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Old 09-20-2008, 02:31 PM   #21
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Originally Posted by leahcim View Post
Hey, I'm 19 and I want to retire ASAP (after I start working of course). When I'm 21 I'll have a degree in Engineering and hopefully about 50-60k $ saved. When I get a full-time job my plan is to save as much as possible (maybe rent an apartment instead of buying a house)... Right now my plan is to max out my Roth IRA (so it is tax free later), and put the rest into mutual funds.
Is there anything else I can do better?

Thanks a lot!
When I was 18 in the late 90s I wanted to get rich quick off of the markets. I loaded up on Fidelity Aggressive Growth for my "safe play" in a roth ira and then got into seasonal trades, swing trades, tech IPOs, and options via etrade and then with my new found wealth (since it was the 90s you just had to buy anything to make 20%-100% in between classes) I finally entered the world of algorithmic trading (not to be confused with a real black box setup with the code sitting on the floor of the exchange... this was via a simple DAC broker and my pc and net connection had to stay up all the time - multiple single points of failure ) naively thinking I could arb, take advantage of the nyse specialist step-in-front rules to steal pennies on low volume stocks, and use Dijkstra's algorithm to exploit inefficiencies in currency pairs (e.g., you walk usd->yuan->yen->usd and come out ahead due to short term market inefficiencies - in practice I just made the broker rich and often got stuck in a broken circuit).

When the NYSE switched from fractions to decimals and then when the tech bubble burst I gave back most of the gains I made (until I said enough was enough and got out with a little bit of gains intact).

The expensive lessons I learned was that I could have come out ahead by investing the roth in a vanguard broadly diversified mutual fund instead of a nondiversified specialty or sector fund. Secondly I didn't use any risk management techniques whatsoever back then. I would be ahead today had I just stuck with a simple buy n' hold strategy of top companies back then instead of trading w/o risk management. 'Sides, keeping the investment strategy simple gives you more time for sex, drugs, and parties on campus character development


Some easy reads you may be interested in (search for the following)
  • original turtles
  • phantom of the pits
  • where are the customer's yachts?
  • Alexander Elder books such as trading for a living
Good luck and have fun ^_^
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Old 09-20-2008, 02:51 PM   #22
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Loads and expense ratios are NOT accounted for in a funds performance.
On this page:

Mutual Funds: total expense ratios and total returns, mutual fund investment, mutual funds investments

it says:

Quote:
The expenses are included in a mutual fund's official "total return."
The numbers I am currently looking at are like the total/trailing return % on google finance, morningstart, etc...

For example the mutual fund JSVAX:

on morningstar.com:

Janus Contrarian Report (JSVAX) | Snapshot

has a 5 year trailing return of 13.21%

I am assuming these numbers have the expense ratio already subtracted from them.

Expense ratio = 0.98%

Sorry, I am still confused as I keep finding sites that seem to contradict each other.

I like your point about comparing over 30 years, and the taxes. I am planning to research taxes asap. I don't have a 401k now, so I assumed I would just put all the money in a roth ira, but I learned that I'll get a 10% penalty if I want the money before I am like 69.5 (I think). So, I need to figure out if retiring before 69.5 is really an option if I start saving now.
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Old 09-20-2008, 03:08 PM   #23
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Originally Posted by leahcim View Post
I learned that I'll get a 10% penalty if I want the money before I am like 69.5 (I think). So, I need to figure out if retiring before 69.5 is really an option if I start saving now.

