Investing Question (be nice, I'm new at this)

[❤ mollymouser ❤]

My wonderful DH and I have been talking and he's willing to let me use approximately $25,000 ... starting in May 2011 ... for investing in mutual funds or TIPS or something along those lines. This money would come from our "general" savings .... not retirement IRAs.

We are extremely risk-averse. In fact, we are so risk-averse that we currently have NO money invested in the stock market. Our retirement money is currently divided into three categories (a) IRAs (in CDs); (b) TSP (in the no-risk option); and (c) My wonderful DH is working toward a military retirement somewhere between 2014 and 2020.

We're looking for something that might ~ theoretically ~ get us a better return than CDs, and we are willing for some risk... but would prefer to stay on the less risk spectrum. We really don't want to just walk into a place like Charles Schwab and say "what do you suggest?" ... so we're looking for some suggestions, guidance, ideas ... especially for places that don't have a lot of fees.

[rovo]

Be nice? Are you kidding? This isn't Your Money and we are always nice over here.

$25K is an adequate amount to be investing but if this amount is not a significant portion of your retirement money, then I would be looking for a little more risk with it.

I suggest you open an on-line account with a low cost house like TD Ameritrade or Scottrade. Get the account open, deposit the money, and then come back for more info. In the meantime try to follow this board and make sure you understand what we are talking about. If you don't know, then ask.

ETA: Interest rates will most likely be rising. It would be advantageous to keep the CDs at one year or less until the rates peak. Then lock in the expected 10% rate for 5 to 10 years.

[danshirley]

When you bold and underline 'we are extremely risk adverse' it makes me wonder if you are at the right place. The people on this board-thread are NOT that risk adverse... nor are they counselors.
The hardest thing a counselor must learn is to give advice in accordance with his client's basic values not in accordance with his own. The people on this board are not trained to do that.
Not being counselors they are most likely to give advice that fits their value structure rather than yours. You probably are wise enough to realize that and look out for it but you may not have enough information and experience to do so adequately.
My advice is: read some books on stock market investing, practice investing in stocks with a pretend account, read some investing newsletters, columns and magazines... and after you have done that for at least three years then think about actually starting to invest in the stock market. It 's not easy and it's always risky especially for the novice.
And yes Rovo is correct... we are not rude here.. at least not to newcomers.
:-)

[mtntigger]

Molly - How long do you want to keep the $ in the market? Do you want to earn $1K and then get out? Do you want to buy and hold? Do you want to take out $30K in 10 years? Do you want to take the whole $25K and put it in one thing at one time or spread it around and contribute $1K at a time? What are your goals?
If you are looking for low risk, even a little greater than CD interest rate, have you thought about getting stable stocks that give out dividends? D.I. recently reposted his list in one of these threads. Or, you could just follow the market itself with an ETF.

[frankq]

Molly,

You might want to look at some high yielding Blue Chips. Dividends offer a good degree of price stability in down markets and quality companies still offer price appreciation while paying nice dividends. Currently I hold T,EXE,MRK and MO and the average yield runs around 5.5% and I've seen 5-20% price appreciation since the summer. Until cd's start paying 5%, you're going to have to assume some risk or be left behind.

[ModE98]

I will stick my neck out and offer some "do not" practical advice....
Do not invest in "penny stocks" as a beginner... they are cheap, but for a reason, they are really not worth much and most do not pay out dividends.
Do not invest directly in foreign stocks (ADR's), stick with major US corporations that have world wide appeal, such as KO (Coca Cola) PEP (Pepsico), MCD (McDonalds), and the like.

Do understand, when anyone invests in the stock market, they take on a element of risk. It is unavoidable and just comes with the territory. Agree with others, read, study, practice, and do not put in a dime until you feel comfortable about what you are doing. Stick with quality blue chips and best of the red chips (established top companies and major up and comers).

[❤ mollymouser ❤]

(sigh)

OK, I don't understand or know what a blue chip stock is. Or a penny stock. Or a red chip. My wonderful DH suggested mutual funds ... but no one mentioned those. Would they be something to consider?

