Dividend Paying Funds for Roth or IRA

[Gritz]

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i was given some retirement advise to look at these funds and i'm really a novice in funds; would anyone have some insight into dividend paying funds that you can invest in with your roth or ira? any info would be appreciated, thanks.

 

[azanon]

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Your question's really general so i'll just start with some general info. Stocks make the owner in one of two ways (or both); they either pay dividends or they have capital appreciation (the share price goes up and thus a share is worth more). Some stocks (like microsoft now) do a little of both.

How a particular stocks appreciates doesnt really make it better than a different one. Just speaking generally, those that pay more dividends will tend to be the larger, more well established companies, so volatility with these types of stocks will tend to be low. In contrast, stocks that only earn moneyprimarily viacapital appreciation will tend to be more volatile and will often include the smaller companies,and/or fast growing/technology companies. Certainly there are exceptions to those generalities.

Any kind of stocks would make great choices for an IRA since retirement accounts are long term investments. The type you end up picking is probably less important than just sticking with your strategy once youve made a selection. You dont want to end up trying to time the market because what usually happens whne you do that is you get tempted to buy whats hot and avoid what's a bargain, effectively buying high and selling low.

But if you really want a fund with a lot of dividends,pick an "equityincome" fund, a "large cap value" fund, or a utility sector fund. An example of an outstanding equity income fund would be american century's equity income fund (TWEIX). You can buy it directly from american century.

Azanon

 

[Gritz]

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Thanks for the reply azanon and sorry if the question was too general, I guess what I was hoping to find out was whether these"dividend paying" fundssimilar to Vanguard Equity are good choices for use in an IRA/Roth and for that matter can they be used in an IRA/Roth? My initial response is yes they can be used but of course depends on the type of IRA/Roth I would pick. However, I would still like to know if these are good funds for use in an IRA/Roth particularly, with retiement in mind. I understand individual stocks, own a few, even traded in options for a brief period, but never really jumpedinto funds (not mentioning tsp). Sorry for the rambling, the concept of how a dividend paying fund works is just foreign to me,and the renewed sentiment toward owning stock in companies that pay healthy, regular dividends has me intrigued and thus, the question of owning themvia a fundin your IRA/Roth or individually. I should stop now, rambling turning to blithering...

Hope this helps clarify what I was asking. Again, thanks and please continue to set me straight :^.

 

[azanon]

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a "vanguard equity" fund would make a great choice. Truth is, a lot of us make this far more complicated than it needs to be. One could pick a non-focused stock fund of just about any type, just invest in it, and leave it alone, and most likely they'd have a very respectible return in time.

People spend far too much time worrying about their specific choices and not near enough time on just simply making sure they save as much as possible. Save as much as you can, let the fund manager worry about putting the money to work. Most likely, he'll do fine.

 

[jgpalmerdds]

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Gritz,

80% of funds that are actively managed (as opposed to an index 500) underperform the S/P 500 avg. If you are looking for actively managed funds that do consistantly outperform their respective indexes, here are two suggestions:

Buffalo small cap fund- this is a small cap growth fund and has 15% 10 year return. Problem with this fund is you must directly deal with Buffalo (www.buffalofunds.com) to invest.

Vanguard Primecap fund- large cap blend that has consistantly outperformed the S/P 500 and is in the same category of the S/P 500. This fund may be closed right now so check on it.

I have experience with both of these funds.

both of these funds are no load what so ever. Check them out but read the prospectus first.

I agree with what has been said by Azanon, I believe. Asset class and fund manager track track record are what are important besides the saving of the money (most important)

Just my opinion.

Joel

 

[azanon]

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80% of funds that are actively managed (as opposed to an index 500) underperform the S/P 500 avg. If you are looking for actively managed funds that do consistantly outperform their respective indexes, here are two suggestions:

Since this is the TSP website, i think most all of us should be getting a plenty healthy dose of Index funds. Personally, i like to limit my indexing to the TSP.

