The Survival Podcast Forum

Finance and Economics => The Money Board => Investing and Saving => Topic started by: David in MN on October 02, 2017, 02:07:18 PM

Title: Building a Portfolio for Beginners
Post by: David in MN on October 02, 2017, 02:07:18 PM
But what would you do, Dave? OK, here's portfolio management for beginners. I'm going to say this isn't financial advice, rather explaining what I do.

A lot of people get turned away because they are nervous about stock picking. The cheat sheet is to look at an existing fund you really like. I'm going to use Vanguard's Dividend Growth Fund as an example. I'm not endorsing it, it's closed anyway. But, if I'm honest it's the basic outline of my IRA.  ;) We go visit the nice people at Vanguard to look at the portfolio..

https://personal.vanguard.com/us/funds/snapshot?FundId=0057&FundIntExt=INT

And we get the top ten holdings list...

1         Microsoft Corp.
2         NIKE Inc.
3         Accenture plc
4         Lockheed Martin Corp.
5         Visa Inc.
6         Chubb Ltd.
7         Diageo plc
8         Coca-Cola Co.
9         United Parcel Service Inc.
10         PepsiCo Inc.

Not a bad start. Several sectors, a reasonably diverse set of securities considering they're all large cap and American. So we check in on each using Google and compare to competitors and check what analysts think. Takes 2 minutes for each. I'll set up an Excel spreadsheet with a basic checklist.. Income good, analysts like, favorable to competition, good management, and the last column I will admit is 'gives me a boner'. Some companies just give you that feeling. If a company gets all the boxes checked or comes pretty close, I'm in. Very Easy.

Now, why do we want to do this? Why not just buy Vanguard? Well, Vanguard does great work and I am stealing their homework but I'm greedy. Vanguard charges .3% to manage the fund. Lower than most but I don't believe in letting anyone skim off me. And we've introduced a strategy. These are dividend growth companies. They should continue to grow and increase the dividend. That's power. I bought Diageo in 2006 and am getting a near 6% dividend based on my 2006 money. I hope I die still invested in Diageo getting 20-30% of my initial investment annually. That's a strategy.

Now rinse and repeat with another 2-3 funds that match your goals and you've just created a portfolio. Easy. And the beauty is that it works for everyone by picking based on risk tolerance.

Not to put all the eggs in one basket, I reserve about 35% of my portfolio for REITs, bonds, foreign, metals, etc. This is where I'm willing to pay the manager. As good as I think I am I have no idea how to put together an Asian small cap fund. I just don't know the companies. And I worry that my "American" view of a company like Samsung isn't what it is in Asia. The good news is that this is pretty close to standard 401 style investing. A little less control but again, we pick on strategy. We're looking to get away from the dollar, really pack in some diversity and some safe havens.

Now I will add that I am more active. I also follow a "dogs of the Dow" strategy where I look for wrongly beaten up companies. Recently, Verizon dropped to $45 per share and I bought like Audrey Hepburn at a little black dress shop. Again, the strategy is to get the best dividend possible from a company in a slump that will likely recover.

http://www.dogsofthedow.com/

You might notice that these are generally 'buy and hold'. Well, in a retirement account that seems to work better. This isn't active trading. And my strategies don't always work. But I'm young so being aggressive is right.

Now for the hard part. You need to manage. Once per quarter (maybe when your companies release numbers) poke your head in and look around. Go back to that Google page and check in. Ask yourself if your strategy is working. If not, look up similar funds and consider changes. I have an ironclad rule that any stock I buy for growth (not dividends) I sell half if it doubles. Nobody ever gets hurt by taking profits and playing with the house's money.

If you start doing this and looking at a few different funds from a few different companies you'll start to get a feel for what companies fit your strategy. The whole nut is to get the strategy right.

The empowering force that this has will change your investing. You'll do better because you care. I think a lot of damage has been done as the average worker just funnels money into a meaningless fund. I'll try to help with questions.
Title: Re: Building a Portfolio for Beginners
Post by: FreeLancer on October 02, 2017, 09:40:37 PM
Or, because you knew this was coming......

If that seems so complicated that know you won't even try, get your share of the stock market return by buying and holding the Vanguard Total Stock Market Index Fund. 

(https://farm5.staticflickr.com/4491/37207348030_0df5b61384_o.png)

It ain't sexy, and doesn't impress anyone at cocktail parties, but the returns are respectable, and you could do worse.  Actually, the vast majority of investors do a hell of a lot worse.
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on October 03, 2017, 01:05:28 AM
Is it possible to elaborate on the criteria you use in the spreadsheet?

For example, how do you choose coke vs Pepsi assuming each has good fundamentals?

Also when you emulate a fund, are you concerned with the mix as well?
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on October 03, 2017, 05:33:23 AM
Is it possible to elaborate on the criteria you use in the spreadsheet?

For example, how do you choose coke vs Pepsi assuming each has good fundamentals?

Also when you emulate a fund, are you concerned with the mix as well?

I actually try to keep things simple. I want to know the key metric. For autos it might be inventory. For retail it could be same store sales. If it comes down to Coke/Pepsi I generally buy both. I might think one has better management and one has better brands but at the end of the day they could both be winners.

It gets hard with weirdos like Amazon. A lot of tech/biotech comes down to customer sentiment or FDA acceptance. I don't play in that sandbox too much. When I do it's usually highly speculative.
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on October 03, 2017, 05:52:32 AM
Or, because you knew this was coming......

If that seems so complicated that know you won't even try, get your share of the stock market return by buying and holding the Vanguard Total Stock Market Index Fund. 

(https://farm5.staticflickr.com/4491/37207348030_0df5b61384_o.png)

It ain't sexy, and doesn't impress anyone at cocktail parties, but the returns are respectable, and you could do worse.  Actually, the vast majority of investors do a hell of a lot worse.

True. But I still sneak past those numbers because of the ability to work within the fund rather than taking it as a macro. I also put myself in a better dividend position than either fund, which was my strategy in the first place.

I move a little quicker and I hit one or two dogs every year and I beat indexes. Frankly you could mix methods buying funds and looking for dogs and still come out ahead.

There are more than one way to skin this cat. I'm trying to provide an example of how a self-managed portfolio works. It's not right for everyone.
Title: Re: Building a Portfolio for Beginners
Post by: theBINKYhunter on October 03, 2017, 09:32:28 AM
What platform do you use to manage your funds/trades? Something like Scott-Trade (or am i thinking of something else?). What is the minimum amount you should have to make it 'worth' it? What I mean is that if I invest $1,000 and $10,000 the exact same way (and hypothetically get a return) my $10k is earning me more money. At what point is the amount available to invest considered too small to be worth the time/effort/energy/fees of trading/investing?
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on October 03, 2017, 09:57:24 AM
I currently have accounts at Socttrade, ETrade, TDAmeritrade, Schwab... I think that's it. They're all kinda the same. You might save a buck on a trade here or there but that's it. I'm also of the belief that the "tools" they offer are largely worthless.

Minimum to invest... As an example, let's say you wanted to invest $100. You're going to pay ~$6 to buy and sell. So you're out 12% just for doing the work.  :-\

I like what Jim Cramer promoted in his first book. $2500 buys $500 each of 5 stocks. Not enough to bet the farm but enough to get your feet wet and gain experience. I know will look at that as too little as a 10% gain only nets $250 minus fees but it's not about massive gains, it's about skill building. Trading scales. So once you do a few $500 investments you'll likely be ready to move up.

Obviously, don't gamble with a rainy day fund.
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on October 03, 2017, 10:57:25 AM
Sounds like this is a "buy and hold" pattern for the most part.  Maybe not retirement duration, but longer than a few weeks.

I look at my IRA frequently, and occasionally make trades.  I probably would do well to apply some rules, but if I approach a 20% gain, I'm very tempted to sell ASAP.
My brain sees ripe fruit that's about to hit the dirt.  Maybe I'm fooling myself.

Also, when I've had mediocre turds that I've held for 9 months and are down 3%, sometimes I want to sell and put that money someplace smarter.

I don't believe I have a trader's brain, but I'm applying household principals such as cleaning out the closet, selling stuff I no longer use/like/etc.
Title: Re: Building a Portfolio for Beginners
Post by: bigbear on October 03, 2017, 12:38:28 PM
Great thread Dave!  It's not for everyone, but achievable by anyone (if they want). 

