I want to start investing, do you think starting with an index fund is a good idea?
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I want to start investing, do you think starting with an index fund is a good idea?
Index Funds have obviously been the 'standard formula' for new investors to achieve some degree of 'diversity' via a single investment purchase. However, IMHO at least, in today's global economy one needs to question how much actual 'diversity' exists in a US stock market based Index Fund that consists of companies that are all tied to the fate of the US dollar.
Right now the Greek default / bailout is wreaking havoc with the Euro, and to a lesser degree with the economies of European exporting countries who have just realized than no more credit for Greeks means no more Greek export sales for themselves !!! This has allowed the US dollar, and thus US stock indexes, to rebound a bit this week due to some 'safe haven' flows of international capital ( including some Greek capital trying to avoid higher austerity tax rates no doubt ). So this particular moment is fairly bullish for US stocks in general and US financial stocks in particular ... which make up a proportionately large sector of the SP500 thus SPY index fund.
However, the Russell Small Cap Index and the Technology Index tend to lead the SP500 if any real 'recovery' is actually taking root ...
from
http://static.safehaven.com/authors/...en/21519_a.png
(snip)If we take a look at the charts to see how each of these sectors have been performing you will notice that the small caps (IWM) and tech stocks (XLK) broke out one day before the energy and financials did. This is very typical to see and it also works for playing gold. I have seen gold stocks lead the price of gold bullion up to 7 days before gold bullion started to move. It's these little golden nuggets of info which can not only save you money but make you even more when put to work.(snip)
http://static.safehaven.com/authors/...en/21519_b.png
(snip)In short, I feel the market has been forming a base for almost 3 weeks. Just last week we saw the big sectors (financials and energy) reach their key support levels from several months back and that should trigger a sizable bounce and with any luck the start of another leg higher in the market.(snip)
So if you were inclined to agree with many of the 'talking heads' that this is a good point to 're-enter' US stock market investments, picking up some ETF shares of those market segments that are most likely to do well ( i.e. SP500 or US financials ) might not be a bad idea. And if you want to double-down or even triple-down there are ETF shares that allow you to easily do this ... from
(snip)"And, if you want to play these markets to rally, but want to see your investment move three times as the stock index moves, here are three ETFs to consider:
UDOW Ultra Pro Dow 30 Industrials (Leveraged ETF Targeting 300% Daily Move)
UPRO Ultra Pro S&P 500 3X (Leveraged ETF Targeting 300% of Daily Move)
TQQQ Ultra Pro QQQ NDX 100 3X (Leveraged ETF Targeting 300% of Daily Move)
Not all trades are winners, but we have found that by limiting the amount invested, and using reliable (not perfect but right more than wrong) momentum trend turn indicators such as our Purchasing Power Indicator, the gains exceed the losses over time, and the net result of return on investment is pretty darned good.
Successful trading not only takes discipline to wait for signal changes to enter, and discipline to limit the amount invested to an amount we can afford to lose, but it also requires knowing when to sell, to either take losses on a losing trade and get out, or when to take a profit on a winning trade. Exiting is in the eye of the beholder, depending upon the trader's risk appetite, experience, and financial position. We like to set a goal, and once that profit goal is achieved, to grab the money and run. You will never lose money taking profits. The temptation is always to get greedy, and stay in too long. This is where judgment, experience, and discipline help a lot. Are you happy with a 20 percent profit in an options trade? A 50 percent profit? Not may trades go to 100 percent, but some do. That decision requires a gut check. We like to sell at the sleep-at-night level. Certainly market conditions play a part, but the best read on a market can go sour fast with news events or a fast turn in market psychology"(snip)
The author's implied point, of course, is that there is no longer any such thing as a 'safe' long term investment in US equity markets. This is more or less proven by the fact that the ( inflation adjusted ) value of the SP500 is still negative relative to 2000 highs and still marginally negative over the past 6 months. Thus ANY US investment made under today's global / US economic conditions should be viewed over a medium term i.e. buying and potentially selling again over a period of a few months or even a few weeks. The author also covers possible choices when the 'cycle' turns downward ...
