Need an advice (switch or not to switch

[argo]

Hi people,

I'm a beginning investor. Learnt about this forum just tonight, so already hold 1,5K in Chase mutual and about 1k at Emigrant Direct.

Here, it seems, everybody advises to go with Roth Vanguard and the best APY with UFB Direct.

I'm looking in long term investing (about $250 monthly) and, off course, want "the best of the best" but without risk, though may consider some.

Would you recommend me to switch from Chase and EM to Vanguard and UFB?

Also, about Roth Vanguard, I went to their website but did not find a reference to Roth. Is this something that they offer later in registration process or not everyone is qualified?

Another also, can you recommend any high cash rewards credit card? My Chase gives me 1% back. I wonder if can get more.

Many thanks,

[safari]

You should only invest in mutual funds if you won't need to use that money in the next 8-10 years. Even though mutual funds are "safer" investments than individual stocks, the market can be quite unpredictable over the short term. Vanguard offers Roth IRA accounts; here is a link for you
http://flagship2.vanguard.com/VGApp/...iewContent.jsp

As for switching from ED to UFB Direct, I wouldn't do that. ED has always offered one of the highest interest rates, while UFB just now raised their rate, and they may not keep it up going forward. They could have done it just to make people switch to them from other banks. The difference between the interest rates is so small (0.11%), that it doesn't make sense to switch, especially considering your balance. $1,000 * 0.11% = $1.10 -- that's how much extra you will earn in a year if you switch to UFB Direct (assuming ED will continue lagging behind UFB by 0.11%). Not worth it.

[meaghanchan]

I think if you're going to switch it's important that you understand the reasons to switch, and not just do it because everyone's saying to.

The problem with Chase mutual funds, if I'm understanding correctly that that's what you have, is that they often have high expenses and high loads to buy them. In other words, you pay a certain amount of your money when you get them, and then a very high percentage every year to manage them. That's one of the reasons people like Vanguard- their expenses are very low.

The thing about mutual funds is that they do have more risk associated with them than savings accounts at a bank. Unlike savings accounts, they are not FDIC insured. There are different types of mutual funds- ones that hold stocks, ones that hold bonds, ones that hold commodities, ones that hold real estate, ones that hold a combination of different things.

The average return over a long period of time for most stock mutual funds is about 10%- obviously much higher a return than you're getting on a savings account- but again, there is risk involved. Every time the stock market goes down, you lose money. Every time the stock market goes up, you make money. Only you can decide if that level of risk is appropriate for you. The problem is, the 'best of the best, but without risk' is a bank savings account that's insured by the FDIC. That's the only way you're guaranteed to make money, and at best you're only going to be making 5%. Anything that has a higher rate of return has _some_ level of risk associated with it.

With $1500, you could start a Roth IRA with Vanguard with only one of thier funds- the Star fund. It is a fairly conservative 'balanced' fund, with about 60% in stocks and 40% in bonds. It is a good fund that is fairly well-diversified and has had good returns over the last 10 years. Most of the Vanguard funds have a $3000 minimum, but with a $250 monthly investment, you'd be there in no time.

You might want to poke around on the site and fill out the Vanguard investor questionnaire, to see if you can find an asset allocation (which refers to the percent of money you have in stocks and percent you have in bonds) that's right for you.

[argo]

Thank you guys, meaghanchan and safari, for your profound responses.

I read more about Vanguard, and it seems, that it's good only as a retirement plan without many opportunities to withdraw money earlier if needed.

Also, what's the difference between Vanguard and any other fonds, for example, American funds?

Thanks,

[Ima saver]

The vanguard funds are no load (no fees up front) and low expenses. A mutual fund is not something that you want to make withdrawals out of until you get to retirement age, if at all possible. It is a good saving device, but a long term saving device. American funds charge a 5.75% load!

[argo]

Originally Posted by Ima saver

The vanguard funds are no load (no fees up front) and low expenses. A mutual fund is not something that you want to make withdrawals out of until you get to retirement age, if at all possible. It is a good saving device, but a long term saving device. American funds charge a 5.75% load!