This is a pretty common "portfolio management" strategy.  Investors don't buy/sell on a regular basis. 

Ignore buy/sell/hold recommendations.

I like seeing growth in earnings/FCF (duh), steady/decreasing debt levels, steady/increase divs and ROE year over year.

Investment ideas can come from anywhere.  The mall, grocery store, spouse, children, hobbies, area of expertise...  There's a story about Peter Lynch (old school Fidelity guy) buying a stock because his daughter bought 100% of her back to school clothes from one retailer.  If you're into RC cars, you may know the best battery maker.  If you're into guns, then you know whether Ruger (RGR) or S&W (AOBC) is making the better product.  If you're an IT guy, you understand what type of voodoo/cloud magic Amazon has to offer beyond online retailing. 
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on October 03, 2017, 12:53:42 PM
If you're into guns, then you know whether Ruger (RGR) or S&W (AOBC) is making the better product.  If you're an IT guy, you understand what type of voodoo/cloud magic Amazon has to offer beyond online retailing.

I've been trading RGR for years.  Ever since Sandy Hook and the massive gun grab scare in 2012, I've learned the solidly predictable cycle.  It might as well be seasonal.

I bought a decent amount of RGR in Oct. in anticipation of a Clinton victory.  Until yesterday, I was underwater.  It's messed up, but the more anti-gun rhetoric, the hotter gun stocks.  In my opinion, RGR has some of the best operational practices, and pays a dividend.

The IT stuff is my day job, but unfortunately the giants like Amazon and Google are into so many things, it's difficult to apply logic.  For amazon, if the general retail market is down, so would amazon, but due to their efficiency and margins, they will generally suffer less than competitors (I'm looking at you Toys R Us).

I also like Dave's "dogs of the dow" pattern.  I feel like I'm buying quality equity at an irrational discount.
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on October 03, 2017, 01:36:52 PM
I'm digging through data on pharma grade isolator manufacturers. Puerto Rico was a major center for drug manufacture because of some tax incentives. I think some new plants will be built soon...

I traded S&W during the second Obama election. Gun stocks are weird things. Vote democrat and they go up but surely a new ban would be bad. Shootings also tend to increase price. Very odd stuff. Ironically I used my money from S&W to buy a S&W.

Nothing else it's a hobby that throws a little coin your way. When I had a legit "job" (I work for the world's biggest jerk now) it was great to see a little extra income from a fairly passive method. As a fellow trader put it to me, "when I get a great return in my retirement account it's like... I'll enjoy that in 30 years. When I do it my brokerage I'm all f*** yeah, I'm getting a new car!"

People also forget that the little guy has some advantages over the pros. We move quicker, we can take a losing quarter without losing clients, and don't answer to anyone. It came natural to me as dad was a CFO so I grew up with the Wall Street Journal and CNBC/Bloomberg. But it's not that hard to learn.
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on October 04, 2017, 09:58:28 AM
I'm digging through data on pharma grade isolator manufacturers. Puerto Rico was a major center for drug manufacture because of some tax incentives. I think some new plants will be built soon...


While I follow the "dogs" opportunity with PR based pharma, it's still pharma.  If that's your speculative "vegas" money play, cool.  But often depending on FDA approval (or not) it's feast or famine.
It's not like other consumer products where the product lacks market appeal, and the company can make design or marketing changes.  If the FDA says "don't pass go", that new drug with billions in R&D is a turd.
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on October 04, 2017, 11:33:32 AM
While I follow the "dogs" opportunity with PR based pharma, it's still pharma.  If that's your speculative "vegas" money play, cool.  But often depending on FDA approval (or not) it's feast or famine.
It's not like other consumer products where the product lacks market appeal, and the company can make design or marketing changes.  If the FDA says "don't pass go", that new drug with billions in R&D is a turd.

I used to speculate on medicine and medical devices pending approval. In a nutshell you do the venture capital thing. 3 of your picks hit a trailing stop but one breaks out. It's tough. Like trying to buy a stock in hopes it gets bought by a larger competitor. Real long shots.
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on October 05, 2017, 11:28:41 AM
I might be spread too thin.  RGR reinvests the dividends so it's grown considerably over the years.  Should probably re-tune this mess... :(

RGR   17.6%
AGNC   9.2%
LSI   8.7%
XOM   8.7%
IVV   6.8%
SPY   6.7%
UPS   6.2%
SNH   6.2%
DIS   5.3%
VZ   4.9%
HD   3.5%
MAT   3.3%
CAT   2.7%
APTI   2.0%
UAA   1.8%
AOBC   1.7%
DEO   1.4%
KMB   1.2%
CE   1.1%
ED   0.9%
Title: Re: Building a Portfolio for Beginners
Post by: theBINKYhunter on October 05, 2017, 11:43:04 AM
I think this thread has given me the kick in the pants I need to dip my toes in the investment waters (outside of the 401k). I get a bonus check for Christmas. I think I may take that and use it to start my investment fund. It'll be enough to do something and make me work, but if it crashes and burns it's not the end of the world.
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on October 05, 2017, 12:57:06 PM
I might be spread too thin.  RGR reinvests the dividends so it's grown considerably over the years.  Should probably re-tune this mess... :(

RGR   17.6%
AGNC   9.2%
LSI   8.7%
XOM   8.7%
IVV   6.8%
SPY   6.7%
UPS   6.2%
SNH   6.2%
DIS   5.3%
VZ   4.9%
HD   3.5%
MAT   3.3%
CAT   2.7%
APTI   2.0%
UAA   1.8%
AOBC   1.7%
DEO   1.4%
KMB   1.2%
CE   1.1%
ED   0.9%

I've had that happen before with Abiomed and Chalco (Chinese aluminum). Not fun when your risky play dominates. You want it to break out but when it does you have a different problem.  I just sold off a crapton of SQM the other day for a similar reason. If you really want something nutty, ZTR is about 10% of my active portfolio. I've been watching it like a hawk for 6 years now.

I think this thread has given me the kick in the pants I need to dip my toes in the investment waters (outside of the 401k). I get a bonus check for Christmas. I think I may take that and use it to start my investment fund. It'll be enough to do something and make me work, but if it crashes and burns it's not the end of the world.

Good on you. Start small and slow. Before you know it you'll be whining about the 18.2544% Chilean dividend tax. Don't panic when your initial amount drops by 5% in the first month (happened to me) and keep to a strategy. I remember the first time I got a dividend payment. A few bucks from Altria. But I was shocked. You mean money just shows up in my account? I felt like a mafioso taking a payment.
Title: Re: Building a Portfolio for Beginners
Post by: RitaRose1945 on October 05, 2017, 03:06:32 PM
Okay, so NO LAUGHING!

Yes, I have the standard mutual fund (Vanguard, which I highly recommend) but I also started using Stash (https://www.stashinvest.com/) back at the end of February.  It's mobile based investing for clueless clods like me.  Yes, it costs me $1 per month (or 0.25% if you have more than $5,000 in it), and I started out using it as a way for me to just not spend money.  I put in $20 at a time automatically and so far have put in $470.00.  My balance is $514.08.

I mean, I know that the whole thing is silly, and $44.08 isn't a big deal, but I actually didn't lose or spend money, so I'm happy.

In a nutshell, you choose where you want to invest and then let it go.  Mine are:
   Moderate mix (normal moderate mix of stocks and bonds)
   On Cloud Nine (cloud tech companies)
   Defending America (aerospace and defense manufacturers)

You can also choose them based on ethical considerations (Clean and Green, Water the World), business type (American Innovators, Small But Mighty), or something else (Roll With Buffett, Blue Chips).

I know it's not up there with what a lot of you guys are doing, and once I get a decent amount built up I'll likely transfer it to the Vanguard account, but it works for me.
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on October 05, 2017, 04:32:03 PM
Okay, so NO LAUGHING!

Yes, I have the standard mutual fund (Vanguard, which I highly recommend) but I also started using Stash (https://www.stashinvest.com/) back at the end of February.  It's mobile based investing for clueless clods like me.  Yes, it costs me $1 per month (or 0.25% if you have more than $5,000 in it), and I started out using it as a way for me to just not spend money.  I put in $20 at a time automatically and so far have put in $470.00.  My balance is $514.08.

I mean, I know that the whole thing is silly, and $44.08 isn't a big deal, but I actually didn't lose or spend money, so I'm happy.

