AFAIK, all U.S. charities are required to disclose what percentage of their budget goes to administrative costs. While it's not a straight-line relationship between that and worthiness, it's certainly worth checking on.
If I were making investments (which I'm not) and didn't want to micromanage them (which I probably would want to, even though it's more likely to hurt than help me) I'd invest in something with Vanguard. Though I've heard they're no longer as much better than the rest of the field as they used to be.
What baa said. If you're pretty risk averse, split the investments 60/40 or 50/50 (etc.) stocks to bonds, and put the money in index mutual funds. If you aren't going to use the money until retirement or thereabouts, you'll gain significantly from keeping the bond fund in a tax-deferred account. Disclaimer: I'm a pseudonymous bozo on the Internet. For all you know I could be telling lies.
Tritto the investment advice, especially the bit about you don't want to be thinking about this stuff--indexed mutual funds are the way to go. If this is a retirement investment, you can stand to put more than 50% in equities, but that depends on how risk averse you really are.
The best answer to "what should I invest in?" is "the market."
But it takes all of 5 minutes to go to morningstar.com and search all mutual funds for those with the most consistently high returns, low expenses, and low initial investment. Constrain yourself enough and the list is less than 10 before you even begin. So while it's easy and good to invest in "the market," you can give yourself a really good chance of beating the market with a negligible amount of extra work.
And the "100 minus age" rule of thumb for investing in stocks vs. bonds is worth considering.
you can stand to put more than 50% in equities, but that depends on how risk averse you really are
If you're ogged's age or younger, I don't know why you wouldn't invest primarily in equities. You'd want to have enough in a less volatile investment that you could deal with the unforeseen interruption of your paycheck, but other than that, I don't know why the rest wouldn't go into an index fund.
Looking over baa's comment at 2, and considering his entire commenting oeuvre--man-crushes aside, is anybody else a little freaked out that the most consistently sensible and incisive guy here is a Bush voter?
Of course he's incisive; he's got a comparative advantage. His is a world of black and white, our's is a world of mottled grey. Jeebus, do you not even read the materials from Blue State HQ?
If you're into a bit of a cross-your-fingers thing, this has been something I've been thinking about myself: check out this graph. That big spike just past 2000 is the release of the PS2. Can't say if it'll happen again this new year, but, it's also doubtful it will go down.
Also, doesn't he have a background in investment banking or something?
There's also a selection effect--a Bush voter who didn't make decent arguments wouldn't last too long among all the lefties. (Not to mention that I happen to know that he was abc123, posting from a spoofed IP.)
thanks for the graph, showing why I am not a qualified giver of investment advice. A little searching reveals that the media had been talking about the dot-com bust months before then, which is what I remember. It appears the market was a little slow to catch on. Still, the PS accounts for ~11% of Sony's net sales. I should study more econ.
Michael, there may be something to your theory on Sony & the PS2- I don't know the first thing about the company. I just thought the date was awfully convenient.
As to media commentary versus the movement of the market, if the media is half-way decent (which I think it is), it'll be talking about a big trend like that months before it happens. Viz the house-market price bubble story going on right now. The media is predicting the demise of real estate, but housing prices are still going up.
looking at your graph, it's a little funny to see a continued surge and spike right before the drop-off, which everyone had been talking about. It's like one last orgasm screwing pooch before withdrawal....
Choose a portfolio and stick to it. Rebalance the percentages if they change as the markets move-- this forces you to 'buy low, sell high'. Save equal amounts at regular intervals. This means you buy more shares when they are cheap and fewer when they are expensive. This is all very boring advice, and that's a good thing. Personal finance is the opposite of sex-- if it's exciting, that means you're doing it badly.
if the media is half-way decent (which I think it is)
Possibly this is a semantic quibble, but this isn't a function of the media being half-way decent; it's a function of the media repeating the word on the street. It's a classic sign of an investment bubble that it be known to be an investment bubble, yet people still pour money into it.
There are at least two reasons for this.
1. "greater fool"; market-takings available to you if you can get out before the bust
That big spike just past 2000 is the release of the PS2. Can't say if it'll happen again this new year, but, it's also doubtful it will go down.
Aha! Something I actually know about.
