How do you get "IN"

[modhatter]

I have never been in stocks before other than a few individual from time to time for the heck of it. All my capitol was directed into real estate which is what I know. However, I am getting too old to mess with it anymore and want an easier life. I have now read many many books on investing and been on this board for about a year. I have sold numerous rentals and have cash sitting in CD's for the momment.

My question: When I map out a desired portfolio for myself including index funds, vanguard Wellington, Reits etc that I would like to buy --- everything is over priced and at the top of the gain. To buy at this juncture doesn't seem prudent. So I need some stratagy of how I can get "IN" without doing it foolishly. I am a "value shopper" by nature (in all aspects of life) so buying when something is not a good value does not set right with me. So as a result, I sit with money in CD's Do I have to wait for a crash or a serious downturn to get in? Or is there some other way I can creep in slowly?

I would not be very good at analiyzing stocks myself, so I look to others to do that and listen to what they say. I know if I went to a money manager and said "Here is my million" please invest it. He will gladly do it, without much concern (I don't think) to my entry point.

The only thing that I have come up with so far, is to follow the recommendation of some of the "value guru's" (Geraldine Weis or Prudent Speculator type guys) and buy some out of favor stocks now.

What do you all say? What would you do in my shoes. I am 64 years old by the way and will be retiring next year.

[brewer12345]

If you are a value shopper and insist on remaining such but don't want to buy individual equities, I think that you either have to hold your nose, jump in, and hope for the best, or develop an asset allocation but gve yourself a wide band within which to tweak things. The former option may not sound that appetizing, except that if you keep rebalancing, you will always be selling the rich stuff to buy the cheap stuff.

[FinanceDude]

The market, in it's purest sense, is never really a "value". I know folks that think the Dow was WAY TOO HIGH at 820............

The only way I think for you to get in is to DCA (dollar cost average) your way in. Pick an amount that you are comfortable with, and put the same amount in every month, or quarter, or whatever time increment you choose. That way you may catch some highs (law of averages) but will also catch lows (also law of averages).

Good luck............

[modhatter]

Hi Brewer,

Well if I were a 'value shopper" as I proposed, I would have to buy individual stocks pretty much wouldn't I. Value Funds can be overpriced, but individual hurting stocks are different. Of course that only takes one asset class into consideration, whether it be value sm, med or Large cap.

This would not be so well diversified. So what would you do? Buy only that which you thought represented value in some form, and leave it at that without thought to proper diversification, or buy what is necessary to diversfy irreguarless of current price point.

[LOL!]

This is an easy question to answer, but it's pyschologically difficult to implement the answer because you are guaranteed to lose some money.

You have two main choices: put it all in now or put some of it now, some later and some after that. You might call these Lump Sum investing or Dollar Cost Averaging.

Studies tend to show that LumpSum is better about 60% of time, but neglect to talk about the psychological impact. I myself prefer putting in some every month.

When my spouse received an inheritance, we stuck the money in a high-yield money market fund and committed to investing $10,000 to $20,000 a month into equities. The rule was pretty simple: every month pick the best investment consistent with our desired final asset allocation and invest. There was no set maximum amount to invest, but there was a minimum amount. This forced us to put money into investments and not let it sit in the MMF.

As part of this, on any day that the stock market dropped by at least 1% before the market close, we bought ETFs close to the market close. I felt this behavior was consistence with studies that show that if you missed the worst X days of the market over the last Y years, then you would make a ton of money.

If there was a month where the stock market did not have minor correction, we bought something anyways. Eventually all the inheritence was deployed.

See http://www.radicalguides.com/2005/06...uide_t_55.html for "The Getting Started Problem"

See http://www.fpanet.org/journal/articl...p1006-art8.cfm for "Why Dollar Cost Averaging Does Not Work" (but who cares!)

See http://www.fundadvice.com/articles/m...is-no-fun.html about losing money.

[brewer12345]

Quote:

Originally Posted by modhatter So what would you do? Buy only that which you thought represented value in some form, and leave it at that without thought to proper diversification, or buy what is necessary to diversfy irreguarless of current price point.

You are retiring next year. Pension? What % draw from the portfolio will you need to cover your nut? I ask because your need for portfolio income will tell me a lot about how much volatility you can withstand.

My choices may not be applicable to your situation, since I am still accumulating, but FWIW:

I take a hybrid approach. I know that I need a certain amount of diversification because I can't live with extreme volatility and I don't need to stretch that far for return. OTOH, I am a bottom-fishing stock picker. So I maintain allocations in commodities, non-USD bonds, CDs & high grade bonds, and some cash. The rest (~70%) is available for whatever I think is a good opportunity. But I limit myself to no more than 10% of the total in any single stock or bond, and no more than 25% of the total in any one sector. So far it seems to be keeping me out of trouble. Having said that, I will be intentionally moving up the food chain a bit by trading in some (appreciated) stocks for some beaten down individual bonds.

[modhatter]

My answers Brewer.

I do not have any pension. I am single with a dependent child. I have no Roths or Ira's (bad I know) so everything will be taxed pretty much at the income it generates. As I plan to use the bucket approach, I will probably wind up with a 50/50 split between stocks and income producing CD's, bonds and Reits.