(snip)For simple educational purposes (I am not selling or recommending these ETFs, you must do your own due diligence) the following ETF's offer leveraging opportunities to play these three markets to decline:
SDOW Ultra Pro Short Dow 30 Industrials (Leveraged Targets 300 % Daily Move)
SPXU Ultra Pro Short S&P 500 (Leveraged Targets 300 % Daily Move)
SQQQ Ultra Pro Short QQQ NASDAQ 100 (Leveraged Targets 300 % Daily Move)"(snip)
I hope this was helpful.
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I've been learning a little over the last few days but dear lord I was NOT ready for charts LOL!!!! (I am pleasantly surprised that I knew what "bullish" meant though...!) I guess I should trade some CDs for a non USD CD.
^^^ don't let the charts scare you ... they are just trying to illustrate a potential 'trend' over time. As that author, and many other supposedly respectable pundits, are pointing out, the US stock markets have spent the past 3 weeks or so 'regrouping' from earlier losses. As such, last thursday's and friday's market action arguably constitutes the beginning of at least a short term uptrend.
As to the US dollar versus other currencies, last thursday also marked the official end of the FED's money printing via QE2 ... which had previously been a weakening force against the US dollar that is now officially gone. Similarly, last thursday's Greek austerity vote and resulting ECB bailout package have arguably weakened the Euro and sent some European capital towards seeking a 'safer haven' in the US dollar. As such, TWO of the major factors which made foreign currency investments attractive in the past are now questionable going forward.
Even so, from a purely personal standpoint, I'm still a believer that the stability of the Swiss Franc will remain the only truly 'safe haven' currency ... as it has been over the past couple of years.
http://chart.finance.yahoo.com/z?s=F...n-US®ion=US
However, buying the Swiss Franc or any other foreign currency CD through a US bank has a 'minimum buy in' price of US$10,000. As a beginning investor, that's a whole lot of 'eggs' to put in a single basket. But, as the chart shows, foreign currencies can also be 'played' at a much lower buy in price via purchasing shares in foreign currency ETF's ... or in the case of the Swiss Franc the fund FXF .
And again let me add the standard disclaimer that I'm not recommending any specific investments ... I'm just a dumb blonde with big boobs who does some amateur personal investing. It's very easy for me to feel confident about the Swiss Franc when I bought in at the 0.93 level. It's another thing to consider newly entering the Swiss Franc at today's 1.17 level.
On a sideways note, while checking out foreign currency CD offerings, I also happened to see that EverBank is introducing a new metals based CD at a very low $1500 minimum buy in. Given that the metals have experienced a recent pullback ( inverse relation to US dollar 'safe haven' action ) this might represent an 'inexpensive' opportunity to indirectly diversify out of the US dollar. See . The downside of course is that a lot can happen over the course of the 5 year term of this metals CD, and an early withdrawl penalty will be assessed if you pull out early.
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I have a $5000(ish) CD that is rolling over in August and I know I can match that amount by then through my paychecks. I think I'll try that out and keep sticking with CDs until I learn a lot more. Like, a LOT.
I don't want to pay extra so I can be more uninvolved and unaware, and I don't want to really participate period if I'm gonna be mostly uninvolved. Does that make sense? I myself need a deep expertise. :P
^^^ yes it makes sense. In fact that is one of the reasons that I'm personally not much of a fan of mutual funds, which charge a 1-2-3% 'management fee' so that some $1 million a year fund manager can decide which investments to buy and sell on the mutual fund's behalf. Exchange Traded Funds aren't actively managed in this way, and instead they only charge a .1-.2-.3% 'management fee' so that a $250,000 a year functionary can buy and sell according to the ETF's 'formula'. Or put another way, the functionary that runs the SPY only has to buy and/or sell shares of the 500 companies comprising the SP500 index, as investors buy or sell SPY shares.
