[Koko4]

After reading another thread on here about financial preparedness, I felt inspired to try and better allocate my money for the long haul. Right now I basically have my checking account, and my savings account. I have a small 401k through work, which I contribute to automatically. I have no investments to speak of, however.

I'd like to invest in the stock market in some way, shape, or form. I started reading about stocks, bonds, ETF's, index funds, mutual funds, etc - it's all very confusing and a bit overwhelming, to be honest.

I've tried to ask my dad for some help about investing money. I know he relies on a financial advisor to help him with his investments. If possible, I'd like to bypass the broker, since sometimes they have ulterior motives and can sway you towards a certain investment or stock based on their own interests.

I was starting to look at Betterment and Wealthfront, and for the "long game", I think that Betterment would be the better option. I've mostly been looking at their pricing structures, and while Wealthfront definitely has the initial advantage (lower-to-nonexistent fees for small balances, which increase as you have a higher balance), Betterment has a better pricing structure for when you get the balance up high.

Instead of keeping all of my extra cash liquid, in this savings account, I would try and keep about 3 months of expenses in the savings, along with maybe a small buffer for emergencies. The rest would go into the investment.

It seems like they let you choose how your investments are distributed based on your intentions, which could be short-term, long-term, or retirement-based. I guess each one would have a different level of risk and fluctuation. It appears that Betterment is a global fund, instead of just being based on US companies.

Do any of you have any experiences with any of these automated investment strategies that basically bypass the traditional financial advisor? Can you give me any type of advice or direction as to where to go from here? Pros / cons of ETF's (still not too clear to me), pros / cons of services like Betterment, Wealthfront, or Vanguard Index Funds?

Side note: I was looking at Vanguard Index Funds because from what I understand, that's a decent way to minimize the risk associated with investing heavily in one particular company, because it essentially takes an average of multiple companies, and changes based on how they perform as a whole. The return on investment wouldn't be as spectacular (or as detrimental), but it'd be safer.

Is there a good time to invest? Is NOW a good time to invest? My dad was saying something about some important US financial advisors announcing if they're going to raise the federal tax rate, which could cause a dip in the market soon? I don't follow ANY stock-related news / Wall Street Journal / anything like that, so I'm a complete newbie. Just trying to get my feet under me here.

I made the realization that if I have money sitting in a savings account, then yes, I can access and use it whenever I want. But the downside is that I will lose buying power over time, because that money is not growing at a rate that will keep up with inflation, and $100 today will be worth significantly less than $100 in 10 years. I feel that investments could at least help counter-act that effect.

Sorry for being long-winded. Hopefully you guys can shed some light.

[philsey]

I'm not giving you investment advice per se, just life advice. I'm retired 8 years, and fairly comfortable, just a hard working guy all my life.

You are very, very wise to plan, and be concerned with your end game. I have friends of retirement age with heavy debt load, still helping adult kids, mortgages, old cars, etc etc ...... who simply HAVE to keep working. Don't be that person!

Number one, most important, live well within your means - make it your lifestyle. This includes your savings/investments. Plan to be free of mortgages or other big debt by 60. Same with vehicles; plan to own reliable late model ones by retirement.

At retirement, debt and worry are the enemy. I cannot emphasize enough the daily pleasure derived from being able to drop $900 on new tires, or take a $5K vacation without stressing over it. Carry on.

[JayceeP]

Disclaimer: this is my opinion and not a full-fledged recommendation for you personally:

Honestly, IMO, if you are starting small, just go with a diversified portfolio of big blue chip companies. A balanced asset mix would be a good place to start (50-60% stocks, 40-50% bonds) just to get your feet wet. As an FYI though, Buffet advocates 90% stocks, 10% cash (something to think about when you get more comfortable).

To me, a balanced portfolio is pension style investing (look up the asset mix of a few pension plans). This will allow you to still experience markets ups and downs without watching your portfolio go up and down as if it were on a roller coaster. Good luck.

