Stocks (making my money work for me)

**WrongBaldy** · 06-18-2018, 09:27 PM

Originally Posted by AmishlandRavenFan

Depends on your investment/retirement horizon. I distinctly remember a conversation with my older brother after the dot-com bubble of the late 90s. He was lamenting how much money he'd "lost" in his retirement account, so I asked him several tongue-in-cheek questions:

1) When did he plan on cashing-out his 401k? If immediately, then I'd agree - he was about to take a terrible loss.
2) Did he still agree with the fundamentals of his investment options (at the time, broad-based mutual funds, mostly domestic)?
3) Depending on his answer to #2, was he upset about buying said investments every 2 weeks (automatically deducted, out of his paycheck) for 30-50% less than what he'd been paying prior?

Point is, market timing is tough, possibly impossible over the long-run. As such, even currently "over-valued" investments like REITs can be a part of a long-term plan, so long as the investor is able to absorb/mentally withstand unrealized losses ("on paper") in the short-term.

i dont consider sector allocations as market timing. staying away from overpriced sectors is just smart.
i dont believe in market timing either. if buffett cant do it niether can i.
but i do believe in trimming positions when they become overvalued and shifting to cheaper securities

**AmishlandRavenFan** · 06-18-2018, 09:40 PM

Originally Posted by WrongBaldy

i dont consider sector allocations as market timing. staying away from overpriced sectors is just smart.
i dont believe in market timing either. if buffett cant do it niether can i.
but i do believe in trimming positions when they become overvalued and shifting to cheaper securities

We’re on the same page.

**WrongBaldy** · 06-19-2018, 12:04 AM

Originally Posted by Jsmoove

Good day all,

I have a question for all the business people out there who are seasoned veterans in the stock market game. What do you guys recommend for people who have NO CLUE how to invest in stocks, I don't have much money and I have no basic idea of any of this stuff, but I have some free time on my hands and I want to learn and I want what little money I have in disposable income for now to make it work for me over time. Any information is appreciated.

ok some more thoughts on this.

if you cant or not willing to dedicate 15-20 hours a week diong due dilligence, keeping up with news and looking for ideas for your portfolio then you should not invest in individual stocks.
both graham and buffett recommend that you treat investing as full time job but i disagree mainly because these days you dont need to look through stock jounrals or call up companies or brokers, almost everything you need is available online. you dont need to manually calculate ROIC and tax rates. so in my opinion 15-20 hours a week should be enough. otherwise you are just cheating yourself.

the beatiful thing about investing is that its not a zero sum game. yes active investing is a zero sum game but passive investing (index funds, mutual funds, etfs) can still make you and others wealthy at the same time. yes most active investors wont/dont beat the market over the long term but there are some that do/will and beat it with large margins.
so sticking with passive investing wont make you ultra reach but it can still make you wealthy. just look at the S&P500 return over the last century.

as a beginner i recommend you stick with passive investing but if you want to try active we can discuss in a further post. btw there is no right or wrong way of investing, its mostly an art. people make money in the market in many ways so dont listen to anyone that says your system is wrong or their system is right. they are BS.

IMO the biggest obstacle is not the market, not the FED, not the economy, but its YOURSELF. we are humans and we all have biases and are very emotional beings. most of these we dont think about and thats what hurts most investors. they end up buying high (herding) and selling low (fear). I recommend you read a few articles or a book on Behavioral Finance. Once you are able to list and understand these biases (loss aversion, herding, hindsight bias, anchoring, overconfidence, etc). being able to know and control your biases is already winning half the battle. btw your biggest ally is TIME. the more time you have the more risk you can take and the higher odds you will come out ahead.

i saw someone mentioned going to a financial advisor. with all due respect to shug i would not let a financial advisor manage my money. 95% of them are glorified salesmen. they try to sell you whatever stuff their company is offering and earn commissons on that, most of them dont have your interest in mind. you can set up the same portfolio yourself and save a boatload of money.
However there is one reason i would recommend a financial advisor and only if they have a CFA or CFP and that is to set up an Investment Plan. and i would only go to a "fee only" advisor not one that charges based on assets or commissions. This person will help you set up a plan like this: https://www.cfapubs.org/doi/pdf/10.2469/ccb.v2010.n12.1
which is basically a cobination of your ability and wilingness to take risk. Its very hand to have something like this so you are not driving blindly. if you do set up something like this its good to review the plan every year with the advisor.