Thus an individual investor trading ETF's is still in the 'driver's seat' ... merely using the volume buying ability of those ETF's to gain 'exposure' to dozens or hundreds of different stock / bond / option investments without having to invest millions of dollars or execute dozens or hundreds of different trades.
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You know, Z, if you want to know if your picnic will be rained on tommorow, there's a lot of info/data that you could probably tap into.
1) You could get radiosonde soundings replete with Skew-Tlog-Pdiagram or Stuve Diagrams from every radiosonde baloon launch site within 500 miles. Throw in some satellite photos for good measure.
2) Look out the window before bedtime, and call a friend/relative a few hundred miles west asking them how their weather is.
I'll try to be that window watcher 200 miles away. I'm surmising that you're not thrilled at the pathetically low CD returns, and you don't feel that comfortable picking individual stocks. I'd say picking a no-load index fund could be a good thing for you. The $5K figure you mention on CD, I'm guessing that you're not figuring on tapping into that except in dire emergencies. Perusing the various funds 1 yr record in the last 10 yrs (probably the worst 10 yrs ever)- funds made money in 7 individual years, lost money in 3, so there's some risk involved. But more potential upside than the anemic CD rates.
I'll close with this thought: The current "better" 1 yr CD rates out there will take 50-70 yrs to double your money. With returns averaging ~ 7%/yr over time, odds favor you doubling your money every 10-11 years in index fund. HTH..........
Zinaida,
I actually beleive that you are right on the money with your thought of investing in index funds. While ETFs have their place in the world, they also have some trading dynamics that are a bit different, and more complicated, than straight mutual funds.
While Melonie is right that many mutual funds carry higher expenses than ETFs, most index fund managers keep expenses very low, almost as low as most ETFs. Vanguard is one example of companies that offer index mutual funds with total annual expense ratios at around .25%. The nice thing about mutual funds is that, once you have the accounts set up, you can invest small amounts at a time automatically through direct withdrawals.
ETFs, by comparison, are clunkier to purchase in small amounts and must be purchased through a separate brokerage account, while mutual fund investments can be held directly with the fund companies. Finally, if you have a problem with a fund (or just want more information), you can call a mutual fund company directly for help, while you've got much more limited "help" options if you are holding an ETF in a retail brokerage account.
Now there are some pretty darned interesting ETFs out there and, as your experience grows you might want to play in that space, but as a beginner if you are simply looking for domestic equity exposure then Vanguard's S&P 500 index fund is an example of something you might look into. If you are looking to diversify, they also have international and real estate index funds.
Anyway, just my :twocents:
^^^ actually, even Vanguard admits that index ETF's with low expense ratios are relegating index mutual funds to the dustbin of history ...
(snip)"It shouldn’t be surprising to too many investors that Vanguard’s S&P 500 ETF will come in with a lower expense ratio than it’s most direct competitors; VOO will charge 0.06%, or three basis points less than the S&P 500 SPDR (SPY) and S&P 500 Index Fund (IVV). The existing S&P 500 ETFs from State Street and iShares have aggregate assets of approximately $80 billion. VOO will join Schwab’s U.S. Broad Stock Market ETF (SCHB) as the cheapest ETF on the market [see 25 Cheapest ETFs]. Vanguard and Schwab have been the two firms primarily responsible for an escalation of price wars in the ETF industry over the last year; both have cut management fees on existing funds and introduced new products that offer lower expense ratios than their most direct competitors [see Vanguard Plans To Shake Up ETF Industry].
