WAY OT: Money Gurus, recommend good places to park money

Submitted by Rodriguesqe on

It's bonus season, and I am guesssing there are some other MgoEmployees in a similar spot as myself, and if theres one thing I know about this board is there are plenty of bright people who also happen to be dying for an excuse to mention how successful/smart they are.

So here it is: I have too much money to keep in a checking account - I'm thinking no more than a few thousand dollars should be placed there. I have no anticipated major expenses for at least a year, though possibly next year I might. Saving accounts offer little yield, even a quick google search told me CDs are offerring just 2.25%, which comes out to $22.50/$1000 for a year, which doesn't really move my needle. I could also purchase a stock with a good annual dividend, I found ATT had a dividend yield at 5.3%. I am not risk adverse - dropping it on oil futures has crossed my mind, but practically speaking I am looking for something safer.

So, have at it titans of finance. Give out some good investing advice to your MGoBrethren.

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Mr. W

February 28th, 2015 at 6:25 PM ^

Depends if you're looking for income or growth. A 5.3% dividend yield is not very good if you're looking for income. There's a lot of good REITs that are paying out 12-15% dividend yields with very low betas. If you're looking for growth, all depends on what sectors you want to look in.

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bluebyyou

February 28th, 2015 at 6:57 PM ^

A 5.3% dividend yield, relative to current inflation rates, is a very good yield.  Anything that pays 12-15% has considerable risk.  That rate of growth is not sustainable.

If you have long term growth in mind with safety, I'd consider an index fund.  The DJII, historically, has grown about 6.8 percent annually. Take a look at SPDR's.

Do your homework....and don't listen to folks on bulletin boards, even this one.

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Mr. W

February 28th, 2015 at 8:30 PM ^

Good point on index funds. Normally cheap management fees and don't require much homework since it is passive investing.

In reference to dividend yield, AT&T at ~$33 pays 0.45 in quarterly dividends, (1.80 annually), and a beta of 0.30. The REIT I was referring to trades at ~21.50, pays a monthly dividend of 0.22, (2.64 annually), and a beta of 0.18. Your blanket statement of "anything that pays 12-15% has considerable risk. That rate of growth is not sustainable" isn't always true. Especially for REITs as they have to pay out 90% of net income in dividends to avoid income tax. It won't be that high long-term, but it also won't drop substantially so yes you can get that return with non-considerable risk.

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Mr. W

February 28th, 2015 at 8:55 PM ^

Never said it was risk less, and yes I'm not naive or arrogant enough to believe that real estate prices will always go up. Although I was saying was that a 12% dividend yield was possible without considerable market risk. A beta of 0.18 is one-fifth as sensitive as the market as the whole.

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MichiganG

March 1st, 2015 at 9:09 AM ^

Your reliance on beta to recommend a single investment is downright scary. Betas are used for portfolio diversification, not for evaluation of a single stock. Beta is not a reflection of absolute risk; just of relative risk compared to the market (or another benchmark, as used by many funds). Many studies have shown that historical performance is not a good predictor of future performance, which undermines it, but more importantly a low beta can mean low correlation with the market, but still high risk. Anything that delivers 15% returns with low risk is not low risk, or you're measuring it over too short of a period of time to provide meaningful data. If something like that were truly low risk and the return was not likely to go down by much, then everyone would put their money in it and the price would rise until the return fell.

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Doughboy1917

March 1st, 2015 at 3:49 PM ^

For long-term investing, index funds are the bomb-diggity.  That's where I keep 99% of my retirement savings. Look for low fees from places like Fidelity or Vanguard.

For savings, there's nothing wrong with "higher interest" savings accounts via Ally Bank, Barclays or others. Best rates right now are only 1% which suck, but you have easy access to your money.  Interest rates at most brick and mortar banks are terrible. I wouldn't bother with them at all.

You can get a slightly higher return on CDs than on traditional savings, but your money's locked in them for six months, a year or longer.

As Bluebyyou says, be skeptical of specific advice because most brokers are using you to make their living. They're more interested in helping themselves make money than in helping you make money. And, of course, a lot of stock advice is just people trying to boost the price what they already own.

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Farnn

February 28th, 2015 at 6:40 PM ^

If you have a small amount of money to invest (under $100k), you want to diversify and mutual funds are probably the easiest way to do that.  Individual stocks have too much risk and you don't really have enough money to buy multiple stocks without losing too much to transaction fees.  Look for low fee mutual funds as fees can seriously eat into any returns.   1-2% may not seem like a ton but look at the difference in growth over a couple decades at 7% vs 5% and it really adds up.

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Farnn

February 28th, 2015 at 8:30 PM ^

When you have more money, you can buy multiple individual stocks to diversify as well instead of using mutual funds to do that.  Even the lowest fee mutual funds take some cut so you are better off just owning the stocks themselves.   You can certainly do just fine going index funds and mutual funds but will likely have a slightly lower return.

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JamieH

February 28th, 2015 at 9:09 PM ^

However to keep the same portfolio as a mutual fund would take a considerable amount of trading.  Doable for sure, but there is a certain amount of work and paying attention required. 

Depends on whether you are trying to mimic a more static fund or an active fund.  I guess a static fund (like an index fund) would be pretty easy to mimic. 

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Farnn

February 28th, 2015 at 10:46 PM ^

I'm not advocating frequent trading with your portfolio, but if you invest in a broad range of individual stocks with the intention of holding them for a long time, you should have greater annual returns than an index fund because you aren't charged any fees.  Even if it's .5%, that can add up a lot over 20 years. 

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ypsituckyboy

February 28th, 2015 at 6:41 PM ^

The Vanguard suggestions are great, and I'd also suggest P2P lending sites likes Prosper or Lending Club. I've seen many good reviews from some very respectable bloggers about both companies.



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