In a nutshell, you choose where you want to invest and then let it go.  Mine are:
   Moderate mix (normal moderate mix of stocks and bonds)
   On Cloud Nine (cloud tech companies)
   Defending America (aerospace and defense manufacturers)

You can also choose them based on ethical considerations (Clean and Green, Water the World), business type (American Innovators, Small But Mighty), or something else (Roll With Buffett, Blue Chips).

I know it's not up there with what a lot of you guys are doing, and once I get a decent amount built up I'll likely transfer it to the Vanguard account, but it works for me.

I'd never laugh at anyone who has a plan, saves money, enacts a strategy, and makes money. Plenty of hedge funds have gone bust and they're the pros.

Is that .25% per month?  :o That'd be (I know my math's not perfect but I'm not doing the right math) 3% per year. Yeah, $1 is fine but I'd move it quick if I got close to $5k. But if it works for you, go with it.

I also agree with Vanguard. For decades it has been a good choice for people who don't want to be active. I'm happy to see Fidelity stepping up their game of late and trying to cut costs as well. Fully honest, I do look at the holdings in their Contrafund for ideas. But Vanguard is the choice of both my mother and father (who have different strategies) and I own several Vanguard ETFs to get exposure to non-stock investments.
Title: Re: Building a Portfolio for Beginners
Post by: RitaRose1945 on October 05, 2017, 04:41:49 PM
I'd never laugh at anyone who has a plan, saves money, enacts a strategy, and makes money. Plenty of hedge funds have gone bust and they're the pros.

Is that .25% per month?  :o That'd be (I know my math's not perfect but I'm not doing the right math) 3% per year. Yeah, $1 is fine but I'd move it quick if I got close to $5k. But if it works for you, go with it.

I think that's annual, not monthly.  But if I got even remotely close to $5,000 I'd move it anyway.

I also agree with Vanguard. For decades it has been a good choice for people who don't want to be active. I'm happy to see Fidelity stepping up their game of late and trying to cut costs as well. Fully honest, I do look at the holdings in their Contrafund for ideas. But Vanguard is the choice of both my mother and father (who have different strategies) and I own several Vanguard ETFs to get exposure to non-stock investments.

I've been very happy with Vanguard, and a friend of mine who used to work for them said they tend to be more ethical in their business model than some.

I won't deal with Fidelity, even if the returns were double everyone else's.  They were the parent company for a former employer that laid off literally about 2/3 of the staff in my state when the bubble burst.  And the day I got the notice that I was getting laid off because they couldn't pay their staff anymore, that very same day the CFO was listed as the 4th highest paid CFO in the nation.  Nope.
Title: Re: Building a Portfolio for Beginners
Post by: FreeLancer on October 05, 2017, 05:42:28 PM
I've been very happy with Vanguard, and a friend of mine who used to work for them said they tend to be more ethical in their business model than some.

I won't deal with Fidelity, even if the returns were double everyone else's.  They were the parent company for a former employer that laid off literally about 2/3 of the staff in my state when the bubble burst.  And the day I got the notice that I was getting laid off because they couldn't pay their staff anymore, that very same day the CFO was listed as the 4th highest paid CFO in the nation.  Nope.

I’ve had accounts at both Fidelity and Vanguard, but now put everything I can into Vanguard accounts, or Vanguard funds if I’m stuck with an employer who uses someone else to manage the retirement program. I’ve dealt with Vanguard, Fidelity, Charles Schwab, and some lesser known ones over the last 25 years. Vanguard and Fidelity are definitely my preference, in that order.

My mom’s in Fidelity, which I help her manage online. In her case it’s probably a better choice because she can drive across town to a branch and talk to a human if there’s an issue. Those branches add cost and the fees are higher than Vanguard, but if that’s what it takes to help mom sleep at night, so be it.  She also doesn’t want to give up her Contrafund, which has produced great returns for her over the years.
Title: Re: Building a Portfolio for Beginners
Post by: theBINKYhunter on October 05, 2017, 09:03:29 PM
The last couple posts make me feel good that my employer's 401k is through Fidelity.
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on October 06, 2017, 08:40:11 AM
The last couple posts make me feel good that my employer's 401k is through Fidelity.

You probably can buy funds external to your brokerage. 401s can be set up differently. Some are very restrictive while others are fairly open. I have Vanguard products in my Schwab account. Most people don't fiddle around that much in 401s though. It's kind of a pain to manage it yourself when you're adding constantly. Rebalancing is challenging.

Most people like me have multiple funds for this reason. The 401 is pretty boilerplate. The Roth IRA and IRA get most of the trading because you can be strategic as to when and how much you add so you don't deal with small additions every 2 weeks. Those are retirement vehicles. Then you have an independent brokerage account for higher risk, higher reward. So you kind of have tiers of management. If it helps, think of it like zones in permaculture.

It might sound crazy but I like to dedicate accounts to strategies. New strategy, new brokerage. I like to know which I look at daily and which I come back to quarterly.
Title: Re: Building a Portfolio for Beginners
Post by: Sailor on October 06, 2017, 02:40:25 PM
If you can, structure your Vanguard funds so that each fund has over 10k in it so it will qualify as admiral shares, with greatly reduced expenses. 
Title: Re: Building a Portfolio for Beginners
Post by: FreeLancer on October 06, 2017, 03:20:34 PM
If you can, structure your Vanguard funds so that each fund has over 10k in it so it will qualify as admiral shares, with greatly reduced expenses.

Yep. In the case of the Total Stock Market Index fund, the expense ratio goes from 0.14 to 0.04%.  It doesn’t seem like much, but it adds up to serious money over a lifetime.

And Vaguard is good about automatically rolling your investments into the lower cost Admiral shares as soon as you are eligible. They’re kind of unique that way in the investment world.
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on October 06, 2017, 04:26:17 PM
John Bogle was a very honorable man. He wrote the forward to my copy of Ben Graham's Intelligent Investor. Not only did he make fund investing easy and fair priced but he advocated education for those who do it on their own.

He deserved a Nobel prize in economics. Very few recognize the power of pennies that compound. I believe Einstein said the most powerful force in the world was compounding interest.
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on October 31, 2017, 10:06:36 AM
Let's bump this a little.

I've done a little studying and moved around things in my IRA account.
I managed to pick a small handful of winners, and reduced some previous positions to fund them.

The problem was I was too cautious, and the original positions have dipped, offsetting my wins.
I guess on the bright side I'm down 2% when I might have been down 5%.

While I'm mature enough to avoid panic, I also think I'm too chicken-sh!t to bet the farm.

Will this keep me from being successful long term?
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on October 31, 2017, 02:24:27 PM
No, it's not a problem. Suffering a loss is just an opportunity to reassess. Has something changed? Typically after a 10% fall I decide if it's time to jump ship or double down. Heck, I've been holding Exxon Mobil for years and they're down 7% this year. But I can eat the dividend for now. A lot of really good companies take dips.

Choosing risk is very tough and even more so if you're not on it daily.
Title: Re: Building a Portfolio for Beginners
Post by: Tyler Durden on November 08, 2017, 08:01:33 AM
What is the rationale for pulling out your profits rather than initial investment? I read through this whole thread a week ago but didn't feel like doing it again, and I think I read that somewhere in here.  It seems to me you would pull your invested money so you've gotten your money back, and then let the profits do the work.  Not asking as an argument, but because I honestly don't know.

Personal example; I bought $500 worth of Centerpoint Energy about 18 months ago. It was my first dabble into buying stock. I've made about a 55% return so far. The stock eeked its way up little by little and has kind of hit a ceiling at $29 and change per share. I was thinking of selling $500 worth and reinvesting it, but I thought I have heard/read that the common thing to do on a gain is cash out the profit and not the original amount. 
Title: Re: Building a Portfolio for Beginners
Post by: osubuckeye4 on November 08, 2017, 08:11:07 AM
John Bogle was a very honorable man. He wrote the forward to my copy of Ben Graham's Intelligent Investor. Not only did he make fund investing easy and fair priced but he advocated education for those who do it on their own.

He deserved a Nobel prize in economics. Very few recognize the power of pennies that compound. I believe Einstein said the most powerful force in the world was compounding interest.

And here I thought the most powerful force in the world was hyperinflation  8)
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on November 08, 2017, 08:31:38 AM
What is the rationale for pulling out your profits rather than initial investment? I read through this whole thread a week ago but didn't feel like doing it again, and I think I read that somewhere in here.  It seems to me you would pull your invested money so you've gotten your money back, and then let the profits do the work.  Not asking as an argument, but because I honestly don't know.

