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Directions for my path from my current standing.
Old 12-16-2015, 11:11 AM   #1
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Directions for my path from my current standing.

Hey all, I am 28 years old since the beginning of this month and I am trying to get as many passive income streams as possible and wanting to insure that with my retirement I am following a good path.

Currently, I put 12% of my income into 401(k) any my employer recently stopped all matching due to the downturn in the oil markets. I work for an oilfield company so I assume that it will come back once the oil prices return, hopefully! They were originally matching 50% up to 6%. I currently have about 12k into this account without any matching. I began contributing this year. I have this invested in a target date fund which I believe is a Vanguard fund.

I also max out an IRA and have about 14k in this account. I have been contributing to this for a little more than two years and it is in a mutual fund CWGIX. I do not know enough about mutual funds to even begin to estimate whether this is an appropriate fund for me or my goals. I use a financial adviser through my bank.

I have some cash that I can play with in checking but I try not to touch my savings as I view this as an emergency fund.

I dabble with real estate but have not done anything impressive as of yet but I hold a piece of property that I intend on building a home on in the near future. I am looking to purchase a couple rental houses sometime soon as I think I would like to obtain the residual income from these and have them as a source of income in the future.

I make a decent amount of money for my age, I believe. I work 6 months a year on ships and make about 120k (Pre tax) give or take due to crew changes and holidays. I would like to maximize the potential of this income, not for my current lifestyle but for future living so I dont end up working until lunch time on the day of my funeral.

I have lots of time to read and I know very little about investing. I have read on here about investing in Index funds and it seems that they are fairly popular. I recently made an E*trade account but havent done anything with it due to fear of the unknown and my lack of knowledge at this point.

Any direction that I could receive or experience you would like to share is greatly appreciated.

Any input on the funds or how I should go about researching where I should be looking or heading would be appreciated as well. I feel as though when I am going through an adviser for my investing that there is always the potential that they may have someone elses best interest in mind. I would like to learn how to know what is best for me or at least be able to have a knowledgeable standpoint on the topic.

So, my current situation looks like this:

IRA CWGIX: 14k

401(k) Vanguard target date fund: 12k (No current employer matching)

monthly bills: 1,843 (housing, utilities, IRA contr, car+Ins, phone, land)

Any books that anyone would recommend so that I can learn the basics and improve from there?

Thanks everyone!
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Old 12-16-2015, 11:30 AM   #2
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Welcome to the forum and congratulations on taking an interest in investing at an early point in your life.

There are a number of recommended investment books on this list: An updated FIRE recommended reading list (with a military twist)

I highly recommend this online investing road map - I think it does an excellent job of describing a proven investment strategy: https://investingroadmap.wordpress.com/

One bit of advice I would offer is to take a close look at your use of the term "passive income stream". That phrase is often associated with easy money/get rich quick schemes and, for me at least, has a very negative connotation.

Reading your posts, what you are looking for is an investment strategy, so referring to it that way may get you a better response.
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Old 12-16-2015, 11:35 AM   #3
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Welcome to the forum and congratulations on taking an interest in investing at an early point in your life.

There are a number of recommended investment books on this list: An updated FIRE recommended reading list (with a military twist)

I highly recommend this online investing road map - I think it does an excellent job of describing a proven investment strategy: https://investingroadmap.wordpress.com/

One bit of advice I would offer is to take a close look at your use of the term "passive income stream". That phrase is often associated with easy money/get rich quick schemes and, for me at least, has a very negative connotation.

Reading your posts, what you are looking for is an investment strategy, so referring to it that way may get you a better response.

Thanks! I'll be honest that I did not know the correct terminology for what it is that I was looking for. You would be correct that I am looking for an investment strategy.

What I was attempting to describe by passive income was something like a rental income or another avenue that didn't require my physical, active involvement. Haha I think that is where I decided that term.

Again, thank you for the links and the advice!
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Old 12-16-2015, 11:44 AM   #4
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CWGIX has a high front-load of 5.75%, and a relatively high expense ratio of 0.77%. One alternative would be VT, Vanguard's total world ETF, with an expense ratio of 0.17%, and no load fees.

CWGIX Fund Quote - American Funds Capital World Growth & Income Fund;A Fund Price Today (CWGIX:MFD) - MarketWatch

https://personal.vanguard.com/us/fun...FundIntExt=INT
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Old 12-16-2015, 12:08 PM   #5
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CWGIX has a high front-load of 5.75%, and a relatively high expense ratio of 0.77%. One alternative would be VT, Vanguard's total world ETF, with an expense ratio of 0.17%, and no load fees.