once you have your IPS set up you need to decide where to invest. since something like 80% of returns are due to the assets you choose (stocks, bonds, real estate, cash, gold,etc) you need to decide on the asset mix for your portfolio. the other 20% is due to actual security selection (sectors, individual stocks, indices, etc). This is where your IPS will come in handy. if your ability to take risk is low or you are older your equity percent should be lower. This is a pretty tough decision because you need to take into account your situation. there is also no right or wrong mix so you should set up your portfolio however you are comfortable. if you look at historical returns stocks have clearly the highest returns but also the highest volatility. cash has the lowest returns but also the lowest volatility.
btw i dont equate volatility with risk but thats for another discussion. i would say majority of folks under 60 have majority of their portfolios in equities. the reason equities are valuable is because they can provide you with current income as well as growth. if you invest in bonds you will have nice income but your portfolio will lose value due to not keeping up with inflation which will eat at your principal.
stocks mostly offer both. some folks also lile real estate, metals, commodities, and others asset classes in their portfolios. read up more about asset allocations and what each asset can provide you.
you also have the options to invest in these strategies if you dont want to invest in the whole market: large cap, mid cap, small cap, growth, value, dividend growth, etc....
then you can go deeper into sectors like technology, consumer staples/durables, energy, semiconductors, biotech, etc...but this is not something i would do if im setting up my initial portfolio.

once you decide on your asset mix its time to actually invest. i personally recommend etfs and index funds. i like to keep fees as low as possible. also based on your personal belief about active investing you can allocate some funds to actively managed mutual funds. read up on active vs passive investing. if you are sticking to passive investing as someone said, dollar cost averaging, is what i would suggest. 99.9% of people cant time the market so most likely niether will you. just add the same amount every month or every quarter and if you belive like myself that the market in 30 years will be higher than today you will come out on top. you will buy at highs and lows but in the end the market should be higher. a lot of people call this the SWAN method/portfolio - Sleep Well At Night!
you are not worried about the FED, interest rates, trade wars, recessions, etc. BTW to me the best way to think of stocks is not like pieces of paper but actual pieces of the business. when you buy a share you are buying a peice of the business. you are entitled to a piece of the profits. if the profits grow so does your share of the business. the US with all its negative still has the best business climate in the world IMO. no one can predict the future but IMO it wont change for a while.

https://www.cnbc.com/2018/01/03/why-...nvestment.html

ok now lets talk about the vehicles to use once you have set up your IPS and decide on your asset mix. This is on the order I put my money in.

cash - make sure to have about 6 months worth of salary and expenses in cash. i recommend a high yield online savings account (ally, goldman, etc) where you have access to liquid funds to cover job loss, medical bills, emergencies, etc. some ppl recommend 3 months while others recommend 12 months. see what amount you are comfortable with.

401k - most employers now offer a defined contribution plan vs defined benefit plan (pension) of yesteryear. and also most employers offer a match. if your emplyer offers a match you HAVE to contribute the maximum to get the full match. this is FREE money, DO NOT LEAVE IT ON THE TABLE. i rather cut my spending every month than lose the FREE MONEY. for example lets say youre making 100k a year and your employer matches 50% up to 10% of your salary. in this case for every dollar your contribute you get 50 cents from the employer for FREE. i would max this out by contributing 10K and getting 5k FREE thats 50% RETURN - where else are you going to get a guaranteed 50% return in life????. the money you contribute from your paycheck is tax free and you pay tax on withdrawls.

roth IRA/401k - this is basically the opposite of 401k. and your employer might not match. the difference is also that money you put in here as AFTER TAX but when you withdraw the money in the future you dont have to pay taxes on it. another feature is you can take out the principal you contributed at any time tax free. there is also income limits to set up a ROTH. btw any capital gains or dividends are not taxed!
if you are not eligible for a ROTH because of income limits google how to do a "backdoor Roth". you basically set up an IRA and convert it to a ROTH TAX-FREE. very easy.