Personal example; I bought $500 worth of Centerpoint Energy about 18 months ago. It was my first dabble into buying stock. I've made about a 55% return so far. The stock eeked its way up little by little and has kind of hit a ceiling at $29 and change per share. I was thinking of selling $500 worth and reinvesting it, but I thought I have heard/read that the common thing to do on a gain is cash out the profit and not the original amount.

My rule is to sell half of anything that doubles. That's just my rule. Early on I had a number of high risk stocks double only to fall back and end up a loss. So I imposed this rule on myself to prevent future disasters. Truth be told, I've broken it a couple times when the doubling stock is one that I like for dividends rather than growth.

Most investors have some kind of rule. Trailing stops of 25% are common and many like to use them to prevent loss. Basically any self imposed rule is there to either prevent loss or secure gains.

There's a crapton of psychology in trading. The Big Short was a great window into the mind of a trader. We really are nerdy and somewhat introverted focusing on boring numbers put out by agencies we know are lying and yelling at each other in our secret language in a vain effort to avoid a real job.
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on November 26, 2017, 09:01:45 AM
Interesting article on 401s...

https://www.yahoo.com/finance/news/5-interesting-statistics-americans-401-124500533.html

The average 401 investor has just 2.7 funds. 49% of all invested in 401s are "target date".

What I take away is that most people just don't want to be bothered. Put the money in regularly and dump it in a target date fund where you don't have to actively manage it. Actually makes sense. Even I tend to do simple broad market funds in the 401. It's just too hard to actively manage something that gets new funding every two weeks. Even very active investors struggle to really make good use of the 401 and prefer to do trading in either an IRA or a plain brokerage where funding can be better controlled.

But still it begs the question to me... I've never liked target date funds. They're too broad, offer little dividend income, and don't necessarily manage risk correctly. When I had a 401 I would do a barbell approach with dividend funds that were safe and boring and then risky funds like (one stands out) Pacific Rim small cap.

I wonder if some basic education would change this behavior.
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on November 26, 2017, 09:45:17 AM

I wonder if some basic education would change this behavior.

Maybe.  Smoking is on the decline, as people gradually accepted it as unhealthy.
But a healthy diet and exercise is still something most Americans struggle to do properly (myself included).

I think education would help a bit, there'd be some small percentage that "wake up" and take an active interest in their investments, but for the majority I think it's just something else for them to put off.
Title: Re: Building a Portfolio for Beginners
Post by: bigbear on November 27, 2017, 11:01:15 AM
Interesting article on 401s...

https://www.yahoo.com/finance/news/5-interesting-statistics-americans-401-124500533.html

The average 401 investor has just 2.7 funds. 49% of all invested in 401s are "target date".

What I take away is that most people just don't want to be bothered. Put the money in regularly and dump it in a target date fund where you don't have to actively manage it. Actually makes sense. Even I tend to do simple broad market funds in the 401. It's just too hard to actively manage something that gets new funding every two weeks. Even very active investors struggle to really make good use of the 401 and prefer to do trading in either an IRA or a plain brokerage where funding can be better controlled.

I work for a large mutual fund company that does 401k recordkeeping for businesses.  I also work specifically with auto enrollment.  The 2.7 funds don't surprise me.  And neither does the 49% using a target date fund.  Prior to PPA in 2006, most 'default funds' were something more cash equivalent because companies were afraid to use a broad equity fund or index.  So it was fairly common to see a stable value fund or money market of some sort as the default.  PPA gave companies some legal protection from being sued if they used some type of qualified default investment arrangement (QDIA).  A retirement date fund is considered a QDIA (though a 100% clear definition was never put forth as to what else it covers).  Considering that 90-95% of people don't change any automatic election, I can only imagine that 49% number has been and will continue to be on the rise.

Personally, I'm with you on the target date funds.  But (as you mentioned) they serve a purpose and have a good 'target' audience.  They are better than other generic options. 

My company and our clients spend millions trying to educate employees who are in the 401k plans.  And it barely moves the needle.  A response rate in the 20% is a considered good...  But the best education starts at home and/or early.  And so many of people had financially illiterate parents (like myself), so they feel ill-equipped to train up their children in the home.  The average public high school graduate reads at a 5th grade level and math is in the same boat.  Not sure the answer is there... 

Many of the financial firms have some type of game targeted at children and teens for them to have fun while learning the market.  The technology is there for schools to use, it's just a matter of priorities and engagement.  Even Ramsey has a teen edition of his program that many homeschoolers use. 
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on November 27, 2017, 01:42:54 PM
I work for a large mutual fund company that does 401k recordkeeping for businesses.  I also work specifically with auto enrollment.  The 2.7 funds don't surprise me.  And neither does the 49% using a target date fund.  Prior to PPA in 2006, most 'default funds' were something more cash equivalent because companies were afraid to use a broad equity fund or index.  So it was fairly common to see a stable value fund or money market of some sort as the default.  PPA gave companies some legal protection from being sued if they used some type of qualified default investment arrangement (QDIA).  A retirement date fund is considered a QDIA (though a 100% clear definition was never put forth as to what else it covers).  Considering that 90-95% of people don't change any automatic election, I can only imagine that 49% number has been and will continue to be on the rise.

Personally, I'm with you on the target date funds.  But (as you mentioned) they serve a purpose and have a good 'target' audience.  They are better than other generic options. 

My company and our clients spend millions trying to educate employees who are in the 401k plans.  And it barely moves the needle.  A response rate in the 20% is a considered good...  But the best education starts at home and/or early.  And so many of people had financially illiterate parents (like myself), so they feel ill-equipped to train up their children in the home.  The average public high school graduate reads at a 5th grade level and math is in the same boat.  Not sure the answer is there... 

Many of the financial firms have some type of game targeted at children and teens for them to have fun while learning the market.  The technology is there for schools to use, it's just a matter of priorities and engagement.  Even Ramsey has a teen edition of his program that many homeschoolers use.

Ah, so we're cut from the same cloth. Maybe we need to also start posting the funds we like.. Just an idea. But it seems the individual 401 investor needs the most help. Maybe we could provide a little value beyond a target date fund. I need to think. I get nervous about the distinction between education and advice.
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on November 29, 2017, 12:21:07 PM
Now I will add that I am more active. I also follow a "dogs of the Dow" strategy where I look for wrongly beaten up companies. Recently, Verizon dropped to $45 per share and I bought like Audrey Hepburn at a little black dress shop. Again, the strategy is to get the best dividend possible from a company in a slump that will likely recover.

VZ cracked $50 today. 11% in a few months isn't bad (ignoring the 5% dividend I get). This strategy isn't foolproof and I do get some wrong but the example I used worked so I at least get to feel good about myself.  8)
Title: Re: Building a Portfolio for Beginners
Post by: bigbear on December 04, 2017, 12:59:03 PM
Ah, so we're cut from the same cloth. Maybe we need to also start posting the funds we like.. Just an idea. But it seems the individual 401 investor needs the most help. Maybe we could provide a little value beyond a target date fund. I need to think. I get nervous about the distinction between education and advice.

I'll take that as a compliment!  ;)  I'm not a math whiz though.  Just a project manager who happens to work in the retirement industry.  My mutual fund investments are limited to whatever is in my 401k.  My brokerage accounts only have equities. 

Starting to save, savings rate, lifestyle choices, what city/state you live in, and a few other things have greater impact on the retirement nest egg than what you invest in (for the vast majority of people).
Title: Re: Building a Portfolio for Beginners
Post by: FreeLancer on December 04, 2017, 01:38:37 PM
Starting to save, savings rate, lifestyle choices, what city/state you live in, and a few other things have greater impact on the retirement nest egg than what you invest in (for the vast majority of people).

That’s kind of been my suspicion, too, especially the saving early and often part.  Although how much harder is it to grow the nest egg without exposure to the stock market?
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on December 04, 2017, 02:21:11 PM
I actually see it as a game of debt. Consider that the average monthly student loan payment is about $250 per month over 10 years. So the kid who graduated late and started work at 25 will make payments like this. Then add in a mortgage, auto loan, credit cards, all of it.

The point is that the earner starts in the hole. He's on the treadmill from the jump. That $250 per month in an IRA for a decade would be the necessary money to begin building real wealth as an investor. But it never materializes.