Currently I still have three rentals, so untill such time (maybe three years) depending on market- I will want to sell those too) I will need only about another $12,000 a year for income for myslef, but I will need maybe 18 to 20,000 to pay taxes. (Soc sec, CD's, bonds, rental income, reits) so to answer your question, I guess I will need about $30,000 from a one million portfolio.

By the way, care to share the beaten down bond picks with me??

Hope I didn't forget anything.

[unclemick]

Wellllllll:

At age 64 benchmark enough Vanguard Target Retirement 2005 or Income to take care of your retirement basics along with SS, pension etc. Use Firecalc to to check your estimate.

Take any leftovers and go play - male hormone stocks, golf, fishing, travel, whitewater kayaks, etc.

If you hit the one great stock or mutual fund - post here. I've be going for the gold 1966 -2006.

heh heh heh heh heh - never say die.

[brewer12345]

Quote:

Originally Posted by modhatter My answers Brewer. I do not have any pension. I am single with a dependent child. I have no Roths or Ira's (bad I know) so everything will be taxed pretty much at the income it generates. As I plan to use the bucket approach, I will probably wind up with a 50/50 split between stocks and income producing CD's, bonds and Reits. Currently I still have three rentals, so untill such time (maybe three years) depending on market- I will want to sell those too) I will need only about another $12,000 a year for income for myslef, but I will need maybe 18 to 20,000 to pay taxes. (Soc sec, CD's, bonds, rental income, reits) so to answer your question, I guess I will need about $30,000 from a one million portfolio. By the way, care to share the beaten down bond picks with me?? Hope I didn't forget anything.

How sure about your taxes are you? If you are newly retiring, you may be surprised at how little you end up paying. But taking you at your word, I would imagine that a diversified portfolio will throw off about as much in cash as you need for living expenses/taxes, without you selling anything ever.

Cheap bond stuff I like now:

- PPT: closed end fund that charges reasonable expenses, has a plain vanilla high grade portfolio with modest duration (not much interest rate risk), and trades at a 13% discount to the value of the underlying bonds.
- PFX: senior unsecured bonds that trade like a stock. If you can buy it for $25.05 or less, you get a decent yield on a good, but slightly junky, credit. I think these bonds will be called in January, but if not you get a freebie of an above market yield for a while.
- MFA preferred stock: this is a REIT preferred trading at something like a 9% yield. Rated well into junk, but the only way it could actually get into trouble is if we have an inverted yield curve for years to come. I like the NLY "A" preferred too (same thing).
- ISM: these are monthly coupon inflation indexed bonds issued by Sallie Mae. I liked them better at about 22, but they are still cheap under 23.

There is the usual grab bag of junk auto bonds, etc., but that stuff has a lot more risk.

You can also juice portfolio yield pretty easily if you are willing to take on some incremental risk. I have done so in modest fashion by buying EGLE, DSX and STON. But you wouldn't want to go overboard.

[kcowan]

Quote:

Originally Posted by modhatter Currently I still have three rentals, so untill such time (maybe three years) depending on market- I will want to sell those too) I will need only about another $12,000 a year for income for myslef, but I will need maybe 18 to 20,000 to pay taxes. (Soc sec, CD's, bonds, rental income, reits) so to answer your question, I guess I will need about $30,000 from a one million portfolio.

You are in good shape. Maybe get some tax advice to minimize the hit when you retire. If you want to buy cheap, then look for some stocks that are out of favour, e.g. retail, real estate, ... and try them out in a small way. Once you are an owner, you will learn a lot about the stock and the sector. Don't hurry. Try the DIY approach first. If it makes you feel uneasy, then try index funds. There may be some better values in a year or so. Regardless, you have your rental income to carry you through. Why sell them unless they are causing problems?

[modhatter]

Well, I'm guessing the combined income with everything to be in the neighborhood of between 70 to 82,000 with only $7,500 of that in dividends. (Total invested $1,100,000)

Soc Sec. $19,000
$250,000 CD's (5.25%) $13,125
$350,000 Bonds, Reits etc (6%) $21,000
$500,000 stocks (1/50% divs) 7,500
Rents (always expenses on these) 21,000
_______
$81,625

So if that comes true, than wouldn't my tax bite considering nothing is in a IRA etc be around $16,000 + Am I wrong in my estimation?

Reasons for wanting to get rid of rentals: I am tired of having to go in and redo the place time after time after time. Plus I bought a house in Mexico and when this one sells I'm off and Florida is too far away to handle rentals from. I thought of doing a 1031 and trading for some places in Arizona, but I really really want out.

[modhatter]

Oh, and Brewer. Thank for the bond information. I will look into these and thank you for your responces.

[Nords]

Quote:

Originally Posted by modhatter I thought of doing a 1031 and trading for some places in Arizona, but I really really want out.

People trying to avoid depreciation recapture & cap gains taxes via 1031, who are also looking for passive investments with reliable income, have put their money into commercial real estate with tenants-in-common ownership. One company that does this nationwide is Spectrus (formerly FOR 1031).

http://early-retirement.org/forums/i...p?topic=9757.0

I'm not recommending Spectrus or any other REITs, but this is a good way to defer the real estate taxes.

