Just Starting Out

[tonyp]

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Hi all,

I am 26 and new to investing and understanding the intricacies of the market. I have always been somewhat interested in investing and really became intrigued after taking a finance class in college. I finally am at the point where I am able to start putting some money away for retirement and will be putting $3000 into a mutual fund for 2004. I am not eligible for TSP and do not have a 401k yet because I am currently a contract employee while going to school full time (I am optimistic this situation will change soon and I will be working at my present job full time while going to school part time). I have a high risk tolerance and would categorize myself as an aggressive, long-term investor.Now that you know a little about me I have a few questions I would appreciate your input on:

1) Who would you use to start a financial relationship with (in terms of ease of use, customer service, fees/expenses, etc.). I was and am still leaning towards Fidelity, but I was also thinking about USAA - does it really matter who you deal with?

2) Since I am just starting out, is there a fund (or funds) that you would recommend to me given my disposition and current situation? I was considering a fund of funds (Fidelity Freedom Fund 2035 - FFTHX; 2040 - FFFFX) to get started and then adjust my allocation after I have learned a little more. I was also looking into some other USAA funds - Cornerstone Strategy Fund (USCRX); International Market Fund (USIFX); Precious Metal Fund (USAGX) as possible alternatives.

3) What can I do to further my investing knowledge so that I can become more savvy and less ignorant? (Subscribe to magazines?)



Thanks for your help!

 

[rokid]

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I'd check out the Vanguard 2045 fund.

 

[Rolo]

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I like RS Funds and US Global Investors funds. I have them through USAA and Scottrade. You can get literally thousands of different funds through USAA and Scottrade. Why lock yourself into one fund family, particularly a mediocre one (USAA), when you can pretty much have access to almost all?

 

[azanon]

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I am 26 and new to investing and understanding the intricacies of the market. I have always been somewhat interested in investing and really became intrigued after taking a finance class in college. I finally am at the point where I am able to start putting some money away for retirement and will be putting $3000 into a mutual fund for 2004. I am not eligible for TSP and do not have a 401k yet because I am currently a contract employee while going to school full time (I am optimistic this situation will change soon and I will be working at my present job full time while going to school part time). I have a high risk tolerance and would categorize myself as an aggressive, long-term investor.Now that you know a little about me I have a few questions I would appreciate your input on:

Having a high risk tolerance is great, cause I think I pretty much do too. Just realize though that higher risk does not always equal higher return, even over a long period of time. Precious metals are an excellent example of that truth; very high risk and mediocre, at best, returns over a long period of time. I think the 50 year return on precious metals is like 2% annual. Conversely, many large cap value funds (considered relatively low risk for stocks) have provided some of the best returns you can find over a long period.

1) Who would you use to start a financial relationship with (in terms of ease of use, customer service, fees/expenses, etc.). I was and am still leaning towards Fidelity, but I was also thinking about USAA - does it really matter who you deal with?

In my opinion, the only thing that is really important is that you find a fund company that has no load funds, and low expense ratios. Both of those do. As you grow your portfolio size, there's no reason to limit yourself to any one particular fund company, even if you're buying directly from them. Personally, i deal directly with USAA, Janus, and American Century. If you're investing for the long term, monies you invest should be left alone for the most part anyway. If you need to adjust your weightings in certain sectors, just use the funds within whatever fund company you have your money invested in.

I dont personally like to use middle men (between me and the fund company) because I learned long ago, very very few people/organizations provide services for free.

Far more important to just focus on saving as much as possible, and selecting the correct asset classes/weightings than trying to find the "best fund company". We know yesterday's best fund companies because we can look it up. Who's to say who will be the best 5 years from now. Case and point, Janus used to be hot stuff 1999 previous. Now they're mediocre at best.

2) Since I am just starting out, is there a fund (or funds) that you would recommend to me given my disposition and current situation? I was considering a fund of funds (Fidelity Freedom Fund 2035 - FFTHX; 2040 - FFFFX) to get started and then adjust my allocation after I have learned a little more. I was also looking into some other USAA funds - Cornerstone Strategy Fund (USCRX); International Market Fund (USIFX); Precious Metal Fund (USAGX) as possible alternatives.

