Investing--Can anyone dumb it down for me?
I am trying to save $10,000 so that I can start making some investments. However, I am a dunce when it comes to math and all of the investing stuff I've looked at is really confusing to me. I even suscribed to Kiplinger's finance magazine, but it's so much info and I'm not sure where to begin.
I'm thinking of hiring an investment banker or stock broker to help me get started. Has anyone done this? How do you go about it and how much do they charge? And how do you find a good one that will pick good stocks and make you a lot of money?
I am going to be ready to start in about a month or two. Please advise!
Re: Investing--Can anyone dumb it down for me?
as has been discussed many times in DD, the first investment that a dancer should probably consider making will not be in stocks or bonds. Instead, she needs to create a 'solid base' investment with zero risk of loss of principal, which typically involves a 'money market' account or rotating Certificates of Deposit. The logic behind having a 'solid base' investment that is essentially 100% liquid (meaning that if need be that investment can be sold at any particular time without major negative consequences) is that stocks and bonds are always subject to market timing variables. Thus if some financial surprise should befall the investor, it's far better to have a liquid investment available that can be sold to raise cash, than the investor being forced to sell stocks or bonds at an inopportune moment market timing wise which could translate into taking huge losses on the principal value of the shares or bonds.
Given the magnitude of cash you're talking about, IMHO you should consider buying a $2,000-$2,500 six month CD in each of the following six months. Right now, interest rates on such CD's are running at 5% +. There are a number of online banks that offer such CD's ( a couple of the better known ones are and ) , but you may actually be able to get a very good deal from a local Credit Union because their lower operating costs mean they can pay higher interest. Local Credit Unions are also typically much more understanding about early withdrawls without penalty in a time of need, whereas the online banks usually have very stiff rules and penalties re early withdrawls.
I'm also a firm believer in having some portion of your invested assets 'immediately' available, i.e. being able to walk into a local office and walking out with cash within a matter of one hour, just in case America should ever suffer a major crisis a la 1929, another terrorist attack etc. which could cut off the electronic interbank funds transfer system for some time at least. With the online banks you're totally dependent on the national electronic interbank funds transfer system being operational in order to access your investment. Brokerage accounts for other sorts of investments depend on both the national stock / bond market trading floors being open and operating, plus the ability of your broker's bank to transfer funds to your bank, in order to convert your investment back into cash. In a future crisis situation this could wind up being too little too late (9/11 basically put the trading floors and broker bank transfers out of action for an entire week) ! A local credit union won't be dependent on anything other than their own in-house computer system being operational in order to hand you cash. As anybody who was in Manhattan on 9/11, was the victim of an extended power failure etc. can tell you, credit cards, ATM's, debit cards, etc. are of no use whatsoever when the interbank financial transfer system isn't working !
A quick check of Indianapolis listing shows there are at least 25 credit unions in your local area, with some accepting membership from anyone who happens to live in a 3 county area around Indianapolis - grab the phone book and start calling ! Then, 6 months from now when your rotating CD's are all in place and automatically 'rolling over' as they reach maturity into new 6 month CD's, you can consider making riskier types of investments.
~
~
Re: Investing--Can anyone dumb it down for me?
I'm with Melonie on this one.
In general, the more risk you take - the better your payoff. But just how good is the payoff?
Lets say, as a beginner, you have a 12% return on your investments. (This is being pretty generous actually.) This means you are risking $10,000 for a mere $1,200 in return. In the market - it is pretty easy to LOSE 12% in a couple of days - but few want to talk about that!
Take a CD at 3% and you get $300 with an incredibly lower amount of risk.
You see, you need to figure out how to monetize or measure the risk.
The CD risk in dollars is certainly 0 for the most part.
If you look at the amount of money lost in the market all together (which can make the DOW look quite rosy) vs the amount of money that went into the market for the day and apply that ratio to your investment... you might get a good idea of how much you would have lost if your placed your "bet" across the board. When flat out gambling you are guaranteed to win with that strategy. In the stock market you might lose NO MATTER WHAT. Are you getting an idea of what you might be getting into?
Another thing to take into account is that this risk number increases the further into the future you look regarding the value of the stock. The amount of that risk might be mitigated by the type of stock and for the length you are willing to look into the future. For example, you might be able to offset loss of the stock's value with the amount of dividend the stock issuers are willing to pay out.
(Tip: My opinion is that the coming stock market will be less on stock price speculation and more on stock dividend payouts - it is going to get "olde skool." If the stock is paying dividends, people are going to want it.)