That PS2 spike (assuming the PS2 is actually responsible for it) is unlikely to happen again because the PS2 beat the other systems out of the gate by about a year. That isn't going to happen this time -- Microsoft is poised to release the XBox 2 before Sony or Nintendo's next-gen offerings. Also, the Xbox has recently passed the PS2 in domestic sales. The PSP is a success, but I would say the tide is shifting against Sony in the videogame market.
More importantly though, the corporation as a whole is kind of in disorder. They just appointed their first non-Japanese chairman, which everyone seems to agree is a signifier of some degree of chaos. Also, they're starting to get their lunch eaten by cut-rate but increasingly high-quality Korean manufacturers.
But, if you were a crazy day-trader type, it seems very likely that around the release date of each system the share price of the relevant manufacturer will spike. Maybe the market has fully internalized the gigantic growth of gamer culture in the last couple of years, but I kind of doubt it (despite what my econ professor would have said).
Gold. Hide it under the bed, so the burglars can find it more easily. Enormous increases in virility result as a bonus.
You should hedge against Armageddon, which will destroy all your investments if it happens, by drinking a lot of expensive booze while you can. Can't take it with you.
I recommend that you read A Random Walk Down Wall Street by Burton Malkiel. He argues pretty compellingly in favor of the low-cost index fund approach several other commenters have mentioned. It's a quick and mostly enjoyable read, and it nicely balances arguments in favor of the approach with practical pointers on implementation.
Another book worth reading is The Intelligent Investor by Benjamin Graham. Graham was Warren Buffett's mentor, and Buffett has always relied heavily on Graham's approach in his investment decisions.
Those two books (or really even just the first, if you don't have time for both) will give you what you need to make wise and relatively safe investment decisions.
Well my suggestion would be that you park it in Google and keep the stock price high, so that my brother's options do well!
But if that's not to your taste, while people have suggested plenty of abstract advice, no-one seems to have given a concrete company name. I'd suggest you use Vanguard (disclaimer my money, such as it is, is with Vanguard, but apart from that I've no relationship with the company). Vanguard has a long history of doing everything they can to keep admin expenses low and their financial structure is as a mutually owned company, rather than the more usual form. The significance of this is that with any other mutual fund management is under a constant tension --- sure they'd like to do well by their investors, but their primary task is to make the people who own the company happy --- ie there's a pressure to ramp up overhead and other costs. Vanguard seems to have come, as one would hope, through the past few year's financial scandals untouched unlike many other financial institutions.
On to more specifics. First, does your job allow for a 401k or some sort of equiv? If so, you should be ramping that up as aggressively as possible if you have not done so already, and the best way to use your current cash is have it pay for expenses while you channel lots of your future paychecksfor this year into that 401k or equiv.
Once you've maxed out your 401k, remember that you can put $3500 into an IRA. As with 401k, read up on the details or speak to someone --- there are variables determining how much you can put into your 401k, and determining exactly how to treat the taxation of your IRA. But the bottom line is that, regardless of the details, putting money in IRA or 401k is a win unless you have a very strange life plan because the money will grow untaxed until you retire meaning.
Beyond that, well what I do, and it's worked pretty well for me so far, is look at the list of Vanguard funds and pick those that
- have gone down or stayed flat in the last 3 to 5 years BUT
- that I believe I understand why this is happened and have a plausible reasoning for why they might do better.
This, of course, requires rather more confidence than picking what has been going up like a rocket over the last three years, but remember the goal here is buy LOW sell HIGH, not buy HIGH sell LOW.
Beyond that, of course, it's all personal opinion.
Do you really believe the US economy has bad times ahead thanks to GWB? If so, presumably you want foreign stock funds or Euro denominated bonds.
Do you believe there's a real catastrophe coming? If so you probably want gold.
Do you believe that we ain't seen nothing yet when it comes to oil prices? If so you probably want to buy energy stocks --- but lots of people seem to think that, so energy stocks have doubled in the last few years --- is there another doubling in them?
As you can see, this starts to become stuff no-one can really help you with. The prices of Euros in Dollars, the prices of energy stocks, etc, presumably reflect some sort of mean opinion of the world of people with money. If you don't think you know any better than them, then just buy the largest index funds you can --- something that covers the entire world stock market and entire world bond market, or as near to that as you can synthesize. If, on the other hand, you believe the moneyed classes are too complacent/greedy/optimitistic/stupid, you can target your money at what looks undervalued to you.