before 59.5 except for certain exclusions (first house purchase, disability, massive medical bills, back tax payments, etc etc)

see Roth IRA early withdrawals and penalties - Fool.com
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Old 09-21-2008, 12:52 PM   #24
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Quote:
Originally Posted by leahcim View Post
Hey, I'm 19 and I want to retire ASAP (after I start working of course). When I'm 21 I'll have a degree in Engineering and hopefully about 50-60k $ saved. When I get a full-time job my plan is to save as much as possible (maybe rent an apartment instead of buying a house)... Right now my plan is to max out my Roth IRA (so it is tax free later), and put the rest into mutual funds.
Is there anything else I can do better?
When I was 24 and just out of school, I came across this board while trolling the internet at work- you can probably imagine the search engine queries that lead here- "I hate my job" etc. FIRE seemed to provide a path out of my situation, so I began to pursue it- I enjoy finance and economics, so it seemed like a natural fit. I had excel charts and workbooks detailing every facet of my plan. You might be scratching your head right now wondering why I'm using the past tense... a few years ago I realized that I didn't actually care about the 'RE' part of FIRE as long as I was happy with what I did.... and I wasn't happy. So today i'm 28 and unemployed, back in school (with more debt than ever), and will be applying for medical school this coming spring. It's interesting to note that my obsession with FIRE is what ultimately enabled me to do what I’m doing now- this would be impossible without starting out debt-free and having a significant amount in savings.

So what does all this have to do with you?

1. Be happy in whatever you do. FIRE is a LONG road, and you don't want to spend your youth being miserable.
2. Don't put on the FIRE blinders too tight- be aware of opportunities and experiences. Save for them so that when they arise you won't feel bad about indulging.
3. Your current plan may not match your future plans. Be OK with this and allow for change.
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Old 09-21-2008, 05:38 PM   #25
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To add to what Marshac says, always LBYM and stay out of debt. This is important for all aspects of life, not just preparing for retirement. Simply put: money in the bank + no debt = freedom to do what you want. In my case, I quit work and went to law school when I was 30. I could do that only because I had saved enough to pay the tuition and living expenses while I was in school and I had zero debt.

As far as your investment plan, I see no reason ever to pay a load. There are plenty of no-load funds that have outstanding performance. I suspect many here would recommend a passive index fund from Vanguard or Fidelity, and they would be right -- the fees are low, the return is adequate and you avoid unnecessary risk. I have several of them. But an actively managed fund can sometimes be appropriate as well. I have been very well served by the Oakmark family of funds and, except for the last two years, by Dodge & Cox.
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Old 09-22-2008, 09:22 PM   #26
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Forget about all the mutual fund research. It's worthless. You can pretty much select from the investments listed at www.altruistfa.com/dfavanguard.htm and in the "here" links in the analysis section to get to other funds/ETFs besides DFA and Vanguard. Those are ALL you need to look at. Period.

Also read this link: Investment Guide
If you want more reading, then read the references found in the above and take a look at http://seekingalpha.com/article/1513...nvesting-guide
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Old 09-22-2008, 09:50 PM   #27
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leahcim,
-Congrats on your ambition and your focus on your goals.
- Regarding your investment approach: You're going to take some criticism from folks here, but it's not personal. Many of us tried the same thing you are doing, and we want to help you avoid costly mistakes.
- Bottom line up front: It is not feasible to research mutual funds, look at their prior returns, and pick the ones that will do best in the future. This is nothing like doing a lot of research and getting the best deal on a car, etc (take this from someone who spent months looking for the perfect toaster over--you can imagine how much research I did before plunking down my first few thousand $$ in mutual funds. And they turned out to be high-cost stinkers).

Keep putting you money in the bank or another safe place for right now-it wont hurt to wait a few months while you study up.

While it's not possible to pick the best funds by loooking at past results (really-it's not), you are in luck. A methodical mindset, especialy if you're comfortable with statistics, can let you appreciate the bets way to invest far more quickly than someone who does this bythe seat of their pants.

I recommend that you start with some free exploring at William Bernstein's site, or start with his book "the Four Pillars of Investing" then maybe pick up his book "The Intelligent Asset Allocator". If you want to understand investing from a quantitative approach, you'll ike this last book.