At your age, i recommend any diversified stock fund that has low expese ratio, and no load. Just pick one and leave it alone, regardless of market cap or value/growth strategy. Even if you dont pick next years hot class, over time, you'll get wonderful growth. A 26 year old has no business buying bonds or interest bearing stuff with a 30 year+ investment horizon, IMHO.

3) What can I do to further my investing knowledge so that I can become more savvy and less ignorant?

Irecommend Berstein's "4 pillars of investing". Excellent book. (btw, Berstein would disagree with my all-stock recommendation, but oh well).

 

[tonyp]

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Thanks for all of yourinput!

I decided to use USAA rather than Fidelity and chose to split my IRA into 3 equal parts consisting of:

RSVAX, RSNRX & EUROX

I was also intrested in BGRFX and RSPFX, but they were closed to new investors and closed altogether respectively.

When I get enough together I amplaning on opening up a money market account through USAA instead of letting it sit in my savings account. I will also probably get into another fund or two once I have built these initial ones up a bit. Thanks again for your advise.

 

[tonyp]

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Just thought I would let you know that I changed my mind onEUROX and decided to go with TAVIX (mostly due tothe expense ratio).

 

[azanon]

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I decided to use USAA rather than Fidelity and chose to split my IRA into 3 equal parts consisting of:

RSVAX, RSNRX & EUROX

Those arn't USAA funds. I imagine USAA will charge you a fee to buy funds that arn't theirs. So that's 2 people you'll be paying; USAA and the fund managers of those respective funds.

 

[pyriel]

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Hmmm... I am baffled with your investment outlook and plans. With what I know now, andif Ido not qualify for TSP or 401k, I would definitely learn about real estate investment. Why give your money to somebody else and let them manage it for you when you can manage it yourself. I manage real estate (commercial and residential) and I have to say that I get better return than any mutual funds I know. The best thing about it is that I can do something about my investment (immediately). If my tenant moves out, I aggressively look for their replacements by advertising and talking to other real estate agents. If something breaks, I fix them (or have someone fix them) right away. No one in this forum can tell you that you can do that with any mutual funds. You can write them a letter or pray if the fund price starts to go down but you really can't do anything to fix the problem unless you pull out at a loss. Many people will tell you that real estate is risky. But which one is riskier? Have someone manage your money or you manage it yourself. Many people that says real estate is risky really doesn't have alot invested in it.Getting 20-30-40-50%cash on cash returnin a real estateinvestment is very viable. You just have to do your homework. I am currently negotiating a 4 unit apt now (been going back and forth for almost a month now) and my projection cash on cash return could go froma conservative of 15% or as high as 45% per annum.This is not including depreciation, taxreturn forinterest paid, insurance, etc... all of which will bepaid by my tenant. This is the reason I don't have any other mutual funds or stocks outside of myROTH and TSP. I'd rather go with a real winner (which is me since I am in control of my investment). My suggestion is for you to invest some time learning real estate. Start off small at first and then expand as you get better at it. Or you can fork over your money to someone you really don't know and hope that they manage it well for you. Just my 2 cents.

Pyriel

 

[tonyp]

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Azanon, I went with a USAA brokerage account, they don't charge any fees and you can move in and out of funds 6x a year (though I don't plan on doing this - unless something unforseen happens). The only fees you are charged is what the fund charges. This year I will use my 4k contribution to buy a large & small cap domesticfunds and wieght them a bit heavier than my current holdings. I realize that 2 of the funds I have should be small portions of my portfolio but I wanted to go with an international/nat resource fund right now; (the smallest initial investments I could make were 1k each).

Pyriel, I am looking into buying a duplex and renting out one side of it. Eventually, I would rent out both sides when I moved into a new place. Thanks for the tip!

 

[cowboy]

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There is such a thing as real estate funds that you can invest in. You don't have to own real estate to make money. If you think real estate is a good investment you can buy into the funds and not worry about tenents or repairs and other goody's. You just invest in the paper. Of course the funds fluctuate just like any other stock so you may lose money.

 

[azanon]

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Pyriel,

Managing real estate vs buying stock mutual funds is an excellent apples/oranges comparison. The former is a job, the latter is not. I would hope you get better return in any job than some investment where i write a check in 5 minutes and mail it to a fund company.

