Investing

[You'reasian]

Anyone care to share some advice on investing? Rather, investing smartly? Figured I'd put this one under self-improvement, especially since we don't have the time to do this on our own all day.

[josie54]

My best advice is to start simple--but start. Now. The younger you are when you start to invest, the better off you'll be when you retire.

 

--Pay off debt aggressively. Few stock investments will pay off as well over time as paying off credit card debt that is charging 10% or more of interest.

 

--Start with index funds. They follow the motion of the general market and have low fees. You could start with a Target Retirement Date Fund or a simply balanced portfolio: 50% in a domestic stock mutual fund, 25% in an international stock mutual fund, 25% in and index bond mutual fund.

 

--Vanguard is a great place for novice investors to start. You can open an account online and choose your funds that you'd like to invest in. Or, if you're contributing to a 401(k) plan through work (if you're in the U.S.), you can choose from the variety of funds it offers to get the right mix.

 

--If you're contributing to your 401(k) through work, be sure to contribute at least up to your company's match, if it offers it. If you don't have access to a 401(k), open an IRA account through a company like Vanguard or Fidelity or other similar companies.

 

--Again, if you're in the U.S., the experts also recommend Roth IRAs, which are not tax-deferred, meaning you won't be able to take your contributions off your taxes. But you won't be taxed on the withdrawals during retirement--a big advantage on the other end of all this. The rule of thumb is to contribute up to a company match in a 401(k) first. Then contribute as much as you can up to the limit of a Roth IRA ($5,000 a year if you're less than 50 years old). If you have any money left over after that, go back to your 401(k)--or your IRA if you don't have a 401(k).

 

--Dollar cost average. Plan to put a set amount into each of the funds you choose. You can start as small as you like--even $25 a month. But eventually, you'd want to be contributing 10% to 20% of your income if you can. By dollar cost averaging, you're always feeding your account, so that when the market's low, you're able to buy more shares; when it's high, you buy fewer.

 

--Start reading financial magazines. Money or Smart Money magazines are great for novice investors. Kiplinger's Finance offers a bit more sophisticated information. Magazines like these will hit home all of these tips and offer more ways to learn about investing.

 

--If you're really interested in buying individual stocks, you can, but you might not want to put too much money into individual stocks until you've educated yourself in the market through index funds and additional reading. A financial planner once told me that I shouldn't invest more than what I'd consider "play money" on individual stocks--not unless I really knew what I was doing, and even then it's not always a great idea. And he also told me to only invest in companies that I know well, believe in, and do business with over the long haul. I do own some individual stocks in a self-directed brokerage account, but most of my money is in a tax-deferred retirement account.

 

--Keep emotions out of it. The financial crisis had so many people running for the hills at the very time they needed to be more pragmatic. A friend's mother got so upset that she pulled every last dime of her money out of the stock market--at the very bottom--earlier this year. If she'd stayed put, she would have had 20% to 30% more than she had when she bailed.

 

--Finally, remember that the market goes up and down. Don't get caught up in it. Invest each month, and let it ride. When the market's down, you'll just be buying more shares. That means that, when the market goes back up, you'll see a greater increase more quickly.

 

That's all I know! I'd be interested to see how other people approach investing.

[taiko]

Only thing I can think of adding is if you go the Roth or deductable IRA route do it by allotment from your paycheck. Otherwise daily budget pressures may stop you from paying yourself first and your dollar cost averaging plan will fall apart.

[Trialbyfire]

http://www.sec.gov/answers/mfprospectustips.htm

 

While I'm not licensed to provide investment advice in your jurisdiction, this isn't advice. If you're considering investing in mutual funds, read the information from the SEC, about how to read a prospectus.

 

Read it, learn it, live it. Understand that opaque basket products have inherent risk, like any other investment, as well as consistently digging into a profits, to pay every Tom, Dick and Henrietta, involved in its ongoing lifespan.

[Hkizzle]

Funny I find this post here.

 

I was working on the trading floor of a large bank till a couple months ago. I quit so I can trade my own money at home. Right now I trade futures which are highly speculative and risky products and I don't think you should follow my route.

 

As an investor I would suggest you buy index linked funds, many mutual funds underperform the wider market after fees are deducted. I would suggest you buy the QQQ, which is a stock that tracks the movement of the biggest 100 nasdaq stocks, in effect giving you a portfolio of 100 big tech/internet/bioscience names without having to stock pick.

 

The market has bottomed and the worst of the recession is over. Over the next year I think there's probably 25% more upside as the markets tend to do well coming out of a bear market.

 

However contrary to Josie's advice, the days of buy and hold are over. If you look at the US market since 2000, we've having been making new highs, and earlier this year we made a 13 year low. Which means had you made an investment 13 years ago, during the worst of this current recession you would have lost money at the end of all that time.

