General Investing Tips

[kork13]

Alot of people come to these boards looking for advice on how to start investing. So this thread can hopefully be a collecting point for people to get started thinking about investing, and can hopefully be helpful for those people. Whether you have general advice, rules of thumb, perhaps some basic strategies for selecting investments/mutual funds, or pretty much anything else you can share, please feel free to contribute, or to offer your opinions on the advice given by others. I'm hoping that the running theme here can be basic, general advice for people just starting out.


So with that in mind, here are some "Do and Don't" tips I came across today:

*Don't invest money you can't afford to lose.
*Don't let excessive fees eat into your returns.
*Do diversify your portfolio mix with fixed income and other assets, and reduce the risk in your portfolio as you get closer to retirement.
*Do consistently rebalance your portfolio.
*Do add new money steadily over time, in good markets and bad, so that you "dollar-cost average" (buying more when prices are low and less when they're high).

Some others of my own that I'll contribute:

*Don't let market fluctuations influence your investing strategy.
*Do carefully develop your personal asset allocation, based on the level of risk you can accept. Determine what percentages of large-cap/mid-cap/small-cap/international/bonds/cash you want.
*Do ask questions!

I'll probably try to add some more thoughts to this thread, but hopefully this can get everyone started.

[disneysteve]

Don't invest money you can't afford to lose.

I'd certainly have to disagree with this one. I'm not exactly sure what they are implying here. I can't afford to lose the money I'm saving for retirement, or my daughter's education, but that money is all invested. If I just left it in my money market account, it would never grow enough to reach our goals.

[jIM_Ohio]

Asset allocation is the mix of investments- mix of domestic and foreign equities, mix of equities and bonds, what types of equities you hold (large-mid-small caps).

Asset allocation also determines most of your return as well as defining what risks you are taking.

[disneysteve]

I'm hoping that the running theme here can be basic, general advice for people just starting out.

I think the most basic tip is to JUST DO IT (to borrow a line from Nike). If your employer offers a 401k or 403b, sign up and start contributing. A high percentage of people who are eligible for such plans don't participate. Even if you can only start with 1 or 2% of your income, it is something and it will grow over time. As your income increases, increase your contribution. If possible, contribute at least enough to get the full company match if there is one.

If you don't have a company plan, set up an automatic monthly investment into an IRA/Roth.

Whatever you do, make sure you are doing something to save for the future.

[maat55]

Generally,

Invest in any 401k or 403b to at least the match.
Invest in a Roth IRA if you qualify.
Invest with every paycheck.
Invest in Mutual funds if you are not well versed in other investments(Like me)
Find a comfort level allocation between Growth, Growth & Income, Aggressive Growth and International or balanced and index funds.

Remember to establish and Emergency Fund and payoff high interest consumer debts before investing after the match on your 401k or 403b.

[jIM_Ohio]

Generally,

Find a comfort level allocation between Growth, Growth & Income, Aggressive Growth and International or balanced and index funds.

This is why general advice is bad.

The above are asset allocations and philosophies. The way the above reads a person could pick one of each of above and have enough investments to be investing correctly. This is misguided information at best.

Growth suggests an asset allocation of around 80% stocks and 20% bonds or 100% stocks. It could be a total stock market index, a mixture of S&P 500 and Russell 2000 index funds, managed funds in large, mid and small cap companies, or a combination of all the above. It would also include an international component.

Growth and Income suggests an asset allocation of between 80% stocks and 20% bonds and 60% stocks and 40% bonds. In the 80-20 there would need to be a heavy bias towards dividend paying stocks to be considered an income portfolio. Could do this with index funds or managed funds, and more than likely an international component would exist in the allocation.

Aggressive growth and growth are the same things. The big difference is the type of stocks and the weightings of the funds. Both have an international component too.

Growth might be 60% domestic large cap, 10% mid cap, 10% domestic small cap and 20% foreign (large-small-emerging mix).

Aggressive growth might be 45% domestic large cap, 15% mid, 15% domestic small, 15% foreign large, 5% foreign small and 5% emerging markets.

THe biggest difference is the weightings, not the asset classes.

Balanced is the 60-40 growth and income mentioned above. If you really wanted less risj, go 40-60 and remove the small caps and foreign stocks.

The emphasis should be on asset allocation, not finding a "growth and income" mutual fund and then also adding a foreign fund and aggressive growth fund to this mix.

Asset allocation defines the risks a person is willing to take and the diversification to mitigate some of the risks. If you use the growth vs growth and income vs balanced (pick one fund from each category) the investor will be subject to significant risk to large caps, and not be invested in small caps enough.

[maat55]

This is why general advice is bad.

The above are asset allocations and philosophies. The way the above reads a person could pick one of each of above and have enough investments to be investing correctly. This is misguided information at best.