CWGIX Fund Quote - American Funds Capital World Growth & Income Fund;A Fund Price Today (CWGIX:MFD) - MarketWatch

https://personal.vanguard.com/us/fun...FundIntExt=INT
From my understanding the front load is what the broker makes off of each investment into the fund correct? Is this possible to overcome at a certain point or will it continually decrease my earning potential with this investment?

This is basically what I was talking about in my initial post about an adviser having someone elses best interest in mind. I would assume that the fund does not perform that much better than one without the front end load, therefore making it not justifiable? Are these types of funds set up for an adviser to pull in an uninformed investor like myself so that they can make a commission?

If decided, will an adviser take my wishes and transfer the investment to a new fund that has the lower fees or is it something that I would have to withdraw from the account and do myself? Are there fees associated with transfers that are generated by the funds themselves? I assume that adviser fees would be different going from place to place?

Thank you for the input!
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Old 12-16-2015, 12:15 PM   #6
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Since you seem eager and willing to learn, I'd suggest you forget about an 'advisor' (AKA, middleman) and focus on DIY investing. The links I gave you earlier will provide you all the education you need to avoid paying someone to make investment recommendations/decisions for you.

Vanguard and Fidelity have all the low-cost ETFs and mutual funds you could ever want at low expense ratios (costs). No need to pay a commission to someone who may (or may not) have your best interests in mind when they recommend an investment.
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Old 12-16-2015, 12:19 PM   #7
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Welcome aboard.

I suggest you look into IRA and Roth IRA topics. And ditch the bank. Over the next 25 years you'll be giving away too much.
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Old 12-16-2015, 12:20 PM   #8
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Thanks ReWahoo, I am currently trying to download some of them on my Kindle as we speak so that I can read them. I do a lot of reading while I am on the ship and have the free time to spend delving into the topic. I have heard Warren Buffet praise one of the books on the list that you sent me, "The Intelligent Investor". I remember seeing him say something about even though it was an older book, the information was still relevant today. Im not sure how he is held in this forum but I have always heard that he is a very productive investor.

I have picked up a few investing books in the past that seemed to start ahead of my current level of understanding.
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Old 12-16-2015, 12:22 PM   #9
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From my understanding the front load is what the broker makes off of each investment into the fund correct? Is this possible to overcome at a certain point or will it continually decrease my earning potential with this investment?
The front-end load is a one time hit (when you put the money in). But the expense ratio (ER) is an annual "bill" on the total amount in your account. You are paying a huge amount for this fund--you are exactly correct in your initial post tha someone else's interests (your "financial advisor" and his bank) are coming ahead of yours. You can get an better fund for zero up-front load and less than .20% per year. The difference in annual costs wil add up to many tens of thousands of dollars by the time you retire. You should quit this financial advisor ASAP, he's looking out for himself.

Yes, he'll do what you want. It is your money.

It is quite easy to manage your investments yourself. Take REWahoo's advice.
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Old 12-16-2015, 12:53 PM   #10
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Thanks Samclem, I will do this ASAP.

I really appreciate everyone giving me positive input being a beginner at this game!
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Old 12-16-2015, 01:05 PM   #11
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There are a couple of beginning investor books that I like to recommend.

The Millionaire Teacher, by Andrew Hallam... easy read, good advice.
The Four Pillars of Investing, by William Bernstein.
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Old 12-16-2015, 01:22 PM   #12
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Both are on the Download list now! Do you know if either of them have any charts or tables in them? Sometimes with the Kindle version of books if they have things like that where you have to flip back and forth it can get difficult or the kindle version will break it up to where you can not get the information properly.

If that is the case I will purchase the physical book itself today while I am out.

Thanks again guys!
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Old 12-16-2015, 01:52 PM   #13
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There are a couple of beginning investor books that I like to recommend.
. . .
The Four Pillars of Investing, by William Bernstein.
Yes, I'd second this one. Also "The Bogleheads Guide to Investing" -- or the many similar books on the forum FAQ that REWahoo linked.