And, if you've truly got the "retire early" spirit, you won't buy any of these books--you'll check them out from the library and save that money!
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Old 10-05-2008, 04:34 PM   #28
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I'm so glad I procrastinated buying some stocks. Right now I have 6000$ to invest. I am going to start a new fund with 3000$, then dollar cost average the rest.

So, I was thinking the:

Vanguard Total Intl Stock Index VGTSX

I looked at the other mutual funds I have setup/my dad has for me, and 3 are large growth, 1 is large value, and 4 are large blend. Do I need some small/mid caps? The ones I already have had kinda high expense ratios and haven't done too well (except for Janus 20 JAVLX before this year).
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Old 10-05-2008, 05:24 PM   #29
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Nothing has done well this year (except treasuries/CDs/I-bonds/TIPS...things that are essentially not meant to go much further than beating inflation).

It has been an overall bear market, while financials have been hit the hardest, along with emerging markets (and possibly REITs, would have to look it up how the foreclosure situation is affecting them), everything else has been taking a pretty big beating as well

It sounds like you picked a better fund, it might also be good to checkout Vanguards ex-US fund (lookup the foreign tax credit). Are your other funds in US stocks or are they international? If they are not international then it would certainly be good to pickup a heavy dose of international.

You may want to get a small or mid cap fund, it depends on what sort of allocation you want, it is generally helpful though I believe. You may also want to eventually get some REITs.
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Old 10-05-2008, 06:37 PM   #30
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Originally Posted by leahcim View Post
I'm so glad I procrastinated buying some stocks. Right now I have 6000$ to invest. I am going to start a new fund with 3000$, then dollar cost average the rest.

So, I was thinking the:

Vanguard Total Intl Stock Index VGTSX

I looked at the other mutual funds I have setup/my dad has for me, and 3 are large growth, 1 is large value, and 4 are large blend. Do I need some small/mid caps? The ones I already have had kinda high expense ratios and haven't done too well (except for Janus 20 JAVLX before this year).
I don't think the market has hit bottom yet. If you are a gambler put it in a money market and see what happens. If the market drops another 20% you will be that much ahead.
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Old 10-05-2008, 08:09 PM   #31
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Ya, that sounds like a good idea too. I've had a few ideas, but I can't settle on any because I'm really not sure what to do.

like 3-4 of the funds I have are described on morning star as: "this funds can hold up to 20% in debt securities of non-us issuers, 5% in emerging markets, and 20% in REITS". This makes me think I have enough foreign stuff.

I think JSVAX looks good, but it is another large blend and I already have a lot of them. I've read online that small caps are good if you are young b/c they have a higher risk, but better reward. But, it seems small caps have not gone down as much with this recent problem. I'd like to take advantage of buying stuff that has gone down. JSVAX has gone down 33% this year.

My current plan I am leaning towards is:

Opening JSVAX with 3000 when the DJIA drops to like 9000.
Opening a small-cap (either an index fund, or DISSX) with 3000 when the dow is @ 8500.

Weekly add $250 to each.

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Old 10-05-2008, 11:30 PM   #32
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I don't think the market has hit bottom yet. If you are a gambler put it in a money market and see what happens. If the market drops another 20% you will be that much ahead.
And if the market goes up 20% you will be that much behind.

I like your idea of DCA on the remainder.

Dave
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Old 10-05-2008, 11:32 PM   #33
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Opening JSVAX with 3000 when the DJIA drops to like 9000.
Opening a small-cap (either an index fund, or DISSX) with 3000 when the dow is @ 8500.

Weekly add $250 to each.

How do you know it will drop to 9000? 8500?

What if it goes up?

I say set a time, not a market value, and invest at those times. i.e....today, in 90 days, and in 180 days...or something like that.
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Old 10-06-2008, 08:54 AM   #34
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FD,
He's just going to have to get this out of his system. Stock picking and market timing--most of us have gone down this road at some point.

leacim,
The dollar cost averaging approach (DCA) is a great way to get into the market without making all you bets on one particular direction of market movement or another. Nobody know which way the market will move (there are indicators both ways) and if you buy in over time you'll, on average, buy more shares when the market is down, fewer when it is up. Studies have shown that the optimum approach is to just put all you money in as soon as you can, but there are psychological reasons 9that you are grapling with right now) that make this hard.
If you want to take a more "hands-on" aproach, you might want to consider using the "Value Averaging" method. It has even better long-term results than DCA does, but is a lot more involved.