Growth suggests an asset allocation of around 80% stocks and 20% bonds or 100% stocks. It could be a total stock market index, a mixture of S&P 500 and Russell 2000 index funds, managed funds in large, mid and small cap companies, or a combination of all the above. It would also include an international component.

Growth and Income suggests an asset allocation of between 80% stocks and 20% bonds and 60% stocks and 40% bonds. In the 80-20 there would need to be a heavy bias towards dividend paying stocks to be considered an income portfolio. Could do this with index funds or managed funds, and more than likely an international component would exist in the allocation.

Aggressive growth and growth are the same things. The big difference is the type of stocks and the weightings of the funds. Both have an international component too.

Growth might be 60% domestic large cap, 10% mid cap, 10% domestic small cap and 20% foreign (large-small-emerging mix).

Aggressive growth might be 45% domestic large cap, 15% mid, 15% domestic small, 15% foreign large, 5% foreign small and 5% emerging markets.

THe biggest difference is the weightings, not the asset classes.

Balanced is the 60-40 growth and income mentioned above. If you really wanted less risj, go 40-60 and remove the small caps and foreign stocks.

The emphasis should be on asset allocation, not finding a "growth and income" mutual fund and then also adding a foreign fund and aggressive growth fund to this mix.

Asset allocation defines the risks a person is willing to take and the diversification to mitigate some of the risks. If you use the growth vs growth and income vs balanced (pick one fund from each category) the investor will be subject to significant risk to large caps, and not be invested in small caps enough.

Jim, I think the way you over analyze is a waste of time. Having a variety of these funds is just fine. After all is said and done, you and I with our different allocations are basically in the same boat.

[MYOM]

When I was in private practice, I could manage any investment objective Growth, Growth and Income, using a five-fund format up to about $300,000. I never expanded much past 7 funds because diwersification starts to set in.

“Growth and Income suggests an asset allocation of between 80% stocks and 20% bonds and 60% stocks and 40% bonds. In the 80-20 there would need to be a heavy bias towards dividend paying stocks to be considered an income portfolio.”

I disagree with the above allocation for a Growth and Income account. The mix for G&I is always 60% stocks to 40% income. Balanced is also 60/40. It does not mean you can change it based on the risk tolerance of the client but those are the numbers you start with. Dividend paying stocks are not considered in the split because they represent the same asset class. The split is always stock to bonds to real estate to cash to foreign and to metals or commodities.

Also no reference is made to the person’s age and you have to take age into account because of suitability. For example, it would not be appropriate for an 80 year old to be invested in the Growth and Income allocation of 60/40. My correct allocation for an 80-year old is 80% individual bonds and 20% equities.

Dan Clemons retired Certified Financial Planner

[aaradhna]

Any day, lower the expenses the better it is. Smart and well-managed funds keep their expenses low. Smarter funds know exactly how to make their offerings attractive by smartly tucking away expenses either in entry load or exit load or by cutting on returns. And smart investors always get to beat the funds by figuring out where all the expenses are included. Right?

So if you want to make your investment in a smart way, i would suggest to go in for funds which are really been beneficial. I have been one among those, wish you luck for beneficial investing by investing in Sundaram's Select Focus Funds and Tax Saver Fund.

[disneysteve]

Smarter funds know exactly how to make their offerings attractive by smartly tucking away expenses either in entry load or exit load or by cutting on returns.

Sundaram's Select Focus Funds and Tax Saver Fund.

Hmmm. A brand new poster touting a LOAD fund as a smart investment. Thanks for the spam, aaradhna.

[jIM_Ohio]

When I was in private practice, I could manage any investment objective Growth, Growth and Income, using a five-fund format up to about $300,000. I never expanded much past 7 funds because diwersification starts to set in.

“Growth and Income suggests an asset allocation of between 80% stocks and 20% bonds and 60% stocks and 40% bonds. In the 80-20 there would need to be a heavy bias towards dividend paying stocks to be considered an income portfolio.”

I disagree with the above allocation for a Growth and Income account. The mix for G&I is always 60% stocks to 40% income. Balanced is also 60/40. It does not mean you can change it based on the risk tolerance of the client but those are the numbers you start with. Dividend paying stocks are not considered in the split because they represent the same asset class. The split is always stock to bonds to real estate to cash to foreign and to metals or commodities.

Also no reference is made to the person’s age and you have to take age into account because of suitability. For example, it would not be appropriate for an 80 year old to be invested in the Growth and Income allocation of 60/40. My correct allocation for an 80-year old is 80% individual bonds and 20% equities.

Dan Clemons retired Certified Financial Planner

Nothing will be black and white when dealing with growth vs growth and income.

My portfolio at T Rowe is 97-3, with 44 percent dividend paying stocks and it is classified as growth and income on both T Rowe and Morningstar.

I agree 7 funds should be enough for most people. I own more than 7 for various reasons.

[tahanifabian01]

All the investment tips are fine....

Thanks for your tips..

[chai]

yes... these are very helpful for those who are didn't know how to invest and where to place their money...