Not to minimize the fact that some of us are prohibitively taxed and some housing markets allow us to keep the monthly costs low and pay it off quicker. If you play this game right, as you age the costs go down while the salary goes up.

Maybe it's a one-two punch. No debt and managed costs. They kind of end up being the same thing, though.
Title: Re: Building a Portfolio for Beginners
Post by: FreeLancer on December 04, 2017, 03:23:32 PM
Debt is an enormous drag that must be eliminated ASAP, by whatever means necessary. For me that meant beater cars and tiny apartments until the student debt was gone.  Still can’t quite shake the beater car thing, though.
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on December 04, 2017, 03:45:09 PM
Debt is an enormous drag that must be eliminated ASAP, by whatever means necessary. For me that meant beater cars and tiny apartments until the student debt was gone.  Still can’t quite shake the beater car thing, though.

"beater" may be relative based on various factors, but consider the Dave Ramsey approach.

I used to work with a dude who was frugal to a fault, but had the beater car thing dialed into a science.

He was rather meticulous and patient with his vehicle selection.  His favorite used car was one that JUST recently had a major service, like new timing belt/pumps/etc after 90K miles.
He noted that the blue book price didn't change whether that major service ($1500+ in many cases) was done.
He also liked Hondas and Toyotas and new what model years had various quirks or problems. This made him a savvy buyer.

So he'd get a $3500 car, drive the crap out of it for 2-3 years and sell it for $2000.  Then bought a $8K car, drove it, sold for $5K, and worked his way up to buying $25K used cars he paid cash for.
Each month he basically put the same amount aside into savings.  I forget if it was $100 or what exactly, but it was modest.

The beautiful thing with the above model, is you can exit the game at any time without much loss.  I wish residential real estate was as predictable.
Title: Re: Building a Portfolio for Beginners
Post by: FreeLancer on December 04, 2017, 04:14:32 PM
That’s clever.  I’m too lazy for that, though.  I drive it for 15 years hoping the thing will fall apart or get stolen so I can justify buying a nice car.  Of course, then, the damn things last forever.
Title: Re: Building a Portfolio for Beginners
Post by: bigbear on December 05, 2017, 10:53:51 AM
Although how much harder is it to grow the nest egg without exposure to the stock market?

Much harder no doubt.  Even more so considering the currency devaluation...  Investing in the broad equity index does address that concern because it basically keeps up with devaluation/inflation.  But having no assets is worse.  Savings doesn't just have to be stock market investment or brokerage account type stuff.  Those are just more easily tradable and measurable.  Other things (like a new table saw/tool or learned skill) can be just as valuable if used appropriately.  The trap many fall into is telling themselves that it's an 'investment' when it's just an excuse to get a new toy (not that those aren't good!  ;)).

I actually see it as a game of debt.

Yeah, sort of.  I think some people are lemmings and have bought into something that's not for them because of cultural/family pressure to 'succeed'.  College today is a risk/reward calculation.  But many see it as simply what you do after high school.  And too many people are being told they are 'college material' when they aren't in some way (intelligence, focus, etc...).  I wasn't focused my first 2 years and flunked out.  And I have paid the consequences living like a broke college student far too long (self-imposed responsibility at this point).  Some start college and feel like they have to continue or start paying back their student loans.  That's as much of a trap as anything.  Most people who have college debt have historically been able to turn that into a decent paying job after graduation.  But some having been told they 'college material' aren't hirable for whatever reason.

It seems the job market is bifurcating (to steal someone else's word).  Whether it be through producing overseas, robotics/AI, web-accessed jobs, concentration of workload/industry, or selective HB1 visas...  And college (as good and necessary as it is for some jobs) isn't the complete answer as an across-the-board solution. 

But we can also be so 'Western' focused and lose sight of the fact of how good we have in the US, Canada, Europe...  Even the majority of the poorest financially among us.
Title: Re: Building a Portfolio for Beginners
Post by: Sailor on December 05, 2017, 01:27:11 PM
More than 100 million U.S. adults are now living with diabetes or prediabetes, un-freaking believable.  Modern health cares solution to any chronic disease is "you have a deficiency in statins" or insert medication here.    Healthcare REIT's, may be worth looking into.
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on December 05, 2017, 02:00:19 PM
More than 100 million U.S. adults are now living with diabetes or prediabetes, un-freaking believable.  Modern health cares solution to any chronic disease is "you have a deficiency in statins" or insert medication here.    Healthcare REIT's, may be worth looking into.

With so many diabetics (type 2 insulin resistant in particular), a naive outcome would be the price of insulin should be reduced with the expanding market.  Unfortunately the opposite is happening.
Two years ago in March my oldest was diagnosed with type 1 diabetes.  Learning the associated economics of insulin, and test supplies was like discovering the "dark web" or something.

Without violating forum T&C, I can tell you that I've observed the prescription grey market up close.
People with generous medical benefits will sometimes sell or trade their surplus insulin and supplies to those with no or minimal coverage.

With blood glucose monitors, a arrangement exists similar to inkjet printer or cartridge shaving razors.

The new meter costs $20, but each jar of 100 test strips retails for $50. Many diabetics test 10x each day.
That's ~$150 each month just for test strips.

Our insurance coverage is really decent, and we pay $50 for $900 worth of stuff. 

I recently added up the retail cost of all the crap we have to manage this ridiculous chronic disease:
In my fridge alone, we have about $6800 worth of insulin
In our cabinet we have over $2000 in insulin pump hardware, needles, test strips, alcohol pads, constant glucose monitor sensors (bluetooth sensor that subcutaneously inserts into the body), etc.

I could hypothetically fence all that on the grey market and buy a nicer car than what I drive daily.

It is nuts!




Title: Re: Building a Portfolio for Beginners
Post by: theBINKYhunter on December 05, 2017, 05:55:49 PM
I do the old car thing as well. My car is an 05 that we bought in 2010. I plan on driving it till the wheels fall off. Our van is a newer 2014 but we were able to pay that loan off after a couple years. I did buy a motorcycle earlier this year for fun but even that was an 05 and it was paid cash.

Now that I live ~4 miles from work and ride my bicycle a couple days a week the miles and use are hardly going on to my other vehicles. I'm hoping the car is rolling in 20 more years (although I will confess I'll readily upgrade the bike if an opportunity presents itself!).
Title: Re: Building a Portfolio for Beginners
Post by: tipafo on December 05, 2017, 09:13:09 PM
David in MN, thank you for starting this thread, and to everyone commenting. There is much here to consider, and some basic information and general strategies for investing would be welcome.

First, what is the difference between a 401(k) and an IRA?

I understand that the 401(k) is so named for its place in the regulatory statute that created it, but what is it, how is it structured to generate returns, what rules govern its use?

Likewise for the IRA.

How do they compare in doing what they do, or is the purpose of each different enough that such comparisons are useless?

Should I have both a 401(k) and an IRA? Can I have more than one of each? Can I have more than one of each kind (standard and Roth)?  Should I?

Where do I get them? I have a 401(k) through work, but I don't think that individual tinkering is allowed, even if I wanted to.

Should I get an IRA, continually fund it and the 401(k) and let them be, but then also buy choice stocks individually outside of those investments, just to experiment without disturbing the main game?

How do I choose which stocks, bonds, etc., to buy, without having to take up investment research to the point of writing it off as an expense? Is that even allowed?

How do I begin to wrap my head around taxes on all of this? Is reporting to the IRS automatic with these accounts, or is it all on the investor to keep himself out of the sausage maker?

How soon can some of these investments start kicking back more than it takes to buy in further?  At what point do I stop reinvesting the returns into more stock and take the profit? Are there generic formulas for this? Does it even work like that?

I seem to recall Jack saying once that if you didn't have $30,000 to invest then it was better to save up that 30k than to begin investing at a lesser amount.  Hopefully, I'm misremembering, or confused, because it will take a long time for me to save up that much money to then lay it on the table.

Any thoughts welcome. Thanks.
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on December 06, 2017, 07:35:07 AM
David in MN, thank you for starting this thread, and to everyone commenting. There is much here to consider, and some basic information and general strategies for investing would be welcome.

First, what is the difference between a 401(k) and an IRA?

I understand that the 401(k) is so named for its place in the regulatory statute that created it, but what is it, how is it structured to generate returns, what rules govern its use?