***side note: I have a 401k and Roth to hedge where future taxes will be. if you think your future tax rates will be higher than current tax rates you want to add as much as possible to a ROTH (pay tax now vs later) if you think future tax rate will be lower, you take distribution when retired with minimal income, then you want to contribute as much as possible to a 401k now. i have no idea what congress is doing to do about tax rates in the future or if they will start taxing ROTH when taking money out so i have both to hedge a bit of the future tax uncertainty.

ira - once having maxed 401k and.or roth the next option is a plain IRA. if your employer doenst match 401k or offer it, or you not eligilbe for ROTH then you can set up IRA like a 401k and contributions are tax deductible.

taxed account -the last option is a taxable account. any excess funds you are able to save should go here. the best strategy is to invest for the long term and take advanatge of the long term capital gains tax of 15%. if you dont sell anything then its the best idea.

hopefully i was able to give you some general background. let me know if something is not clear. BTW none of this is investment advice as i dont know your exact situation.

**WrongBaldy** · 06-19-2018, 12:05 AM

p.s. i know speculation is part of human nature and even ben graham acknowledges it and if you do speculate (high flying stocks, stocks with negative earnings, small cap stocks, etc) keep it at maximum of 5% of your portfolio.

p.p.s. dont invest more than you are willing to lose.

**JAB1985** · 06-19-2018, 06:56 AM

Originally Posted by WrongBaldy

It’s Benjamin graham not billy graham

Originally Posted by AmishlandRavenFan

Preach brother, preach!

haha... Freudian slip. must feel like preaching the gospel to me.

**BPF2** · 06-19-2018, 10:59 AM

I would agree with Baldy about Financial Advisors. Make sure they are a CFP at least, CPA as well better (or has CPAs in their practice). The most critical part of those designations is "Planner". I can tell you all about my investments, what has worked, what hasn't, etc. But the problems with that are 1) it's all in the past, I can't predict the future, and 2) my situation and goals are almost certainly different. My wife and I first met with our planner about 4 years ago and it has made a huge difference in our life and hopefully for our future retirement. We switched our tax preparation to him 2 years ago, and he found things that we could have been including and weren't, as well as factored the returns in with our investment/retirement strategies to get the best outcome. And he doesn't look just at investments - he looked at things like how much we were paying for insurance, our mortgage, etc.

If you do go the financial planner route, make sure to talk to multiple ones first. Understand what you expect from the relationship, and understand their approach. Make sure the two are aligned. Be skeptical, steer clear of anyone who talks about all their great recent successes.

**Jsmoove** · 06-19-2018, 11:11 AM

Originally Posted by WrongBaldy

ok some more thoughts on this.

if you cant or not willing to dedicate 15-20 hours a week diong due dilligence, keeping up with news and looking for ideas for your portfolio then you should not invest in individual stocks.
both graham and buffett recommend that you treat investing as full time job but i disagree mainly because these days you dont need to look through stock jounrals or call up companies or brokers, almost everything you need is available online. you dont need to manually calculate ROIC and tax rates. so in my opinion 15-20 hours a week should be enough. otherwise you are just cheating yourself.

the beatiful thing about investing is that its not a zero sum game. yes active investing is a zero sum game but passive investing (index funds, mutual funds, etfs) can still make you and others wealthy at the same time. yes most active investors wont/dont beat the market over the long term but there are some that do/will and beat it with large margins.
so sticking with passive investing wont make you ultra reach but it can still make you wealthy. just look at the S&P500 return over the last century.

as a beginner i recommend you stick with passive investing but if you want to try active we can discuss in a further post. btw there is no right or wrong way of investing, its mostly an art. people make money in the market in many ways so dont listen to anyone that says your system is wrong or their system is right. they are BS.