I get paid well in my job too. A lot of jobs pay well. Glad to hear real estate management pays great too. My uncle says the same thing. That's what he does for a living.

I work 40 hrs a week in the job I have now. Not going to speak for the original poster, but I have no interest in a second job.

Azanon

 

[azanon]

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Azanon, I went with a USAA brokerage account, they don't charge any fees and you can move in and out of funds 6x a year (though I don't plan on doing this - unless something unforseen happens). The only fees you are charged is what the fund charges.

Hmm, i'll check into that again then. Coulda swore there was a fee for something, be it signing up, buying/selling, something.... I'm a USAA member too, so if its completely free, i'm certainly interested. The only investment fee I tolerate is a reasonable management fee in my mutual funds.

 

[tonyp]

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Just wanted to clarify the moving in and out of funds 6x/year thing. That is not accurate, it is whatever the individual fund allows (as is the case with fees - whatever the fund charges). I got that info confused with what USAA allows holders of its own funds to do.

 

[pyriel]

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azanon wrote:

Pyriel,

Managing real estate vs buying stock mutual funds is an excellent apples/oranges comparison. The former is a job, the latter is not. I would hope you get better return in any job than some investment where i write a check in 5 minutes and mail it to a fund company.

I get paid well in my job too. A lot of jobs pay well. Glad to hear real estate management pays great too. My uncle says the same thing. That's what he does for a living.

I work 40 hrs a week in the job I have now. Not going to speak for the original poster, but I have no interest in a second job.

Azanon

Azanon, You are right. It is a second job. Last month, I went to work 3 hours to pick up the rent and deposited them to the bank andcalled someone to fixa circuit breaker that broke. This month, I spent one hour since my tenant dropped off their rent. Let me see, Jan and Feb were about the same hours. Hmmm.... I know one thing, I spent more hours in this board than my rental. Iam trying to get more job likethis.Real estate, if researched and managed well can be lucrative.All I am trying to showthe poster is another alternative to investing. Stocks are fine butrealestate, in my opinion,is much better. However, like any other investment, it must first be researched and learnt.

Pyriel

 

[azanon]

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>The initial legwork; finding and buying properties that will be profitable

>Discontent tenants; over God knows what

>Tenants that dont pay

> Things that will invariable break multiplied by how many houses/apts you have

>Finding new tenants when they leave

>Collecting fromt tenants that leave damaged property

>Upkeep on temporarily unoccupied properies

>And on, and on, and on. If i wanted to spend more time, i'm sure i could list another 20-30 Pains in the ass.....



You can try to equate the effort in all of that to kicking back readingand typing on thismessage board, or writing a check to american century, but I know better. ;-)

Again, I accept you probably make far more doing that. As well you should!

Bradley

 

[Shaggy]

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I have one rental property, it is a mobile home. I purchased it in 1998 and lived there for 4 years. It cost me $22,000 which I paid off before I left. Since then I have had it rented. I have replaced the hot water heater one month which cost about $500 and 4 hours. Other then that I have collected $450 a month for about three years now and the tenant comes to my house to deliver the rent. Sometimes she's late but I have no mortgage, so no hurry. You tell me where I can earn between 20 and 25% interest on my investment, not including the time I lived in it, with $22,000.

 

[pyriel]

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Shaggy wrote:

I have one rental property, it is a mobile home. I purchased it in 1998 and lived there for 4 years. It cost me $22,000 which I paid off before I left. Since then I have had it rented. I have replaced the hot water heater one month which cost about $500 and 4 hours. Other then that I have collected $450 a month for about three years now and the tenant comes to my house to deliver the rent. Sometimes she's late but I have no mortgage, so no hurry. You tell me where I can earn between 20 and 25% interest on my investment, not including the time I lived in it, with $22,000.

People who usually say negative things about real estate are those who really never had real estate investments (owning one's house is not an investment in my book because it doesn't put any money in my pocket). Shaggy, with what you've mentioned, you pretty much got your moneys worth and your investment is still paying you dividend (about $16,400.00 in the last3 years). Even if you lost yourrental tomorrow, you've pretty much got your moneys worth because you lived there for 4 years. Let me see, when people were losing their shirts in 2002-2003 in stocks or mutual funds, you were actuallymaking about 25%cash on cash return. All of them rental payments are cash in your pocket.What a wise investment (or what others will say "A JOB").

