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Pre-2008 Assessment - Please advise
Old 12-20-2007, 09:44 PM   #1
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Pre-2008 Assessment - Please advise

Hi all -

I haven't had a chance to post in a while (or often for that matter) due to being an indentured servent in my career and going to school part time at night, but I'm evaluating 2008 goals and I had some questions. I'll post some details below, but if you can comment and answer two questions then I would greatly appreciate it. FYI, I'm 26 (for what it's worth) and I do everything on www.fidelity.com.

2008 Goals
- Continue to max out 401k, Roth IRA, and company stock options (10% of pretax income used to purchase company stock at a 15% discount every quarter).
- Continue to plow the balance into my personal portfolio. Strategy is aggressive growth stocks, both domestic and foreign. I will begin to trade options this year after spending time in a simulator for most of 2007, but won't be playing with too much money in the der. markets (I'm still a rookie).
- $17,095.00 sits in a lame escrow account - measly interest. This was earnest money used for a pre-construction condo that was going to be my first home, but after reviewing rents in the area, I will rent this out once it's completed in early 2009.
- Continue to work like a dog to beef up the raise
- Continue with classes at night; rock the CFA exam this June and get a nice bonus
- Remind myself daily that there is light at the end of the tunnel. It won't be this way forever!

Need advice
- I'd like to set up an emergency fund of roughly $5,000.00. I never set one up, and it's about time I did this. What is the best way to go? I was thinking of getting a money market account, but wasn't sure. Any suggestions? If money market is the way to go, is there one that you would recommend?
- Dumb question, but honestly, I don't know the answer to this! When they say you can contribute a max of X amount to a 401k or IRA for Y year, is the year on a cala or fiscal basis?

I can provide additional details, but decided to spare them. Please let me know if you would need to know anything else. Thanks!
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Old 12-21-2007, 12:36 AM   #2
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comment #1 : don't trade options. if you did well in your simulator account, you are now a probable
victim of survivorship bias. if you do not know what this is, you will probably find out shortly.

Other than that, your plan sounds good. Contribution limits are calender year. MM accounts are
excellent places for emergency funds, any major one will do.
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Old 12-21-2007, 09:25 AM   #3
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Don't let the CFA training lull you into thinking you know the derivative market.

Stick will covered call writing, and maybe a few cash puts for now..........no straddles or "naked puts" for you.......
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Old 12-21-2007, 11:10 AM   #4
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Great goals for 2008!!

You might want to add, "making some progress on paying down debt" if you have very much debt. Somehow, I doubt that you do.
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Old 12-21-2007, 11:17 AM   #5
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Actually, trade all the options you like, but keep it to under 5% of your total portfolio. And I would probably stick with covered calls, long puts and calls, and maybe a bull or bear spread. Anything else starts to get too complicated and introduces significant possibility of blowing yourself up.
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Old 12-21-2007, 07:00 PM   #6
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Hi all,

Thanks for the comments!

CyclingInvestor: I'm well aware of survivorship bias, albeit not in the context of options. Again, I'm still a rookie with der. markets, and would like to get my feet wet a little this year. I won't be playing with much money, I swear. I know that I still have a lot to learn in this realm.

Thanks for answering the questions. Would you recommend a money market account or a money market fund? Sorry, but I deal with equities all day that I'm not even familiar with the basics that commercial banks offer to consumers.

FinanceDude: I think you hit the nail on the head here. I've been working in the investment management industry out of college, couple that with the CFA exams and you tend to think you know something. How right you are though, I really know jack about der. markets from the IM industry and CFA studies. Just enough about the basics where I'd like to play around a little.

Want2retire: Thanks for the comment. I do have a little debt, but it will be paid off by the end of January. Good catch - I totally omitted that one. After January (hopefully) I will be debt free.

brewer12345: Agreed. I will stick to a very small amount of money and work with the basics. Maybe within another year or two I can get a better handle on the der. markets.
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Old 02-04-2008, 11:08 PM   #7
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Quote:
Originally Posted by Pavo View Post
Hi all -

I haven't had a chance to post in a while (or often for that matter) due to being an indentured servent in my career and going to school part time at night, but I'm evaluating 2008 goals and I had some questions. I'll post some details below, but if you can comment and answer two questions then I would greatly appreciate it. FYI, I'm 26 (for what it's worth) and I do everything on www.fidelity.com.