 

The US is recovering, but long term it's as screwed as Japan was in the early 1990's and Japan still has not recovered, and it's stock market has had bounces but traded lower for 20 years now.

 

The government has a huge fiscal deficit, lots of the banks are not healthy. It's practically the same as Japan. So you should only invest for spans of 1-2 years when the market is going up. Over the next 10 years I see the US market trading sideways with big interim rallies and large drops, but not making new highs.

[Trialbyfire]

That's fascinating about originally being a floor trader and now trading futures at home. If you don't mind me asking, what size is the average contract you trade and how do you handle the ongoing margin calls?

 

Oh, I'm also curious to know what percentage of margin, you're getting/charged for from futures, in the U.S..

 

Thanks.

[Hkizzle]

I was a salestrader for Asian equities and then in futures last few years. Which means I gave trading ideas and executed orders for other large banks and hedge funds.

 

I specialize in technical analysis which is reading price movements on charts so I can trade pretty much any product. Hence I've been trading equity index, FX as well as commodity futures last couple of months.

 

Problem in the last few months is that everything has been moving in tandem with perceived risk. So when stocks go up, commodities go up, and Euro/poung/Australian dollar goes up against the USD. So there's been little room to diversify risk.

 

I trade standard exchange traded contracts. So FX is on Chicago mercantile exchange. Oil on New york merchantile exhcange. Corn/soybeans etc on Chicago board of trade. I'm based out of Asia so trade asian equity futures on their local exchanges.

 

I'm highly leveraged when I make a trade. So for example when I trade the Euro I will buy or sell 10 contracts. Each contract has a margin requirement of 4,725 USD, and buys 125,000 Euros. So it's about a 38 times leverage. So that means I'm buying or selling 1.25mil Euros, a 1% move in the Euro will make or cost me around USD17,800.

 

I've got very tight stop losses on my trades though so I never get margin called. Two thirds of my trades lose money because they get stopped out and my stops are very tight, one third make money but I let it run more.

 

That's how I make money, get a good entry level and then I manage my risk very tightly, even if I make a small loss and the market then goes back and I didn't need to take the loss, I do it anyway, because if it keeps going against me the loss can be huge.

 

It's the opposite of what normal people do. Normal human psychology doesn't like pain, which is why most people don't want to lose a little, and they wait for the market to turn around, whilst that happens most of the time, the one time it doesn't turn around will wipe you out. The bear market we've just had is a good example. Many companies went bankrupt and the investors got wiped out.

 

It's the same as relationships, use that analogy since we're on this forum. Most people don't cut their losses on bad relationships early because it hurts to give up when you like someone and have invested in them so they end up getting hurt more.

 

Bad investments screw you over, always cut the loss early.

[utterer of lies]

Anyone care to share some advice on investing? Rather' date=' investing smartly? Figured I'd put this one under self-improvement, especially since we don't have the time to do this on our own all day.[/quote']

 

You should have bought UBS stocks 1.5 years ago.

[Trialbyfire]

That's quite the trading platform you're using, Hkizzle, that has so many gateways into multiple international exchanges.

 

I'm a little surprised that you're allowed to utilize stop-losses on all your positions, considering that many online trading platforms don't allow stop-losses or many of them, due to firm risk, especially if their trading platform leverages off third party gateways.

 

Out of curiosity, this firm must require more than just minimum margin. I can't see a firm being so generous with something as risk-intensive, as derivative trading.

[Hkizzle]

You should have bought UBS stocks 1.5 years ago.

 

???? Even after the rebound UBS is still currently trading less than half of what it was 1.5 yrs ago!

[Hkizzle]

That's quite the trading platform you're using, Hkizzle, that has so many gateways into multiple international exchanges.

 

I'm a little surprised that you're allowed to utilize stop-losses on all your positions, considering that many online trading platforms don't allow stop-losses or many of them, due to firm risk, especially if their trading platform leverages off third party gateways.

 

Out of curiosity, this firm must require more than just minimum margin. I can't see a firm being so generous with something as risk-intensive, as derivative trading.

 

The cheapest broker out there for retail is interactive broker. About $2.5 a lot for most futures.

 

I am using a local broker who's using the NewEdge trading platform. NewEdge is a joint venture between Fimat and Caylon, so basically one of the biggest futures broker in the world. They pay the exchange required margin, my broker in turn pays them the same amount. I pay my broker the same too.

 

The business is so competitive now that most brokers charge the minimum required margin. They do however reserve the right to close your position automatically if the market moves big against the customer, that's why the margin even exists in the first place.

[utterer of lies]

???? Even after the rebound UBS is still currently trading less than half of what it was 1.5 yrs ago!

 

Retro-active good advice is easy.

[josie54]

Goodness, I think I understand about 10% of what's being said here! (Except that part about UBS....ha)

 

I'm way small time.