast does it have to travel the second half to average 20 miles a day for the entire journey?"

The knee-jerk response is, naturally, 30 miles a day. But, as you might imagine, that wouldn't be worth writing about and isn't even close to correct. The blog continues:

"If the trail is 2,000 miles long, to average 20 miles a day you would have to travel the entire trail in 100 days. But if you averaged 10 miles a day traveling the first 1,000 miles, you would have already used up 100 days. You would then have to travel the second thousand miles instantly to overcome your slow start."


The problem with this example is that it is totally irrelevant to the problem of how to save money. If you try to apply the same reasoning it just doesn't fit. For one, you can't travel instantatenously from one place to another, but you can instantaneously make up for lost time in your investment plan. The other thing is that you are not saving dollars per hour, you are saving dollars. If you try to apply the same setup to a financial problem, you get something like

'if you want to save $2000, and if you average 10 dollars a day up to the first 1000$, how fast would you have to save after that to save at $20/day?'

nobody would even ask that question.
 
2012-10-01 07:43:46 PM

JackalRabbit: gravebayne2: ive saved nothing. figure i'll be dead or in jail by retirement.

please, can you help me? i need investment advice.


Yes, I'm glad you asked. First, you need to choose your long term goal. Remember, this can be different for different people! Not everyone wants to go to jail, and conversely, a lot of the people who go to jail don't want to end up in an early grave! You need to choose what you value, and then make lifestyle choices accordingly.

For example, don't want to end up in jail? Consider alcohol dependency, rather than becoming addicted to substances that are illegal or harder to acquire. Better yet, become an overeater, or stop exercising altogether. Choose to avoid health insurance and costly routine checkups and go to the doctor only for acute emergencies that you want to resolve; put the money you save towards the habits that feed your long, slow, legal decline.

These methods of developing solitary, low level mental illness will frequently be accompanied by physical health problems that can kill you; they also are all legal, and help you reach your long term goal of dying before your old age, rather than ending up in jail. For more on this, as well as a list of tips for your chosen long term options, subscribe to my retirement investment newsletter, "Jail or Dead: It's Up To You"

/Retirement planners hate this man; learn how you can plan your old age needs in 10 days
 
2012-10-01 07:53:24 PM

Khanmots: Soulcatcher: I wanted to bring up DRIPs.

DRIPs are pretty much an outdated (and expensive!) mechanism these days. Not to mention they're a great way to take on uncompensated risk because you're concentrated on a single stock.

Various mutual fund companies have broad-market, low-cost funds that invest in thousands of companies with low cost of entry and also allow small monthly contributions and reinvestment of dividends. Total cost is far less and you're not taking uncompensated risk that can be avoided from diversifying.

You personally might find it best to stay in your DRIPs due to unrealized capital gains, but for people just getting started they're no longer the best or even a good option.


I mentioned DRIPs in the context of, not only, novice investors, but also people that don't have much money to spare but want to actually start investing a little at a time as they can afford it.

So...

You are suggesting that these people will be better off signing up with a brokerage house with all their fees and hidden costs, as opposed to just buying shares of stock directly from the company for free?

There are thousands of companies that have DRIP programs. Where did I once say put ALL of your money into one stock?

My point is, with traditional "savings" accounts that yield pretty much NOTHING anymore- how can you go wrong in investing in Campbell's Soup or Procter & Gamble with NO fees? These companies are a very safe bet. They will be dancing on your grave and making money for me forever

This isn't a get rich quick scheme. It's just a way to break into the stock market with a few $$s.
 
2012-10-01 07:57:20 PM

BlackDebbie: I don't understand how people claim they "can't" save money if they make 30k plus. I will grant leeway for those who are genuinely hovering around the poverty line because that's a tough situation.

I am really curious as to how everyone manages to not have any money what so ever to put into a savings/retirement account? I have a mid 40s/year job with 80k in student loans, live by myself and own things that I would consider luxuries (tablet pc, gaming pc, ps3, internet service, etc.) as well as a 401k that is currently at about 90% of my yearly salary at the age of 31 (modest mid 40k range).

I also am capable of putting away 100 bucks a month into a rainy day/bill payoff type fund that also serves as overdraft for my checking account which I am currently using due to bills incurred from being hospitalized for 2 weeks in August.