It's not hard to do, and most people here could give you pretty good guidance to all the major points (better than that guy at the bank--for free). But if you take a few hours to read the books they will explain (and provide good evidence for) some important precepts that 1) most of the public does not know and 2) the financial services industry spends gobs of money in ads and salespeople to help crowd out. Once you've been seen the rationale for:
1) low investing costs
2) The strong case for passive investing
3) A diversified asset allocation that can provide better returns at lower annual variability
4) The basics of choosing the best type of account (IRA/401K, Roth IRA/Roth 401K, after-tax accounts) for each asset type to reduce taxes (now and future)
--then you'll know what you need to know. More importantly, you'll be "salesman proof" and the guy at the bank, the glossy brochure from the Ameriprise agent, etc will have absolutely no ability to influence you.

The folks here can answer almost any questions you've got, read a bit and we can get into details. It's great that you are thinking about retirement at your age, have the resources to get a good start, and are already getting wise to the ways of the wolves in the financial services industry. As soon as you get another good place lined up for your IRA (I'd recommend Vanguard, but there are other good choices), roll over the dough from that broker at the bank to your new account and be done with him.
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Old 12-16-2015, 02:06 PM   #14
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Yes, I'd second this one. Also "The Bogleheads Guide to Investing" -- or the many similar books on the forum FAQ that REWahoo linked.

It's not hard to do, and most people here could give you pretty good guidance to all the major points (better than that guy at the bank--for free). But if you take a few hours to read the books they will explain (and provide good evidence for) some important precepts that 1) most of the public does not know and 2) the financial services industry spends gobs of money in ads and salespeople to help crowd out. Once you've been seen the rationale for:
1) low investing costs
2) The strong case for passive investing
3) A diversified asset allocation that can provide better returns at lower annual variability
4) The basics of choosing the best type of account (IRA/401K, Roth IRA/Roth 401K, after-tax accounts) for each asset type to reduce taxes (now and future)
--then you'll know what you need to know. More importantly, you'll be "salesman proof" and the guy at the bank, the glossy brochure from the Ameriprise agent, etc will have absolutely no ability to influence you.

The folks here can answer almost any questions you've got, read a bit and we can get into details. It's great that you are thinking about retirement at your age, have the resources to get a good start, and are already getting wise to the ways of the wolves in the financial services industry. As soon as you get another good place lined up for your IRA (I'd recommend Vanguard, but there are other good choices), roll over the dough from that broker at the bank to your new account and be done with him.
Thanks! I will get to my reading! Once I have a more solid understanding of the topics at hand and can discuss it at depth (mainly so I know what you guys are trying to tell me without you having to go into great detail and definitions so that I can understand haha.) I will get back to this thread.

Right now, I have "The Intelligent Investor" and a couple other downloading as we speak on the kindle. I should be able to knock a couple of them out in the next few weeks. When I am home and it is rainy like it is I have all the time in the world to read and research!

I have always tried to be suspicious of people who manage finances, especially if it is not theirs. There is always a catch. Granted, I am usually suspicious of anyone who is trying to sell me something or provide a service unless it is solicited.

Thanks for the advice on rolling the current fund into a different one with less fees and no front loaded costs. I assume I can do this through something like E*trade or the like to continue making monthly contributions?
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Old 12-16-2015, 02:20 PM   #15
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Thanks for the advice on rolling the current fund into a different one with less fees and no front loaded costs. I assume I can do this through something like E*trade or the like to continue making monthly contributions?
Yes, you could use E*Trade, but they (or another broker) would be most appropriate if you want to use ETFs (rather than "regular" Mutual Funds). If you'd prefer to use mutual funds instead, it's often less expensive/more convenient to buy them directly from the seller (Vanguard, Fidelety, etc),and you'd likely set up an account there. If the ETF/mutual fund distinction is new to you, don't worry--it's in the books. In a nutshell, if you plan to leave the money invested for many years, there's not a whole lot of difference between mutual funds ("MFs") and ETFs. I prefer to use MFs, but that's a personal preference.
If you set up an account at Vanguard or somewhere else to buy mutual funds, you can easily buy them every month automatically. That's a >great< way to do things, and was probably key to my own ability to save for retirement. You don't see it, don't miss it, and are unlikely to spend it.
Just make sure you do a "rollover" and not a "withdrawal" from your present IRA to the new one. It reduces the chances of a slip-up and possible big tax fine. Having your rollover initiated by the new custodian (rather than "pushed" from the old custodian) works better--the new guys is well incentivized to follow-up and make sure it happens. The guy at the bank--might "misplace" the paperwork and use the time to plead with you to stay with him. It happens.
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Old 12-16-2015, 05:44 PM   #16
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Given income of $120k a year you are in the 28% or 25% tax bracket depending on whether you are single or married. So it would be best for you to focus on tax-deferred saving in your 401k, even if there is no match, if your employer 401k offers any no-load, low-cost index funds (which it should but many do not).