PS- the US market is the largest and most diversified in the world. Don't underestimate your ability to diversify within your own borders. Most large US companies are multi-nationals anyway.

[Victor_inox]

Learn how investment works, trust nobody.
Those advisers works for themselves not you.

[JayceeP]

Originally Posted by Victor_inox

Learn how investment works, trust nobody.
Those advisers works for themselves not you.

I get your drift but I don't think one should make decisions out of constant cynicism. "You're wrong because you're shady" is not a good feeling to go into meetings with on a subject this person admits they know nothing about and could actually cause them to make decisions for the wrong reason.

Being somewhat guarded is prudent but always focus on the facts at hand. If an advisor sounds pushy or the story is too good to be true, listen to your gut. Also, be weary of someone who speaks poorly of the competition or of your own options. I don't mean making objections or cautionary tales but advisors who make big broad statements such as, "that guy is crap, their investments are crap, and he is a sleezeball- I can make you 20% annually" without evidence.

There are good advisors out there and there are definitely bad ones.. just like any other profession.

[1engineer]

Right now, put more into your 401K to start. Then read, really read, about your 401K. After you learn (months of study) then you can understand how the different other funds work. Split up your allocations in your 401K. Watch the returns and see if you can figure out why they are doing what they do. Then you can go buy a stock or two if you like. Learn the differences between them. My whole point is this: It takes a lot of time to learn about this crap and you can't learn it with a 20 minute google search. At a young age a 401K is absolutely your best bet. Learn a few things and then if you want to play the market, go for it. Learn everything about your 401K first though.

[philsey]

Originally Posted by Victor_inox

Learn how investment works, trust nobody.
Those advisers works for themselves not you.

This is a little strong/cynical, "trust very carefully" I'd say. Of course advisors work for themselves - don't we all? Let's not be naïve - everyone has to make a living.

When you interview a FA, ask him straight up how he gets paid off your investments, and how much. Some find this awkward ... don't ... he works for you and you must know what/how you are paying him. If he squirms, beware.
I also require references. Knowledge is your friend. Take your time.

[ohuett]

I think the biggest thing for you to do is to start investing NOW. Don't wait until you've had time to learn more, talk to more people about it, etc. Just get started so you can let compounding interest work for you. Here's other advice:

1. Live below your means (don't take on any unnecessary debt)
2. Have an emergency fund in place of 3-6 months of expenses (so an "emergency" doesnt happen and cause you to take on unnecessary debt)
3. Learn, read, and always ask questions (Money magazine is good and there are alot of self finance blogs you can read...Get Rich Slowly, Afford Anything, 1500 Days to Freedom are some of my favorites...I also listen to Dave Ramsey's podcasts but you'll either love him or hate him so listen and see what you think)
4. Be intentional with your money and set your priorities now (is having a new car ever year or two worth not being able to max out your 401K/IRA's each year? Is going out to lunch every day with your co-workers really worth $200-$250/month? Bottom line is to know where your money goes and be intentional about where you spend.)

7 years ago, I was living the American dream...had all kinds of "stuff" that I made payments on each month. It was terrifying to know that I had no money in savings and if I would have lost my job, I would have lost everything I had in a matter of months. I decided to change my mindset which, in turn, changed my life. I'm debt free now (paid off $65K of debt in 2 1/2 years) and live well below my means. I've spent years learning/reading about investing and now I'm finally able to go forward with investing my extra money in a way that works for my risk tolerance and my future retirement goals. I wish you well in whatever investments you decide to move forward with...good luck!

[Victor_inox]

Originally Posted by philsey

This is a little strong/cynical, "trust very carefully" I'd say. Of course advisors work for themselves - don't we all? Let's not be naïve - everyone has to make a living.

When you interview a FA, ask him straight up how he gets paid off your investments, and how much. Some find this awkward ... don't ... he works for you and you must know what/how you are paying him. If he squirms, beware.
I also require references. Knowledge is your friend. Take your time.

That what I meant , Knowledge is your friend.

