Novice Level Investing Thread (1 Viewer)

[saintfool]

Any of you using sites like Betterment? I have some retirement savings tied up in it. Six months or so into it at this point but I'm not sure what to think of it.

 

[hxperson]

Anyone got a recommendation on a good bond fund? Just looking for something relatively safe to put cash into where I can get 2%-6% with minimal risk. I know there's a lot of them out there, but it's tough to differentiate.

Vanguard has a good selection with low expenses, though any bond fund will be subject to swings in value according to interest rate changes.. I know it is not feasible for everyone, but for anyone who has enough capital to buy individual bonds, you can avoid risk of losing principle by buying individual bonds and holding until maturity.

Vanguard bond funds:

https://investor.vanguard.com/mutual-funds/vanguard-mutual-funds-list?assetclass=bal

I don't usually like positing in investing threads here, but sorry I had to say something because I disagree strongly with the bolded. I think most retail investors are better off going with funds and ETF's than individual bonds. The only individual bonds that I think are safe for the everyday investor are Treasuries inside of the 5 year and Investment Grade domestic corporates.

Anything longer than 5 years in treasuries becomes more of a duration bet at current yields, which is extremely difficult to predict even for those of us that do this for a living (most advisors have been wrong for, what, 2 years at least now on this?). Meanwhile, High Yield corporates investing requires a certain level of capital structure and bankruptcy understanding that most retail investors just don't have.

In the case of both <5 year tsy's and IG corps, they are safe but the yields are very low these days and with most bonds trading above par, you are almost guaranteed to lose principal (especially given fairly wide retail bid/asks).

Most bond funds are solid and some are great if you pick the right manager - can't really go wrong with a guy like Gundlach for example. I think Corporate bond ETF's are a great lower fee alternative as well (I wouldn't do treasury ETF's because again, that's really a duration call). Just be aware that they will almost always under perform the index as the ETF's pay up for the lack of liquidity in corporate bond land both ways, and given everyone knows what the ETF's own, they often get front run when the market trades directionally.

 

[Michael Brown]

I'll throw some comments at you:

- What's the rate on those student loans? Monthly payment might not sound so bad but you might be better off paying it off since you're not getting a tax deduction at your income level.

- HELOC interest is tax-deductible (depending on your itemized deductions). Something to factor into that discussion.

- At your income level, you should probably be looking to max your 401(k)s before wading into taxable accounts. You're probably missing out on some solid tax savings considering your tax bracket.

- There are some online banks that offer much better interest rates on savings accounts than your standard bank account. But it's not much. Maybe you're eligible for a good rate at a credit union.

Thanks man. The 401k thing is something the guy brought up at Schwab too. Didn't know about the HELOC interest being tax deductible either, thanks for that. I think that's how we're leaning, with the assumption that we'll make more by investing than we'll lose by paying interest on a home equity. It's a good problem to have, but I'm getting annoyed having my money just sitting there doing nothing for me.

Not sure on the student loans, but I'm guessing the interest rate is somewhere around 3.25% if I'm not mistaken.

 

[zeamax]

Just a heads up, beginning next year money market funds will be able to fluctuate in value. The fund can have the option of not being pegged at $1.00. Also a surrender charge can be imposed.

 

[Mystery Achiever]

I don't usually like positing in investing threads here, but sorry I had to say something because I disagree strongly with the bolded. I think most retail investors are better off going with funds and ETF's than individual bonds. The only individual bonds that I think are safe for the everyday investor are Treasuries inside of the 5 year and Investment Grade domestic corporates.

Anything longer than 5 years in treasuries becomes more of a duration bet at current yields, which is extremely difficult to predict even for those of us that do this for a living (most advisors have been wrong for, what, 2 years at least now on this?). Meanwhile, High Yield corporates investing requires a certain level of capital structure and bankruptcy understanding that most retail investors just don't have.

There are two different issues here, I think: duration and investor knowledge. I agree that it is not feasible for all, but there is an option for a retail investor to buy with professional input if not knowledgeable a/o comfortable enough to select independently. In addition to the knowledge issue, though, the minimum buy-in is significantly lower for a fund,making it more viable for many.