2008 Goals
- Continue to max out 401k, Roth IRA, and company stock options (10% of pretax income used to purchase company stock at a 15% discount every quarter).
- Continue to plow the balance into my personal portfolio. Strategy is aggressive growth stocks, both domestic and foreign. I will begin to trade options this year after spending time in a simulator for most of 2007, but won't be playing with too much money in the der. markets (I'm still a rookie).
- $17,095.00 sits in a lame escrow account - measly interest. This was earnest money used for a pre-construction condo that was going to be my first home, but after reviewing rents in the area, I will rent this out once it's completed in early 2009.
- Continue to work like a dog to beef up the raise
- Continue with classes at night; rock the CFA exam this June and get a nice bonus
- Remind myself daily that there is light at the end of the tunnel. It won't be this way forever!

Need advice
- I'd like to set up an emergency fund of roughly $5,000.00. I never set one up, and it's about time I did this. What is the best way to go? I was thinking of getting a money market account, but wasn't sure. Any suggestions? If money market is the way to go, is there one that you would recommend?
- Dumb question, but honestly, I don't know the answer to this! When they say you can contribute a max of X amount to a 401k or IRA for Y year, is the year on a cala or fiscal basis?

I can provide additional details, but decided to spare them. Please let me know if you would need to know anything else. Thanks!

Congrats on the CFA exam, I took exam 1 and failed miserably.
I have been trying to find if there are any university that offers review course for the CFA exam. Should have paid more attention in college.
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Old 02-05-2008, 06:32 AM   #8
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Pavo, your plan looks as good as any... better than many.

Money Market is way to go for emeregency fund. I am not an epert on all of the different rates, so look around for the best with the knowledge that if rates continue to go down, so will the mm.

Calendar year on IRAs.

As to options... go ahead and take some 'mad money' and learn.
Options now are aren't as attractive a risk as they used to be. Way back when, in the late 70's, you could trade options 50 cents to a dollar wide. Now they are so tight, you have a real difficult time overcoming the transaction fees. ... but you'll probably learn that too.

best of luck to you.
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Old 02-05-2008, 08:30 AM   #9
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trying2save - I failed the first time I took it. You know, walked in with the Magna Cum Laude swagger about ~1 year into my first job and decided that I didn't need to prep and study that much since I was setting curves in finance classes in undergrad - I even decided to skip studying ethics since, well, how tough can ethics really be?

I got a nice dose of humble pie

I took a year off and decided to take it again, this time with much more focus and sure enough it happened. My firm offers generous bonuses for passing each level, so that helped motivate me as well.

megacorp - Thanks. I have a high school friend who is an LBYM-er and very career focused as well - he'll probably make partner at Price-Waterhouse one day - but when he tells me that I am too driven and focused and need a personal life, well, I don't know. The way I see it, is that I had a LOT of fun in high school and college, but now I want to spend a little more than the second half of my 20s developing myself financially, mentally, and professionally. I know it will all pay off one day, but wow, here in the big city coupled with my young age, I sure am an anomoly in this respect. LBYM is a very foreign concept among most of my peers.
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Old 02-06-2008, 07:26 PM   #10
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Pavo,

You mentioned that you were going to put $5000 into an emergency cushion -- that seems a bit low for 6 months of expenses. Did I read that right?
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Old 02-08-2008, 10:47 AM   #11
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Strategy is aggressive growth stocks, both domestic and foreign.
You may benefit from reading Fama-French.. but if you're an active trader you probably wouldn't be interested.

In a nutshell - growth stocks are less risky than value across all market cap sizes, and return less to the investor. There's your 5 minute lesson
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Old 02-08-2008, 04:33 PM   #12
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Urchina - I thought $5,000 would be a good amount just to get me started in having something set up for now. I live very frugally, and I am single at the moment. I would definitely bump that value up once married and have a family.

innova - I'm a fan of Fama's, and I've studied his work in undergrad. My current manager had him as a professor at UC, and one of my clients is doing his PhD at UC asserting that Fama is wrong in some of his theories. I will definitely look into the book though. I am an active trader, but my strat. is more of a buy and hold then day trading or doing many transactions. Taxes kill you too much.
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Old 02-08-2008, 05:55 PM   #13
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Pavo, I certainly swing on the conservative side with regards to the emergency cushion (being married with two kids and a mortgage does this to you). Sounds like you've thought it out.

I
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