I've still got a lot of student debt and am far from comfortable but I really don't understand how people are in such a terrible place financially that they have absolutely zero money to put away for themselves. I really would just like to hear people's stories as most people I know who claim "no money" also are wearing a new pair of shoes every time I see them or spend 300 bucks a month on eating out or buy every new blu ray released or whatever their pleasure is. Just curious I guess.


They have investments that have gone wrong or chronic, expensive health problems, I would guess. Possibly children, but I don't have any so I don't know. But they could also be mostly sane and just bad with money, I guess.
 
2012-10-01 08:15:36 PM

Khanmots: Soulcatcher: Khanmots: Soulcatcher: I wanted to bring up DRIPs.

DRIPs are pretty much an outdated (and expensive!) mechanism these days. Not to mention they're a great way to take on uncompensated risk because you're concentrated on a single stock.

Various mutual fund companies have broad-market, low-cost funds that invest in thousands of companies with low cost of entry and also allow small monthly contributions and reinvestment of dividends. Total cost is far less and you're not taking uncompensated risk that can be avoided from diversifying.

You personally might find it best to stay in your DRIPs due to unrealized capital gains, but for people just getting started they're no longer the best or even a good option.

The total cost is far less than ZERO?

What color is the sky on your planet?

Many DRIPs have yearly fees associated with them. A $30 yearly fee makes a big difference for someone with a small portfolio. There may well be zero-fee DRIPs out there, but I'm guessing there's games played in the bid-ask spread when they price the shares you buy. In any case however, the *big* problem with them is the lack of diversification. Research shows that historically a minimum of 30 different stocks have been needed to be decently diversified with recent research showing that correlations have been rising and you likely need a new minimum of twice that. Managing 60 different DRIPs is going to be a PITA.


None of the DRIPs that I have has any kind of annual fee.

Go fish.
 
2012-10-01 08:21:41 PM

Soulcatcher: Khanmots: Soulcatcher: Khanmots: Soulcatcher: I wanted to bring up DRIPs.

DRIPs are pretty much an outdated (and expensive!) mechanism these days. Not to mention they're a great way to take on uncompensated risk because you're concentrated on a single stock.

Various mutual fund companies have broad-market, low-cost funds that invest in thousands of companies with low cost of entry and also allow small monthly contributions and reinvestment of dividends. Total cost is far less and you're not taking uncompensated risk that can be avoided from diversifying.

You personally might find it best to stay in your DRIPs due to unrealized capital gains, but for people just getting started they're no longer the best or even a good option.

The total cost is far less than ZERO?

What color is the sky on your planet?

Many DRIPs have yearly fees associated with them. A $30 yearly fee makes a big difference for someone with a small portfolio. There may well be zero-fee DRIPs out there, but I'm guessing there's games played in the bid-ask spread when they price the shares you buy. In any case however, the *big* problem with them is the lack of diversification. Research shows that historically a minimum of 30 different stocks have been needed to be decently diversified with recent research showing that correlations have been rising and you likely need a new minimum of twice that. Managing 60 different DRIPs is going to be a PITA.

None of the DRIPs that I have has any kind of annual fee.

Go fish.


Yes, I am confused by what kind of DRIPs some people have. I have an E*Trade account, and for stocks that are eligible for a DRIP, there's a button that says, "Enroll in DRIP." You click on it, and 5 minutes later you get a message saying, "You have been enrolled in DRIP." The end.
 
2012-10-01 08:22:31 PM
Dividends are nice not only for reinvesting, but also as a good source of cash flow. I pretty much live off dividends, at least for my day-to-day expenses. They're taxed lower than capital gains as well, so it's a nice way to keep cash flowing in.
 
2012-10-01 08:22:46 PM
LOL

/grammar fail.

Good night good people of Fark!
 
2012-10-01 08:39:36 PM

doglover: Well, it helps people making over $100,000 after taxes. I mean, if I had 100k after taxes, I'd be able to put half of it in the bank, burn half the remainder on entertainment, and STILL be able to float my current lifestyle with more than a quarter left over to buy diamonds and shiat


ya know how I can tell you are American educated ?
 
2012-10-01 08:44:29 PM

noneyourbase: OK, wise Farkers -

I'm a grad student. I'd like to open a mutual fund, because the $0.25 interest rate just isn't cutting it, frankly. What should I read? How do I start?


Use ETFs, they have lower fees than mutual funds. Vti is a good, brainless one, and then find some that focus on emerging/foreign markets, bonds, small cap companies etc based on your risk tolerance/age/etc.
Vanguard has very low fees on its ETFs, and I think Schwab reduced its fees on ETFs recently.
 
