Investing

[Toonces]

Hey all.

I don't really know too much about investing.  I do watch some Fox Business, and I read a bit, but fundamentally I don't think I know much about how to invest.

For the last 5 years or so I've been automatically putting money into a couple of mutual funds through USAA, which have no costs to invest in them.  The thing is, 1) I've taken about a $15k loss on my unrealized gains over the last year (but I'm still positive overall), and 2) I'm not sure, if I want to diversify, how to do that.

It's gotten to the point where I have a not-insignificant amount of money invested, and so it warrants some thought to ensure I'm setting myself up properly.

I know we have some markety savvy folks on the boards; I'm hoping we can generate some discussion on investing fundamentals for the rest of us. 

[Sir Slash]

When I retired I talked at length with an Financial Advisor at the bank my wife works for. A guy she knew well and had a well-established reputation for being honest and accurate. He set me up with my Retirement Nest Egg in a IRA type fund that earns a little less but I can NEVER lose the initial start-up amount no matter what the economy does. This was just right. A no lose bet. I often bitch about it not earning more but when I watch the news, I'm happy I talked to him. 

[mirth]

[BanzaiCat]

I'll be working until the day I die, so I'm not too worried about this funny 'retirement' shit y'all keep talking about.

[airboy]

1] You are doing the most important thing which is spending less than you make and then investing your savings.

2] Costs matter.  Minimize your investment costs where possible.  Vanguard (www.vanguard.com) and Fidelity Spartan Funds both are well managed with bare bones cost.

3] There is a relationship between risk and return.  You can buy high grade bonds with minimal risks of losing your principle in the long run, but with a minimal return.  Stocks have a much higher month-to-month and year-to-year gyration - but provide higher average returns.  Going low risk on everything minimizes returns.

4] Diversify.  A well diversified stock portfolio (like owing a mutual fund covering the Russell 2000 or the S&P 500) both lowers risk and raises returns for that category of assets.

What I do is save a lot and have a diversified portfolio (broad stock index funds: both international and domestic; bond funds; liquid assets) and all are at lowest management fees.  I use Vanguard and Fidelity Spartan.  Then I don't worry about it.  During the current downturn I've probably had paper losses of $100,000+.  But my time horizon is still 10 years out to start drawing down the money.

Another option is a "target retirement date" fund from Vanguard or Fidelity that gradually shifts your assets more to safer (but lower average return) assets as you get older.

[DoctorQuest]

Getting good advice is well worth it. You don't need to belong to the upper 1% to benefit from professional financial planning advice. The one myth people struggle with is "it is too late for me to plan for retirement." My planner says that the only time it is too late is if you wait until you actually retire.

I would concur with Airboy's comments and add that reducing debt (or at least the interest you are paying on debt) cannot be emphasized enough. Credit Cards are the devil's pet baits (to mis-quote Sherlock Holmes.)

If you have a 401k from a previous employer, get it rolled over into an IRA. That transfers ownership of the assets from your previous employer to YOU, where it belongs.

[MetalDog]

I contribute to my employer matched 401k.  Which is in a Fidelity target retirement date fund.  I also have a friend who's pretty good at picking stocks.  I throw him some extra cash year to year and we try for picks with dividends and long term growth opportunities.

[Con]

I agree with Airboys assessment.  Diversifying risk is very important by broadening portfolios.  Most people dont realize how much money they are giving up in fees over the lifetime of an asset (eg 401K) See the quote below. 

Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.

This is from Motley Fool which has some pretty good general investing and retirement advice.
http://www.fool.com/retirement/401k/2015/04/06/average-401k-fees.aspx

Lastly I am a big proponent of FutureAdvisor.  This is a firm that keeps its fees low or almost non existent by using statistical algorithms to determine which portfolios and indices you should invest in.  They will even actively manage those investments.  Since it is all done by computers their whole position is to minimize your fees AND Taxes (very important part) and free up your idle cash for investing.  I have used them for the last 5 years and they have really helped me grow one of my orphan 401Ks.  As with everything you need to do your own homework but there are plenty of articles on FutureAdvisor.

Here is their link
https://www.futureadvisor.com/

Con

[Toonces]

Resurrecting this thread because I have some additional questions.

I cashed out most of my original mutual fund to pay the downpayment on a new house.  It worked out very well.

I'm interested in trying a different mutual fund this time; I have quite a bit of cash that's just sitting in savings that isn't doing any work for me at all.  I was thinking about this one: USNQX

https://money.usnews.com/funds/mutual-funds/large-growth/usaa-nasdaq-100-index-fund/usnqx

What do you guys think?  I don't anticipate needing to touch this fund for at least 7 years, so I'm willing to take some risk.