Saving/Investing

[Bob Smith]

I decided that its about time we gave this topic a thread of its own, instead of burying it in an unrelated thread.

I was leafing through the paper today and came across a little review about a new book coming out. It is "We're Not in Kansas Anymore" by Walter Updegrave. From the little bit it says about his philosphy, it closely mathces my thoughts on savings. Here is what the blurb said

"Book debunks excuses for not saving

I dont make enough money to save
Thoughout history, there have been rich people who have spent everything they own and poor people who manage to save enormous amounts. Savings means discipline. Begin by putting aside small amounts each month.

I can get started later
The problem is that "later" never seems to arrive. Start today. Compounding interest helps those who start early.

I want to spend my money now
Money does not mean happiness and retiring is not just sitting around the house.

My family as never saved
Updegrave is sympathetic but says saving is a choice that anyone can make. The choice is yours. Updegrave urges people to begin saving as early as possible."

I emphasized "excuses" in the title of the article because thats what all these are. They arent reasons, they are excuses.

One note on my personal views. I believe that saving and investing are two different animals. The terminology is often used interchangeably, when they each should realy denote different viewpoints. Saving is putting money in the bank. Its very liquid, doesnt accrue much interest and is perfect for having on hand in case of future emergencies, job loss, etc. Investing is about higher returns and growing your wealth exponentially rather than geometrically (savings). Income-generating real estate, mutual funds, stocks, and some other vehicles are investing.

 

[Chip Bronson]

i agree with the distinction you make between the 2. for maximal gain it's important to do both. you need to save and invest. but with investing one must keep in mind that he could loose a substantial amount of his investment, hence the necessity of having savings (so you can dip into it and re-invest). and it's a good idea to have several savings-type accounts as well as investments.

but in all honesty, if you invest 'correctly' you will be winning more than losing. in other words, if you pick more winners than losers, you will always be up cash. there is a system. you just need to learn it and stick with it. forget about your feelings or hunches, etc. stick with the program and you will always have more winners than losers.

ps: just don't forget to set some money aside to pay for your capital gains.... a good buddy of mine is getting majorly fucked this year because he blew his winnings on vacations, a new car, jewelry for his cunt girlfriend, etc...

 

[Hogg]

The key is maintaining a good balance of cash or cash equivalents in your portfolio

I recommend that everyone max out their 401k....its about the only bastion the government gives you to hide money these days. And if your AGI permits, I further recommend putting $ 3K in a roth IRA every year as these monies are not taxed when you withdraw them whereas a traditional IRA of 401k is.


LOL...cunt girlfriend

 

[Chip Bronson]

the roth ira is a great deal. i'm actually looking into the details of starting one up. just like a 401k except you can't contribute as much. also, hogg, it's not pre-tax dollars right?

 

[Bob Smith]

Savings should be for emergency situations. Whether you need 2 or 3 or 6 months in reserves depends on your situation. I think you need that before you can really get into the investing side of things.

Investing doesnt have to be very risky, and in the long run, it is riskier to leave your money in the bank as opposed to putting it into an index fund like the Vanguard 500 or a Spider.

I think if people realize that a savings account is not a place to become wealthy, affluent, comfortable, whatever your goal is, then they will be better off. Its all about mindset. Off the top of my head, I cant think of a single time in history where you dont lose money on a savings account, whether its 1 year or 20 years. Sure, your account value goes up during that time. But then you pay annual taxes on interest, you lose the largest part to inflation, and interest rates are piss poor. Maybe someone else can correct me, but I dont think interest rates on savings accounts has ever been higher than inflation. You lose. But its a necessity for those situations where you lose your job and need money to live on, your dishwasher breaks and need a new one, things like that.

 

[Chip Bronson]

Savings should be for emergency situations. Whether you need 2 or 3 or 6 months in reserves depends on your situation. I think you need that before you can really get into the investing side of things.

Investing doesnt have to be very risky, and in the long run, it is riskier to leave your money in the bank as opposed to putting it into an index fund like the Vanguard 500 or a Spider.