(Note that managers quarter by quarter view of the world means they have no f'in clue about what they are going to do four quarters down.)
See, the main game in the stock market isn't a look at "how many dollars am I gonna get in my greedy little hands" -- it is more about measuring risk and knowing where you are willing to draw the line.
For example, I sold out before the dot com bubble burst. I heard a whole lot of shit talking about how I am giving up 20% of my profit to the government and "leaving money on the table" but I knew the risk was getting crazier and crazier in those stocks. When it burst all the detractors were like "Oh man - you were so smart!" The truth is I had no f'in idea if shit was gonna go south or not - but I knew the probabilities were definitely rising in that set of stocks.
Anyhow, not to get off topic, but I would look at the risk to reward ratio you are willing to live with. Also understand that you are so new that you don't even know what you don't know. $10,000 is a lot of lap dances, but loosing even 10% of that is a lot of lap dances too!
Re: Investing--Can anyone dumb it down for me?
Oh yea... polish up your math in fractions/ratios, statistics (these are your measures) and if you had taken numerical calculus you can get into more sophisticated interpretation of those statistics in relation to time or ... other elements.
Re: Investing--Can anyone dumb it down for me?
Don't hire anyone. For the amount you are talking about, the costs will be too high.
Start slow. Learn as you go. Read. Study. Don't rush.
Follow Melonies advice. Start with bonds / cds.
Re: Investing--Can anyone dumb it down for me?
Quote:
Lets say, as a beginner, you have a 12% return on your investments. (This is being pretty generous actually.) This means you are risking $10,000 for a mere $1,200 in return. In the market - it is pretty easy to LOSE 12% in a couple of days - but few want to talk about that!
Actually, the risk vs reward issue is even worse than that when you consider that at the very least 15% of the 'difference' in interest rate earnings will be lost to taxes, and probably more like 25-30% of the 'difference' will be lost to taxes, meaning that investing $10k in stocks actually amounts to putting your $1200 at risk of potential principal loss in exchange for (12%-3%)*0.75 or so = 6% of $10k = $600 in hoped-for additional income which is not guaranteed to actually materialize (not counting buy and sell commissions, which further reduce the advantage). Investing the same $10k in high interest six month CD's would net at least 4% guaranteed return with zero risk of principal loss. There is certainly a valid role for stocks (at various potential risk / return levels) in a complete investment portfolio, but that role is certainly not as the very first investment made !
Quote:
Don't hire anyone. For the amount you are talking about, the costs will be too high.
In general, unless the total value of the investments you wish to 'manage' exceeds $100k or so, you can probably net more money by saving the advisor's fee/percentage and simply investing in something with lower risk plus lower return.
Quote:
Start with bonds / cds
especially so in today's increasingly high tax environment, high yield municipal bonds which are EXEMPT from federal, state and local income taxes are becoming an increasingly more and more attractive investment. The obvious reason is that, with dancers in high tax rate states finding themselves having to pay out something like 25-30% to federal income tax plus another 5-10% in state/local income tax, a tax free bond yielding 3.5% provides the same net earnings as a taxable bond / CD paying 5-6%. Muni bonds are how lots of 'rich people' earn money, and KEEP the money that they earn away from the IRS !
After a 'solid base' of rotating six month CD's are in place, it would make a lot of sense to shop around for available Indiana Muni Bonds as your next investment target. For example, I did a quick net search and turned up these easily available Indiana muni bonds at
However, the drawbacks are that the bonds are typically issued in increments of $5,000 each, the minimum quantity offered for sale is 20 bonds (= $100k) and you really don't want to have to pay commissions to sell them before they mature in 2011 or 2014 or whenever.
It's also possible to get most of the advantages of owning a state and federal tax exempt muni bond without having to meet the high dollar hurdle of directly buying the bonds themselves by purchasing shares in a specialty mutual fund. see Unfortunately, it would appear that Indiana's 'paltry' 4% state income tax doesn't justify the creation of a state specific fund, as exist for CA and NY and IL and a host of other high tax states, but they do offer federal only tax exempt muni funds too (which actually slightly higher rates of return, which are exempt from federal income tax, but which are taxable by the state you live in)
It's also somewhat unfortunate that the share price of all of these tax exempt muni funds have been run up substantially in recent weeks, beginning the day after the November 7th election ! Obviously, the higher that future income tax rates are expected to be increased, the greater the 'equivalent taxable rate of return' that a tax exempt muni bond or muni bond fund will provide ! Also note though that the tax exempt muni funds are NOT exempt from AMT, whereas directly purchased muni bonds often ARE exempt from AMT. This difference can be MAJOR if you're in the six figure income bracket and the AMT tax rates kick in - see .
