S/o of stock market- how did you do it?

Amarante

Mon, Aug 24 2015, 4:14 pm

The first part of "investing" is that one needs to save - optimally, at least 10% of one's income.

Most advice is to have at least 6 months of expenses saved in a liquid very safe place - I.e. a bank with FDIC insurance (assuming you are in the US).

If you really know nothing about finances, I would suggest reading one of the books like Investing For Dummies so that you can better evaluate investment advice.

In terms of very very basic stuff, you need to figure out what your investment goals are? Are you saving for retirement? Are you saving for a house downpayment? Are you saving for college tuition? That's because each of these goals would have different vehicles and different strategies - I.e. if it's for retirement, then you would either use your employer's 401 to the maximum and then IRA or Roth (depending on your income). If you are self employed, then you would set up a SEP IRA for retirement.

As a generalization, most people can't predict the stock market. It is there for long range investment. You don't want to have to sell when it drops and you don't want to buy at the top (if you can help it). Much investment advice is that one just invests a certain amount each month and therefore one essentially averages out over time in terms of highs and lows.

Depending on age, one would have a different mix of stocks, bonds and other investment vehicles because it's much harder to recover from a loss in the stock market if you are 70 versus 40 so most older people have a portfolio consisting of a higher percentage of bonds which don't appreciate but don't tend to drop precipitously in value.

For most people, a stock index fund makes the most sense - low fees to manage and to purchase if from Fidelity or Vanguard.

But again - and meaning no disrespect - before you do anything except start saving money in a bank account, read a very basic investment book or subscribe (or read) something like Money Magazine.

Amarante

Mon, Aug 24 2015, 6:23 pm

amother wrote:

Thank you! In addition to the info you provided, just literally, how do you buy these things? Stocks etc?

If you are buying a Fidelity or Vanguard fund, you can buy directly from them.

Or you can use a stock broker but I personally would be hesitant to rely on a broker unless I was able to evaluate their investment advice.

The simplest and cheapest way to buy stocks is to get a so called index fund which replicates the stock market because it is the cheapest and over time for most people yields the best return. You don't pay a lot in management fees which can eat away at your actual rate of return.

But there are all kinds of mutual funds available as well as buying individual stocks. For most people, buying individual,stocks makes no economic sense.

But again, I would urge you to make the effort to read some basic books on investment so that you have an understanding of basic terms and how tje market works.

While you are saving in a boring bank account, you will have time to learn enough so that you understand the basics enough to not make huge mistakes or get duped by someone unscrupulous.

Amarante

Mon, Aug 24 2015, 6:38 pm

Fidelity is a financial services corporation but they are mostly known for their mutual funds because many of them had smaller up front costs and management fees than other mutual funds. They are popular with people who manage their own investments but you can also get investment advice from them.

Theynare on line as is Vanguard and I think they have tutorials on basic stuff.

When you want to set up an account, you would probably call them. I don't know I'd they have offices. Perhaps they do at this point, but when they started they really were intended for middle class people who didn't want to spend money on expensive investment advice.

They have evolved so they offer fancier options like investments that change based on your age so automatically.

amother

Slateblue

Tue, Aug 25 2015, 10:08 am

We went to a trusted financial adviser in our community.

One thing we wanted to specifically save for is our children's bar mitzvah's, weddings, school etc. So conservative and safe and long term was our goal. He has a philosophy to put in a steady amount monthly no matter the market. We have seen that work for us very well over the past few years. When stocks are low we buy and when stocks are high we buy, so it is seems to even out in the end and we are ahead.
We have a direct deposit system set up so that the money is deposited monthly automatically.
My DH also doesn't have a 401 k through work so he helped him set that up.
(Because we do business with him he also advised me on what to do with my work's 401K when I wasn't sure - now my 401K is with Fidelity where there is an option that they can automatically invest your 401k with risk dependent on age - so 20 - 30 is more risky, 30 - 40 is less risky and 40+ is conservative. This way the earnings become more stable the older you get and the more likely you are to start pulling out).

