WAY OT: Money Gurus, recommend good places to park money
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.
February 28th, 2015 at 7:35 PM ^
http://money.cnn.com/2014/12/11/investing/dont-pay-off-your-student-loa…
The summary is basically that if you know you can beat the interest you're paying on your loans by investing, you really shouldn't pay off your debt. If it's high interest stuff, by all means pay it back, but if you have low interest loans, you'll do better long term trying to do something with your money.
low interest rate debt is not really a bad thing. It means someone else is basically giving you leverage to invest money in the stock market, or somewhere else. Now you need to make sure you're getting more than the loan percentage back in your investment to make it work. But I could have paid off my new car by now, but why would I want to? I can make more money investing that cash in the market than I'll pay on my low-interest loan.
February 28th, 2015 at 7:35 PM ^
I disagree on the order of debt paydown.....you should pay down the highest interest rate debt first. Size of the loan doesn't matter....only what interest rate you pay and whether it's tax deductible (you'll want to pay those last assuming they aren't high interest rate loans).
February 28th, 2015 at 7:46 PM ^
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February 28th, 2015 at 8:26 PM ^
February 28th, 2015 at 8:37 PM ^
Psychology shouldn't really play into it. If a person can't understand the logic behind getting rid of the highest interest rate loan first, then it is possible that they shouldn't be managing their own finances.
Low interest rate loans are your FRIEND. Even if you could pay the loan off, if you have a rate of 4% or less, you probably don't WANT to.
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is the best way to go. Look at your debt and work at paying the lowest debt item first, then work on paying it off by making higher principle payments. Once your lowest debt is paid off take the payment you were making to your lowest debt and apply to the payment you were making on your next lowest debt. Once the second lowest debt is paid off, take the money you were paying to your lowest and 2nd lowest debt and combine it with the payment of your 3rd lowest debt...continue this process until you have paid off your final debt.
Join a credit union and apply for a low interest personal load If you have a student loan you consolidated several years ago when interest rates were high. Show the credit union that you have been paying your student loan on time. You may need collateral, like a paid off car or home to get the loan at a low rate. Use the extra money you saved on interest to pay down the principle of your loan faster. Before you know it, you will be free of debt!
February 28th, 2015 at 7:53 PM ^
IMO this was GREAT advice when interest rates were higher. However right now I have a mortgage at something like 3.5% and a car loan at 3%. I can get MORE than than in an index fund for the most part. So I'd rather have my money parked in an index fund earning the (approximately) 7% annually than paying off the 3-4% interest than I'm having to pay on my loans.
Now credit card debt is another story. I NEVER NEVER NEVER carry that. Pay them off the month you make the charge. I use them for convenience only, never to spend money I don't have. The interest rates on them are highway robbery and will just kill you.
February 28th, 2015 at 8:18 PM ^
February 28th, 2015 at 8:32 PM ^
Well, I don't know that you need to have 6 months in there, since if you have your investment money in reasonable things you should be able to get it out if you have an emergency without taking too big of a hit (barring another collapse like 2008). But there is certainly nothing wrong with having a few months cash uninvested.
February 28th, 2015 at 8:51 PM ^
February 28th, 2015 at 10:05 PM ^
How about setting stop losses on those stock positions? As the stock goes south your money is on the sideline. If you like that stock long term, jump back in on the eventual upturn, and profit on it's recovery to the previous point.
Of course you can learn all about the chart statistics and find a reliable resistance and support for a stock. Though, there is a lot of inside information the average investor will not be privy to. I have a diverse portfolio where I will only trade 5 stocks. I know friends who have bought so many stocks that they cannot keep track of them and have lost a lot of money trading stocks. Options are even tougher, you can get soaked if you do not know how to place the proper call's and put's while trading options. Of course you have better leverage but you can lose a lot of money trading options.
February 28th, 2015 at 9:40 PM ^
February 28th, 2015 at 7:16 PM ^
Hookers. Blow. Deutsch Marks.
February 28th, 2015 at 7:20 PM ^
February 28th, 2015 at 7:22 PM ^
February 28th, 2015 at 8:30 PM ^
My NorthWestern Mutual Insurance policy was the single worst investment I ever had (& I had it for over 25 years).
Abysmal rate of return, ever increasing fees & premiums, and the policy itself didn't appreciate much at all.
I cashed it out, bought some term life worth 10X more, and put the rest in an index fund that i'd guess has at least doubled my return.
Their customer service sucked also, and they bothered me for a year after I left trying to sell me more.
Now, as a conservative investment, I can see why it might make some sense, but I'd still never go near it again.
