Roth IRA (Confused Investor)

[Rolo]

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P.S. To clarify, Pete, I am not disagreeing with you. What I want to say is that different things work for different people. I want to encourage people to explore those different things to see what suits them the best. That is what I am doing, exploring what works for me, and I enjoy doing that with similarly-mindedcompany.

 

[Pete1]

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You are obviously a smart person. Be careful but have fun exploring and if you find something that works consistently over an extended period (say 5 years) market it andthe best of luck in achieving success.

 

[Pete1]

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Of course if you market it, it will stop working, hehe.

 

[Rolo]

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Pete1 wrote:

Of course if you market it, it will stop working, hehe.

hahaha...LOL!

Yeah, my whole "thing" is that I do not think you can have any one system that will consistently work over a long period of time. Something that I am learning is that the market often has little to do with economics and more to do with human nature. Case in point: when we say "How will the market react?", we are asking little of economics and much about people's behaviour. This is where economists, analysts, and fund managers can wind up being "too smart for anyone's good", for they forget the human "uncertainty principle"* in the overall equation.



*Albert Einstein. Science teaches us a lot about ourselves.

 

[azanon]

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To me, the most attractive thing about diversified, buy-and-hold stock investor is that you're guaranteed not to be the big loser; far far from it. Average really isnt that evil. "On average", you're certainly be no worse off than anyone else. Heck, if one's just using stocks to build their retirement, they're way ahead of the masses. As Tom as alluded to on our main boards, a shockingly small number of people even utilize stocks.

In short, and as a collective whole, (if i were guess), if one invest 10% of what they make, and invests the majority/all of it in stocks, they'll have a retirement package someday that will easily be better than 90% of their peers for the simple reason thatmost dont save 10% and most dont use stocks fot the little they do invest.

If you go the timer route though, there is certainly a chance you'll be you're own worst enemy. Is it really wise to gamble that modern portfolio theory is wrong? Considering you only get one retirement, and one chance to get it right, I just dont think so.

Azanon

 

[azanon]

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One comment about the investing for fun, getting bored so you change your portfolio concept: The best advise i've heard on this is, we all like to have fun. Dont make your fun with your retirement package though, cause the consequences can just be too severe. If you just cant resist, i like pete's advise; play with 5-15% of your portfolio, but not the whole 9 yards.

 

[Rolo]

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azanon wrote:

To me, the most attractive thing about diversified, buy-and-hold stock investor is that you're guaranteed not to be the big loser; far far from it. Average really isnt that evil. "On average", you're certainly be no worse off than anyone else. Heck, if one's just using stocks to build their retirement, they're way ahead of the masses. As Tom as alluded to on our main boards, a shockingly small number of people even utilize stocks.

In short, and as a collective whole, (if i were guess), if one invest 10% of what they make, and invests the majority/all of it in stocks, they'll have a retirement package someday that will easily be better than 90% of their peers for the simple reason thatmost dont save 10% and most dont use stocks fot the little they do invest.

I wholeheartedly agree.

Most do not fully utilise their 401(k)s, even with funds matching (What!? Turn down free money!?) and most do not max out IRA contributions. That is nuts. This is why we still have Socialist Security Tax.

azanon wrote:

One comment about the investing for fun, getting bored so you change your portfolio concept: The best advise i've heard on this is, we all like to have fun. Dont make your fun with your retirement package though, cause the consequences can just be too severe. If you just cant resist, i like pete's advise; play with 5-15% of your portfolio, but not the whole 9 yards.

I agree here, too. It goes back to risk mitigation. One should only play with what one is comfortable with losing (Stock Speculation 101: Only risk money that you can afford or are willing to lose). The degree of your own competence is also relevant to how much you should risk. Personally, my retirement accounts are in aggressive, above-average funds, somewhat diversified between fund families and market sectors and my taxable brokerage account is 40% stock funds and 60% stocks. Depending on my mood, my stocks are split between long-term holders and fun-play-try-my-hand-in-stock-timing.

My plan right now is to dump as much as I can into my taxable account before the TSP max is lifted in 2006. In 2006,what I normally contribute to my taxable account will go into the TSP instead and my brokerage account working capital should be large enough to grow it substantially without further contributions. The tax savings from TSP contributions should offset my tax liabilities from my brokerage investment earnings to some extent. Basically, I am "priming the pump".

 

[Rod]

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So, what would be a great fund for the Roth IRA???

I would like to know that answer myself. It seems everytime I've asked on other forums, I get the run around because it ends up turning into a debate over this fund and that fund. I realize we all have our preferences, BUT there has to be at least ONE GOOD FUND out there.

What is it?

My Wife and I each have$5,500 in a Roth IRA Share account earning 2% quarterly.

I know I can do better, I just need to be led.

Thank you & God Bless:^

 

[Rolo]

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Welcome, Rod!

Yes, Az keeps picking fights with me and clouding the topic. (hehehe, that is so untrue)

Barring few historical exceptions, like Magellan in Lynch's day, I do not believe in a holy grail of funds. Even if there were, my personal style at the moment, would likely have me pass on such a fund.

