Mutual Funds

[Person Man]

I hope that I will have a real job soon. I was talking to my step-dad in the car after moving my brother back into College. He said that I should invest 15% of income into some sort of mutual fund. The question I had is if I did, are there particular mutual funds that invest in science and technology that still perform well. Any takers on this?

Also, I had a question about returns. Over a long period, what is a good rate for returns?

[Jake]

Something around 10%/yr should be expected long-term I think.

[Person Man]

Yeah. that's what we thought in the truck. How much better are you likely to get than that?

[Southern Senator North Carolina Yankee]

Yeah. that's what we thought in the truck. How much better are you likely to get than that?

Well I am sure you could get higher but that would expose yourself to greater risks.

Its a actually a pretty good idea. Most so-called experts recommend saving/investing at least 10% of your income, Most people don't/can't however. You would be smart to take your step-dad's advice.

[opebo]

Live for the moment, dude.

[angus]

I hope that I will have a real job soon. I was talking to my step-dad in the car after moving my brother back into College. He said that I should invest 15% of income into some sort of mutual fund. The question I had is if I did, are there particular mutual funds that invest in science and technology that still perform well. Any takers on this?

Also, I had a question about returns. Over a long period, what is a good rate for returns?

For several years, I used AIG/Valic and ING.  They both had science/tech funds, and I allocated something like 20% of overall investment in those sectors.  I also used their "emerging markets" fund, allocating another 20% of my portfolio therein.  My rate of return for the period 2004-07 was about 9 or 10% per year with both of them. 

Now, my only option with my employer is TIAA/CREF.  They do not have the third world option, unfortunately, but they do have some technology funds.  They way they operate, you can choose one of the standard "life cycle" funds.  E.g., Life Cycle 2030 or Life Cycle 2040, where the number is the year you expect to retire.  A Life Cycle 2030 fund is somewhat conservative, whereas a 2040 is moderately aggressive, and the 2050 would be even more aggressive.  The funds are then allocated in a set menu.  Or, you can go a la carte, if you prefer, allocating, say, 20% in green technology, 20% in utilities, etc.  I haven't done that with TIAA/CREF though.  My average over the past two years has been rather low, netting about 2%.

On balance, over the past five years, a weighted average of 9% for 3 years and 2% for 2 years is just under 6%.  In better times, I'd expect between 6 and 8 percent per year for a moderately allocated portfolio.  I wish I'd started long ago, instead of waiting till I was 37 to get started, that's for sure.  Companies I worked for always offered 403(b) or 401(k) plans, but until 2004 I'd never taken them up on it.  As opebo says, I'd lived for the moment.  My current employer matches my ten percent of my income.  It's a sweet deal and nowadays I'd say Carpe diem, sieze the day, don't just live for it.  I'd encourage you to start investing as soon as possible.  Look at ING if you're interested in a wide range of a la carte options, including green technologies.  I've been told that Franklin Templeton has some nice options as well. 

[Person Man]

Looks like some good advice. However, would it be reasonable to wait until my salary is more or less fixed and I am married? What is supposed to be the next big market leader, anyway?

[Southern Senator North Carolina Yankee]

Looks like some good advice. However, would it be reasonable to wait until my salary is more or less fixed and I am married? What is supposed to be the next big market leader, anyway?

I would say Energy, Health Care, and/or good god not again Financials.

[memphis]

Something around 10%/yr should be expected long-term I think.

That's pretty damn high. Going for high returns is going to increase your risk. You're young though. It's ok to be bold while you have a long time horizon.

[Person Man]

Speaking of both of the last two. Two things were brought up, ableit indirectly, Health Care Technology and Aging. Therefore, I have two questions that are essentially one question. Will the new health care technology help me live a longer maximium lifespan and if it does, how will that effect my ability to make money and save?

What I am basically asking is if some of this healthcare technology will make it so that I can be in good health until 2070 instead of say, 2045 or 2050, so that I will have both the oppurtunity to make money and the ability to actually use it. I can see my ability to have a good retirement increasing if I feel like 40 at 65, but will still die of old age at 85 (which has become a goal of some professionals and researchers).

[Richard]

Something around 10%/yr should be expected long-term I think.

Out to fracking lunch.

I hope that I will have a real job soon. I was talking to my step-dad in the car after moving my brother back into College. He said that I should invest 15% of income into some sort of mutual fund. The question I had is if I did,

That is not the question.  The question is why you would follow such sh**t advice.  With the advent of ETFs, there is *no* need to buy mutual funds with their insane 4% MERs.