I think if people realize that a savings account is not a place to become wealthy, affluent, comfortable, whatever your goal is, then they will be better off. Its all about mindset. Off the top of my head, I cant think of a single time in history where you dont lose money on a savings account, whether its 1 year or 20 years. Sure, your account value goes up during that time. But then you pay annual taxes on interest, you lose the largest part to inflation, and interest rates are piss poor. Maybe someone else can correct me, but I dont think interest rates on savings accounts has ever been higher than inflation. You lose. But its a necessity for those situations where you lose your job and need money to live on, your dishwasher breaks and need a new one, things like that.

oh yeah bob, savings is definitely a losing proposition, a necessary evil. mutual funds are like a savings account, in that they are also very liquid, with a much better return. vanguards are good to go no-load funds as are neuberger and bergman.

 

[Bob Smith]

As a quick example. My grandma has a few bucks. She has always saved a pretty good portion of her investable money into govt bonds, bills and CDs. She is of the mindset that she has done very well by doing that. Right now she has something like $150-200k in a 2 year bond that is paying about 2% annually. She bought about half of that roughly 1-2 years ago. I suggested she either do high-yield investment grade corporate bonds, of my first choice of an index fund. Since that recommendation by me, she has made about 3% on her bonds instead of the 50% or so that she would have made on the index funds.

Beyond that, she doesnt realize that of the 2% interest she earns, she pays 35% tax on it, loses 3-4% annually for inflation. In the end, she actually ends up with less real money than she started with. It works the same way with savings accounts.

Her stock portfolio is up about 10-12% in the same time. She has made more on that 1-yrs retrun than she will in 25 years with a govt bond.

 

[Bob Smith]

oh yeah bob, savings is definitely a losing proposition, a necessary evil. mutual funds are like a savings account, in that they are also very liquid, with a much better return. vanguards are good to go no-load funds as are neuberger and bergman.

The problem with mutual funds in terms of liquidity is that you will pay some fees, normal income tax and/or capital gains when you withdraw funds.

 

[Hogg]

the roth ira is a great deal. i'm actually looking into the details of starting one up. just like a 401k except you can't contribute as much. also, hogg, it's not pre-tax dollars right?

The deal for 2003 Roth was as follows:


Your AGI must be under $ 110K if you are single.

The money is not pre-tax.

You do not reduce your AGI with a Roth...it doesnt work like a traditional IRA deduction but for 2003, if you are involved in any sort of retirement plan that you 'profit from', then you cant take a traditional $ 3K IRA deduction anyway.

When you begin pulling the money out, the money is not taxed so the cap gain is free.

It really is neat because if you can keep your AGI low enough and sock $ 3K away per year, with some shrewd investments, you can build a pretty decent pile of cash in 20 years.


However, the 401k is a much sweeter deal providing that you have a decent scope of investment vehicles available to you. You can drop 13K in a 401k for 2004 and if you put in 13K per year for 20 years and earned 8%, it is a big number. now granted, you are taxed but....well, you only saved $ 260K and walked out with $ 642K before taxes. However, as you can see, $ 642K is squat in terms of retirement so you might have to be a bit more aggressive with your money. It would take a little under 12% average annual return to make a million.

 

[Hogg]

You go to bonds when the market becomes too volatile....however, if you get in late, the price of the bond as a result of buy pressure makes the return piss poor....but its still a decent hedge against inflation. I'm speaking primarily of government backed notes rather than corporate paper. Preferred stock is also nice is if has a good dividend; the preferred is paid out ahead of the common but is second to a bond in terms of claims in the case of bankruptcy.

 

[Chip Bronson]

i agree again bob. stocks are the way. let me share a little bit to illustrate their beauty. there's a stock called 'cure' that trading on the nasdaq. i bought 1000 shares a little over 2 weeks ago at 12.26. i just sold a little while ago at 14.28. that's a nice little pickup in 2 weeks time, isn't it. unfortunately i don't have the money to be buying 10,000 or more shares but a little bit here, a little bit there and it adds up nicely. you'd never get this with savings...

 

[Bob Smith]

You go to bonds when the market becomes too volatile....however, if you get in late, the price of the bond as a result of buy pressure makes the return piss poor....but its still a decent hedge against inflation. I'm speaking primarily of government backed notes rather than corporate paper. Preferred stock is also nice is if has a good dividend; the preferred is paid out ahead of the common but is second to a bond in terms of claims in the case of bankruptcy.

Yes, I agree with you during times of volatility. But not as a regular investment vehicle, like the example of my grandma. Short term push towards short-term bonds is fine.

 

[CyniQ]

I am also a fan of the Vanguard family of funds. Very low expense ratios. I was fortunate enough to have a financial genius for a grandfather. He was a huge fan of John Bogle's. I think all newbies to the investing world should stick with index funds at least until they get the "hang" of it. I'm not a big fan of MF's personally but they are the best for inexperienced investors or those of us with little time to research stocks.