The question for you, Rod, is what is your "style"? What are you looking for in a fund? Do you want to buy with confidence and hold it indefinitely or stomach more risk for a greater return, managing it every-so-often?

Approximately 60% of all funds underperform the S&P500 index. There is your baseline, an index fund. To begin your search, try to find funds you like that have consistently outperformed the index; it is harder than you think.

 

[Rod]

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Thanx Rolo

To be quite honest, I'm not very familiar with investing in funds. But common sense tells me that I need to move my Roth out of the share account, and into something more aggressive. I guess my risk factor would be above average- Perhaps a Beta 2.

I recall someone telling me to invest in Scudder funds. I realize there are thousands of funds out there, but I'm really confused as to where to begin since I don't know too much about reading the market. At least not yet.

If I was your brother, what would you recommend? I do realize all recommendations are at my own risk. So please don't be afraid to recommend a good performing long term fund for my Roth. I'll take everything into consideration.

God Bless:^

 

[tsptalk]

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For what it's worth, I've heard real good things about the Hussman Strategic Growth Fund. [url]http://www.hussmanfunds.com[/url]. The folks at decisionpoint.com have some great things to say about the manager of the fund.

Disclosure: I'm not in it myself currently.

 

[Rod]

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Thank you for the info!

BTW, I want to also thank you for investing your talent & time into this website. It is VERY helpful for folks like me who want to familiarize ourselves withour TSP options and gain a better understanding of general investing.

Please know that you are truly appreciated!:^

God Bless

 

[Rod]

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Please look at some of these facts & figures of the Hussman Strategic Growth Fundand let me know what you think.

http://www.hussmanfunds.com/theFunds.html

Thanx!

 

[tsptalk]

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Please know that you are truly appreciated!

Thanks Rod!!

 

[Rod]

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Well, Morningstar does give this particularHussman Fund 5 stars.:^

 

[Rolo]

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hahahannnnggghghhhhhaaaaaah!

stars

heh



THAT looks like the fund to have during bear markets, eh? (Or for people who don't like to lose...ever.) It should get a more deserving name than "Strategic Growth".

The only thing I do not like about it is the 1.5% redemption fee. Of course, with a beta of 0.13 and given its track record, it would be hard to part with this fund...except during bull markets, such as we had in 2003; but I do not think that is going to happen again for a long while.

I could have used this puppy in January. It is going in my contrarian category buy list.

 

[Rod]

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Since I'm first beginning to learn about all of this, what is the average redemption fee?

Correct me if I am wrong, but is the redemption fee the fee you pay when you begin distributions?

Since this would be the Roth IRA, does that mean I would pay a fee of 1.5% on every distribution I would make, or is that a one time only fee at a particular point in time?

Thank you!:^

 

[Rolo]

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Nonono. OK.

An IRA is not an investment. It is not something you purchase. It is nothing tangible. It is merely a set of tax rules. It stands for "Individual Retirement Arrangement", (not account).

Think of it as a container. You can put anything in that container (funds, stocks, bonds, CD's, etc.) and the only difference is that taxes are handled differently than regular taxable containers.

So investments are independant andhave nothing to do with IRA's. Treat them separately.


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A Redemption Fee is what you pay when you sell shares of a fund before holding it for a reasonable amount of time. This is to prevent actively trading in and out of the fund. It is a fund-thing, not an IRA-thing; keep them separate.

From HSGFX Prospectus:

REDEMPTION FEE
A redemption fee of 1.5% of the dollar value of the shares redeemed, payable to the Fund, is imposed on any redemption or exchange of shares within six months of the date of purchase. No redemption fee will be imposed on the redemption of shares representing reinvested dividends or capital gains distributions, or on amounts representing capital appreciation of shares. In determining whether a redemption fee is applicable to a particular redemption, it is assumed that the redemption is first of shares acquired pursuant to the reinvestment of dividends and capital gains distributions, and next of other shares held by the shareholder for the longest period of time.
​

This is not unreasonable. Just be sure to look for it before trading funds, otherwise you may get hit with a fee by surprise. (Yes, that happened to me...once.)

 

[Rod]

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Thanx Rolo. I dounderstand that the RothIRAis basically a tax shelter, and not to be confused with an investment. My bad.

But what about when the IRA is "invested" into a mutual fund, such as the Hussman we've been discussing?

Is that when it becomes an Individual Retirement Arrangement, as was mentioned?

Thanx for helping me to understand.

God Bless

 

[Rolo]

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An "IRA" is not a tangible thing, so it does not "become" anything. It is always an arrangement, not an account. An accurate semantic would be IRA account, which is the same as a regular taxable investment account except that you agree to follow the IRS rules with your "IRAa".

It does not matter what is in your IRA account. You could put baseball cards in it. For many reasons, that would not be wise, but you could do it. Any investment can be treated with IRA rules, because it is merely an arrangement on taxes, and nothing else.

The only time you will notice a difference between a regular account and an IRA account is when you file your tax return.