Likewise for the IRA.

How do they compare in doing what they do, or is the purpose of each different enough that such comparisons are useless?

Should I have both a 401(k) and an IRA? Can I have more than one of each? Can I have more than one of each kind (standard and Roth)?  Should I?

Where do I get them? I have a 401(k) through work, but I don't think that individual tinkering is allowed, even if I wanted to.

Should I get an IRA, continually fund it and the 401(k) and let them be, but then also buy choice stocks individually outside of those investments, just to experiment without disturbing the main game?

How do I choose which stocks, bonds, etc., to buy, without having to take up investment research to the point of writing it off as an expense? Is that even allowed?

How do I begin to wrap my head around taxes on all of this? Is reporting to the IRS automatic with these accounts, or is it all on the investor to keep himself out of the sausage maker?

How soon can some of these investments start kicking back more than it takes to buy in further?  At what point do I stop reinvesting the returns into more stock and take the profit? Are there generic formulas for this? Does it even work like that?

I seem to recall Jack saying once that if you didn't have $30,000 to invest then it was better to save up that 30k than to begin investing at a lesser amount.  Hopefully, I'm misremembering, or confused, because it will take a long time for me to save up that much money to then lay it on the table.

Any thoughts welcome. Thanks.

Wow, lots to unpack. I'm going to go VERY topline so more detail is going to be needed somewhere.

IRA/401. You get 401 through employer. IRA is yours privately. Rules that govern 401s are set up by employer (what funds you have access to) and IRAs are a free for all.

They both do the same thing as in they create a tax advantaged savings account.

What you have depends on your situation. If your employer doesn't match funds the 401 is probably a waste. If it does, you likely want the match. Most people select Roths over traditionals because the money paid in can be taken out without penalty.

You can do individual stocks in an IRA. Again, your 401 is limited to employer's options (why they only make sense for a match).

To give you an idea of "how do I do this?" My 401 is checked quarterly, the IRAs (I have both) monthly, and my trading portfolio daily. That means the 401 is the least risky and the trading portfolio is the most. I structure it this way to make life easier. *Most* active traders do a similar structure.

As far as what to buy and sell and when, that's up to you. On this thread a few examples have been used but only as examples. No one has a crystal ball and the big winner next quarter might be something none of us see coming.

Taxes are pretty easy in a 401 or IRA. If you start trading individual stocks in a brokerage you will suffer a little. But the software has gotten better and it is manageable. When I do my taxes and they involve investing in multiple brokerages, Bitcoin transactions, a pass-through LLC, and such it does become a nightmare (that actually looks like it will be worse soon  :-\). For an IRA you shouldn't worry.

Brief anwers but I hope they get the ball rolling. Bear in mind there are specific examples that contradict the "general wisdom". You can find a lot of info online about starting an IRA.
Title: Re: Building a Portfolio for Beginners
Post by: Jack Crabb on December 06, 2017, 10:13:05 AM
Another 401k vs. IRA difference is the contribution limits.

For 2018, 401k allows $18,500/yr (+$6,000 if over age 50 yr.).

IRA is $5,500/yr (+$1,000 if over age 50 yr.).
Title: Re: Building a Portfolio for Beginners
Post by: FreeLancer on December 06, 2017, 10:25:08 AM
I’ve got a solo 401k, available to self-employed individuals with no employees, that allows me to contribute the $18k on the employee end plus an additional employer contribution, up to a combined $54k maximum.  It’s a side hustle business so I don’t earn enough to put away more than about $24k.
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on December 06, 2017, 10:48:46 AM
In my adult life I've had 5-6 full time employers, each with a 401K.  As I've moved on to other career opportunities, those respective 401K balances have got rolled into my IRA.
I've personally never contributed directly into my IRA, but I could.

My present employer has a decent 401K match.  I contribute that and a bit more just for convenience.
It wouldn't be difficult for me to automatically contribute 1-5% of each paycheck into my IRA brokerage account.  Maybe I should start that in 2018 and not contribute past the match.

For arguments sake, if I have $100 (post match amount) each paycheck that I can buy some Vanguard fund in my 401K, or some equity in an IRA - does that make enough of a difference?
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on December 06, 2017, 11:22:36 AM
I just read this:

IRA vs. 401k
To quash one common myth, you don't have to choose between an IRA and a 401k; you can have both. If you do have the option of a 401k at work, you lose the tax deduction benefits of an IRA once your income exceeds $70,000 ($116,000 if you're married filing jointly).

So if I want the pre-tax benefit and make above that amount, I cannot contribute to my IRA.  I feel silly I did not know this.

Title: Re: Building a Portfolio for Beginners
Post by: bigbear on December 06, 2017, 02:49:07 PM
What you have depends on your situation. If your employer doesn't match funds the 401 is probably a waste. If it does, you likely want the match. Most people select Roths over traditionals because the money paid in can be taken out without penalty.

Roth EARNINGS are subject to taxes and early withdrawal penalties.  Assuming the investment options are ones you would like to be in otherwise, your 401k will probably have access to lower fee structures than the normal retail funds.  Many times though with smaller companies, the funds aren't very good and the fee savings either aren't there or aren't worth it.  Many 401k plans don't offer Roth, but the adoption rate seems to be growing.

Maybe I should start that in 2018 and not contribute past the match.

For arguments sake, if I have $100 (post match amount) each paycheck that I can buy some Vanguard fund in my 401K, or some equity in an IRA - does that make enough of a difference?

I would for two main reasons:  1) accessibility and 2) more investment options (and commonly better options). 

Contribute enough to get the match. 
Contribute to a Roth IRA. 
If/when you reach the limit (or don't get the benefit), defer more to the 401k.

Granted all of this is in a bubble.  There are a gazillion other things to do with your money...

Can I have more than one of each kind (standard and Roth)?  Should I?

Where do I get them? I have a 401(k) through work, but I don't think that individual tinkering is allowed, even if I wanted to.

Should I get an IRA, continually fund it and the 401(k) and let them be, but then also buy choice stocks individually outside of those investments, just to experiment without disturbing the main game?

How do I choose which stocks, bonds, etc., to buy, without having to take up investment research to the point of writing it off as an expense? Is that even allowed?

How do I begin to wrap my head around taxes on all of this? Is reporting to the IRS automatic with these accounts, or is it all on the investor to keep himself out of the sausage maker?

How soon can some of these investments start kicking back more than it takes to buy in further?  At what point do I stop reinvesting the returns into more stock and take the profit? Are there generic formulas for this? Does it even work like that?

I seem to recall Jack saying once that if you didn't have $30,000 to invest then it was better to save up that 30k than to begin investing at a lesser amount. 

Yes you can have more than one account and more than one tax structure.  Most people (even more on boards like this) think that taxes will go up, either as your income bracket goes up with age or as the gov't wets the bed.  So younger people tend to use Roth more. 

Some 401k plans have a brokerage window where you can invest in most equities, bonds, and mutual funds.  Most only have between 10-20 funds to choose from. 

You can open an IRA at pretty much any financial institution.  From you bank or credit union (typically in CD's) to the huge banks and mutual fund companies.  For an IRA, I'd recommend an online broker.

http://scottrade.com/  - I use this one.
https://www.tdameritrade.com/home.page
https://client.schwab.com/Login/SignOn/CustomerCenterLogin.aspx?ErrorCode=ErrorEmptyLoginIdPwd
https://us.etrade.com/what-we-offer/our-accounts/?sr_id=BR&mp_id=41378076217&ch_id=p

Investing isn't a get rich quick scheme.  If you don't understand what you're buying, you're probably better off letting 'experts' do it.  Meaning choosing a mutual fund.  Or like David mentioned, rip off the experts knowledge by seeing what they hold in the top 10 holdings.  The top 10 holdings in a mutual fund are public information (you can find them on Yahoo Finance).  It's best to put the time in to learn a bit before tossing your money on the table.

A few years ago the IRS made some type of change that required brokers to report the tax basis, gains/losses, etc.  So taxes are much easier.  I will say that, if you have a taxable event (sale, divs...) you won't be able to use the free software though.  You'll need to upgraded TurboTax (or whatever).

How long it takes is the Magic 8 ball question.  Depends on your goals, cost of living, etc.  Some people use the dividends earlier than retirement to supplement their income. 

A good rule of thumb for dividend income (assume a 7% yield) is about $1,000/month for every $250,000 balance.  So if you want a $4k/month you need a $1 million balance. 

