Investing

Tuco_sl said:

I'm no expert but this is pretty much my advice as well.

Additionally be very wary of people who paint it as no problem to earn significantly hire than an index fund. The internet is full of bullshitters and investment bullshitters are no different. Braggarts get real chatty whenever they make a good investment and get real quiet whenever they don't.

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Yeah, it's kind of funny talking with investment professionals when you're fairly knowledgeable about index investing and markets in general. They start out thinking you're like most people and don't know shit about fuck when it comes to stock markets and try to convince you that they'll beat the markets with ease, then quickly transition to mealy mouthed shit like "oh well yeah but the volatility will kill you" when you tell them that you know for a fact just about no one beats the market over the long term, and then just exasperation when you talk about properly diversification with bonds, your long investment horizon and ask them if they can guarantee that they'll match the market's return over the long term once their management fee of 1.5-2.5% is taken in to account.

Really the only thing that I have a bit of concern about when it comes to managing my own investments is tax optimization, and even that's not too difficult.

My bro has one friend who has pretty patiently tried to convince me to invest some money with him over the years, and I've considered investing 50-100k with him just to see how he does with it. And maybe even making a gentleman's bet that he wouldn't beat my indexed investments over a 5-10 year period.

Cash value life insurance first - Indexed UL -, securities (mutuals, stocks) second.

I'll second the good advice about choosing a no load vanguard index fund. However, my own advice would be not to worry too much about the returns on your investment at the start, and instead maximize your efforts to increase your salary. The biggest asset at age 22-27 is the potential for future earnings, and this is where most of the financial attention should go. Whether you get a 3% or 8% return on 3000 USD wont make much difference to your retirement. Getting a 200 USD/month salary bump will have a huge impact. Once your real assets start to materially outweigh your salary (and potential to earn as you age), then more attention can be paid to the investment returns.

Soriek knows what's what.

As a young man put as much money as you can in a tax deferred shell. Max the 401K, stay at your job to fully vest.

Pops_sl said:

Soriek knows what's what.

As a young man put as much money as you can in a tax deferred shell. Max the 401K, stay at your job to fully vest.

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We're in the lowest income tax environment in a century and you want to put all your money into something that will be taxed later, when it's much higher?

I'd rather put money I already paid tax on (at it's lowest) into something that grows without taxes and pays me income, without taxes; all the while growing through the S&P index at zero risk and if I ever get sick, I get more tax free money to use. But, that's just me. Shame 99% of the country isn't educated enough on these things and all everyone talks about is: 401ks, Roths, Mutuals, Stocks, blah blah.

Burren_sl said:

We're in the lowest income tax environment in a century and you want to put all your money into something that will be taxed later, when it's much higher?

I'd rather put money I already paid tax on (at it's lowest) into something that grows without taxes and pays me income, without taxes; all the while growing through the S&P index at zero risk and if I ever get sick, I get more tax free money to use. But, that's just me. Shame 99% of the country isn't educated enough on these things and all everyone talks about is: 401ks, Roths, Mutuals, Stocks, blah blah.

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Naive aren't you?

Burren_sl said:

We're in the lowest income tax environment in a century and you want to put all your money into something that will be taxed later, when it's much higher?

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So far, I agree: young people should generally prefer making contributions with post-tax savings.

I'd rather put money I already paid tax on (at it's lowest) into something that grows without taxes and pays me income, without taxes; all the while growing through the S&P index at zero risk and if I ever get sick, I get more tax free money to use.

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This fails on at least one account: you can never get a high return with no risk. Period. For one, all it takes is for the insurance company to go out of business and your insurance/investment product will go down the drain right along with it.

Moreover, the insurance company wants to make a profit. So you're not going to get S&P500 returns with no fees.

It's investing 101: every increase in return is going to increase your risk. It may increase it marginally, but it's still going to increase it. High return + low risk either means you don't understand the product, or it's fraudulent. In the case of complex insurance/investment products, it's most likely the former.

So, read closely what you're investing in... especially if you're combining two different things (investments and insurance). It gets fairly complex fairly quickly, which provides great ways for those with much more insight (i.e. the people who designed the product) to obfuscate things.