IMO the biggest obstacle is not the market, not the FED, not the economy, but its YOURSELF. we are humans and we all have biases and are very emotional beings. most of these we dont think about and thats what hurts most investors. they end up buying high (herding) and selling low (fear). I recommend you read a few articles or a book on Behavioral Finance. Once you are able to list and understand these biases (loss aversion, herding, hindsight bias, anchoring, overconfidence, etc). being able to know and control your biases is already winning half the battle. btw your biggest ally is TIME. the more time you have the more risk you can take and the higher odds you will come out ahead.

i saw someone mentioned going to a financial advisor. with all due respect to shug i would not let a financial advisor manage my money. 95% of them are glorified salesmen. they try to sell you whatever stuff their company is offering and earn commissons on that, most of them dont have your interest in mind. you can set up the same portfolio yourself and save a boatload of money.
However there is one reason i would recommend a financial advisor and only if they have a CFA or CFP and that is to set up an Investment Plan. and i would only go to a "fee only" advisor not one that charges based on assets or commissions. This person will help you set up a plan like this: https://www.cfapubs.org/doi/pdf/10.2469/ccb.v2010.n12.1
which is basically a cobination of your ability and wilingness to take risk. Its very hand to have something like this so you are not driving blindly. if you do set up something like this its good to review the plan every year with the advisor.

once you have your IPS set up you need to decide where to invest. since something like 80% of returns are due to the assets you choose (stocks, bonds, real estate, cash, gold,etc) you need to decide on the asset mix for your portfolio. the other 20% is due to actual security selection (sectors, individual stocks, indices, etc). This is where your IPS will come in handy. if your ability to take risk is low or you are older your equity percent should be lower. This is a pretty tough decision because you need to take into account your situation. there is also no right or wrong mix so you should set up your portfolio however you are comfortable. if you look at historical returns stocks have clearly the highest returns but also the highest volatility. cash has the lowest returns but also the lowest volatility.
btw i dont equate volatility with risk but thats for another discussion. i would say majority of folks under 60 have majority of their portfolios in equities. the reason equities are valuable is because they can provide you with current income as well as growth. if you invest in bonds you will have nice income but your portfolio will lose value due to not keeping up with inflation which will eat at your principal.
stocks mostly offer both. some folks also lile real estate, metals, commodities, and others asset classes in their portfolios. read up more about asset allocations and what each asset can provide you.
you also have the options to invest in these strategies if you dont want to invest in the whole market: large cap, mid cap, small cap, growth, value, dividend growth, etc....
then you can go deeper into sectors like technology, consumer staples/durables, energy, semiconductors, biotech, etc...but this is not something i would do if im setting up my initial portfolio.

once you decide on your asset mix its time to actually invest. i personally recommend etfs and index funds. i like to keep fees as low as possible. also based on your personal belief about active investing you can allocate some funds to actively managed mutual funds. read up on active vs passive investing. if you are sticking to passive investing as someone said, dollar cost averaging, is what i would suggest. 99.9% of people cant time the market so most likely niether will you. just add the same amount every month or every quarter and if you belive like myself that the market in 30 years will be higher than today you will come out on top. you will buy at highs and lows but in the end the market should be higher. a lot of people call this the SWAN method/portfolio - Sleep Well At Night!
you are not worried about the FED, interest rates, trade wars, recessions, etc. BTW to me the best way to think of stocks is not like pieces of paper but actual pieces of the business. when you buy a share you are buying a peice of the business. you are entitled to a piece of the profits. if the profits grow so does your share of the business. the US with all its negative still has the best business climate in the world IMO. no one can predict the future but IMO it wont change for a while.

https://www.cnbc.com/2018/01/03/why-...nvestment.html

ok now lets talk about the vehicles to use once you have set up your IPS and decide on your asset mix. This is on the order I put my money in.

cash - make sure to have about 6 months worth of salary and expenses in cash. i recommend a high yield online savings account (ally, goldman, etc) where you have access to liquid funds to cover job loss, medical bills, emergencies, etc. some ppl recommend 3 months while others recommend 12 months. see what amount you are comfortable with.