2012-10-01 08:45:34 PM

Soulcatcher: I mentioned DRIPs in the context of, not only, novice investors, but also people that don't have much money to spare but want to actually start investing a little at a time as they can afford it.

So...

You are suggesting that these people will be better off signing up with a brokerage house with all their fees and hidden costs, as opposed to just buying shares of stock directly from the company for free?

There are thousands of companies that have DRIP programs. Where did I once say put ALL of your money into one stock?


No, I'm suggesting that they setup an account at a mutual fund company and buy shares of that companies total market or combination total stock / total bond fund that has the equity/bond ratio they want. Then their first $1000 is very widely diversified, they're not paying any transaction costs or yearly fees. They also aren't either horribly undiversified and subject to the risk of the one (or two) companies utterly tanking, or managing 100 different DRIP accounts each with some silly amount like $10 per account and adding $0.50 to each one each month.


My point is, with traditional "savings" accounts that yield pretty much NOTHING anymore- how can you go wrong in investing in Campbell's Soup or Procter & Gamble with NO fees? These companies are a very safe bet. They will be dancing on your grave and making money for me forever

How'd that work out for the people that owned shares of GM?

Equities have risk. Big blue chips may have slightly less, but they are in no way risk-free. This is why you diversify.
 
2012-10-01 08:52:40 PM

Envee: noneyourbase: OK, wise Farkers -

I'm a grad student. I'd like to open a mutual fund, because the $0.25 interest rate just isn't cutting it, frankly. What should I read? How do I start?

Use ETFs, they have lower fees than mutual funds. Vti is a good, brainless one, and then find some that focus on emerging/foreign markets, bonds, small cap companies etc based on your risk tolerance/age/etc.
Vanguard has very low fees on its ETFs, and I think Schwab reduced its fees on ETFs recently.


Careful. I have VTI and it is frustrating. I feel like it loses more on bad days and gains less on good days compared to VTSMX.

But I've only owned it for a couple months.
 
2012-10-01 10:14:56 PM

FishyFred: Envee: noneyourbase: OK, wise Farkers -

I'm a grad student. I'd like to open a mutual fund, because the $0.25 interest rate just isn't cutting it, frankly. What should I read? How do I start?

Use ETFs, they have lower fees than mutual funds. Vti is a good, brainless one, and then find some that focus on emerging/foreign markets, bonds, small cap companies etc based on your risk tolerance/age/etc.
Vanguard has very low fees on its ETFs, and I think Schwab reduced its fees on ETFs recently.

Careful. I have VTI and it is frustrating. I feel like it loses more on bad days and gains less on good days compared to VTSMX.

But I've only owned it for a couple months.


John Bogle, the founder of Vanguard shares your skepticism regarding ETFs. The market price of a mutual fund is calculated once a day, based upon the Net Asset Value of its holdings at the end of the trading day. (That's not to say traders can't game the system - Putnam, among many others, got nailed for this.)

ETFs trade throughout the day, and the market price of the ETF can vary considerably, sometimes trading at a significant premium or discount to the NAV. If you're a trader, this is a great feature. If you're a buy and hold investor, not so much.

The expense ratio of an ETF is often lower than a comparable index fund. This is offset by the brokerage fees you pay to buy or sell ETF shares. If you're a long term buy and hold investor, it may be less costly to own an ETF. You *might* pay less in capital gains distributions than you would with a comparable mutual fund. You can set a stop-loss limit on ETF shares. And you can short ETF shares.

Pay attention to how the ETF is constructed. Just because it's an ETF doesn't mean it's necessarily tax efficient, or makes sense to own as an investment (just like an index fund - I've seen index funds based upon the S&P 500 that have an expense ratio of 1.5%. This is a total ripoff, as Vanguard has broad market index funds with expense ratios of one tenth that rate).

Vanguard ETFs are kind of weird, because they are actually different share classes of their equivalent mutual funds. If you can't afford the minimums for Admiral shares of a Vanguard mutual fund (which have lower expense ratios than the Investor class shares), the ETF shares of that fund will usually be pretty close to the Admiral share expense ratios, not counting the brokerage fees.

If you're interested in learning more about ETFs, try reading this:

ecx.images-amazon.com
 
2012-10-01 10:17:59 PM

crazyeddie: The Envoy: glmorrs1: I'd be willing to bet his 'personal assistant' is his mommy bringing him cookies and milk.