I'm getting my feet wet in real estate. I'm a partner in an industrial office park. It's the largest investment I've ever made and the biggest risk I've ever taken. Scary shit. Anyway, "I second the Saving is Good and move to carry."

 

[Hogg]

Yes, I agree with you during times of volatility. But not as a regular investment vehicle, like the example of my grandma. Short term push towards short-term bonds is fine.

Exactly, thats what I was saying but I should have prefaced it with, exactly bob. Bonds, IMHO, are not a wise investment vehicle, they are merely a shelter for cash in bad times.

 

[hardcore210]

If you're working w/an honest, qualified professional, the biggest risk involved is NOT investing! There is no such thing as a one-size fits all way to invest. Every single American family has a unique situation when it comes to spending/saving habits, risk tolerances, time horizon, liquidity needs, tax issues, etc. Anyway, Roths are good, but not the best for everyone. I, for example, would rather reduce my taxable income now (being single, self-employed) and go w/the Traditional.

BS- being involved w/the insurance industry, I'm surprised you haven't been trying to get everyone to jump on the VUL bandwagon!

HC210

 

[Bob Smith]

Hardcore, I am actually very much against ULs and similar products. I think they are complete and total shit. If anyone has one, I recommend they get rid of it.

BTW, Im not longer in insurance. I quit about a month ago.

This could also be another great topic of discussion, as very few people have any real idea about insurance.

 

[Hogg]

If you're working w/an honest, qualified professional, the biggest risk involved is NOT investing! There is no such thing as a one-size fits all way to invest. Every single American family has a unique situation when it comes to spending/saving habits, risk tolerances, time horizon, liquidity needs, tax issues, etc. Anyway, Roths are good, but not the best for everyone. I, for example, would rather reduce my taxable income now (being single, self-employed) and go w/the Traditional.

BS- being involved w/the insurance industry, I'm surprised you haven't been trying to get everyone to jump on the VUL bandwagon!

HC210

Thats the problem HC, some people cant. I took my 2003 and 2004 traditional IRA deductions back to back figuring i could buy more of one of my favorite issues with the $ 6K. When I sat down with the tax man for 2003, he informed me that the tax law changes preclude me from taking a traditional deduction since I receive 5% of my salary in profit sharing from my company...now mind you, up through last year, I was not taking a 401k deduction and under 2002 tax laws, I could have taken the IRA, now I cant. It has become a one or the other scenario and so I was left paying cap gains that I thought I could minimize by taking the deduction.

Now, if you cant take an IRA deduction and you are maxing your 401K at $ 13K per year and your AGI is such that you can still take the roth, you'd be foolish not to since the cap gain is non-taxable. I pay either 15% LT or 35%ST plus 9 points to the state on my trades in my taxable accounts......it is stupid.

 

[Hogg]

I'm suprised no one has mentioned ETFs yet.

But fund and index investing are what I call passive activities. Buying individual issues is truly the best vehicle if you are capable. Some such as myself focus on value, others like MR are trading machines.....I guess however you get there is the key.

BTW - next time you look at a fund's annual expenses in a semi-annual or annual report, take a real good look at the numbers. There is much more to it than the management expense.

 

[CyniQ]

I'm suprised no one has mentioned ETFs yet.

But fund and index investing are what I call passive activities. Buying individual issues is truly the best vehicle if you are capable. Some such as myself focus on value, others like MR are trading machines.....I guess however you get there is the key.

BTW - next time you look at a fund's annual expenses in a semi-annual or annual report, take a real good look at the numbers. There is much more to it than the management expense.

Bob mentioned SPDR trust. Didn't he? Like I said I don't like funds much either. I do think they are a necessary basic investment.

ETF's are a cool lower cost alternative to your standard index funds.
They do I think encourage a day-trading type mentality though. And the whole point of MF's in my mind is stability. Reduce the urge to trade, trade, trade

 

[Bob Smith]

Hogg, the problem with your idea is that most people simply dont have the desire or inclination to learn how to invest for themselves. The amount of reading and research is too much for most people, plus it can be a very dry subject that doesnt hold peoples attention for great lengths of time. This is why a good investment guy can be invaluale. But therein lies a problem of finding a good one.

For most people, I think mutual funds are the best route.