February 28th, 2015 at 8:51 PM ^
What was your rate of return? I've invested in a Northwestern Mutual Insurance policy as a long-term, lower-risk part of my strategy and I'm pretty happy with it as that. I think it's doing pretty well and seems on schedule to give a pretty good rate over the next couple of decades. Especially around 20010-2012, it was feeling pretty nice. Since I'm one of those guys who put at least a 10% probability that the 2008 collapse could return permanently (at least, permanently enough to matter), I like the permanent life insurance option.
That said - I do wonder about it, and I'm always looking for better options.
I also have a maxed out IRA and a separate 403b in mutual funds, and I'm about to put some money into real estate (other than the house we live in, which still has a mortgage but at a lower rate than what we can get investing elsewhere, barring craziness).
February 28th, 2015 at 9:19 PM ^
I sold it over 10 yrs ago.
As I recall, the rate was maybe about 5-7% or something and was completely eaten away by fees, premium hikes, and other policy changes. (many other investments I had at the time were easily double digit, though riskier)
I thought way back when it would be a good "jack of all trades" kind of investment.
But as life insurance it was just too small/limited for what I needed, and as an investment, it was far too conservative. I was obviously looking for something more aggressive at the time.
Thats why i said I could see it's conservative appeal. Maybe NWM has changed their practices & customer service in the last 10 years so I don't discount your positive experince.
February 28th, 2015 at 9:23 PM ^
Thanks for the feedback. That rate seems about right. I will go back and check to make sure that we're not getting screwed by fees etc.
that goes "Buy term, invest the rest." It's very true for reasons you discovered.
February 28th, 2015 at 9:42 PM ^
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February 28th, 2015 at 11:21 PM ^
February 28th, 2015 at 7:33 PM ^
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February 28th, 2015 at 7:36 PM ^
I trade options on the think or swim (TOS)/TD ameritrade platform.
TOS is a little pricey with the cost/trade, but has the best tools IMO and it is the platform I was taught from a mentor. I have heard options express is great as well.
Learning how to invest in options has presented a great change in my future. I have spent a little money on learning techniques, but I must say that the videos you can download from "tradingprosystem.com" is a good way to learn.
The videos are $200 for about 70 videos. The techniques are simple money producing strategies. You can download the videos or watch online. I downloaded the videos as I wanted the content at my disposal.
Of course i recommend learning as much as you can, but the above is cheap and effective.
I am up 25% so far this year.
February 28th, 2015 at 7:54 PM ^
However it's been a really good year for the market so far. Are you preparted to go negative if things flip? Not criticizing at all, just curious. 25% for 2 months is obviously incredible. If everyone could do that, we'd all be options traders. :)
February 28th, 2015 at 8:23 PM ^
February 28th, 2015 at 9:32 PM ^
the market goes down but most long term buy and hold traders/investors lose. Daytraders/scalpers make money quicker when the market drops. It's called shorting the market. Stocks, futures commodities etc all drop faster than go up. Everyone wants out when the market drops. That's panic selling. Ever hear of panic panic buying.
February 28th, 2015 at 10:04 PM ^
they are trading will go up, they but call options. If they think it goes down, they buy put options. Yes, anyone can make money when the market goes up but only the knowledgeable knows you can make money when the market goes down. No one makes money when the market trades sideways!!!!
February 28th, 2015 at 10:22 PM ^
That is an incorrect statement if you trade credit spreads. If you sell and Iron condor sideways makes you money.
Trading credit spreads is outta my realm of knowledge but for what instruments I've traded, sideways is not profitable.
February 28th, 2015 at 9:29 PM ^
I mostly do credit spreads so whether the market is going up, down or sidways i can profit. My trade just has to stay between my high and low positions.
Just read about credit spreads. Very very interesting. First few sites I got to read like infomercials trying to sell me something but the more I read about them, the more they interest me.
There is definitely some risk there if you don't know what you are doing or aren't paying attention, but it sounds like if you are on the ball you can make a reasonably steady profit off of them. Not a ton of upside compared to regular option trading, but way less risk too.
Seems like the biggest danger is if the market starts whipsawing up and down radically. The steadier the market is, or at least flat or in one direction, the better off you are.
February 28th, 2015 at 7:39 PM ^
There's always money in the banana stand...
Steady payout - AGNC (Just keep an eye on the Fed rate)
Long haul - BRK.B (can't argue with Buffett)
February 28th, 2015 at 8:31 PM ^
February 28th, 2015 at 7:41 PM ^
Solar power.
February 28th, 2015 at 7:52 PM ^
February 28th, 2015 at 9:31 PM ^
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February 28th, 2015 at 10:52 PM ^
Subsides are no longer necessary actually. It has become so inexpensive (panels 80% less expensive than just five years ago) that it simply requires good financing (mortgage or HELOC at this point) for payments to equal what you would have paid the utility. That is true on a list price basis in many places. If you pay cash you can expect at 5-20% ROI depending upon location plus improving the value of your property. Do you want to pay yourself or the utility company? That is the question.