 

[hxperson]

I don't usually like positing in investing threads here, but sorry I had to say something because I disagree strongly with the bolded. I think most retail investors are better off going with funds and ETF's than individual bonds. The only individual bonds that I think are safe for the everyday investor are Treasuries inside of the 5 year and Investment Grade domestic corporates.

Anything longer than 5 years in treasuries becomes more of a duration bet at current yields, which is extremely difficult to predict even for those of us that do this for a living (most advisors have been wrong for, what, 2 years at least now on this?). Meanwhile, High Yield corporates investing requires a certain level of capital structure and bankruptcy understanding that most retail investors just don't have.

There are two different issues here, I think: duration and investor knowledge. I agree that it is not feasible for all, but there is an option for a retail investor to buy with professional input if not knowledgeable a/o comfortable enough to select independently. In addition to the knowledge issue, though, the minimum buy-in is significantly lower for a fund,making it more viable for many.

Fair enough. I just think too many people don't understand what it is they are buying when they buy a bond. And its not their fault, because most advisers don't understand bonds either. IMO the "professional input" that 95%, if not more, of retail investors will get on buying individual bonds is bad and merely based on big picture thematic discussions they've had with generalist PM's, their firm's macro publications, or the media. Few of these sources are actively trading govies or interest rate swaps and most don't understand those markets.

So yes, the option is there, but no, I wouldn't suggest anyone go about buying individual bonds outside of the front end of the curve or IG at current yields, despite what their adviser might say.

 

[Mystery Achiever]

So yes, the option is there, but no, I wouldn't suggest anyone go about buying individual bonds outside of the front end of the curve or IG at current yields, despite what their adviser might say.

Just curious/interested: What are your reservations re: munis?

 

[hxperson]

So yes, the option is there, but no, I wouldn't suggest anyone go about buying individual bonds outside of the front end of the curve or IG at current yields, despite what their adviser might say.

Just curious/interested: What are your reservations re: munis?

I don't have a problem with muni's. I didn't really think about them at all because I don't invest in or trade them - as you can probably tell, I'm an institutional bond investor. I think they are actually one of the better fixed income solutions for retail investors in this market.

I would really only be concerned that my adviser doesn't fully understand the risks of either the municipality or the collateral, but that risk is often covered by bond insurance. Yields are still low, though, so there is still interest rate risk embedded in these securities - if you buy them on new issue you are right you can hold to maturity and have little risk of losing principal, but if you buy and sell them on the open market there is the risk of taking a principal hit.

 

[Mystery Achiever]

Thx, hx. I've bought on open market, but rarely at premium and always pay attention to "Yield to Worst". Just went and pulled out this random example currently available: 4.375% Gen Obligation bond has a yield to maturity of 3.6% and a Yield To Worst of 0.97%. You definitely need to be an educated buyer.

 

[hxperson]

Thx, hx. I've bought on open market, but rarely at premium and always pay attention to "Yield to Worst". Just went and pulled out this random example currently available: 4.375% Gen Obligation bond has a yield to maturity of 3.6% and a Yield To Worst of 0.97%. You definitely need to be an educated buyer.

Np. That's good - YTW is definitely the most important return metric to go by for any bond because if its is inside of the YTM, then you should expect the issuer to refi the bond at a lower rate.

Losing money on premium is not as big a deal as some make it out to be. In some ways, a premium is better because you are actually receiving more of your return early on via a larger coupon. It is more important that you are getting paid a fair yield for the risk you are taking, at the end of the day.

Where a big premium can be a concern is with the claims. Your bond is a contract that gives you a par claim on the assets, so if you buy a bond at, say, 123 cents on the dollar, there is 23 cents of principal that you paid for that does not have a claim on assets, raising your credit risk. Not really a concern though for AA muni-type investments.

 

[Mystery Achiever]

But you cannot take the loss when the bond matures or you sell.( i.e. pay $10,500 for a $10, 000 bond, you can't claim a $500 loss. Though I am unsure if/how amortization along the way helps.)