Pops_sl said:

Naive aren't you?

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No, I've been doing this for 14 years and know what's available. You, however, seem to be ignorant to all the choices, which is the case with most of America.

Soriak_sl said:

So far, I agree: young people should generally prefer making contributions with post-tax savings.


This fails on at least one account: you can never get a high return with no risk. Period. For one, all it takes is for the insurance company to go out of business and your insurance/investment product will go down the drain right along with it.

Moreover, the insurance company wants to make a profit. So you're not going to get S&P500 returns with no fees.

It's investing 101: every increase in return is going to increase your risk. It may increase it marginally, but it's still going to increase it. High return + low risk either means you don't understand the product, or it's fraudulent. In the case of complex insurance/investment products, it's most likely the former.

So, read closely what you're investing in... especially if you're combining two different things (investments and insurance). It gets fairly complex fairly quickly, which provides great ways for those with much more insight (i.e. the people who designed the product) to obfuscate things.

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I work for the carrier. I know the products in and out, along with everything offered by everyone else, whether insurance, annuities, or securities. The "risk" in this scenario, is not being healthy enough, or following through with the committment to fund. Regarding your argument about fees: securities have higher fees than an IUL, by far, so that point is rather moot.

I'm not saying my answer is "the" answer, as every option has it's place (and I have them all, for a reason). But, it's something MOST people don't know about and the misinformation from "financial advisors" is straight up laughable.

Like everyone else, I'm just sharing information. If someone tries to say I'm wrong, that's ok; most people aren't educated about everything available. If they want to be like Pops above, then they're welcome to. Enjoy your retirement...

I'd be happy to learn more about it... but the first question that comes to mind is: what happens if the carrier goes bust? Generally, these products (like all structured products) are only as good as the company that backs them. All the people who invested in Lehman Brothers' structured products lost everything, even though the underlying assets that made up their investments were still valuable.

It sucked a lot for them, because most didn't even buy it through Lehman, but got it through their own bank that was still healthy. They thought their bank backed the investments, not reading that - somewhere in the fine print - it showed who actually held them.

And if that firm goes under, you're the last - and not the first - with claims to assets. That's a ton of risk. If Vanguard or Scottrade or Chase goes under, your investment accounts are all fine - they're only managing them for you, they're not part of their assets. That's not true with structured products.

So that applies to Vanguard or iShares ETF's?

Eomer_sl said:

So that applies to Vanguard or iShares ETF's?

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These funds are actually separate trusts that "contract out" the administration/management/advertisement to whoever they are associated with. So iShares is offered by Barclay - and if the latter went bankrupt, iShares might start to be offered by Citibank. Barclay has no ownership of the trust, but does appoint the people who manage the trust.

Vanguard has a unique structure such that there is no conceivable risk of them even going bankrupt. And if they did go bankrupt for some inconceivable reason, you'd still be fine. The way they do it is they turn the usual model around: Vanguard doesn't own its funds, but its funds own Vanguard.

Each mutual fund is its own (separate) entity and in turn owns a part of the company Vanguard (where the share it holds depends on the funds' market capitalization). This works because Vanguard is essentially a member-owned collective: its fully owned by the customers, proportional to their investments held at Vanguard. Without outside investors (e.g. shareholders), they can structure themselves completely differently. The company Vanguard only has wage expenses, which are pretty predictable and fairly flexible - they're not susceptible to any market risk. But if they needed more cash and couldn't get loans, they could just raise ever so slightly the management fees to raise capital. But what if Vanguard did go bankrupt? Well, the funds are investors in the company, and investors (shareholders, if you will) have no obligation to bail them out. So this is similar to how it works with iShares.

The only downside to that structuring is that I have no clue how there is any oversight of the management team... I guess mutual fund holders can vote for the trustees of their fund? (I own ETFs, not mutual funds, from Vanguard.) Those trustees end up voting for the board of Vanguard. So, not surprisingly, there's great overlap between the people who are trustees of funds and people who are on the board of Vanguard. By and large, they write their own paychecks and do not disclose their salaries... At the end of the day, I only care about management fees and returns on the funds they provide. If they want to pay themselves a hundred million a year, I really couldn't care less. But I know people who go with the teacher/college employees' TIAA-CREF instead because they voluntarily disclose that information and give policyholders a consulting vote on executive pay.