Having the 30% tax credit in place is what makes it a no-brainer right now (until 2017).
Also, it is by heavens not a political issue at all. Many people investing are stauch conservatives just looking to save money or put some of their money to good use.
Of course, it works better in CA, AZ, HI, CO, TX, UT etc than MI for one obvious reason. :)
February 28th, 2015 at 7:45 PM ^
First of all it should be noted that there is really no investment that is right for everyone. Time horizon, risk tolerance, and expected/acceptable returns should all be taken into consideration.
You said that you have no expected uses for a year, so that's a start. How averse are you to risk? You already said that you want more returns than CD's and MM funds can offer and that is the low end of the risk spectrum. If you can't stand to see your investment lose value or take a long time to see a reasonable return then you may want to stay away from biotech/pharma's that live or die by the FDA's approval process as well as any company directly involved in the production of oil/natural gas. Those are on the risky side of the spectrum but can also see explosive returns if a drug is approved or oil goes back to the $80-100 per barrel range. Dollar cost averaging a sector fund would be a safer way to play energy since no one knows what the price floor is on oil.
You mentioned AT&T. While they do pay a nice dividend for a major company they tend to trade in a channel or range of $31-36 the last few years and is a common stock for those seeking income. It is also nice for dividend growth (think compound interest), a strategy that takes years or even decades to realize a great return.
Midstream (energy infrastructure such as pipelines and outfitting ports) is a relatively safe play as the US is expected to expand its pipelines over the next few years to accomodate the export of domestic energy resources. They also pay a nice dividned. Major players in that industry are Kinder Morgan (KMI) and Enterprise Products Partners (EPD), among others.
If interest rates rise this year or next it will be a winfall for banks and brokers alike. Discount brokers and regional banks will likely see the biggest gains from a rise in rates, but all of the aformentioned will benefit. Investing in a financial sector ETF would not be a bad way to go.
With energy on the cheap some Industrials are attactive, particularly transportation stocks. Airlines were expected to grow before energy got cheaper with most major airlines expanding routes and planes on back order with Boeing (potentially a good play but also tied to the defense and aerospace industries) and Airbus.
Health care is a good long term play (by long term I mean over 1 year) with the baby boomers retiring. HC won't be any less necessary in the future. A sector ETF or mutual fund could be a good play.
Information Tech has been booming the last few years. So much so that some are wondering if another bubble is forming. Diffucult to say but semiconductors have seen excellent performance recently (Intel being the big name but there are many others).
TL;DR: Sectors expected to do well this year are Financials, IT, Health Care. Airlines seem to be a good play until energy goes back up. Midstream is relatively safe with good growth prospects. IT sort of a wild card. Energy is a risk/return type of proposition.
Hope this helps but REMEMBER: Plan your trade and trade your plan, and leave your emotions at the door.
February 28th, 2015 at 8:27 PM ^
February 28th, 2015 at 9:03 PM ^
If you realize a gain on an investment for a holding period of less than one year you are taxed at your income rate while gains on a holding period greater than one year are usually taxed at a rate of no more than 15%. In an IRA or retirement plan this does not matter since investments grow tax free.
Growth of investment is tax free in a roth or traditional and is unrelated the taxes of a distribution in a traditional. You are not taxed on realized gains in either IRA account.
or IRA that lets you invest with pre-tax dollars (as is usually implied), then it is tax DEFERRED as the person above has pointed out. It will all be taxed when you take the money out of the account (and an extra penalty will be applied if you take it out too soon).
You are correct in that a traditional plan or any plan that contributes pre-tax dollars is tax deferred. Although you are taxed on ANYTHING that comes out of such a plan (that does not meet the exceptions) whether it grows or loses value. If you lose half your capital or make millions inside a retirement plan it is all taxable at your income rate the year that you make a distribution. Yes, you pay taxes on what you take out but how much it grows or does not has no bearing on the rate at which it is taxed.
My point was that any retirement plan is not subject to capital gains taxes the year in which an investment is sold, as a taxable account would be. You could make a gazillion % on an investment this year, sell it, and as long as you don't take money out of your plan then you pay no taxes...this year.
February 28th, 2015 at 7:46 PM ^
Some of the debt killing ideas earlier were great advice if you have debt.
If you are in good shape with debt start a Roth retirement acct if you haven't already. Put the $$ in a low cost ETF or low cost retirement target date fund.
If you don't own a house or condo save some of it for a down payment. You want to purchase a house or condo with a 15 year mortgage not a wealth draining 30 year mortgage. look at the $$ numbers of a 15 vs a 30 and you will be amazed.
Buy real estate in the best area you can. Google real estate - location location location
February 28th, 2015 at 8:56 PM ^