[-JD-]

[GzTEP]

Originally Posted by Victor_inox

Learn how investment works, trust nobody.
Those advisers works for themselves not you.

Blanket statement. Our financial advisor has done our family very well. 20 years. Mom and Pops are retired and doing well and we have everything set up for many years to come.

[MtnT4R]

Since its seems that you are very interested in a self-directed account to manage your own money, I would like to share a bit of advice that someone at a seminar told us a few years ago, "In the big scheme of things, the primary goal is not to realize big gains, but to avoid big losses." Yes, many investment 'advisors' are crooks or generally unscrupulous with their clients' money, but they do watch the markets for a living, as opposed to the rest of us, who merely play in the market with our free time.
Investing in any form is by definition taking on risk, because without risk there would be no return on investment. When you manage your own money, you are foregoing the management fee but in return you are increasing risk of loss. Federally insured accounts pay ridiculously small returns(think money market accounts or CD accounts) precisely because your money is guaranteed against any loss by the Fed. Real investment accounts(stocks, bonds, ETFs, etc) carry no such guarantee, and you are theoretically just as likely to lose 10% one year as you are to increase your account by the same amount.

If you are dead set on investing primarily by yourself, The Motley Fool is an outstanding resource.


However, because of the huge risk associated with self-directed investing, I would suggest opening a mutual fund account to spread out the risk:

Mutual Funds reduce exposure to significant losses through diversification. Its a great investment strategy for those of us who do keep day jobs and simply do not have the time or willpower to do the enormous amount of research required to intelligently invest in single companies. Which is why I like State Farm...

Check out your local State Farm agent and ask him about their investment options. Everyone knows them as the nation's largest insurer, but they have a MASSIVE investment portfolio(they manage $21 billion in assets) and I have several accounts with them that have done very well. What the agent will do is sit you down and have you fill out a personal risk assessment to outline which of their investment strategies fit your risk tolerance, and then talk with you at length about your options. Depending on the fund you choose, they take about 5% off the top when you deposit with them, which I have found to be exceedingly reasonable compared to a lot of other firms.

The biggest advantage I see to putting some money with them is the fact that State Farm's portfolio is invested with some very heavy hitters- Black Rock, for instance, is one of the biggest wealth management funds on the planet, and require a minimum of $250 million to invest with them individually. I don't know much about investing per se, but I do know that I want my money to play with the richest people and companies on earth, because THEY know what they are doing.

Now I'm not saying you should dump all of your money in there- Diversify Diversify Diversify- but I would suggest looking into a Roth IRA(research the tax advantages of this vehicle vs a standard IRA) with State Farm and see if its a good fit for you. With a Roth you are limited to $5,500 in contributions annually(post-tax dollars) but when you withdraw from the account for retirement your capital gains are tax free.

This is a great option to blend in with your other investments as you grow them over time. I personally think a great investment portfolio should look something like this:

- Roth IRA
- Standard IRA
- Standard mutual fund account
- Self-directed account to play in the market on your own
- 401k if applicable
- Gold
- Foreign Exchange(very risky but fun, in my opinion)
- Government bonds
- Real estate

This goes along with suggestions from the other guys about keeping 3-6 months in operating cash for unexpected shortfalls. I think thats a good start, but keep building on that to increase your independence in an emergency. At one point I had a year's worth of expenses covered, but hit a few snags so I'm back down to about 4 month's worth. Looking back do you think I'm happy about the decision to keep that kind of cash around? you betcha.


Good on you for making a committed decision to invest for the future. Considering the average American household carries about $15k in credit card debt(NOT the kind of debt you want to have) You are already ahead of the game. And if you didnt know this already, do everything in your power to avoid carrying ANY balance on your credit cards. The interest rates are obscene and its about the same as taking hard earned cash and flushing it down the toilet.

[AKmoney]

I use Betterment.