If I don't invest the $25,000 come May, it will go into our Money Market Account currently earning 1.2% interest. What's the money for? Well, the money in our Money Market Account is just non-designated savings. Of course we'll use it for retirement in some form (that which we don't spend, of course), but taking $25,000 out to "play with" will still leave us a 9-month expenses emergency fund. But, yes, I'd like to turn that $25,000 into $30,000 in a reasonable period of time (10 years?)

And I need to wait until May because that's when my wonderful DH's ACP bonus pays (more or less ~ the date changes year-to-year) ... it's $17,250 after taxes are taken out ... and I'll make up the rest from our Money Market Savings Account.

[Deleted]

Jan 1, 2011 23:15:06 GMT -5 ❤ mollymouser ❤ said:

(sigh)

But, yes, I'd like to turn that $25,000 into $30,000 in a reasonable period of time (10 years?)

Well, you would only need to earn a annual rate of about 1.9% to do that, so that is well within your range, probably with a money market account.

I am a big fan of low cost indexed mutual funds from a fund family like Vanguard or Fidelity. Something like an S&P500 fund or a total market index fund is what I would suggest.

But being very risk adverse, I am not sure that is right for you. During this last downturn in the stock market, those types of funds lost about 40-50% of their value. How would you feel if your $25k turned into $12.5K?

[mtntigger]

Ugh, I just lost my post...
Molly - you got to read to figure out what you would be happy with. Learn about bonds vs. individual stocks vs. mutual funds vs. ETFs. Learn the definitions of blue vs. red chips (wikipedia offers a good definition); learn about penny stocks. Follow several examples of each during the week in the stock market. Don't worry, it won't take 5 months if you concentrate on it. Reading about the above could be just articles. Browse through this forum to figure out what you don't know - it's pretty easy, read rovo's journal. I made a goal last year was to be able to understand most of the posts; I think I managed to just be able to squeak through.
Since you are such a beginner, nobody is going to stick his/her neck out for saying get this five months and only five months down the road. That's like trying to time the market which nobody here can do. Also, only you know how risk-adverse you really are and when you want the money back.

[danshirley]

To give you an idea of how risky and volatile the stock market can be: This is the performance of the Vanguard Total Market Index fund:
finance.yahoo.com/q/pm?s=VTSMX+Performance
Notice for example that in 2008 the fund lost 37% of its value. In 2009 it gained 28.7% etc.
Most people would consider this a very conservative stock market fund. This is how the stock market is.
finance.yahoo.com/q/pr?s=VTSMX+Profile
This is not a fly-by-night fund. It holds companies like Exxon-Mobil, Apple, Microsoft and General Electric.
finance.yahoo.com/q/hl?s=VTSMX+Holdings
(These are 'blue chips')
en.wikipedia.org/wiki/Blue_chip_(stock_market)

[danshirley]

This is a very different kind of mutual fund:
finance.yahoo.com/q/pr?s=VBMFX+Profile
This is a Vanguard Bond Market fund
Its performance is also much different:
finance.yahoo.com/q/pm?s=VBMFX+Performance
Notice that it's worst performance was a minus 2.66% while it's best performance was +18% (very very rare in bonds).
It mostly holds treasuries:
finance.yahoo.com/q/hl?s=VBMFX+Holdings
NOTE: I am absolutely NOT recommending this or any other investment. I am simply pointing out stocks VS bonds.
www.investorwords.com/5057/Treasuries.html
www.investorwords.com/3173/mutual_fund.html
www.investorwords.com/893/closed_end_fund.html

[frankq]

"But, yes, I'd like to turn that $25,000 into $30,000 in a reasonable period of time (10 years?)"