It is crazy to pay a load in this day and age when there are so many great no-load, low-cost index funds out there, so read and learn and ditch your FA and CWGIX and go with a no-load, low-cost fund from Vanguard or Fidelity. You'll deal with Vanguard and Fidelity and they will arrange for a transfer from your current provider... you don't even have to give the guy the bad news.

Is your IRA a Roth IRA? If not, then Roth is the way to go as earnings are ultimately tax-free compared to taxable for a traditional IRA.

In addition to the books you are reading, surf around here and buy a subscription to Kiplinger's Personal Finance and/or Money magazine and read it regularly.
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Old 12-17-2015, 09:41 AM   #17
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Given income of $120k a year you are in the 28% or 25% tax bracket depending on whether you are single or married. So it would be best for you to focus on tax-deferred saving in your 401k, even if there is no match, if your employer 401k offers any no-load, low-cost index funds (which it should but many do not).

It is crazy to pay a load in this day and age when there are so many great no-load, low-cost index funds out there, so read and learn and ditch your FA and CWGIX and go with a no-load, low-cost fund from Vanguard or Fidelity. You'll deal with Vanguard and Fidelity and they will arrange for a transfer from your current provider... you don't even have to give the guy the bad news.

Is your IRA a Roth IRA? If not, then Roth is the way to go as earnings are ultimately tax-free compared to taxable for a traditional IRA.

In addition to the books you are reading, surf around here and buy a subscription to Kiplinger's Personal Finance and/or Money magazine and read it regularly.
I am single at the moment but that may change in the near future. I currently have no write offs for taxes either so they get a larger portion than I feel like I should have to pay. Though, I assume everyone feels this way hahaha.

My IRA is a Roth IRA. I am looking now into the Vanguard funds. I began the reading last night, though I did not get that far yet. Looking for the load to be zero and the annual cost basis to be low.

As far as my 401(k) is concerned, I am not truly sure what they offer and I will have to get the paperwork when I go back to the office for crew change as it is in an entirely different state. When I signed up I just wanted to start contributing even though I didn't know what I was looking for as far as the funds were concerned. I talked to my FA about it when I signed the papers and he told me to just look at the target date funds on there. He told me that they may have a little higher fees but that the manager of the fund would adjust the holdings as time progressed from having risk to being a safer investment when it got closer to the time for retirement. He told me that this would be best until I was able to start managing it myself, as he was not allowed to give advice on stuff outside of what happened in the bank investments.

I know that when I did sign up for the 401(k), there were not a lot of different funds for me to choose from. If I recall correctly, I believe that there were only about 6. This is thinking back farther than last week and I had no idea what I was really looking at so I may be mistaken. I do think that when I looked over it, there were a few Vanguard funds on there. I think.....When I was looking up the funds to choose from I had a strategy. Don't laugh... I would type the fund into the MorningStar website and see how many stars the fund had and choose by who had the most stars. I WAS CLUELESS! (I am slightly more knowledgeable than clueless now)

Thanks again
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Old 12-17-2015, 09:53 AM   #18
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It's funny, until now, I was trying to figure out how he was getting paid. I assumed that the bank was paying him to do a service for their members. I am not sure how long it would have taken me to discover on my own about the Front-Load going to him. More than likely, I would have kept plugging away money into his pocket, none the wiser.

Thanks everyone!
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Old 12-17-2015, 09:59 AM   #19
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There are a couple of beginning investor books that I like to recommend.

The Millionaire Teacher, by Andrew Hallam... easy read, good advice.
The Four Pillars of Investing, by William Bernstein.
The Four Pillars of Investing is one I always recommend. I have bought copies for my kids and for others interested. You can pick them up cheaply, used, on Amazon..

I'm not familiar with The Millionaire Teacher, but another one I recommend to young people, and that changed my life, is

The Millionaire Next Door...

Good Luck on your journey.
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Old 12-17-2015, 10:04 AM   #20
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HadEnuff, I actually have a friend who just finished that book and recommended it to me. She told me that "The Millionaire Next Door" absolutely changed the way she looked at spending money and that it was one of the best books she ever read!
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