Investing Money-- Help starting out

Open an account at Vanguard. Put all of the ira portion (what you made up to 4000) into the total stock market index fund. Take the remaining money and put part in the same index fund, and around 15 percent in a fund with international exposure. Vanguard has low fees, and the indexing beauty is that you will have exposure to everything, and will never miss a rally.

Should I spread the money into more than one mutual fund, such as mid-cap, energy, and the whole stock index fund?

I second the Vanguard recommendation. If you're looking for simplicity, and if retirement is your goal, the Vanguard Target Retirement funds (see link below) are worth looking into. These funds are a combination of Vanguard domestic, foreign, and bond index funds, with the balance changing (becoming more conservative) as you near retirement.

However you go, you should plan on maximizing your IRA contributions (and any retirement contributions you can make to an employer-sponsored retirement plan such as a 401k) each year ... unless you need the money, you want to keep as much as possible in tax-deferred accounts.

Personally I'd avoid sector mutual funds (energy, health care, etc.) as you're more susceptible to swings of a particular industry than if you invest in broader funds. Of course you can always try these sorts of funds (or even individual stocks) with "play money" if you have some extra money to invest which you're not counting on for anything particular.

If you're saving for something pre-retirement (e.g. buying your next car, a downpayment on a house, etc.), then your investment strategy would be more conservative, and depend on the timeframe before needing the money.

Hope this helps, and good luck!

Benji gives good advice. Vanguard is the way to go.

After paying off all credit cards and having set up an emergency fund, I'd split the rest into tax efficient, low annual expense, no load index funds at Vanguard.

If you are married, you can put $4000 into a Roth for you and $4000 for your wife.

I'd also set aside $5000 into a cd to mature in Dec (another $5000 if married) to fund your Roth for 2008. I am a big fan of Roths and would make sure I max out my eligible Roth contributions *after* I max out the amount of matching I can get through my 401(k) contributions.

How you build your asset allocation really will depend on your time horizon and the amount of risk you want to take.

You can go with a mix of total stock market index and a portion in the Vanguard GNMA. You should also get some exposure to the international market and Vanguard has a low cost fund for that too.

More risky - international

total stock market

GNMA - less risky.

Index funds are the way to go since they are much more tax efficent, have lower annual fees, and you insure that you won't earn lower returns than the target market. After you factor in expeneses and the tax consequences for managed mutual funds, it is unlikely that you will be lucky a pick one that will beat the market in the long run.

To protect against inflation I might consider buying some TIPS inside your Roth. We aren't in an inflationary period right now but it is another asset class to think about. But you want to buy them in a tax advantage account or you will be raped by the taxes.

I'd invest in a new kind of Depends designed for runners. They seem to shit the pants quite often so this might be a big market.

I third the Vanguard suggestion!

Before you drop your money into an IRA with the greatest investment company on the plantet, check out John Bogle's book "Common Sense on Mutual Funds: Imperatives for the Intelligent Investor". That book will get you excited, and teach you more than the average financial adivsor knows about investing. Also take a look at William Bernstein's book "The Four Pillars of Investing".

Take the remainer after you max out your IRA for 2007, and place it into a few tax-managed index funds.

Even though you will have quite a lump sum invested, stop eating out, going to Starbucks, and quit going to the mall. Put that money away. Sew good financial habits now when you're young- and you will reap so many more rewards than everyone else when you reach 50.

Thanks for the good advice. I am already as cheap as you can be financially. No trips to the mall, Starbucks (I get free coffee before 10:30am at work and always get an extra cup to reheat for the afternoon, and I drive a paid-for piece of crap.

That said, I plan to max my IRA and sow the rest away for at least 10 years earning as much and paying as little fees and taxes as possible. I will try to look over the books you suggested, but in the meantime, can you advise specific funds to get started. My money is in a low earning savings account now and I want to get the ball rolling. Overall, I have about $120K that I do not need to touch any living related expenses.

Nomad,

You appear to be in a good spot. I also highly recommend Vanguard. If you read the Wall Street Journal, just about every fund management company has been in serious trouble over something the last 10 years EXCEPT Vanguard. Not sure why, but something there is going on the right way. Almost never a negative story about them.

Anyone's advice to you would be different depending on how old you are? Do you have more than 20 years before retirement? If so, you should be more heavily invested in riskier things (stocks) in your mutual funds. If you don't want to manage that all, then look into the Vanguard funds that change the percentages over time (as someone already mentioned). If you think of yourself as a more hands-on investor, then do it yourself and change things around when the climate calls for it.

You've got $120,000 to work with. Assuming you keep $20,000 in a more liquid account, let's see what $100,000 does over 30 years. At 8% return a year, if you NEVER add to it, that $100,000 in 30 years will be worth $1.08 million. If you kept that $20,000 in a money market account and got just 4.5% from it, in 30 years that would be worth an additional $78,277 for a grand total of $1,158,277, and that's if you never add to either again. Of course if you are older then you won't earn as much before you retire.