[Person Man]

Something around 10%/yr should be expected long-term I think.

Out to fracking lunch.

I hope that I will have a real job soon. I was talking to my step-dad in the car after moving my brother back into College. He said that I should invest 15% of income into some sort of mutual fund. The question I had is if I did,

That is not the question.  The question is why you would follow such sh**t advice.  With the advent of ETFs, there is *no* need to buy mutual funds with their insane 4% MERs.

Alright then. What is your advice? I am thinking that if I do get a job in the private sector that provides me with more money than I can make in the public sector ($158,000/yr), that my strategy would be different. What do you think I should do if I do get a big break or don't get a big break?

[Richard]

Pay off all debt -- there is simply no way you should save any amount of money if you have outstanding debt.  Leveraging is very risky and really shouldn't be done unless you know what you're doing or at the very least have underside protection.

Where would I park my money?  Traditional wisdom says buy the index.  There are many ETFs with low MERs that perform nearly identical to the index.  You can even buy a mixture of indexes from around the world if you feel like it, but now you're open to FX risk.

I don't believe in traditional wisdom though.  Not right now.  There is a saying "sell in May and stay away" and people will do well to heed it.  Why?  There is very little money to be made, historically, in the summer, and all major crashes have happened in the fall.  Some advocate buying in November, selling in May, and keeping your money in a cash account between.

I'm inclined to say don't invest right now.  There's been a stunning rally, AND it is September, AND there are NO signs of an economic recovery.  Maybe you disagree; fine.  But wait 2-3 months and THEN invest.

You may want to consider underside protection at all times: buy put options on the ETFs you purchase that are slightly out of the money so that if the market tanks you don't loose everything.  You could do a stop loss order GTC but there's a chance it won't fill on a rapid drop.

[Person Man]

You are probably right for me to wait until my credit is at least back into the high 600s or 700s. ..or basically until I have paid enough debt for my credit crunch to be over.

[memphis]

Pay off all debt -- there is simply no way you should save any amount of money if you have outstanding debt. 

Not true. Even if you have some debts, you want to keep some emergency cash in case the world crashes down upon you.

[Person Man]

Well, should I still wait until I am again credit-worthy to start saving, whether or not I am still in debt?

[Sam Spade]

Pay off all debt -- there is simply no way you should save any amount of money if you have outstanding debt.  Leveraging is very risky and really shouldn't be done unless you know what you're doing or at the very least have underside protection.

I tend to agree, especially when its student loans, because you have to repay those.  Default is simply not a option.

Given the current economic times (and the amount of return you can get on your money - which is essentially nil), I would tend to lean towards this strategy on everything, however, unless your economic situation is in such bad shape that default might actually help (i.e. you're not looking to utilize your credit rating for a while or you can file bankruptcy into Chapter 7).

Basically, I agree with this statement.

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I need to find the article by Barry Ritholtz where he essentially destroyed the concept of "buy and hold" in layman's terms - it was fantastic, maybe Beet knows where it is.

Actually, your concept is kinda cool, and I might say, correct historically.  Also, I should mention the return on buying and holding stocks from between December 25 and January 1 ("Santa rally") is an amusing strategy and returns are historically far above buying and holding "without thinking."

I think, though, if you want to execute the long-term "buy and hold" model (i.e. more than 10 years), you must only buy when the market has a mid-single digits P/E and a dividend yield of 5% or more.  These are long-term bottoms and they notably occurred in 1921, 1933, 1949 and 1982.  We are so far away from it now that, well, it isn't worth me even mentioning as a possibility.

Otherwise, your only investments in the stock market should be short-term, based on research into the companies, stock charting and overall economic numbers (i.e. the "fundamentals").  In other words, a decent bit of work.

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It's probably too complicated for the beginning investor to understand some of this, but it's a good strategy.  Actually, if the OP wants to invest some money, he should probably understand what all this means anyway before starting.

And I know you and I basically agree on the fundys, so nothing to say there.

[Sam Spade]

Something around 10%/yr should be expected long-term I think.

Out to fracking lunch.

No kidding.

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That is not the question.  The question is why you would follow such sh**t advice.  With the advent of ETFs, there is *no* need to buy mutual funds with their insane 4% MERs.
[/quote]

Yep, ETFs are pretty much the greatest thing ever for that reason alone.

An even more compelling reason is that 2x and 3x ETFs are one of the best methods I've ever seen to separate idiots from their money. (until they get banned, which will happen of course )