In addition to VOO, Vanguard rolled out eight additional funds offering exposure to the S&P MidCap 400 Index and S&P SmallCap 600 Index, as well as the value and growth subsets of those benchmarks:
S&P Mid-Cap 400 ETF (IVOO)
S&P Mid-Cap 400 Value ETF (IVOV)
S&P Mid-Cap 400 Growth ETF (IVOG)
S&P Small-Cap 600 ETF (VIOO )
S&P Small-Cap 600 Value ETF (VIOV)
S&P Small-Cap 600 Growth ETF (VIOG)
S&P 500 Value ETF (VOOV)
S&P 500 Growth ETF (VOOG)
Each of these products will also compete very closely with existing ETFs, primarily products offered by iShares. Expense ratios on the new Vanguard funds range from 15 to 20 basis points, making them competitive from a cost perspective. “The new Vanguard index funds and ETFs offer our trademark low costs and tax efficiency, and aim for the utmost tracking precision. They will appeal to financial advisors and institutional investors seeking to build portfolios based on S&P benchmarks,” said Vanguard Chairman and CEO Bill McNabb in a press release. “In particular, the new ETFs will offer additional choices to investors and help Vanguard continue to build momentum in the ETF marketplace.”(snip)
Yes purchasing ETF shares requires the establishment of a stock brokerage account. However, Vanguard now offers new stock brokerage accounts that allow the trading of their ETF's for 'free', and charge the 'bargain basement standard fee' of $7 commission per trade for the first 25 trades per year for stock shares in general and non-Vanguard ETF's and mutual funds. See
I also happen to personally 'like' Vanguard ... because they offer US state specific tax exempt muni bond funds with reasonably low expense ratios for high tax rate states like NY and CA !!! This is likely to become increasingly important investment option in the near future as US federal and state income taxes are likely to rise even higher, and since the Obamacare 'loophole' for future health care subsidy eligibility only counts TAXABLE income !!!
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LOL. IMHO that is a little strong. The ETF market is still tiny in comparison to the assets in regular mutual funds and still has a lot of operational challenges to work out before it replaces the mutual fund market. Vanguard, like many fund companies, realizes that ETFs are in demand in some circles, but that is a far cry from them replacing regular mutual funds, which are the predominant vehicle for retirement investing today.
IMHO, for beginning investors, regular mutual funds are much easier to use. As I said before, once the accounts are setup then additional investments can be made with automatic scheduled withdrawals from a bank account. With ETFs, one must go into the brokerage acount and purchase additional small share amounts each time one wants to invest more, and this is only after one has made another transfer to the brokerage account. With regular mutual funds, dividends can be automatically reinvested, thereby avoiding the small lot purchase hassles noted above. With ETFs, dividends are kicked back into the brokerage account and then must be reinvested manually by the account owner.
Idk, but I think that the extremely tiny cost difference between Vanguard's regular S&P index fund vs. its S&P 500 ETF is well worth it for many early investors. Also, remember that ETFs don't necessarily trade at NAV anyway, so there is the very real possibility that any cost difference would be wiped out anyway if one ends up purchasing the ETF above NAV during an intraday trade - which is very likely in small purchase situations.
Melonie, I am actually a fan of ETFs myself, particularly when I am looking for certain index exposure, but for a new investor who might need a little more simplicity - nevermind access to a staffed help line - I tend to find the lower cost, no load mutual funds to be a better alternative.
^^^ I specifically posted about Vanguard's INDEX mutual funds compared to Vanguard's INDEX ETF's !
Agreed within reason that many mutual funds ... particularly actively managed mutual funds which deal with a 'specialty', like Brazilian companies or 'high dividend' companies or 'green tech' companies ... offer real 'value' in exchange for their management fees i.e. the expertise of the fund manager in making successful buy/sell decisions for the fund. But where the fund's charter simply calls for 'duplication' of an established stock index formula like the SP500, a high school dropout with a broker's license could successfully execute all necessary fund trades ... thus no true reason for charging expensive manangement fees.
I also won't argue your valid point about the ability to reinvest dividends directly into additional mutual fund shares, or automatic transfers of funds for 'pre-agreed' regular purchases of additional mutual fund shares. But we'll apparently have to agree to disagree on the other aspects of mutual funds versus ETF's.