Have you been following the saga of Hokus on this, the REHP, and M*'s Vanguard Diehards boards? He exited the market in 1996 and he's still waiting for valuations to return to acceptable levels (2001 & 2002 just weren't good enough). If he'd been diversified in small-cap value and international index funds he would easily have doubled his money over the last decade. Instead he's sniveling that he can't afford to take his kids to Disneyland (but he's not quite ready to return to the workforce yet).

Take a look at low-cost equity ETFs (small-cap value, dividends, international dividends, just about whatever you want) and consider DCA'ing in your asset allocations over the course of a year. If the market keeps going up the whole time then you can sit on a pile of cap gains and rue your timidity. If the market goes down then you can cackle with glee at your wisdom of tiptoeing into the funds at ever-bigger discounts. And if the market goes sideways, you'll have earned a MM rate of return while you got in at what must clearly have been a pause for the market to consolidate before it runs up again.

But what you can't do is sit on the sidelines, paralyzed with indecision, waiting for the "GO!" bell to ring.

[mountaintosea]

If it makes you feel any better we are in the favorable part of the presidential cycle. Two years prior to a major election the stock market usually begins moving up. And while the DOW is up to record highs, the S&P and Nasdaq are not. And as you know DOW only consists of 30 stocks. Although I was expecting October to hit a low before the climb. A decent book to read if you haven't already, is Timing the Stock Market by Colin Alexander. I don't think you will get hurt if you put some your money in a Vanguard Index Fund at this point.
I've had rentals off & on, and have put money in individual stocks plus mutual funds etc. for many years. I prefer the stock market.

[mathjak107]

Im not a fan of dollar cost averaging at all. If you have the dough bite the bullet and put it in. The odds are against you coming out a head by dca by over 67%

While you may get lucky and catch a down turn the market is higher 2/3 of the time so not very good odds for coming out higher at the end.

[JohnEyles]

Quote:

Originally Posted by brewer12345 - MFA preferred stock: this is a REIT preferred trading at something like a 9% yield.

I only see 2.7% yield. Do you mean somethign besides ticker symbol MFA ?

[Brat]

I see you hate to buy segments that are doing well. You have received lots of quality advise. Now I will make a suggestion of questionable quality. First define where you want to be - your equity allocation. There is a website called Bob's Ponies that lists best and worst performing mutual funds. Look at the no-load NTF Trailerboard. Ignore the names of the funds but see what segment of the market stinks over a couple weeks. Buy the best fund (or the index) in that segment of your allocation. The only problem with this approach is that it will take you at least one market cycle to achieve your equity allocation.

http://customer.wcta.net/roberty/index.html

[Nords]

Quote:

Originally Posted by modhatter I have never been in stocks before other than a few individual from time to time for the heck of it. All my capitol was directed into real estate which is what I know. However, I am getting too old to mess with it anymore and want an easier life. I have now read many many books on investing and been on this board for about a year. I have sold numerous rentals and have cash sitting in CD's for the momment.

Quote:

Originally Posted by Brat I see you hate to buy segments that are doing well. You have received lots of quality advise. Now I will make a suggestion of questionable quality. First define where you want to be - your equity allocation. There is a website called Bob's Ponies that lists best and worst performing mutual funds. Look at the no-load NTF Trailerboard. Ignore the names of the funds but see what segment of the market stinks over a couple weeks. Buy the best fund (or the index) in that segment of your allocation. The only problem with this approach is that it will take you at least one market cycle to achieve your equity allocation.

I have to agree with you, Brat-- for an investor like Modhatter, Bob's board is definitely a dubious suggestion.

Bob may have been able to beat the snot out of Bernstein in the late '90s markets, but I don't think there's much momentum to work with in a sideways market. I'm also not sure that Bob's board tracks which funds have early-redemption fees.

[Brat]

I did not recommend the funds themselves, just look at the segment of the market. For example it looks like small value may be underperforming. That would cause me to look further for value funds that say they invest in small caps. There are years when value is king and growth stinks, and visa versa.

I would NEVER suggest that anyone invest in any of the funds on the list, because when I looked at the list a while back many had 12(b)1 fees or didn't have a track record. Whether or not a fund is NTF at a particular brokerage depends on the racking agreement. I gladly pay a transaction fee to buy a great no-load fund and never ever buy a fund with a 12(b)1 fee.

I was trying to ID an approach that would help the original poster find market segments that are out of favor. Oh where is that map of the market when you need it?

[lswswein]

Hi modhatter
I have a simple suggestion - Vanguard's Wellesley & Wellington Funds. If you are apprehensive about stocks just stick to Wellesley - its 35% Stocks and 65% Bonds. Wellington is the other way around.

Both funds have been around since a long time - 1970 & 1929. Their record shows you that they invest very carefully and conservatively. I don't they have had 2 negative years in a row.

You can invest 100K and get a lower expense ratio and then potentially DCA the rest over time.

Also go back and read a few of TH's old post - he liked them a lot too.

-h