If in 30 years you kept that $1,158,277 in a safe investment vehicle that got 5% return each year, you would have $57,913 each year without tapping into the principle. Not bad, but you probably want to invest more along the way so that in 30 years you've got even more. As much as you can as early as you can is the key.

Buy a mix of these.

Put a higher precentage of your assets at the top end and less if the lower end if you want to increase risk. The length of time you plan to invest should play a role too.

Emerging Markets: Vanguard Emerging Markets Stock Index Fund (VEIEX) -

Foreign Equity: Vanguard Total International Stock Index Fund (VGTSX)

Domestic Equity: Vanguard Total Stock Market Index Fund (VTSMX)

REITs: Vanguard REIT Index Fund (VGSIX) - prolly overvalued now but you will want to buy a mix of these since they move differently than asset classes.

Government Bonds: - Buy a mix of these.

-- Vanguard Short-Term Treasury Fund (VFISX)

-- Vanguard Intermediate-Term Treasury Fund (VFITX)

-- Vanguard Long-Term Treasury Fund (VUSTX)

-- Vanguard GNMA

TIPs:

-- Vanguard Inflation-Protected Securities Fund (VIPSX) - inside a tax deffered or tax advantaged account.

Pretty sure you'd say to keep the percentage of bonds low if he's got a long way to retirement though right? I would say that. I've only got 19 years left to retirment and I'm about 80% stocks 20% bonds in my 401k, and in my IRA I've decided to go more risky with 87% stocks and 13% bonds. Will change those things a bit as I get closer to retirement, but not just yet.

Fishhead rolling polly fish wrote:

Buy a mix of these.

Put a higher precentage of your assets at the top end and less if the lower end if you want to increase risk. The length of time you plan to invest should play a role too.

Emerging Markets: Vanguard Emerging Markets Stock Index Fund (VEIEX) -

Foreign Equity: Vanguard Total International Stock Index Fund (VGTSX)

Domestic Equity: Vanguard Total Stock Market Index Fund (VTSMX)

REITs: Vanguard REIT Index Fund (VGSIX) - prolly overvalued now but you will want to buy a mix of these since they move differently than asset classes.

Government Bonds: - Buy a mix of these.

-- Vanguard Short-Term Treasury Fund (VFISX)

-- Vanguard Intermediate-Term Treasury Fund (VFITX)

-- Vanguard Long-Term Treasury Fund (VUSTX)

-- Vanguard GNMA

TIPs:

-- Vanguard Inflation-Protected Securities Fund (VIPSX) - inside a tax deffered or tax advantaged account.

I'm 40. So probably 20 yrs to invest before I will need to pull for retirement.

I am a scientist with little familiarity to investing. Could you recommend a book that explains the basics and gives good tips in laymen’s terms?

Nomad wrote:

I am a scientist with little familiarity to investing. Could you recommend a book that explains the basics and gives good tips in laymen’s terms?

What Arthur Lydiard is to distance running, Benjamin Graham is to investing:

The Intelligent Investor.

go with Pharma

VION

BIOS

DNDN

or go with Nano

LUNA

LMRA

TINY

or go with energy

OXY

RDS

APC

good advice in general on this thread.

two points i wanted to add:

first, if you stick with the broad-based index funds at vanguard and put the lion's share of your money in them, you will be close to qualifying for, or will qualify for, "admiral class" shares, which have even lower expenses. i wouldn't do this with, e.g., an energy mutual fund, but for the s&p 500 or total stock market index funds, it shouldn't be more risky than necessary.

second, do you have a 401(k) or similar retirement plan at work? if so, are you maxing your contributions to that? as long as this is money being invested for retirement, you would be paying more taxes than necessary if you aren't maxing out all of your tax-preferenced retirement accounts. also be sure to familiarize yourself with the income limits for Roth IRAs and the limitations on contributing to both IRAs and employer-organized retirement accounts like 401(k)'s.

Buy no load funds.

Buy low annual expense funds.

Buy a variety of asset classes.

For the bulk of your money, I'd stay away from individual stocks. There is too much risk for the risk adjusted reward. I'd wouldn't have more than 4% of your porfolio in a single stock. You can set aside a small percent to play with individual stocks, however, the bulk of your portfolio should be in placed in low expense funds spread across different asset classes that have low correlation in their performance so you will smooth out your returns and have the best chance to maximize your expected returns for a given level of risk.

I am not really a fan of sector investing either for the bulk of a portfolio.

Graham is very good but I'd start with what someone else recommended - Common Sense on Mutual Funds.

Get no advice from a bunch of running message board posters, thats the best advice.

to name a few wrote:

Get no advice from a bunch of running message board posters, thats the best advice.

Yep--that's the ticket. Because no one who posts on this board has done or is doing anything else with their life worth giving advice about.

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