Molly, If your goal is as above, and you want no risk, buy a Treasury. If you want a chance at more substantial growth, pick some large cap high yielders with long histories of dividend payments, reinvest the dividends, and have at it. Good luck. Being very risk adverse and investing for real growth puts your goals and actions at opposite ends of the spectrum. Decide what you can realistically live with in terms of risk. If you're going to reach for the Zanax everytime the market falls into the red then consider short term Treasuries until we see what happens to interest rates. I would not go longer than 2 years on the outside on any fixed instrument. Just my opinion.

[❤ mollymouser ❤]

What website should I visit to learn more about "buying a Treasury?"

Upon further reflection, I'm probably too risk adverse for the stock market.

[kadee]

MM, I used to feel the same way you do. I've gotten more open to risk as I got older...NOT how we are supposed to do it.
But to satisfy myself, I took a small amount $1500 and have played with it in the stock market. I've lost some & I've gained some. Right now I'm ahead by a few hundred $$! BUT...by having such a small amount it has restricted which stocks I purchase & how many shares. So I have had to look for things that were "up & coming".
I joined a "women's" investment club (locally) and learned a lot thru that. But I'm still a baby as far as all the terms, types of trades, things available out there, etc.

I would suggest that you look for an investment club in your area. If they want a small fortune to join, don't do it! I got in mine w/ $300 and when we disbanded & dissolved it 3 yrs. later I got over $4000 as my share. Our "dues" were $25 a month...that went into our investments! So we did good! We also had different stock brokers come speak at our meetings. We had successful investors come speak, and some bank folks that handled investments....it made it both interesting & educational! Plus we took turns bringing the "goodies" we shared after the meeting!

[ModE98]

Molly... Sounds to me you may be better off leaving the stock market alone. The element of risk may cause you to fret over the possibilities of loss... you do not need to develop ulcers.
Even the best of mutual funds with "expert" management can and do lose money in bad years.
As a retired CMS (Air Force) I understand your concern with a deployed husband, and wish to thank both of you for your service. (Yes, military wives serve in their own special way).

[privateinvestor]

Jan 1, 2011 18:02:54 GMT -5 ❤ mollymouser ❤ said:

My wonderful DH and I have been talking and he's willing to let me use approximately $25,000 ... starting in May 2011 ... for investing in mutual funds or TIPS or something along those lines. This money would come from our "general" savings .... not retirement IRAs.

We are extremely risk-averse. In fact, we are so risk-averse that we currently have NO money invested in the stock market. Our retirement money is currently divided into three categories (a) IRAs (in CDs); (b) TSP (in the no-risk option); and (c) My wonderful DH is working toward a military retirement somewhere between 2014 and 2020.

We're looking for something that might ~ theoretically ~ get us a better return than CDs, and we are willing for some risk... but would prefer to stay on the less risk spectrum. We really don't want to just walk into a place like Charles Schwab and say "what do you suggest?" ... so we're looking for some suggestions, guidance, ideas ... especially for places that don't have a lot of fees.

Charles Schwab is excellent www.schwab.com for you but just an idea to consider:

Funds that invest in emerging market bonds denominations in local currencies such as PIMCO Emerging Local Bond or talk to a Schwab Investment Advisor...and write down where you are financially and consider your new worth and record your income and expenses before investing in 2011 so you can assess your risk adverse status as the economic recovery slows again this year because of gridlock in our congress and states increase their taxes.

[danshirley]

Buying Treasuries:
You can buy treasuries through a brokerage account. If you do not have an account you can buy direct:
www.treasurydirect.gov/
(be sure what you are buying can be bought and sold before maturity. Some can not)
www.fool.com/investing/dividends-income/2007/01/12/buying-treasuries-direct.aspx
Note: Treasuries have been high lately because everybody has been buying them. Do not buy a lot of treasuries now but wait until the prices come down and yields go up.
When I want to own treasuries I simply buy TLT... but you won't know what that means.