 

[Michael Brown]

Just a heads up, beginning next year money market funds will be able to fluctuate in value. The fund can have the option of not being pegged at $1.00. Also a surrender charge can be imposed.

This is the novice thread. I have no idea what anything you just said means

 

[Mystery Achiever]

Just a heads up, beginning next year money market funds will be able to fluctuate in value. The fund can have the option of not being pegged at $1.00. Also a surrender charge can be imposed.

This is the novice thread. I have no idea what anything you just said means

I missed this post earlier. I thought only institutional funds, not those for individual investors, will have the option to float, i.e not remain at a stable price of $1.00 per share. If the rate floats (is allowed to be priced at more or less than $1), the fund will gain or lose value, so it is no longer a real substitute for a savings account.

 

[STEADYMOBBIN 22]

Where is the novice, novice investor thread?

 

[Dentist]

Where is the novice, novice investor thread?

i agree this thread ultimately took a direction where it was too difficult for a novice.

the novice needs to know how to open an account, what a roth ira vs. money market vs. 401k is, how to fund it, and what investment would be suitable on the most basic level.

I think that's tough advice to give for those of us that have been in the game for years as that part seems so easy... but I had to figure all that out for myself years ago and wish there had been a novice novice thread

 

[Gawain]

At what interest % does a debt need before it should be a pay-off priority?

I've read that many people here see no point to paying off a mortgage early at 3.5%.

What about a school loan at 4%?

 

[STEADYMOBBIN 22]

I'll give done of my basic info and maybe that will snowball into some advice from the vets....

Wife and I combine to make $140k.

Owe 378k on our house, likely worth mid $500k.

Wife's company matches her 401k up to 5% so that's what she puts in, roughly $23k invested.

My company doesn't match but has some profit sharing they dump money into if we have a good year. I believe I only have $3k invested.

About 10 years ago we almost lost everything, including the house. (We were both in Real Estate) Went from making 6 figures each to a total of 20k. We worked our tails off and repaid everybody and everything off except for 1 credit card with about $9k of debt. We had some VERY lean years but now we're ready to start saving for retirement and college for both of our girls......

So what now?

All I know is the difference between a Roth and Ira.

 

[saintfool]

I'll give done of my basic info and maybe that will snowball into some advice from the vets....

Wife and I combine to make $140k.

Owe 378k on our house, likely worth mid $500k.

Wife's company matches her 401k up to 5% so that's what she puts in, roughly $23k invested.

My company doesn't match but has some profit sharing they dump money into if we have a good year. I believe I only have $3k invested.

About 10 years ago we almost lost everything, including the house. (We were both in Real Estate) Went from making 6 figures each to a total of 20k. We worked our tails off and repaid everybody and everything off except for 1 credit card with about $9k of debt. We had some VERY lean years but now we're ready to start saving for retirement and college for both of our girls......

So what now?

All I know is the difference between a Roth and Ira.

i'm going to suggest you take a weekend bender in Vegas. Couple of working girls, a few hundred in blow, and working the tables ought to be the reward for a lot of hard work. you might even make some cash.

 

[Dentist]

I'll give done of my basic info and maybe that will snowball into some advice from the vets....

Wife and I combine to make $140k.

Owe 378k on our house, likely worth mid $500k.

Wife's company matches her 401k up to 5% so that's what she puts in, roughly $23k invested.

My company doesn't match but has some profit sharing they dump money into if we have a good year. I believe I only have $3k invested.

About 10 years ago we almost lost everything, including the house. (We were both in Real Estate) Went from making 6 figures each to a total of 20k. We worked our tails off and repaid everybody and everything off except for 1 credit card with about $9k of debt. We had some VERY lean years but now we're ready to start saving for retirement and college for both of our girls......

So what now?

All I know is the difference between a Roth and Ira.

age? man you have a lot of house and mortgage debt, but maybe you live in a super high cost area.

 

[STEADYMOBBIN 22]

Im 38, we live in Montgomery County, MD. It's redonkulously expensive everywhere.