I found having the advise of someone who is trustworthy very valuable. It didn't cost us anything. I believe he makes a kickback from the investments.

He was also able to advise us how to put the money under our children's names to save in taxes - it was all done legally.

We don't make a lot of money, but enough to live on and save slowly. It is gratifying to see it slowly add up and with Hashem's help it should all work out.

m in Israel

Tue, Aug 25 2015, 10:46 am

amother wrote:

Thanks! We are saving BH in a boring bank. But literally- do you purchase them online? Is fidelity a store? Can you buy them if you live abroad?

and my father was in finance- I was NOT paying attention I guess.

p.s. I will read the books before doing it but I am curious how it works.

If you are talking about buying individual stocks (NOT something I would recommend for a newbie), then yes, you can buy them online through an online brokerage firm like e-trade. Basically you set up an account and then once you have an account you can buy and sell individual stocks online by placing orders in your account. Sites like those generally charge a set fee per trade -- meaning every time you buy or sell a group of stocks you pay "x" amount (say $15). You can buy stocks from anywhere in the world, although some sites may have restrictions in terms of opening accounts, like requiring U.S. bank account.

If you are new to investing, however, I agree with the earlier posters who recommend buying a mutual fund or index fund through a firm like Fidelity or Vanguard. Basically instead of buying shares in individual companies as you are when buying stocks on your own, you are buying shares of a fund which owns a group of stocks. The managers of the fund will buy and sell stocks, and you don't pay per trade but according to an overall fee structure. There are mutual funds designed based on your age bracket (as amarante explained, with proportionally less risk as you get closer to the time when you would need to withdraw your money), although my personal preference is for index funds/ETFs. I think you can do this online, too, but if not it can definitely be done over the phone. Look up Fidelity or Vanguard for information.

A 3rd option is to go with a private stock broker who will manage your money based on your financial goals/preferences and his personal research. This is generally the most expensive way to invest (brokers will usually take a certain percentage of the value of your account as a fee), and many brokers will only handle accounts with a certain minimum amount of money (as opposed to the first two options where you can open accounts with tiny amounts). Also, you need to do good research to find a broker who is good at what he does and reliable. Most individuals will not beat the index funds over time, although of course many do.

Of course it is definitely worth learning a bit about how this all works before getting to involved -- and possible speaking to your tax adviser to see how to benefit from options like IRAs/Roth IRAs when setting up your investments.

Good luck! In general investing is a smart way to get the most out of your savings over time.

m in Israel

Tue, Aug 25 2015, 10:52 am

I also want to point out that Slateblue amother's advice about investing a consistent amount over set periods of time (called "dollar cost averaging") is actually very good advice for a new investor, especially if you are investing in mutual funds.

In the early years of our "investing career" my husband and I picked a few well managed mutual funds and set up monthly direct deposits from our bank accounts into those funds. When the funds drop in value, you end up buying more shares, and when they increase in value, you get less shares, and overtime you increase your holdings at on overall average price.

Amarante

Tue, Aug 25 2015, 11:38 am

amother wrote:

We went to a trusted financial adviser in our community.

I found having the advise of someone who is trustworthy very valuable. It didn't cost us anything. I believe he makes a kickback from the investments.

Not to be an alarmist but you really should find out exactly how your financial advisor is being paid.

As was pointed out, financial advisors make money either by charging an upfront fee (by the hour or a percentage) or they receive a commission based on what they sell to you.

Your advisor might be great and honest but there are investment opportunities for which the advisor would receive a higher commission - and it's only human for people to justify what they are doing if it benefits them.

I am certainly not saying this is the case for you or your advisor but it would be prudent to ask exactly what they are making from each investment.

FWIW, most prudent advice is to hire a financial advisor who receives NO COMMISSION and charges by the hour - or a set fee for an annual visit. There is also an organization which certifies financial advisors and it is good to check to see if he/she is certified. Depending on what the financial advisor is called, there are certain duties of care owed to the client in terms of acting in their best interest.

For people of relatively modest means, it is often advised to research an investment advisor who charges a flat fee and then go in and get general advice in terms of reaching one's goals. One can see them one time and then go in to see them periodically as one's income and goals change.