It certainly is the case that the moneyed classes make big mistakes, as I assume we all know from 5 yrs ago, and as I, and some others, assume we're going to relearn soon in the housing market.
But the fact that they make mistakes doesn't mean that you don't. Especially if you gullibly swallow hot stock tips from friends at parties, or feel that it's probably a good idea to buy 30-yr yen zeros, even though you've no idea what they are, because your dentist told you that's what he is buying, then you probably aren't safe to be trusted with anything more exciting than a broad-spectrum stock+bond fund that you feed a constant amount every month.
I am not a certified financial professional. All words are posted purely for entertainment value and are not to be construed as any sort of actual advice. Past returns are no guarantee of future returns and all that.
Use some common sense and remember "cui bono?" Especially remember that the financial asset salesman you are talking to is NOT your best friend, he is simply a very good actor, and that you don't have to, and should not, believe a word he says without independent confirmation.
If you do not already have 6 (or at least 3) months of expenses in an easily accessible emergency fund, you might want to consider making the money you'll have saved by the end of the summer your emergency fund. Then invest a future accumulation of money (or invest automatically every paycheck, month, etc.).
Annie, that's my plan. Sorry that the post is phrased in a misleading way-- the 6 months' worth of cash will stay in a money market account, and the monthly check I sent there will instead be sent to the investments of a sort to be named later.
I'll add my vote for the above with some more specifics. Use Vanguard and stick to their index funds. If you don't want to think about it at all pick their Target Retirement 2045 Fund (VTIVX). If you want a more risk (i.e. only stocks) choose their Total Stock Market Index (VTSMX). Or you can be like me and roll your own. I think Europe's doing ok and the 2045 fund doesn't have enough International holdings so: 30% S&P 500 Index (VFINX), 20% Total International Stock Market Index (VGTSX), 20% Small-Cap Value Index (VISVX), 20% Mid-Cap Index (VIMSX), 10% Total Bond Market Index (VBMFX).
To 33: My misreading of your post, I'm sure. I didn't want the emergency fund to be overlooked esp. since, IIRC, you recently bought a home and that fund will come in real handy someday. Good luck with your investments.
Médecins Sans Frontières
Posted by mike d | Link to this comment | 06-29-05 8:30 AM
I give to the International Rescue Committee.
For investments, just index the total market and have a bond holding. You don't want to be thinking about this stuff.
Posted by baa | Link to this comment | 06-29-05 8:32 AM
Indexing is for pussies. Buy a portfolio of San Diego homes using negative amortization financing. You can't lose!
Posted by unf | Link to this comment | 06-29-05 8:41 AM
AFAIK, all U.S. charities are required to disclose what percentage of their budget goes to administrative costs. While it's not a straight-line relationship between that and worthiness, it's certainly worth checking on.
If I were making investments (which I'm not) and didn't want to micromanage them (which I probably would want to, even though it's more likely to hurt than help me) I'd invest in something with Vanguard. Though I've heard they're no longer as much better than the rest of the field as they used to be.
Posted by washerdreyer | Link to this comment | 06-29-05 8:44 AM
What baa said. If you're pretty risk averse, split the investments 60/40 or 50/50 (etc.) stocks to bonds, and put the money in index mutual funds. If you aren't going to use the money until retirement or thereabouts, you'll gain significantly from keeping the bond fund in a tax-deferred account. Disclaimer: I'm a pseudonymous bozo on the Internet. For all you know I could be telling lies.
Posted by Standpipe Bridgeplate | Link to this comment | 06-29-05 8:45 AM
...not if you're indexing the Bratislava Stock Exchange. now there's a real man's investment, with an explosive growth history!
Posted by mike d | Link to this comment | 06-29-05 8:46 AM
Tritto the investment advice, especially the bit about you don't want to be thinking about this stuff--indexed mutual funds are the way to go. If this is a retirement investment, you can stand to put more than 50% in equities, but that depends on how risk averse you really are.
I predict SCMT will not comment in this thread.
Posted by ogged | Link to this comment | 06-29-05 8:58 AM
The best answer to "what should I invest in?" is "the market."