Here's a comparison of the two approaches. If you want te details, Try to find (or buy) Michael Edelson's book on Value Averaging.
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Old 10-06-2008, 04:18 PM   #35
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FD,
He's just going to have to get this out of his system. Stock picking and market timing--most of us have gone down this road at some point.

leacim,
The dollar cost averaging approach (DCA) is a great way to get into the market without making all you bets on one particular direction of market movement or another. Nobody know which way the market will move (there are indicators both ways) and if you buy in over time you'll, on average, buy more shares when the market is down, fewer when it is up. Studies have shown that the optimum approach is to just put all you money in as soon as you can, but there are psychological reasons 9that you are grapling with right now) that make this hard.
If you want to take a more "hands-on" aproach, you might want to consider using the "Value Averaging" method. It has even better long-term results than DCA does, but is a lot more involved.

Here's a comparison of the two approaches. If you want te details, Try to find (or buy) Michael Edelson's book on Value Averaging.

Hey thanks. I read about DVA yesterday, but it seemed to hands on ( sometimes you sell too). Next monday I will buy definately...prolly. Right now I am leaning towards the vangaurd total stock market (VTSMX) and vangaurd mid class blend (VIMSX). I want to open both with 3k in each, then add 250 to both each week. The problem I see is that they both have minimums of $3000. I want both to be a roth IRA and the max for that is $5000. Do you know if vangaurd lets me open one with a total of $3000, but $2k in roth and $1k in non-ira?

After I max out my ira, should I look into ETFs, or is there anything better for taxes?

Thanks
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Old 10-06-2008, 04:38 PM   #36
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And if the market goes up 20% you will be that much behind.

I like your idea of DCA on the remainder.

Dave
It is more likeky to drop 20%.
Do you believe it will go up 20% in the next 6 months? The worst is yet to come. I am not getting back in yet.
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Old 10-06-2008, 04:43 PM   #37
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FD,
He's just going to have to get this out of his system. Stock picking and market timing--most of us have gone down this road at some point.

leacim,
The dollar cost averaging approach (DCA) is a great way to get into the market without making all you bets on one particular direction of market movement or another. Nobody know which way the market will move (there are indicators both ways) and if you buy in over time you'll, on average, buy more shares when the market is down, fewer when it is up. Studies have shown that the optimum approach is to just put all you money in as soon as you can, but there are psychological reasons 9that you are grapling with right now) that make this hard.
If you want to take a more "hands-on" aproach, you might want to consider using the "Value Averaging" method. It has even better long-term results than DCA does, but is a lot more involved.

Here's a comparison of the two approaches. If you want te details, Try to find (or buy) Michael Edelson's book on Value Averaging.
It really is different this time and I have lost too much money listening to the standard financial advisor lines. Market timing does work if you pay attention.
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Old 10-06-2008, 04:43 PM   #38
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I have an engineering degree and cannot wait to find a career non engineering related without the income drop off.

So advice:
1) keep expenses low. Examples- avoid mortgage- might prevent you from moving (it is preventing me from moving to take other jobs in other areas for example)
2) invest early
3) have fun throughout life- do not wait for retirement to enjoy life.
4) invest in yourself after you graduate to give you options. I have worked for 11+ years and have changed my specialty at same company 4-5 times. If you work in a technology field, the technology you learned going into college will be different by the time you graduate. Being flexible and adaptable is more important than being good.
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Old 10-06-2008, 05:07 PM   #39
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Old 10-06-2008, 05:10 PM   #40
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At last - capitulation!
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