In any case, there's great effort put into place to separate ETFs and Mutual Funds from the company that manages them. I don't see how the same is possible with an insurance product... health insurance, life insurance, annuity payments... all of those are subject to the institution not going bankrupt.

The way products like the one Burren mentioned are usually structured is that you pay $x to the insurance company, and they promise to make your future benefits contingent on market returns (usually with some upside and downside limits). But that's very different from putting your money into a trust that is a separate legal entity existing for the sole purpose of taking that money and investing it according to a predetermined strategy.

With annuities, people receiving payouts receive preferential treatment to other claims. However, when an insurance company goes bust, there's usually not a whole lot of assets around. Then some states promise various levels of coverage... but it's nothing comparable to the guarantee provided by the FDIC. For one, I don't even see how states could afford such a guarantee... a collapse of a company like AIG would be far too expensive even for the federal government. (Which, one might note, is why the latter does not promise such insurance - and why everything possible was done to prevent AIG from failing. That's where your car and life insurances and annuities are, and where the airlines' liability insurance is (I believe)... lose all that, and see how many services still operate.)

Fedor_sl said:

Amazon - The Bogleheads' Guide to Investing

read that

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This

Investing in a Roth IRA while using Foreign Earned Income Exemption is... impossible I think... unless you earn more than the Exemption.

So I have plenty of spare income... but I have no idea what type of tax deferred vehicle is available to me right now.

No 401k from my work...
Not eligible for Roth IRA...
And I currently pay 0 US Federal/State Tax on my Income.
Where should I be dumping my money?

Sounds like you should get a regular brokerage account and just buy ETFs there. Maxing out your 401k and Roth IRA may not leave you with enough to retire anyway, depending on your expectations.

Soriak_sl said:

I'd be happy to learn more about it... but the first question that comes to mind is: what happens if the carrier goes bust? Generally, these products (like all structured products) are only as good as the company that backs them. All the people who invested in Lehman Brothers' structured products lost everything, even though the underlying assets that made up their investments were still valuable.

It sucked a lot for them, because most didn't even buy it through Lehman, but got it through their own bank that was still healthy. They thought their bank backed the investments, not reading that - somewhere in the fine print - it showed who actually held them.

And if that firm goes under, you're the last - and not the first - with claims to assets. That's a ton of risk. If Vanguard or Scottrade or Chase goes under, your investment accounts are all fine - they're only managing them for you, they're not part of their assets. That's not true with structured products.

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Very viable concern, since in the last decade we've been screwed as investors. Luckily, the company I work for is over 160 years old, still mutually owned (not public, not answering to shareholders or a board), and conservative by nature, which is why it's still here; not to mention contractual guarantees built into the products and enough capital to pay out every client we have, all at once, should the need arise (smart companies - and there are many - have that capital available).

Like I said, it's an option that very few Americans are educated on. It's not the end-all-be-all, but it's works the best, most of the time, when done right by a real Financial Advisor.

Df~_sl said:

Investing in a Roth IRA while using Foreign Earned Income Exemption is... impossible I think... unless you earn more than the Exemption.

So I have plenty of spare income... but I have no idea what type of tax deferred vehicle is available to me right now.

No 401k from my work...
Not eligible for Roth IRA...
And I currently pay 0 US Federal/State Tax on my Income.
Where should I be dumping my money?

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Depending on age and potential future income, tax deferred accounts might not be a good idea at all. Find someone in your area who is: Life/annuity licensed, as well as Securities licensed (6, 7, 63, etc.) and not biased to one particular product (which, is usually securities because it's "sexy" and pays them well).

Are there any forms of investing that are considered higher risk, but expected value/ROI goes up to compensate? I remember wishing I had 20k to dump into BoA when it was at 6$, because it seemed like the odds heavily favored buying some stock and if I did end up losing my 20k it wasn't a bid deal. With 25-30 years until retirement, it seems like there might be good places to make money that carry higher risk than an older person would be willing to live with. However, I have no clue what those opportunities might be.