But it takes all of 5 minutes to go to morningstar.com and search all mutual funds for those with the most consistently high returns, low expenses, and low initial investment. Constrain yourself enough and the list is less than 10 before you even begin. So while it's easy and good to invest in "the market," you can give yourself a really good chance of beating the market with a negligible amount of extra work.
And the "100 minus age" rule of thumb for investing in stocks vs. bonds is worth considering.
Posted by diddy | Link to this comment | 06-29-05 9:27 AM
This I absolutely agree with:
you can stand to put more than 50% in equities, but that depends on how risk averse you really are
If you're ogged's age or younger, I don't know why you wouldn't invest primarily in equities. You'd want to have enough in a less volatile investment that you could deal with the unforeseen interruption of your paycheck, but other than that, I don't know why the rest wouldn't go into an index fund.
Posted by SomeCallMeTim | Link to this comment | 06-29-05 9:34 AM
Looking over baa's comment at 2, and considering his entire commenting oeuvre--man-crushes aside, is anybody else a little freaked out that the most consistently sensible and incisive guy here is a Bush voter?
Posted by ogged | Link to this comment | 06-29-05 9:35 AM
Is he the most incisive?
Posted by ben wolfson | Link to this comment | 06-29-05 9:38 AM
You hurt?
On matters of substance, generally, yes. (We probably don't want to start playing this game.)
Posted by ogged | Link to this comment | 06-29-05 9:41 AM
Ogged, I'd like to spend some time together so I can tell you about what Scientology has done for me....
Posted by baa | Link to this comment | 06-29-05 9:42 AM
To answer your question, ogged: yes. When I stare into the abyss, the abyss gives me sound investment advice.
Posted by FL | Link to this comment | 06-29-05 9:45 AM
Of course he's incisive; he's got a comparative advantage. His is a world of black and white, our's is a world of mottled grey. Jeebus, do you not even read the materials from Blue State HQ?
Posted by SomeCallMeTim | Link to this comment | 06-29-05 9:48 AM
If you're into a bit of a cross-your-fingers thing, this has been something I've been thinking about myself: check out this graph. That big spike just past 2000 is the release of the PS2. Can't say if it'll happen again this new year, but, it's also doubtful it will go down.
Posted by Michael | Link to this comment | 06-29-05 9:51 AM
That's true, he's cheating. Plus, his thinking isn't clouded by concern for his fellow humans. I feel better.
Posted by ogged | Link to this comment | 06-29-05 9:52 AM
Michael, that big spike at 2000 could also be the, uh, dot-com boom?
Posted by mike d | Link to this comment | 06-29-05 9:52 AM
end of 2000? that's midst of the dot-com bust, isn't it?
Posted by Michael | Link to this comment | 06-29-05 9:55 AM
at a glance, Sony and the S&P 500 seem to have peaked at the same time. Correlation is not causation and all, but...
Posted by mike d | Link to this comment | 06-29-05 10:00 AM
Also, doesn't he have a background in investment banking or something?
There's also a selection effect--a Bush voter who didn't make decent arguments wouldn't last too long among all the lefties. (Not to mention that I happen to know that he was abc123, posting from a spoofed IP.)
Posted by Matt Weiner | Link to this comment | 06-29-05 10:05 AM
thanks for the graph, showing why I am not a qualified giver of investment advice. A little searching reveals that the media had been talking about the dot-com bust months before then, which is what I remember. It appears the market was a little slow to catch on. Still, the PS accounts for ~11% of Sony's net sales. I should study more econ.
Posted by Michael | Link to this comment | 06-29-05 10:15 AM
Michael, there may be something to your theory on Sony & the PS2- I don't know the first thing about the company. I just thought the date was awfully convenient.
As to media commentary versus the movement of the market, if the media is half-way decent (which I think it is), it'll be talking about a big trend like that months before it happens. Viz the house-market price bubble story going on right now. The media is predicting the demise of real estate, but housing prices are still going up.
Posted by mike d | Link to this comment | 06-29-05 10:19 AM
looking at your graph, it's a little funny to see a continued surge and spike right before the drop-off, which everyone had been talking about. It's like one last orgasm screwing pooch before withdrawal....
Posted by Michael | Link to this comment | 06-29-05 10:28 AM
Just invest in gold, Fontana. Have you heard about what a great investment gold is? Let me tell ya...