Personally, I would start with less than $30k.  And did.  I didn't hear the episode you're talking about, but I would assume it has to do with diversifying your risk.  $5k in 6 different industries/types of investments.  But at that point you're getting into modern portfolio theory with the goal of reducing risk with the same reward.
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on December 06, 2017, 03:16:34 PM
I listened to the show about not bothering with less than $30k. The logic goes like this... Let's say you invest $5k and keep up fairly often (this is active investing) and do pretty good, say 10% return you've put a lot of effort into earnign $500. Could have done that easier with a side hustle in 2 weekends.

I was a little miffed by this concept. True you could do a side hustle that would yield more (I advocate doing one anyway) but it comes with a cost. I started in my early 20s with $2500 which wouldn't hurt to lose. And I made all my mistakes early on when it cost very little. If I gave myself my trading portfolio today with no experience I would shit my pants. It would be like moving from an apartment to a 200 acre farm with no experience.

Make mistakes early when they cost little. Right now I can look at hundreds of stocks and pretty quickly determine which fit my strategies and whether I'm interested. You get comfortable targeting bottoms or tops and you learn to ride the tide a little. And looking back there is some beginner's luck.
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on December 06, 2017, 04:21:48 PM
Today this thread may have had it's best content bang-for-buck since it started. Thanks all who've shared guidance.

I just created a RothIRA account at TDAmeritrade where I have my traditional IRA and retail accounts.
One thing I just noticed are internal transfers. But not just cash, but the shares in equities.

Ignoring the traditional IRA for a moment, I can transfer N shares of some stock from my brokerage account into my Roth IRA.  That's kind of cool. 
Maybe you gurus do this all the time, and my excitement is unwarranted. :)

Starting in January I think I'll reduce my 401K contribution, and put the difference of that proverbial "10%" into the Roth each paycheck.
Thanks again.

Title: Re: Building a Portfolio for Beginners
Post by: David in MN on December 06, 2017, 04:58:04 PM
Today this thread may have had it's best content bang-for-buck since it started. Thanks all who've shared guidance.

I just created a RothIRA account at TDAmeritrade where I have my traditional IRA and retail accounts.
One thing I just noticed are internal transfers. But not just cash, but the shares in equities.

Ignoring the traditional IRA for a moment, I can transfer N shares of some stock from my brokerage account into my Roth IRA.  That's kind of cool. 
Maybe you gurus do this all the time, and my excitement is unwarranted. :)

Starting in January I think I'll reduce my 401K contribution, and put the difference of that proverbial "10%" into the Roth each paycheck.
Thanks again.

 :clap: :clap: :clap:

Nothing makes me happier than seeing someone find a better solution. It's a mess to start but once you know what to look for the best choices bubble up.

All thanks go to Freelancer. Had he not pushed me to start explaining how I think in realistic terms it never would have started. Of course I'm not the only finance guy around (and probably not the best) but it's easy to forget that when you are specialized you speak a foreign language.

I like how this thread weaves different forms (it started as building a brokerage portfolio) but it's been fun to double back a couple times and talk about funds and different options. I've re-examined my allocations and I have found as much value here as a trip to either my financial planner or my tax attorney.

I hope this one goes long, there are many (myself included) who will gain.
Title: Re: Building a Portfolio for Beginners
Post by: FreeLancer on December 06, 2017, 05:18:18 PM
 Yay!  Learning’s what it’s all about.
Title: Re: Building a Portfolio for Beginners
Post by: xxdabroxx on December 07, 2017, 11:46:16 AM
I have an IRA (they called it a simple IRA) from a previous employer that I haven't done anything with in a long time.  It has about 18k in it currently and was doing pretty good this year from what I remember of the last statement they sent me.  This was run through a local investment group, can I roll this over into something else or to a different company?  I kinda hate to mess with it because I think it grew almost 3k this year if I read the statement correctly.  I'm completely uneducated when it comes to investing. 

I also just started a 457 at work but I did half Roth and half traditional (I'm 32), think I should go all roth instead of splitting it up?  I was thinking the traditional would help allow me to invest more without seeing so much hit on my paychecks but that may be short sighted in that investing less in a Roth may equal more in the long run. 

FWIW, I also started working at a state facility this year and will get a retirement from that if I stay here long enough. 
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on December 07, 2017, 12:32:26 PM
I have an IRA (they called it a simple IRA) from a previous employer that I haven't done anything with in a long time.  It has about 18k in it currently and was doing pretty good this year from what I remember of the last statement they sent me.  This was run through a local investment group, can I roll this over into something else or to a different company?  I kinda hate to mess with it because I think it grew almost 3k this year if I read the statement correctly.  I'm completely uneducated when it comes to investing. 

I also just started a 457 at work but I did half Roth and half traditional (I'm 32), think I should go all roth instead of splitting it up?  I was thinking the traditional would help allow me to invest more without seeing so much hit on my paychecks but that may be short sighted in that investing less in a Roth may equal more in the long run. 

FWIW, I also started working at a state facility this year and will get a retirement from that if I stay here long enough.

I'm not investment or tax professional, so this is just my Homer Simpson opinion...

Avoid withdrawing from a pre-tax account.  Massive penalties and taxes await.  Unless your child needs a kidney, leave your 401K and traditional IRA alone.
When you leave a company, you can of course roll-over a 401K, either into a new 401K or a traditional IRA.

1) If an employer match is available, frankly you're a fool to not advantage.
2) Next I'd max your pre-tax contributions.
3) If you have more after that, Roth IRA.

There is some debate on the order of 2 and 3.
I'm not an expert, and am ill-prepared to vehemently defend my position. I've done some casual research and that approach meets my needs for the time.
Title: Re: Building a Portfolio for Beginners
Post by: FreeLancer on December 07, 2017, 12:57:33 PM
I haven't figured out how to best allocate traditional vs Roth contributions, but I usually come down on the side of taking the tax break now, rather than trying to predict what my taxes will be like in 30 years.

At past employer I contributed about a third into the Roth portion and put the rest in the traditional side of the 401k.  Honestly, the reason why I did it was because my wife and I were only able to contribute into a Roth for a couple years after they first came out before we hit the income limits, so putting some into the Roth at work allowed me to roll those over into a Roth IRA when I left that employer.  In my current solo 401k I'm putting it all into traditional because my tax rate is high right now and I need to maximize my deductions.  Same with my wife's 403b plan, she maxes out her contributions and it all goes into the traditional.
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on December 07, 2017, 01:51:34 PM
I'm a little odd here. I pay the taxes now. I know it's wrong mathematically but I can take the hit of a few points now without feeling pain (it's not that big if you understand what marginal rates mean). What I fear is a change to the tax code to really soak those of us who retire with a solid base. And we both feel retirement means no more math.

I like the Roth the best. Obviously a 401 match has to be maxed but after that the Roth seems to offer the best leverage. Since it's the only one that lets you withdraw the original investment without penalty you can use a Roth to pay off the house quicker or a vehicle to finance a new business. Risky, I know. But at least the opportunity is there.

I guess I could sum it up in a philosophy. I pay now knowing I can to avoid future uncertainty and I keep as much available to me as possible.
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on December 07, 2017, 03:04:34 PM
okay, since I've had a Roth IRA for less than 24 hours please indulge another stupid question from me.

I just read there are income limits.

Quote
Income Limits Adjusted Up $1,000-2,000
Direct Roth IRA contributions are only allowed if your income (technically your Modified Adjusted Gross Income) is below a certain level (you can get around this limit by using a Backdoor Roth IRA). For single filers in 2017, that income threshold starts at $118,000 (up from $117,000) and ends at $133,000 (up from $132,000). In that range, your contribution is limited, eventually reaching zero. For married filing jointly filers (and qualifying widower(er)s in 2017, that income threshold starts at $186,000 (up from $184,000) and ends at $196,000 (up from $194,000).

For arguments sake, if I earn $150K, does that mean I'm completely disqualified from contributing to a Roth IRA? 
I'm not accountant (my wife is), but I can google.  MAGI would be AFTER income deductions (401K/classic IRA), so one could contribute to the pre-tax investments to bring down the income level.

Am I on track here?