I am not saying that an advisor who makes money on commission is a wrong decision - only that one needs to be sure that the advice is not biased in terms of those products which are most profitable to the advisor.

amother

Slateblue

Tue, Aug 25 2015, 11:50 am

He is making commission. He also helped us transfer stocks that I had inherited as a child to my married name without my father's name on the stocks (he had been named as my Guardian). He did this for free. he explained that the stocks are now listed under his name so for him it looks good just to have more items under his name, and that in general if he has more funds doing well under his name it is overall better for himself. He didn't charge for the service and made no commission. (we don't add money to it).

We are on top of the mutual funds. They are all highly rated.

We have a spread sheet I maintain and quarterly DH and I track the earnings and losses and how each stock is doing. If we see something concerning we will go back and talk to the financial adviser and make occasional adjustments.

He is someone that has been doing this for many years, and I know a lot of people who used him and were happy with his advise, I did go on references. I wouldn't choose someone without doing some investigation.

Amarante

Tue, Aug 25 2015, 11:53 am

amother wrote:

I wasn't directing this specifically to you since you seem to be on top of things except denominating his fees as "kickbacks" LOL which is exactly what less than scrupulous financial advisors often take. LOL

m in Israel

Wed, Aug 26 2015, 1:25 am

amother wrote:

I always wondered how this works!!

Is it similar to cds in that there is a set amount of time before you can take it out?

How does putting it in the children's name work? then you don't pay taxes on the money earned? or the money deposited?

and taking your income out of the picture at what point does it makes sense to start investing? I have about 20k saved and am still a dependent so I would love for it to be growing…..

Publicly traded stocks can be bought or sold at any time that the markets are open (and there is even before and after trading options sometimes). There is no "set time" before you can "take it out", but you are buying or selling it at the price on that specific day. If you need the money within a certain time frame, you are risking that the value will be less at the time that you need to sell, and you will end up loosing money.

Putting stocks in a child's name is not any different from a tax perspective than putting any savings account in a child's name. Speak to whomever you usually consult about your taxes for information.

The standard advice (I think someone mentioned it earlier) is that you should have 6 months worth of expenses in savings as an "emergency fund" before investing. Remember that although overtime investing in stocks generally grows your money, there are risks involved, as well as normal up and down fluctuations in the market that you need to be ready to weather out.

Amarante

Wed, Aug 26 2015, 8:32 am

Expanding on what M in Israel wrote, there are certain types of accounts in the US which are used to fund tuition which have special tax advantages because of the way they are set up in terms of ability to fund them and I believe that they also operate somewhat like an IRA in terms of taxation. If you are saving for a kid's future tuition and are in the US, one should definitely talk to an accountant about setting one up. I don't have one so I am hazy on the details but definitely something to be looked into if you are saving for this purpose. ETA But those aren't necessarily stocks as they can be any kind of asset.

Stocks - or mutual funds which are essentially a collection of stocks or bonds or stocks are liquid in the sense that one can buy and sell immediately. However, they generally aren't thought to be a way of parking money completely safely like a CD because when you need the money, it might be a day like yesterday when the market is down.

Over the long term, stocks will appreciate - for example, you bought shares in a mutual fund in 2005 for $5000 - Last month it was worth $15,000. However, yesterday it was worth only $13,000. So over the long term you made money. That's why the advice to investors is to think of stocks as a long term investment - put your money in that you won't need for a reasonably long period of time and don't panic.

Last edited by Amarante on Wed, Aug 26 2015, 9:02 am; edited 1 time in total

amother

Slateblue

Wed, Aug 26 2015, 8:57 am

I would never invest money in the market that I would need soon. I use it only for long term investments (weddings and bar mitzvas and seminary and yeshiva for my very young children and retirment, not to save for a house in 5 years).

For these reasons.
- every time I invest it costs a percentage - I have to wait to make that back
- There are highs and Lows, which hopefully over time even out and you don't lose money on your investments. I've watched some of my investments (stocks I inherited, not mutual funds) really tank and it can be worrisome.