We are planning on renting this house out and moving to either bum#### and commute or to Olney, MD which is just as if not more expensive, but has better schools.

 

[wilked]

Steadymob, 2 things... do you have an emergency fund? Second is to prioritize paying off that CC debt, what is the interest?

 

[wilked]

At what interest % does a debt need before it should be a pay-off priority?

I've read that many people here see no point to paying off a mortgage early at 3.5%.

What about a school loan at 4%?

While a mortgage may have a rate of 3.5%, it has an effective rate a good bit lower (due to tax breaks). This is why mortgages are often discouraged from early pay down.

School loans don't enjoy that same privilege (except for low earners, who do get tax breaks). This is why you should pay down a 4% school loan aggressively.

I would say the breakeven is somewhere around 3%. You can find CDs out there which give you essentially risk-free returns of 2-2.5%, there is no risk-free return above that though.

 

[STEADYMOBBIN 22]

Zero emergency fund

That CC is the last of a long line of debt and hasn't been paid on in years. ie: collections.

Now before I get destroyed in here let me just tell you I'm not avoiding paying it, it just happens to be the last item on the table.

When things got rough, the only bills we could afford were catching up to mortgage and food for my kids. We weren't out buying filet mignon and I don't own any Jordan's or the newest xbox.

Through a loophole in the montgomery county energy assistance program were were able to keep the lights on by applying for assistance once a month and that stops the electric company from being able to shut off the electric. We went almost two years w/o paying, racking up $16k in electric bills/ fees.

We paid it off by paying an extra $366/mo. For over 3 years. There were literally YEARS of me driving home and praying the little light on the doorbell was still on.

The water was turned off multiple times. Nice $160 reconnect fee added on to what I already couldn't afford. Those were fun times of me going out, turning the water on at the meter myself , scrounging up a few hundred then turning the water back off the day it was supposed to be reconnected.

They don't turn the heat ( gas) off during the winter months so we could scrounge up enough to pay what we owed from the year before plus late fees and reconnect fees and a security deposit ( at the detriment of other debt, thereby incurring more late fees and reconnection fees) to get the heat on til they turned it off again in the Spring. Rinse and repeat for 3 years.

So it was pretty bad but there is light. We both have steady income and her works health insurance is astoundingly good. I haven't been late on any bill in 2 years.

So to come full circle, I've paid off every single debt except that last bill. I not even sure where it stands ATM.

Obviously it needs to be paid off but from what I understand I have 3 options:

1 pay it off in full
2 Settlement for 1/3
3 Let it go as it's been so long it will be written off.

To answer the inevitable question of why haven't you paid it off, well let's just say that YEARS of being broke as F wears on you and I just haven't had the energy to even deal with it. I know that's not a good answer but it's the truth.

 

[Gawain]

Zero emergency fund

That CC is the last of a long line of debt and hasn't been paid on in years. ie: collections.

Now before I get destroyed in here let me just tell you I'm not avoiding paying it, it just happens to be the last item on the table.

When things got rough, the only bills we could afford were catching up to mortgage and food for my kids. We weren't out buying filet mignon and I don't own any Jordan's or the newest xbox.

Through a loophole in the montgomery county energy assistance program were were able to keep the lights on by applying for assistance once a month and that stops the electric company from being able to shut off the electric. We went almost two years w/o paying, racking up $16k in electric bills/ fees.

We paid it off by paying an extra $366/mo. For over 3 years. There were literally YEARS of me driving home and praying the little light on the doorbell was still on.

The water was turned off multiple times. Nice $160 reconnect fee added on to what I already couldn't afford. Those were fun times of me going out, turning the water on at the meter myself , scrounging up a few hundred then turning the water back off the day it was supposed to be reconnected.

They don't turn the heat ( gas) off during the winter months so we could scrounge up enough to pay what we owed from the year before plus late fees and reconnect fees and a security deposit ( at the detriment of other debt, thereby incurring more late fees and reconnection fees) to get the heat on til they turned it off again in the Spring. Rinse and repeat for 3 years.

So it was pretty bad but there is light. We both have steady income and her works health insurance is astoundingly good. I haven't been late on any bill in 2 years.