Posted by Michael | Link to this comment | 06-29-05 10:29 AM
Choose a portfolio and stick to it. Rebalance the percentages if they change as the markets move-- this forces you to 'buy low, sell high'. Save equal amounts at regular intervals. This means you buy more shares when they are cheap and fewer when they are expensive. This is all very boring advice, and that's a good thing. Personal finance is the opposite of sex-- if it's exciting, that means you're doing it badly.
Posted by Matt | Link to this comment | 06-29-05 10:33 AM
if the media is half-way decent (which I think it is)
Possibly this is a semantic quibble, but this isn't a function of the media being half-way decent; it's a function of the media repeating the word on the street. It's a classic sign of an investment bubble that it be known to be an investment bubble, yet people still pour money into it.
There are at least two reasons for this.
1. "greater fool"; market-takings available to you if you can get out before the bust
2. investor pressure -- get me a piece of that
Posted by slolernr | Link to this comment | 06-29-05 10:36 AM
That big spike just past 2000 is the release of the PS2. Can't say if it'll happen again this new year, but, it's also doubtful it will go down.
Aha! Something I actually know about.
That PS2 spike (assuming the PS2 is actually responsible for it) is unlikely to happen again because the PS2 beat the other systems out of the gate by about a year. That isn't going to happen this time -- Microsoft is poised to release the XBox 2 before Sony or Nintendo's next-gen offerings. Also, the Xbox has recently passed the PS2 in domestic sales. The PSP is a success, but I would say the tide is shifting against Sony in the videogame market.
More importantly though, the corporation as a whole is kind of in disorder. They just appointed their first non-Japanese chairman, which everyone seems to agree is a signifier of some degree of chaos. Also, they're starting to get their lunch eaten by cut-rate but increasingly high-quality Korean manufacturers.
But, if you were a crazy day-trader type, it seems very likely that around the release date of each system the share price of the relevant manufacturer will spike. Maybe the market has fully internalized the gigantic growth of gamer culture in the last couple of years, but I kind of doubt it (despite what my econ professor would have said).
Posted by tom | Link to this comment | 06-29-05 10:45 AM
Gold. Hide it under the bed, so the burglars can find it more easily. Enormous increases in virility result as a bonus.
You should hedge against Armageddon, which will destroy all your investments if it happens, by drinking a lot of expensive booze while you can. Can't take it with you.
Posted by John Emerson | Link to this comment | 06-29-05 11:09 AM
I recommend that you read A Random Walk Down Wall Street by Burton Malkiel. He argues pretty compellingly in favor of the low-cost index fund approach several other commenters have mentioned. It's a quick and mostly enjoyable read, and it nicely balances arguments in favor of the approach with practical pointers on implementation.
Another book worth reading is The Intelligent Investor by Benjamin Graham. Graham was Warren Buffett's mentor, and Buffett has always relied heavily on Graham's approach in his investment decisions.
Those two books (or really even just the first, if you don't have time for both) will give you what you need to make wise and relatively safe investment decisions.
Posted by click | Link to this comment | 06-29-05 11:12 AM
Well my suggestion would be that you park it in Google and keep the stock price high, so that my brother's options do well!
But if that's not to your taste, while people have suggested plenty of abstract advice, no-one seems to have given a concrete company name. I'd suggest you use Vanguard (disclaimer my money, such as it is, is with Vanguard, but apart from that I've no relationship with the company). Vanguard has a long history of doing everything they can to keep admin expenses low and their financial structure is as a mutually owned company, rather than the more usual form. The significance of this is that with any other mutual fund management is under a constant tension --- sure they'd like to do well by their investors, but their primary task is to make the people who own the company happy --- ie there's a pressure to ramp up overhead and other costs. Vanguard seems to have come, as one would hope, through the past few year's financial scandals untouched unlike many other financial institutions.
On to more specifics. First, does your job allow for a 401k or some sort of equiv? If so, you should be ramping that up as aggressively as possible if you have not done so already, and the best way to use your current cash is have it pay for expenses while you channel lots of your future paychecksfor this year into that 401k or equiv.
Once you've maxed out your 401k, remember that you can put $3500 into an IRA. As with 401k, read up on the details or speak to someone --- there are variables determining how much you can put into your 401k, and determining exactly how to treat the taxation of your IRA. But the bottom line is that, regardless of the details, putting money in IRA or 401k is a win unless you have a very strange life plan because the money will grow untaxed until you retire meaning.