So would high income earners like doctors and attorney's simply not use Roth's at all (assuming they can't bring their MAGI below the threshold)?
Title: Re: Building a Portfolio for Beginners
Post by: FreeLancer on December 07, 2017, 03:18:15 PM
So would high income earners like doctors and attorney's simply not use Roth's at all (assuming they can't bring their MAGI below the threshold)?

That's why my wife and I only were able to contribute to a Roth IRA for a couple years, once we got out of residency our income went over the limit.  The only way to do a Roth is if the employer's plan offers it as an option, but that's only been available fairly recently.
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on December 07, 2017, 03:52:41 PM
Not to be a dick but it's one of the massive advantages to be in flyover country. Either your employer pays nationally competitive and you gain from the lower cost of living or you get the perks we don't allow "the rich".


True "high income" people don't play the same game. I've had the pleasure of knowing several people who take a quarter million dollar salary (even here). They frequently have the power to use other vehicles like hedge funds and asset managers (basically people like me) to run the money. High net worth people don't generally care about retirement savings. They like the ability to use the money to create cash flow. A lot of rules disappear if you have enough money.

Unfortunately we have a system that works <$100k-ish and >$200K-ish. But there's not much in the middle. (I'm in the middle too.)
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on December 07, 2017, 04:15:05 PM
Not to be a dick but it's one of the massive advantages to be in flyover country. Either your employer pays nationally competitive and you gain from the lower cost of living or you get the perks we don't allow "the rich".


True "high income" people don't play the same game. I've had the pleasure of knowing several people who take a quarter million dollar salary (even here). They frequently have the power to use other vehicles like hedge funds and asset managers (basically people like me) to run the money. High net worth people don't generally care about retirement savings. They like the ability to use the money to create cash flow. A lot of rules disappear if you have enough money.

Unfortunately we have a system that works <$100k-ish and >$200K-ish. But there's not much in the middle. (I'm in the middle too.)

Be as much as a dick as you want.  You're sharing useful info.

Also, a friend of mine just spent bought a 40' yacht, and he needs crew to get him from Tacoma through the Ballard Locks. https://en.wikipedia.org/wiki/Ballard_Locks (https://en.wikipedia.org/wiki/Ballard_Locks)
You know how they say it's better to have a good friend with a boat than own it yourself...

Anyhow, I'll be getting sunburn on a boat before your ground thaws ;)
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on December 07, 2017, 04:31:35 PM
Of course we have a boat. Every Minnesotan family has a boat. It's the "Land of 10,000 Lakes". We even named our first basketball team the Lakers. And every goddam year I launch that boat into 34 degree water.

It was 7 degrees this morning. This is a "mild" winter.  :facepalm:
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on December 08, 2017, 02:35:07 PM
This is disheartening.  WTH do they have a button on their webapp if this ain't legal?

Quote
- Contributions cannot be made to an IRA account in the form of securities such as stocks or mutual funds. Only cash is allowed for an IRA contribution per Internal Revenue Service (IRS) regulations. Please complete a new Internal Transfer Form with the cash amount you would like to internally transfer to your IRA as a contribution. We have attached an Internal Transfer Form to this email for your convenience. You can also access the form from our website by going to "Forms & Agreements" (under the Client Services menu).
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on December 08, 2017, 04:26:34 PM
Some positive news.

Apparently my workplace Fidelity 401K has a little known feature "Brokerage Link".  It's buried deep under crap, a bit involved to setup, but it's like a mini Scottrade inside of the 401K.
So I can use it like a brokerage account, but it's still inside my 401K.

The only downside, even if I have 100% of my contribution go into this, I have to manually buy stocks, ETFs or funds.  I was really hoping I could buy $100 of DEO or something each paycheck.
Oh well, still a net positive.
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on December 08, 2017, 10:04:42 PM
Some positive news.

Apparently my workplace Fidelity 401K has a little known feature "Brokerage Link".  It's buried deep under crap, a bit involved to setup, but it's like a mini Scottrade inside of the 401K.
So I can use it like a brokerage account, but it's still inside my 401K.

The only downside, even if I have 100% of my contribution go into this, I have to manually buy stocks, ETFs or funds.  I was really hoping I could buy $100 of DEO or something each paycheck.
Oh well, still a net positive.

That's actually how mine worked through Schwab. I used it to fund some ETFs that looked better than the bland portfolio options. I don't like trading in the 401. Put in my terms, it's clunky. But a lot of people have a lot more freedom than they think in the 401.

One of my big peeves is that "dividend funds" often yield ~1%. I can build a basket of companies that all average over 3%. I'm paying .2% for getting 1% when I can on my own top 3%? Over a lifetime this is massive.
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on December 09, 2017, 11:05:27 AM
That's actually how mine worked through Schwab. I used it to fund some ETFs that looked better than the bland portfolio options. I don't like trading in the 401. Put in my terms, it's clunky. But a lot of people have a lot more freedom than they think in the 401.

One of my big peeves is that "dividend funds" often yield ~1%. I can build a basket of companies that all average over 3%. I'm paying .2% for getting 1% when I can on my own top 3%? Over a lifetime this is massive.

I don't plan to trade in the 401.  Normally I come up with some "basket" and dollar-cost-average that every paycheck.
Fully agree on the admin fees. 

If you like the ABC Large Cap fund, you can look at the prospectus and reverse engineer your own basket, without the fees.  It's amazing this is a radical idea to most people.
Title: Re: Building a Portfolio for Beginners
Post by: bigbear on December 13, 2017, 11:55:20 AM
Some positive news.

Apparently my workplace Fidelity 401K has a little known feature "Brokerage Link".  It's buried deep under crap, a bit involved to setup, but it's like a mini Scottrade inside of the 401K.
So I can use it like a brokerage account, but it's still inside my 401K.

The only downside, even if I have 100% of my contribution go into this, I have to manually buy stocks, ETFs or funds.  I was really hoping I could buy $100 of DEO or something each paycheck.
Oh well, still a net positive.

Most 401k plans don't have a brokerage window.  It's common to have the contribution just fund a cash/sweep account where you would have to actively invest.

The big things to consider are the brokerage link transaction/balance/account fees (compared to a low-cost online broker outside of the fund) vs. the convenience of having everything under one roof.  It's not uncommon for a 401k brokerage window to have higher fees than a separate online broker.
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on December 13, 2017, 12:20:41 PM
It's not uncommon for a 401k brokerage window to have higher fees than a separate online broker.

Sure, but that's not the point at all.  I may not contribute to a traditional IRA while an employer 401K is available to me.  So if I want to take 5% of my pre-tax paycheck and buy AMZN, my only option is the 401K brokerage window.
Title: Re: Building a Portfolio for Beginners
Post by: bigbear on December 14, 2017, 11:21:15 AM
Sure, but that's not the point at all.  I may not contribute to a traditional IRA while an employer 401K is available to me.  So if I want to take 5% of my pre-tax paycheck and buy AMZN, my only option is the 401K brokerage window.

If the 5% you're talking about is getting the company match, then I completely agree.  The amount gained in the match will outweigh a potential higher brokerage fee.  But if the 5% doesn't get a company match, then it's in your interest to look at the fees.
Title: Re: Building a Portfolio for Beginners
Post by: Smurf Hunter on December 20, 2017, 10:05:01 AM
I think I found a potential buy opportunity for NWL (Newell Brands) https://finance.google.com/finance?q=NYSE%3ANWL&ei=fZc6WuCeFde4jAHjtIGQBQ
Today it's down around 2% from yesterday, and that puts the dividend around 3%.  Seems a fairly large and stable conglomerate near its 52 week low.

Seems appropriate for a retirement account.  Anyone see major concerns?
Title: Re: Building a Portfolio for Beginners
Post by: David in MN on December 20, 2017, 12:43:39 PM
I think I found a potential buy opportunity for NWL (Newell Brands) https://finance.google.com/finance?q=NYSE%3ANWL&ei=fZc6WuCeFde4jAHjtIGQBQ
Today it's down around 2% from yesterday, and that puts the dividend around 3%.  Seems a fairly large and stable conglomerate near its 52 week low.

Seems appropriate for a retirement account.  Anyone see major concerns?

Looks pretty good to me. Only risk is some long term debt that seems manageable. Looks like it's the victim of one bad quarter that caused a big sell-off. To be fair, a lot of "weird" conglomerates get crapped on by Wall Street because it's hard to analyze things spread across so many industries. What does Rubbermaid have to do with playing cards or fishing rods?

I'll have to throw it on my watch list.