[yclept]

There is no such thing as risk-free investment. Even keeping money in cash is not risk-free, in fact, far from it.
Taking the last ten years for example, it takes $31,765 of 2010 dollars to buy what $25,000 would buy in 2000, and inflation the last ten years has been relatively mild. The point I'm making is that your stated goal of earning $5000 on an initial investment of $25,000 over ten years will leave you with less purchasing power than you had at the start, assuming inflation over the next ten years mirrors the last ten -- an assumption that is certainly wrong.
Here is a link (I hope) to the BLS inflation calculator where you can play with some other time periods and get a reading on the monster. www.bls.gov/data/inflation_calculator.htm
My point is that you do not have a choice between doing something or doing nothing. Doing nothing is a choice. Right now your choice is some CDs that are paying 1.2% which compounded yearly over ten years will give you $28,167 (or roughly $28,497 compounded monthly). So, with your existing investment choice, at the end of 10 years if inflation remains exactly the same as it was the last ten years, you will have lost about $3268 ($31,765 - $28497) of the current purchasing power of your $25,000. You would be better off to spend it all right now on non-perishable consumables you will need over the next 10 years.
Inflation and interest rates look certain to be higher as we move forward from here. If you decide to keep your money in the CDs, I would suggest that you keep the periods fairly short so that you can at least roll them over to higher rates. You will lose less of your buying power by doing that.
In my opinion, risk is a good thing -- without risk there are no profits. Only with knowledge and experience can risk/reward be evaluated. As mentioned above, you should read varying sources and test ideas using model portfolios ("paper trading" -- no real money at risk) before committing real money. The market is patient:



THE SPIDER AND THE FLY.

"'Will you walk into my parlor ?" said the spider to the fly;
"'Tis the prettiest little parlor that ever you did spy.
The way into my parlor is up a winding stair,
And I have many curious things to show when you are there."
"Oh no, no," said the little fly; "to ask me is in vain,
For who goes up your winding stair can ne'er come down again."

"I'm sure you must be weary, dear, with soaring up so high.
Will you rest upon my little bed ?" said the spider to the fly.
"There are pretty curtains drawn around; the sheets are fine and thin,
And if you like to rest a while, I'll snugly tuck you in !"
"Oh no, no," said the little fly, "for I've often heard it said,
They never, never wake again who sleep upon your bed!"

Said the cunning spider to the fly: "Dear friend, what can I do
To prove the warm affection I've always felt for you ?
I have within my pantry good store of all that's nice;
I'm sure you're very welcome---will you please to take a slice ?"
"Oh no, no," said the little fly; "kind sir, that cannot be:
I've heard what's in your pantry, and I do not wish to see!"

"Sweet creature!" said the spider, "you're witty and you're wise;
How handsome are your gauzy wings; how brilliant are your eyes !
I have a little looking-glass upon my parlor shall;
If you'll step in one moment, dear, you shall behold yourself."
"I thank you, gentle sir," she said, "for what you're pleased to say,
And, bidding you good morning now, I'll call another day."

The spider turned him round about, and went into his den,
For well he knew the silly fly would soon come back again:
So he wove a subtle web in a little corner sly,
And set his table ready to dine upon the fly;
Then came out to his door again, and merrily did sing:
"Come hither, hither, pretty fly, with pearl and silver wing;
Your robes are green and purple; there's a crest upon your head;
Your eyes are like the diamond bright, but mine are dull as lead !"

Alas, alas! how very soon this silly little fly,
Hearing his wily, flattering words, came slowly flitting by;
With buzzing wings she hung aloft, then near and nearer drew,

Thinking only of her brilliant eyes and green and purple hue,
Thinking only of her crested head. Poor, foolish thing! at last
Up jumped the cunning spider, and fiercely held her fast;
He dragged her up his winding stair, into the dismal den--
Within his little parlor--but she ne'er came out again!

And now, dear little children, who may this story read,
To idle, silly, flattering words I pray you ne'er give heed;
Unto an evil counselor close heart and ear and eye,
And take a lesson from this tale of the spider and the fly.
MARY HOWITT

This poem is in the public domain.

[danshirley]

Moving right along:
The best way to buy Treasuries is probably by owning shares in a bond mutual fund. You can buy Vanguard funds here:
personal.vanguard.com/us/home?WT.srch=1
You can find other fund companies on line.