That 80% figure has been around awhile and was well published on the net prior to the turn of the century. in 2000-2002, the S&P500 did far worse compared to a typical fund because an index has to take all the brutality of a fall since there's no human management to sell during obvious declines, no ability to move to cash, and no one there to reduce risk during such times.Its truly your money on autopilot (sounds scary doesnt it?).

Given a choice, i like a human in charge of my money, even if i have to pay a bit for that. But that's just my preference.

 

[jgpalmerdds]

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I agree,

That's why I research Managed funds, and go with Managers in different asset classes who have been with the fund for a while (like the ones I mentioned) and who consistently outperform their corresponding index. Thanks.

 

[Gritz]

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Have to agree with you all, in that I too prefer the "personal touch" and a managed account would be the preferred (mine) way to go (you made a good point azanon). I'll be checking into managed funds and particularly the Van Prime you mentioned jgpalmerdds, thanks for the suggestion.

Really appreciate you guys chiming in.

 

[Rolo]

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I thought it was 2/3 of funds underperform SP500..?

I like Morningstar's category rank as a performance checker/screening tool.

 

[Gritz]

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Either way, a large percentage underform. Boy Rolo, some of you guys (and gals)are really into the investment world, which I'm really enjoying the fruits of your labor, but just curious, is it part of your regular job or just a well honed hobby?

 

[Montana]

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Bloomburg also has a good site to compare funds in the different category's. Link below.

http://quote.bloomberg.com/apps/data?pid=mutualfunds&Fund=rypnx&Sector=0&SortBy=7&From=1&Term=2

 

[azanon]

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Its probably somewhere between 66 and 80 now if you count the past 4 years, but the 80 percent figure is what i had seen in the past (such as in Bernstein's "Four Pillars of Investing")

The other point I like to make when someone uses that statement to justify indexing is that I sure am glad i'm not obligated to randomly select a managed fund because I agree, forced to random picking, the odds dont sound great. Fortunately, as Joel pointed out, we can carefully select our managed fund(s)and hopefully have much better odds at having a good performer.

 

[jgpalmerdds]

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Gritz,

Do yourself a favor and check out Buffalo small cap, too. It is a major player in the small caps and kills the Russell 2000 and all other small cap indices, by a lot!

I have my pension plan managed by the guy who runs the Buffalo funds and he is a stud! I was up every year in that pension from 2000 except for a small 8% loss in 2001 (26% gain last year, all in managed funds) check it out.

Just my opinion

Joel

 

[Rolo]

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Hey, I think we should all post our tickers for our holdings and keep track of them in our account talk's. I know posting my holdings/returns forces me to keep on top of everything and tweak accordingly, about once/quarter. This is also a great way we can compound our reserch through sharing information/different eyes/broaden our knowledge.

re: the topic. I believe dividend-paying mutual funds are still subject to regular income tax rats and not the reduced capital gains rates, correct?

Basically, you don't want to put tax-advantaged investments (like long-term stocks)into a tax-advantaged account such as an IRA; it would be overlapping effort.

 

[Montana]

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I think that was some good advice about the Buffalo Funds in general. I've owned BUFSX (Buffalo Small Cap)for three years now and it's been my best fund overall. I just rolled it over to BUFBX( Buffalo Balanced Fund) because I believe it's going to be tough for small cap growth funds to continue on top. I feel large caps are coming back into favor at present. Good thing about Buffalo is that they do have safe haven funds to hide in if the market takes a dive. Not as good as our "G" fund but better than stock funds. Bad new's is that you have to be in them 60 days before making a changeor there's a 2% penality. T. Rowe has some excellent conservitive funds that can be rolled over without time limit or penalty. I own PRNEX which has never had a loosing year in the past 15 years. (Hope I don't jinx it).

 

[Montana]

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Opps, Correction, I meant to say PRWCX (Capitol Appreciation Fund) that had the 15 year straight positive run. I own both of them, but since the PRNEX Fund is an energy and natural resources fund, it's a lot more volitle and would need to be monitored more closely. Sorry for the mix up.