Yup - which is exactly why I ran with it. :)
We actually agree on a lot here. My only point has been, for a new investor with limited experience, a relatively small amount of capital to add on an ongoing basis, and a certain need for simplicity, that I find regular mutual funds to be more user friendly and worth the additional cost in some cases.
In the Vanguard example, the expense ratio for the ETF is .06% while the annual expense ratio for the regular index fund is .17%. As you know, the difference is 11 cents for every $100 invested. In my mind, that 11 cents is well spent for someone in Z's position, who will benefit from the ease of automatic investment plans and with automatic reinvestment of dividends. She will also have access to a lot more support than she would with a retail brokerage account.
For someone like you, who has (1) a large and established portfolio run out of one or more brokerage accounts; and (2) the ability to make share purchases large enough that you do not get gouged with odd lot pricing, I actually agree that index ETFs are probably preferable to index mutual funds. But Z is not nearly there yet.
I also agree with your premise that, someday, ETFs are going to eat up a fair amount of mutual fund assets. This will be particularly true when (1) the aforementioned operational difficulties are solved, thereby allowing retirement plans to make easy use of ETFs; and (2) when actively managed ETFs become more common, which as we both know is coming.
I think it's a good idea for getting started in investing. I suggest diversifying between large cap, mid cap, and small cap index funds. Vanguard has index funds in all of these categories with low expense ratios. I also suggest opening Roth IRA accounts. You will save a lot in taxes.
This shit is hard. Well, I mean, it's not rocket science. But it's not a piece of cake, especially if you have no natural inclination towards it.
..........
My goal is to someday be able to restore historic architecture ;D
Understood ... but every 'serious professional dancer' needs to develop these skills. It's not enough to earn big money in the first place. You then need to learn how to make your nest egg keep on earning money for you, as well as learning how to legally keep as much as possible away from the tax man !!!
I don't know what your tax bracket is, but you may want to look into Vanguard's California tax exempt muni bond mutual fund as an alternative to CD's !
So really I need to figure out how to get from here:
to here:
I'm on the IRS website trying to learn AMAP. :P
How can a beginner learn about economics? I feel like I should really get into that before I try to get super technical.
^^^ there's no substitute for actually 'doing it'. I agree completely with Rickdugan that opening an account with Vanguard might be a very good starting point ... even if you only want to 'roll over' your money into another CD
Here's a good read on lazy portfolios --
http://investingguy.blogspot.com/200...ortfolios.html
And an easy to understand comparison of Vanguard / Fidelity / Schwab funds & ETFs (expense ratios, commissions, account fess) --
http://investingguy.blogspot.com/201...es-schwab.html
I am curious to know what rickdugan thinks of the advice offered on this blog.
ahhhhhhhhhhhhhhhhhhhhhhhhhhhh my head hurtsss with all this percentage and math im a language arts/science type of gurlll lol
^^^ME TOO lol. Let's just say I got Fs in my math subjects year after year in school.... I blame the teachers though TBH.
^If you think that you will need the money before you are elderly - such as to open a business which restores historic architecture ;) - then you would want to stay away from IRAs anyway. There are penalties for early withdrawals.
Hopefully I would have other significant assets for such purposes! I'm just extremely wary of anything that's widely touted by the mainstream.....
^Honestly it's not the widely touted stuff that you should worry about, but rather the investment that is pitched to you as secret or special. In this business, anytime someone tells you that he has the special sauce or something "overlooked" by others, it is a con. Every time.
Melonie gave some great advice in that you will learn by doing. Heck, you might start out by purchasing some of an S&P 500 index fund and some of a municipal bond fund and just track them for a while, read their literature, and continue to gain knowledge. There is a ton of information out there, but you will need time to sift through it all. And keep in mind that Melonie probably did not build up her nest egg by swinging for the fences in her investment portfolio, but by grinding it out year after year as an entertainer while continuing to add money to, and making smart choices in, her investment account.
In any event, good luck!