Yclept's point about keeping abreast of inflation is well taken, and many people justify taking risks with their money in the same way. However it won't help you with keeping up with inflation if you lose a good part of your principal. e.g. An S&P report recently found that someone who invested $10,000 in the S&P 500 on Dec. 31, 1999, and left the money there until Dec. 1, 2010, would have just $8,209 left. This did not help them in keeping up with inflation.
finance.yahoo.com/q/bc?s=SPY&t=my&l=on&z=l&q=l&c=

[❤ mollymouser ❤]

Thanks, danshirley. (and everyone)

[yclept]

I wasn't trying to say that losing investments would improve the situation, only that "doing nothing" is a decision and an action. To say one wants to invest in anything and take no risk is an oxymoron. Actually, buying 10 years worth of toilet paper, soaps (hand, washing machine, dishwasher, bleach, etc.), drill and router bits, saw blades, etc. is probably as risk-free an investment as one can make that at least insures it will keep up with inflation, assuming one has the space to store it all and that space would not be more profitably put to some other use -- oh, and I guess one has to live for at least another ten years in order to get the use out of the products!
I wouldn't be buying treasuries or much of any other bonds now -- that's just my opinion, but obviously I think it's an informed opinion. Bonds are overbought (fear-driven) and interest rates can only go up from here (opinions). When interest rates go up, bond prices go down -- this sentence is not an opinion, it is a fact.
If I were young and patient (neither of which I am), I would be buying real estate and locking in the currently available low rates on long term mortgages. Never in my lifetime has real estate been so undervalued and interest rates been so low. This period is the deal of a lifetime for anyone young enough to wait it out. I believe that within 20 years (and probably much less than that) real estate bought in this period will have appreciated back to at least replacement cost and that potential buyers will be willing to kill in order to assume loans carrying interest rates as low as are currently available. If one were to buy real estate now, it would give one room to store all that toilet paper and those router bits! It might even generate some rental income -- enough to carry the cost of the loan and keep up with maintenance.

[bimetalaupt]

Molly,
I read what Rovo said.. and agree.. This is a very investor friendly board..

I you start out with a low risk system.. Like the Bar-Bell 80/20 you can get your way with good bonds and fine blue chips.. At 25,000 that works well with 20,000 bonds and 5,000 at risk investments.. you can use stocks or etf with low cost..
May is not a good month to buy stocks.. Try looking and thinking as the price goes down.. Historically July /Aug are better months then Oct.
Remember they are systems with total return and better risk.. In general low beta stocks are longer term holdings and high beta stocks are trading stocks.. Most of the cold call will pitch high beta stocks so he can churn your money.

i have a math model For my A++ Efficient Frontier system ( now about 62.3/35.7/2.00 Stock - Bonds-Cash) with a projected return based on interest and earnings of about 7.8%. That makes the conservative assumption that retains earning go to book value and the stock price is only increased by book value. The is the conservative assumption. the usual number for the Efficient Frontier is 60/40...

Also there is a conseritive system called the Re-Balancer system that is 50/50.. less total beta but a higher sharps.. I plan to define all then on "Your Balanced Portfolio"... If you have any question just ask.. Remember.. In long term investing .. there is always a new train comming in a few days.. Do not chase yesterdays winners...

Best of luck...Just a thought,'
Bruce

[Bluerobin]

Molly, all investments have risks. First determine your goals. What do you want to accomplish in 5 years, 10 years, etc. Is a little risk worth it?
Blue Chips are the better big name stocks like IBM. If it is a national or international big name with a long history, it is probably a Blue Chip.
I started investing in local utility companies like the water company, the gas company, the electric company and the phone company. They all pay a good dividend, are fairly stable, and the dividends can be reinvested. Try a few of them and see how they feel. Do some research - read everything you can about the companies between now and May. Note the prices, at least monthly and determine if these are the kinds of investments that you feel comfortable with.
MSN Money and Yahoo Finance both have some good tools for research.
Good luck.