 

[cowboy]

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Shaggy wrote:

I have one rental property, it is a mobile home. I purchased it in 1998 and lived there for 4 years. It cost me $22,000 which I paid off before I left. Since then I have had it rented. I have replaced the hot water heater one month which cost about $500 and 4 hours. Other then that I have collected $450 a month for about three years now and the tenant comes to my house to deliver the rent. Sometimes she's late but I have no mortgage, so no hurry. You tell me where I can earn between 20 and 25% interest on my investment, not including the time I lived in it, with $22,000.

I just have to say this. No I won't say it. Oh hell, yes I will. This woman must have sucker written across her boobs. She is buying your trailer yearly. I have no problem with making money with real estate but this is an exception.You could be a nice person and sell it to her for $22,000.00 over 5 years, since you will most likely willbe looking at some expenses down the road. A shack for$450 a month. No offense but real estate does breed greed. The next time she comes over give the girl a break and tell her the rent went down to $400 because she hasbeen a good tennent and I bet youwill feel a whole lot better when her kids are wearing a new pair of jeans. Crap that is worse then a credit card company. I don't mean to offend you Shaggy because the circumstances ar unknown in your post. That woman coming over early with her $400 check and a smile would be worth it to me.

 

[azanon]

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>Add what cowboy said to my list

>

Let me see, when people were losing their shirts in 2002-2003 in stocks or mutual funds, you were actuallymaking about 25%cash on cash return.

>Just plain ole Real Estate mutual funds have returned 20% for the past 5 years. See for yourself by taking a peek at American Century's Real Estate fund (REACX); 19.62% return for the past 5 years. And i didnt go trying to find the highest; I just picked that one cause American Century is the fund company I use. Again, just cut a check. And you dont have to rip off poor ladies either (per cowboy's response).

>Over a long period of time, stocks>real estate. Nice try though. Real estate market bubble burst should be any moment now.

 

[pyriel]

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azanon wrote:

>Add what cowboy said to my list

>

Let me see, when people were losing their shirts in 2002-2003 in stocks or mutual funds, you were actuallymaking about 25%cash on cash return.

>Just plain ole Real Estate mutual funds have returned 20% for the past 5 years. See for yourself by taking a peek at American Century's Real Estate fund (REACX); 19.62% return for the past 5 years. And i didnt go trying to find the highest; I just picked that one cause American Century is the fund company I use. Again, just cut a check. And you dont have to rip off poor ladies either (per cowboy's response).

>Over a long period of time, stocks>real estate. Nice try though. Real estate market bubble burst should be any moment now.

Az, Again, you missed the point. You are looking at returns coming from REIT. The things that we are talking about are individual real estate management which definitely differs from REIT that is in the market. I believe that they are also contemplating of adding that here at TSP. Returns on those are mediocre (IMHO) compare to real estate owned. They are like stocks and mutual funds (like you owned). They are totally different when they are indiviudally owned just like what Shaggy had showned you.I am not concern about housing bubbles (maybe if iam invested in REIT), in fact, I can't waitfor the bubble to start since I can buy real estate dirt cheap that way. I bought an 8 unit apt for 240k when it was selling on a high for $400k.So, I hope you are right, I can't wait for the bubble to start since I can double my properties faster that way. As for Cowboy's comments, he is right. He doesn't knowShaggy's circumstances. It could be thatthe median range of rental in his are is about 500-600 dollars and his rent is alot lower than the rest. So he could be doing her a favor. Or it could be that he is a very good landlord(judging by allowing her to pay late). Other landlords tacks in late fee after a certain period of time.Orhis location is very close to where the old lady works. You see, Cowboy is right.We really don't know all the circumstance. However, we are talking about investments here and with investments, the name of the game isto make money.Cowboys and many others here (like me) move our funds around because we want to get a better return for our investments. Shaggy and I are doing the same thing but in a totally different approach. That is what I am trying to impart.