So to come full circle, I've paid off every single debt except that last bill. I not even sure where it stands ATM.

Obviously it needs to be paid off but from what I understand I have 3 options:

1 pay it off in full

2 Settlement for 1/3

3 Let it go as it's been so long it will be written off.

To answer the inevitable question of why haven't you paid it off, well let's just say that YEARS of being broke as F wears on you and I just haven't had the energy to even deal with it. I know that's not a good answer but it's the truth.

IIRC in Maryland three years is the limit for legal action before a defaulted debt is time barred. Can (and will) stay on your reports for 7.5 years though. May still get calls from the guys who buy debts for pennies trying to strong arm you.

Thanks to Wilked, I was completely overlooking the tax advantage of a mortgage vis-a-vis student loans (though at least the interest is deductible, unlike credit cards). It's easy to get sucked in when IRA/401K returns are so high, but when that changes, it'll be nice to owe slightly less.

 

[STEADYMOBBIN 22]

But which option gives the fastest rout to recovery?

 

[Gawain]

But which option gives the fastest rout to recovery?

Fastest route to clean your credit (IMO) is to settle with whomever holds the debt now, but in the settlement the debt will be reported as paid in full and no 1099 will be issued.

Someone else may have a better idea. Depending on how old the debt is, you may be able to wait for it to drop off. When was the last time you pulled your credit reports?

 

[STEADYMOBBIN 22]

It's been almost 2 years. What is the best option to pull it now without giving my computer a virus or giving my info to Nigeria?

 

[thecatch]

But which option gives the fastest rout to recovery?

Fastest route to clean your credit (IMO) is to settle with whomever holds the debt now, but in the settlement the debt will be reported as paid in full and no 1099 will be issued.

Someone else may have a better idea. Depending on how old the debt is, you may be able to wait for it to drop off. When was the last time you pulled your credit reports?

How does he avoid generating a 1099? I don't think that's a negotiable term in the settlement agreement.

 

[wilked]

It's been almost 2 years. What is the best option to pull it now without giving my computer a virus or giving my info to Nigeria?

https://www.annualcreditreport.com/index.action

Free, no viruses

If it is already in collections call them and offer 10 cents on the dollar, don't settle for more than 25 percent.

Until you clear this debt and build an e fund (maybe 10k?) I wouldn't consider Roth/ 401k (above the employer match, that is)

 

[wilked]

But which option gives the fastest rout to recovery?

Fastest route to clean your credit (IMO) is to settle with whomever holds the debt now, but in the settlement the debt will be reported as paid in full and no 1099 will be issued.

Someone else may have a better idea. Depending on how old the debt is, you may be able to wait for it to drop off. When was the last time you pulled your credit reports?

How does he avoid generating a 1099? I don't think that's a negotiable term in the settlement agreement.

Even if a 1099 is issued, assuming you settled for 10-20 percent you are way ahead

 

[Gawain]

But which option gives the fastest rout to recovery?

Fastest route to clean your credit (IMO) is to settle with whomever holds the debt now, but in the settlement the debt will be reported as paid in full and no 1099 will be issued.

Someone else may have a better idea. Depending on how old the debt is, you may be able to wait for it to drop off. When was the last time you pulled your credit reports?

How does he avoid generating a 1099? I don't think that's a negotiable term in the settlement agreement.

If the loan is still with the originator, you're getting a 1099.

But if it's very old (past the time barred date), it's been sold to one of the bottom feeding firms.

The bank has already taken the deduction.

Many of the shadier characters will take an extra few bucks over issuing tax documentation.

 

[FUBAR]

It's been almost 2 years. What is the best option to pull it now without giving my computer a virus or giving my info to Nigeria?

https://www.annualcreditreport.com/index.actionFree, no viruses

If it is already in collections call them and offer 10 cents on the dollar, don't settle for more than 25 percent.

Until you clear this debt and build an e fund (maybe 10k?) I wouldn't consider Roth/ 401k (above the employer match, that is)

Get it in writing before sending a cashier's check.