[Bluerobin]

Molly, one other piece of advice: We all started out needing advice and someone was nice enough to accomodate us and we learned. Pick someone you understand and go from there. Learn step by step.

[tyfighter3]

Molly, I would look at GE. It is a Large Cap stock that I think has a very good chance to be up 30 to 40% for the coming year. It pays a 3 to 4% dividend. Do your DD . Exxon Mobile, nice too.

[phil5185]

But, yes, I'd like to turn that $25,000 into $30,000 in a reasonable period of time (10 years?)

That turns out to 1.84% compounded annually - so CDs will probably do it for you as rates go up a bit over the next 10 yrs. The bad new is that inflation (3%?) and income tax will probably reduce the buying power of the $30,000 to below $25,000 in 2021.
When we use stocks (mutual funds, index funds) the historical return is about 11%/yr - so $25k would be expected to be $71,000 in 10 yrs. And the $46,000 profit is tax deferred until we sell.
A good goal for you is probably about half way between those two boundary conditions. Maybe the GNMA Fund at Vanguard, the return averaged about 6.5%/yr for the last 10 yrs (will probably be a bit less in the future as rates increase). But a 5%/yr would grow your $25k to $41,000 - that's not a bad outcome considering your risk constraints. Another choice (bond fund) is the FBIDX at Fidelity, it had nearly identical results as the GNMA over the past 10 yrs.

[phil5185]

working hard as a beaver in need of significant nourishment

Neat avatar

We have the opposite problem, ie over-nourished beavers. They dam a stream beside a corn field, that floods a few acres of corn (About $800/acre gross). When I drive the Combine past their area, I'm at risk of getting stuck in the mud if I go too close in an attempt to get the remaining corn. And if the Combine sinks, it takes two 'truck stop' wreckers and a 100 foot cable to reach in and drag it out. Maybe $1000 and a lost half day.

[❤ mollymouser ❤]

Jan 3, 2011 12:28:32 GMT -5 phil5185 said:

Maybe the GNMA Fund at Vanguard, the return averaged about 6.5%/yr for the last 10 yrs (will probably be a bit less in the future as rates increase). But a 5%/yr would grow your $25k to $41,000 - that's not a bad outcome considering your risk constraints. Another choice (bond fund) is the FBIDX at Fidelity, it had nearly identical results as the GNMA over the past 10 yrs.

I will check these out.... thanks.

My wonderful DH has suggested that I wait until 2015 to start playing in the stock market ... and then to do so very carefully and conservatively. I see his wisdom in thinking I will be a nervous nelly unless I wait until then.

(He vests with his military retirement in 2015, but hopes to stay in through 2020, before he ages out, if they will let him.)

[lovetobike]

I just read a nice book on how to management that is written in very simple terms and can be read in an evening. It would be a good read for you as you prepare for 2015 - it is called "The Investment Answer: Learn to Manage your Money & Protect Your Financial Future". It is by Daniel C. Goldie and Gordon Murry.

[bimetalaupt]

MOLLY,
i BOTH AGREE AND DISAGREE WITH YOUR HUSBAND.. YOU CAN "PLAY" THE MARKET ON PAPER AT ZERO COST.. PICK 11 STOCKS .. ALL YOU KNOW AND ALL WITH HIGH BOND RATING OR VALUELINE RISK RATING OF 1..

WATCH THEM ON THE COMPUTER WITH SAY GNUMERIC ( FREE) AND SEE HOW MUCH MONEY YOU WOULD HAVE MADE AND HOW MUCH YOUR DIVIDENDS INCREASE.!!! YOUR HUSBAND CAN DO THIS ALSO .. GOOD FUN!!! MY WIFE AND MOTHER DID THIS YEARS AGO WHEN MY MOTHER WAST TRYING TO TEACH MY LATE WIFE ABOUT FINANCE....

JUST A THOUGHT,
BRUCE
S