The advantages of using a service like this are as follows:
- You don't have to think about it.
- They can buy fractional shares of investments and thus invest every last cent you give them. It's not like putting a bunch of cash into an E-Trade or Scottrade, buying X number of shares of something and having leftover cash just sitting there not doing anything.
- Dividends are automatically reinvested. This is more difficult to do at a standard brokerage account and/or the brokerage may limit you to the number of holdings you can do this with (Scottrade does). Dividend reinvestment is a HUGE contributor to an investment's overall returns over time.
- It's easy to set up regular deposits from your checking account (monthly, bi-monthly, bi-weekly, etc).
- They don't charge commissions on deposits/withdrawals, unlike the ones you'd pay at a standard brokerage.
- For taxable (non-IRA) accounts, they have a tax loss harvesting feature. For example, say Betterment has you in an index fund from Vanguard, the market takes a dip and your investment drops in value. If the loss reaches a certain amount, Betterment will sell some shares in Vanguard and use the money to buy shares in another fund (say with Schwab) that's nearly identical in holdings to the Vanguard fund. This is a "harvested loss" that you can then use at the end of the year to offset capital gains on your tax return. It's all automated and it would take a ton of work for you to do this manually.

Disadvantages:
- You don't have to think about it
- They don't give you any selection on what you want to invest it in. The only control you have is a slider that lets you adjust between stocks/equities and bonds.
- The funds they invest in are largely the ones from Vanguard. You could always just open an account at Vanguard directly and buy the exact same funds without the additional Betterment account fees.
- They will put a fairly large portion of your investment into international developed market funds (VEA, SCHF). For the past year or so this has hurt overall returns, at least compared to just investing in a S&P 500 index.

It seems to work for me. Every time I've invested in an individual stock I've always neglected to monitor it closely and over time, I'd wind up getting taken to the cleaners. I don't have enough money to have "a guy" so Betterment seems to work for me. It's also partially laziness; I have neither the time nor the energy to actively monitor and perform constant portfolio research so there's value in the service for me. I just want to set up a periodic deposit as a way of savings and not have to think about it.

As far as your 401k goes, my advice is as follows:
- Always contribute as much as you can to the plan, especially up to whatever matching percentage your employer offers. This is free money; don't turn it down.
- Try not to go overboard with the fund selection. Try to find funds that have a fairly low management fee; as the John Oliver video mentions, a lot of these mutual funds have really high fees that will eat up at your returns over time. Passively managed index funds (like S&P 500) will have the lowest fees and they often perform just as well if not better over time than actively managed funds.
- If you're young, go aggressive, like 80 or 90% into stocks/equities. It'll be decades before you'll withdraw anything so you can suffer a market crash or two and over the long run, still be fine.
- Never, EVER withdraw or borrow money against your 401k. The penalties you'll pay are insane, plus these early years are *critical* to building up the balance over time. Compound interest over 20-30 years is a magical thing.

PS - if anyone wants a Betterment account referral (30 days of no fees) upon signing up, let me know

[AKmoney]

One other thing - if your employer has an option to let you invest in company stock as part of your 401k plan, RUN. Don't ever do this. Think Enron. Odds are you ain't working for the next Facebook or Google. Diversification is a good thing.

[AKmoney]

Originally Posted by MtnT4R

Now I'm not saying you should dump all of your money in there- Diversify Diversify Diversify- but I would suggest looking into a Roth IRA(research the tax advantages of this vehicle vs a standard IRA) with State Farm and see if its a good fit for you. With a Roth you are limited to $5,500 in contributions annually(post-tax dollars) but when you withdraw from the account for retirement your capital gains are tax free.

There's some argument as to whether or not it's better to invest in a Roth IRA or a standard IRA. With a standard IRA, you pay taxes later but some argue that by that time, your overall income will be less and you'll be in a lower tax bracket than you were when you made the investment in the first place.

BTW - there are income limits to Roth IRA contributions - the amount you can contribute starts to fall from $5,500 once your income hits $117K. Admittedly that may not be a problem for a young investor just getting started.