401k - most employers now offer a defined contribution plan vs defined benefit plan (pension) of yesteryear. and also most employers offer a match. if your emplyer offers a match you HAVE to contribute the maximum to get the full match. this is FREE money, DO NOT LEAVE IT ON THE TABLE. i rather cut my spending every month than lose the FREE MONEY. for example lets say youre making 100k a year and your employer matches 50% up to 10% of your salary. in this case for every dollar your contribute you get 50 cents from the employer for FREE. i would max this out by contributing 10K and getting 5k FREE thats 50% RETURN - where else are you going to get a guaranteed 50% return in life????. the money you contribute from your paycheck is tax free and you pay tax on withdrawls.

roth IRA/401k - this is basically the opposite of 401k. and your employer might not match. the difference is also that money you put in here as AFTER TAX but when you withdraw the money in the future you dont have to pay taxes on it. another feature is you can take out the principal you contributed at any time tax free. there is also income limits to set up a ROTH. btw any capital gains or dividends are not taxed!
if you are not eligible for a ROTH because of income limits google how to do a "backdoor Roth". you basically set up an IRA and convert it to a ROTH TAX-FREE. very easy.

***side note: I have a 401k and Roth to hedge where future taxes will be. if you think your future tax rates will be higher than current tax rates you want to add as much as possible to a ROTH (pay tax now vs later) if you think future tax rate will be lower, you take distribution when retired with minimal income, then you want to contribute as much as possible to a 401k now. i have no idea what congress is doing to do about tax rates in the future or if they will start taxing ROTH when taking money out so i have both to hedge a bit of the future tax uncertainty.

ira - once having maxed 401k and.or roth the next option is a plain IRA. if your employer doenst match 401k or offer it, or you not eligilbe for ROTH then you can set up IRA like a 401k and contributions are tax deductible.

taxed account -the last option is a taxable account. any excess funds you are able to save should go here. the best strategy is to invest for the long term and take advanatge of the long term capital gains tax of 15%. if you dont sell anything then its the best idea.

hopefully i was able to give you some general background. let me know if something is not clear. BTW none of this is investment advice as i dont know your exact situation.

right on Baldy you know a lot on this, thanks for the info I have read it one more time so I get soak it in some more thanks!

**WrongBaldy** · 06-19-2018, 09:55 PM

decent summary here on Intelligent Investor:
https://www.gurufocus.com/news/69502...-for-beginners

**Jsmoove** · 06-21-2018, 05:29 PM

Originally Posted by WrongBaldy

decent summary here on Intelligent Investor:
https://www.gurufocus.com/news/69502...-for-beginners

thank you sir!

**Baltravens** · 06-21-2018, 06:48 PM

Originally Posted by Jsmoove

Good day all,

I have a question for all the business people out there who are seasoned veterans in the stock market game. What do you guys recommend for people who have NO CLUE how to invest in stocks, I don't have much money and I have no basic idea of any of this stuff, but I have some free time on my hands and I want to learn and I want what little money I have in disposable income for now to make it work for me over time. Any information is appreciated.

I am just like you. I do not know very much about the stock market, but live in an inherited property passed on from ancestors, so I have zero monthly rent and no mortgage. I have a decent wage and have almost no pressure/stress as I work my LP job. Lastly, I have 65K and do not know what to do with it. I just bought a new car in cash, and made some donations to sick and needy children here in America. So, my income rolls in and all I have to pay is a cellphone bill. I don't know, maybe a some Ravens fans could point me to some high-interest CD's. Boo-Ya!

**CincyCat** · 06-21-2018, 08:29 PM

Originally Posted by Baltravens

I am just like you. I do not know very much about the stock market, but live in an inherited property passed on from ancestors, so I have zero monthly rent and no mortgage. I have a decent wage and have almost no pressure/stress as I work my LP job. Lastly, I have 65K and do not know what to do with it. I just bought a new car in cash, and made some donations to sick and needy children here in America. So, my income rolls in and all I have to pay is a cellphone bill. I don't know, maybe a some Ravens fans could point me to some high-interest CD's. Boo-Ya!

You are the very definition of "White Privilege". Something your party preaches along with Abortion, Gay Rights and hating God. So tell us again why you hate Conservatives.