~
Re: Investing--Can anyone dumb it down for me?
Not knowing your suitability score, it is hard to recommend, but Mutual Funds run the gamut from Bonds, to Growth and Income, to Agressive. They will autodraft out of your account on a monthly basis.
You can select funds that are Morningstar rated for 4 or 5 *****. That will help you select a good fund. The reason Mutual Funds are available is for investors to start small but have a way to diversify with "professional managers" following the market and deciding to make trades.
CDs are safe, but are historically the worst investment after inflation and taxes. AND, they are not liquid. And, they are fully taxable. If you need your money you will forfeit your interest. Small Company Value Funds are historically the best over the long term but also have the most risk or fluctuation.
I have quite a few mutual funds that are up 20%-30% over the last year. Overall, my total return YTD is 12% with a moderate agressive portfolio mix. Plus, Capital Gains and qualified dividends are only taxed at 15%That is a lot better than a 5.2% CD. And to get 5.6% you better be ready to plop down $25,000 for 6 months. Following the CD / Bond route is a safe way to nowhere. IMHO. Especially if you are young.
However, I agree with Melonie that you need to have some emergency funds outside of the investment so that you don't have "liquidity risk". Having to redeem investments at a bad time when the market is down is a bad situation.
Re: Investing--Can anyone dumb it down for me?
1. Create a formal budget for yourself
2. Calculate 6 months to a year in pure living and business expenses. Shopping and dining out don't count, for example.
3. Use Melonie's example for your cash reserve.
4. If you do want to start investing, keep it simple at first. After your cash fund, look into starting a Roth IRA.
5. Will you do all of this? Once you have been proactive in taking these steps, will you still know enough about the market to invest? Actually, I DO recommend you talk to a financial advisor ( ;) ) But simply a stockbroker or an investment banker isn't going to be much help.
These articles touch upon the differences:
http://www.businessweek.com/bwdaily/...9224_db016.htm
http://www.investorguide.com/igu-art...o-contest.html
Re: Investing--Can anyone dumb it down for me?
Quote:
Following the CD / Bond route is a safe way to nowhere. IMHO. Especially if you are young.
However, I agree with Melonie that you need to have some emergency funds outside of the investment so that you don't have "liquidity risk". Having to redeem investments at a bad time when the market is down is a bad situation.
As AndyGirl was talking about investing her very first $10k, I was focused on her getting set up with a 'solid base' i.e. a rotating CD cash reserve with essentially zero risk, followed by a tax-free bond (fund) with very low risk and a bit better after-tax rate of return. Obviously, going forward from this point will involve making other types of investments with higher potential returns but also higher risks of potential losses of principal value, diversifying into different sectors etc. However, I'm not going to recommend her becoming a 'high flyer' re making riskier investments until a 'safety net' of conservative 'solid base' investments has first been put in place beneath her (that combined between the value of the six CD's and the value of the bond (fund) represents about 6 months worth of average after-tax income - which I'm guessing in AndyGirl's case means somewhere in the $20-25k ballpark) !!!
If this were the stock market of the 90's I would probably not be so adamant about making 'safe' investments first. However, as I am sure that you are aware, there are tons and tons of reasons to suspect that the stock market is very near a 'top' (if not having actually passed that top around the time of last month's election), with a good probability that markets will stagnate or decline from present levels in the next few months. From personal experience I can assure you that there is nothing more discouraging than having just embarked on an investment program effort only to wind up quickly taking sizeable losses in principal value. Thus IMHO risk assessment and risk management are now more important than ever for a 'small' investor.
~
~
Re: Investing--Can anyone dumb it down for me?
This is great advice. Im starting a savings for the down payment on my condo in the new year! :) Only 2 more years of renting... or less.. I hope. I only want to put down about a little over 20% though.
Re: Investing--Can anyone dumb it down for me?
I'd also recommend following up on the "what do you do?" question dancers often ask customers--if anyone works in stockbroking/investments/etc., you can probably ask them lots of questions about investing and your personal financial situation (as general or specific as you're comfortable with), all the while getting paid rather than the other way around!
Re: Investing--Can anyone dumb it down for me?
Kiplinger's is good, but Money magazine is a bit more simple. They also have great lists like credit cards with the lowest rates, money market accounts with the highest yields and just a lot good, common-sense advice.