Beyond that, well what I do, and it's worked pretty well for me so far, is look at the list of Vanguard funds and pick those that
- have gone down or stayed flat in the last 3 to 5 years BUT
- that I believe I understand why this is happened and have a plausible reasoning for why they might do better.
This, of course, requires rather more confidence than picking what has been going up like a rocket over the last three years, but remember the goal here is buy LOW sell HIGH, not buy HIGH sell LOW.
Beyond that, of course, it's all personal opinion.
Do you really believe the US economy has bad times ahead thanks to GWB? If so, presumably you want foreign stock funds or Euro denominated bonds.
Do you believe there's a real catastrophe coming? If so you probably want gold.
Do you believe that we ain't seen nothing yet when it comes to oil prices? If so you probably want to buy energy stocks --- but lots of people seem to think that, so energy stocks have doubled in the last few years --- is there another doubling in them?
As you can see, this starts to become stuff no-one can really help you with. The prices of Euros in Dollars, the prices of energy stocks, etc, presumably reflect some sort of mean opinion of the world of people with money. If you don't think you know any better than them, then just buy the largest index funds you can --- something that covers the entire world stock market and entire world bond market, or as near to that as you can synthesize. If, on the other hand, you believe the moneyed classes are too complacent/greedy/optimitistic/stupid, you can target your money at what looks undervalued to you.
It certainly is the case that the moneyed classes make big mistakes, as I assume we all know from 5 yrs ago, and as I, and some others, assume we're going to relearn soon in the housing market.
But the fact that they make mistakes doesn't mean that you don't. Especially if you gullibly swallow hot stock tips from friends at parties, or feel that it's probably a good idea to buy 30-yr yen zeros, even though you've no idea what they are, because your dentist told you that's what he is buying, then you probably aren't safe to be trusted with anything more exciting than a broad-spectrum stock+bond fund that you feed a constant amount every month.
I am not a certified financial professional. All words are posted purely for entertainment value and are not to be construed as any sort of actual advice. Past returns are no guarantee of future returns and all that.
Use some common sense and remember "cui bono?" Especially remember that the financial asset salesman you are talking to is NOT your best friend, he is simply a very good actor, and that you don't have to, and should not, believe a word he says without independent confirmation.
Posted by Maynard Handley | Link to this comment | 06-29-05 1:29 PM
If you do not already have 6 (or at least 3) months of expenses in an easily accessible emergency fund, you might want to consider making the money you'll have saved by the end of the summer your emergency fund. Then invest a future accumulation of money (or invest automatically every paycheck, month, etc.).
Posted by annie | Link to this comment | 06-29-05 1:37 PM
Annie, that's my plan. Sorry that the post is phrased in a misleading way-- the 6 months' worth of cash will stay in a money market account, and the monthly check I sent there will instead be sent to the investments of a sort to be named later.
Posted by FL | Link to this comment | 06-29-05 2:22 PM
I'll add my vote for the above with some more specifics. Use Vanguard and stick to their index funds. If you don't want to think about it at all pick their Target Retirement 2045 Fund (VTIVX). If you want a more risk (i.e. only stocks) choose their Total Stock Market Index (VTSMX). Or you can be like me and roll your own. I think Europe's doing ok and the 2045 fund doesn't have enough International holdings so: 30% S&P 500 Index (VFINX), 20% Total International Stock Market Index (VGTSX), 20% Small-Cap Value Index (VISVX), 20% Mid-Cap Index (VIMSX), 10% Total Bond Market Index (VBMFX).
Posted by Anonymous | Link to this comment | 06-29-05 11:34 PM
To 33: My misreading of your post, I'm sure. I didn't want the emergency fund to be overlooked esp. since, IIRC, you recently bought a home and that fund will come in real handy someday. Good luck with your investments.
Posted by annie | Link to this comment | 06-30-05 9:48 AM
P.S. I vote for adopting Gary Farber.
Posted by annie | Link to this comment | 06-30-05 9:49 AM
Isn't there something worrisome about everyone (incl. me) who named a specific fund naming Vanguard?
Posted by washerdreyer | Link to this comment | 06-30-05 9:58 AM