Ima saver,

Thanks for explanation. This is actually what bothers me. I put money a month ago and was charged with that load fee.

So, now I'm thinking when it's a good time to switch. Now - I will lose the load fee amount. If after dividents are paid, what will I lose than?

Gratefully,

[disneysteve]

Investing in load funds puts you at an immediate disadvantage. Let's say you invest $1,000 in a fund with a 5.75% front-end load. That means $57.50 goes to the fund company and only $942.50 actually gets invested. You need to earn 6.1% just to break even.

On the other hand, if you invest $1,000 in a no-load fund, the entire $1,000 gets invested. So any gain is profit.

There are some who will disagrere (though probably not anyone here), but I see absolutely no reason to ever invest in a load fund.

[disneysteve]

Originally Posted by argo

I put money a month ago and was charged with that load fee.

So, now I'm thinking when it's a good time to switch. Now - I will lose the load fee amount.

I think you should take the loss and get out. We've all made mistakes in our investing lives. Chalk this up as a learning experience and move on.

[sweeps]

But if it's a front-end load, the damage is done. If the fund is an otherwise high-performing fund, then it may be good to stay in it at this point.

If on the other hand the fund performance stinks or doesn't fit your investing needs, might as well get out now.

[Ima saver]

I have only invested with one fund with a load, that was Fidelity Magellan and it was being run by Peter Lynch at the time! So I paid the 3% load, but I would not buy any other load fund. Fidelity magellan no longer charges a load and Mr. Lynch retired!

[disneysteve]

Originally Posted by Sweepsplayer

But if it's a front-end load, the damage is done. If the fund is an otherwise high-performing fund, then it may be good to stay in it at this point.

If on the other hand the fund performance stinks or doesn't fit your investing needs, might as well get out now.

True. I guess it depends on the fund and how much money is involved. If the amount is significant, keep the account but don't add to it. If the amount is small, though, I think I'd take the hit and close it out rather than have the hassle of tracking a little account that I don't plan to ever use again. Kind of a judgement call at this point.

[argo]

Guys,

Thanks for replys.

The main thing that bothers me with Vanguard is not many opportunities to withdraw many without fees.

For example, if I want to retire in my 50s?

By the way, how old is Vanguard?

[disneysteve]

Originally Posted by argo

The main thing that bothers me with Vanguard is not many opportunities to withdraw many without fees.

I don't understand this comment at all. Vanguard is no different than any other mutual fund company. You can redeem shares whenever you want. There may be tax consequences, but that is also true with any fund company. Can you explain what you meant here?

Vanguard was founded in 1975.

[argo]

Originally Posted by disneysteve

I don't understand this comment at all. Vanguard is no different than any other mutual fund company. You can redeem shares whenever you want. There may be tax consequences, but that is also true with any fund company. Can you explain what you meant here?

Vanguard was founded in 1975.

Sorry for vagueness. I just misread the Vanguard website.

[meaghanchan]

Just to clarify: The only problems you'd have with withdrawing before retirement is if the fund is in a tax-advantaged account, such as a Roth IRA or a 401(k).

If you just buy a mutual fund without putting it in a retirement account, you can sell it at any time.

[Great to be Debt Free]

Good thread -- I'm just beginning to understand mutual funds myself. Thanks

[sweeps]

Originally Posted by meaghanchan

If you just buy a mutual fund without putting it in a retirement account, you can sell it at any time.

Usually yes, but not always. Some funds have limits on selling a fund -- either preventing you from selling or charging a redemption fee if it's sold within a certain period of time.

Some Vanguard funds, for example, charge a 2% redemption fee if sold within 2 months.

[meaghanchan]

Originally Posted by Sweepsplayer

Usually yes, but not always. Some funds have limits on selling a fund -- either preventing you from selling or charging a redemption fee if it's sold within a certain period of time.

Some Vanguard funds, for example, charge a 2% redemption fee if sold within 2 months.

True. I forgot about that.