Here is xl5150 and his assistant hard at work in his office:
[v027o.popscreen.com image 626x480]

Yep. He's a joke. I work with real employers. "Job Creators," if you will. Not a single one would talk about employees that way, because they know that employees are the lifeblood of an organization.

This guy is more than likely the youngest son of a wealthy family (possibly asian family, xl5150? I'm sensing some daddy/filial piety issues), born and raised in an affluent neighborhood in Southern California, who now owns a cart in the mall selling iphone accessories. His parents are ashamed of him-- GUARANTEED. 

The bad news is that he'll never have to worry about money. The good news is that he'll always be a failure in every other respect.


I'm not sure if I'm allowed to post these type of links here, so google his login.

/Slightly interesting...
 
2012-10-01 10:39:03 PM

Khanmots: Soulcatcher: My point is, with traditional "savings" accounts that yield pretty much NOTHING anymore- how can you go wrong in investing in Campbell's Soup or Procter & Gamble with NO fees? These companies are a very safe bet. They will be dancing on your grave and making money for me forever

How'd that work out for the people that owned shares of GM?

Equities have risk. Big blue chips may have slightly less, but they are in no way risk-free. This is why you diversify.


Yep. The same could be said for Eastman Kodak, which used to be a Dow Jones Industrial Average component and is now moribund. Or Woolworth.

Take a look at historical DJIA components.

Let's say you start investing in your 20's or 30's, and work until you're 65. That leaves you an investment horizon of about 30-40 years or so.

Look at the Dow components of about 40 years ago. Most of them are still around, but some of them are kaput, and some of them have suffered a decline in their fortunes.

Now bear in mind that these are among the largest, most successful companies of their day. They wouldn't be Dow components, otherwise. Companies' fortunes rise and fall all the time, even the biggest, safest ones.

Diversify, diversify, diversify. Don't put all your eggs in one basket, even a big, safe one.

How much diversification is enough? Good question.

The 15-Stock Diversification Myth

Diversification with Individual Stocks

Diversification in Portfolios of Individual Stocks: 100 Stocks Are Not Enough

But Warren Buffett doesn't diversify, and he's done great! That'd work for you too, if you had Warren Buffett's stock picking prowess. Warren Buffett says dinks like you and me are better off in low-cost index funds.

If you are a Master Of The Universe working for Goldman Sachs or Bain Capital, then yes you should strive to reap the rewards of your alpha. The rest of us maximize our chances of success with low-cost, diversified investments - which means index funds.
 
2012-10-01 10:57:38 PM
I like these rules. They're pretty useful.

Unfortunately, real life isn't so neat.

Divorce, job loss, or illness/injury can make a mess out of even the best plan.
 
2012-10-02 07:32:48 AM

Private_Citizen: By that measurement, the lottery is pretty poor return until the pot reaches epic proportions. When you're beating 175 million to 1 odds, and the payout on a $100 million pot is around $67.5Mil, your return is about 38.5%.

The attraction is the payout .vs the cost to play. $67.5 million for a $2 ticket? Sounds awesome til you see the odds.


Long odds or not but people do win and as one of my math professors years ago stated when he figured out how to win at the lottery: You only need 1 ticket and you can't win if you don't play. One of the popular lottos here is 14 million to 1 odds. My father, who bought the occasional ticket when the jackpots got high, got 5 out of 6 numbers once. He was a 1 in 44 chance away from $10 million tax free. If anything it was worth so you have another tale to tell at the bar about the one that got away.
 
2012-10-02 12:21:36 PM

itsdan: "Saving 100% of your lifestyle sounds impossible, but it is not. If you earn $100,000 after taxes, you must limit your lifestyle to $50,000 and save the remainder. This strategy will allow you to retire at age 65 with a lifestyle of $50,000."

And if you make $50,000 or less to begin with, as most people do?


Then you ratchet down your expenses and save $25,000.

No IPad4 for you, my long eared fellow.....
 
2012-10-02 12:25:51 PM

Generation_D: These charts got completely destroyed in the 2008 meltdown. I know people who lost over 100K off their 401(k) in 3 months. Not to mention equity off property bought years before.

In short, steady state investment sounds nice til we let the criminals run the investment firms.


the response to that is to not let some other douchebag invest your money. Choose your own investments. It's a bit hard to find someone routing you into an investment that only benefits the firm that way.
 
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