More money, more problems


O

oprah.chopra

I live very frugally and save a lot , so each month I find
myself with $5-10k sitting in my bank account. It seems all my
investment options are riddled with complex rules, tax laws, and
on going maintenance. Is there such an investment that I can leave it
and forget it?

I am a conservative investor and am just interested in
beating inflation. I just dont want to be bothered with all the
nuisances of managing brokerage accounts, IRA's, etc.. For example
last month I opened a simple CD from fidelity.com and the whole
process took an hour and they emailed and snail mailed so many
letters about the CD and account. I just can not be bothered reading
all that stuff. All I want is a CD , not a book!
 
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E

Elizabeth Richardson

For example
last month I opened a simple CD from fidelity.com and the whole
process took an hour and they emailed and snail mailed so many
letters about the CD and account. I just can not be bothered reading
all that stuff. All I want is a CD , not a book!
Can you get a membership in a credit union? While others may disagree, I
wouldn't bother with something as simple as a CD at one of the large mutual
fund/brokerage companies.

Elizabeth Richardson
 
J

John A. Weeks III

I live very frugally and save a lot , so each month I find
myself with $5-10k sitting in my bank account. It seems all my
investment options are riddled with complex rules, tax laws, and
on going maintenance. Is there such an investment that I can leave it
and forget it?
Sure, give it to a money manager, broker, or financial planner,
and let them take care of it for you. Lots of people do that.
I am a conservative investor and am just interested in
beating inflation. I just dont want to be bothered with all the
nuisances of managing brokerage accounts, IRA's, etc.. For example
last month I opened a simple CD from fidelity.com and the whole
process took an hour and they emailed and snail mailed so many
letters about the CD and account. I just can not be bothered reading
all that stuff. All I want is a CD , not a book!
Unfortunately, life is complicated. But if you want something
simple that you can do yourself, do some shopping around and
locate those choices. For example, savings bonds, T-bills,
money market checking, municipal bonds, and exchange traded
index funds are all very simple to set up, simple to manage,
and simple to own.

-john-
 
A

Andrew Koenig

I am a conservative investor and am just interested in
beating inflation. I just dont want to be bothered with all the
nuisances of managing brokerage accounts, IRA's, etc
In your shoes I would pick a balanced fund from Vanguard, such as their STAR
or Wellington funds, and don't worry about it after that.

See http://www.fundadvice.com/fehtml/investingbasics/0212a.html for some
more detailed information. Their comments:

----------------------
Your money won't work nearly as hard for you in any single fund as in a
properly diversified portfolio. But if you must have only one fund, look for
one that will give you low costs, low turnover (thus low tax exposure) and a
portfolio run by some of the best managers in the business.

To my mind, that points straight at Vanguard Wellington (VWELX), with its
very low expense ratio of 0.3 percent.

This fund won't set the world on fire. But when I think of the thousands of
investors I've talked with over the years, I can't recall more than a few
who wanted to be exposed to the risk of a one-year loss greater than 20
percent.

Vanguard Wellington should keep its shareholders well within that limit.
 
J

jIM

While some of that stuff is no fun, you might find yourself being well paid for
spending some time to understand a bit of it.
This was my thought as well- you watch how you spend money (based on
comments posted to this thread), yet are suggesting you want a hands
off approach.

You need to think of 2-3 primary choices when investing

1) pay an investment advisor to make these decisions for you (probably
will pay around 5% load each time you buy).

2) pay an financial advisor a one time fee to set things up for you.
Still have paperwork to do here.

3) do it yourself, saving you money. This will cost you time, and
require paperwork to set up accounts.

I do 3), as do most of other posters here.

Within any category, there will be issues with taxes, retirements,
fees of mutual funds and asset allocation. IRAs are a way to deal
with retirement and taxes. The forms you had to fill out are probably
SEC documents/ Patriot Act documents. Use a local bank and see if
same amount of paperwork is needed for similar CD. In my case I open
CDs with a bank I already use, so little paperwork was required.
 
E

Elle

I just dont want to be bothered with all the
nuisances of managing brokerage accounts, IRA's, etc.. For
example
last month I opened a simple CD from fidelity.com and the
whole
process took an hour and they emailed and snail mailed so
many
letters about the CD and account. I just can not be
bothered reading
all that stuff. All I want is a CD , not a book!
Little lesson from education theory: The learning curve is
steep. What was a PITA the first time around is often on the
order of 50% less demanding the second time around.

I buy CDs from Fidelity now and then, too. I do it online.
The ensuing paperwork (beyond the usual monthly etc.
statements for all my accounts) is (1) an email; and (2) a
snail mailed boilerplate prospectus yada on the CD. I
confirm the CD is FDIC insured prior to purchase, so I toss
out the email and prospectus almost as soon as I receive
them.

Re the PITA of managing one's investments, I agree with the
direction of Andrew Koenig's post. Also, maybe call
Fidelity and Vanguard and say you want an easy mutual fund
that rebalances by itself (that is, per the fund's stated
design and with its managers direction), so its low cost and
requires little personal attention. They will send you to
their funds designed for folks like you.

You will still be stuck with separate accounts for your
IRAs, taxable accounts, any 401(k) etc. If you hate keeping
an eye on all, yes, you can consider a financial advisor.
Make sure s/he's for fee (hopefully low fee) and does not
work on commission.
 
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K

kastnna

Oprah,

The sickening part is that Fidelity sent you all that information
because they are forced to by regulation. And the regulation is
largely in place to protect consumers from their own ignorance.

Here's how it plays out: People don't want all that literature mailed
to them. And they don't want to learn the contents of that literature,
either. But when they get burned, they DO want to be able to hold
someone else responsible because the contents of the litereature they
didn't want or want to learn wasn't explained to them. So they sue.
From thenceforth Fidelity responds by sending out even MORE
disclosures to prevent a recurrence. Rinse. Repeat.

You are totally free to not read those disclosures, disclaimers,
etc... but please, please, please do not blame anyone else if
something goes wrong.

I sincerely wish you the best.

[kastnna climbs down from soapbox and straddles up to bar]
 
D

Don

On Mon, 26 Nov 2007 06:55:07 -0800, Douglas Johnson wrote
While some of that stuff is no fun, you might find yourself being well paid
for
spending some time to understand a bit of it. If you live very frugally, I
would expect you spend quite a bit of time doing things to save you money.
Why
not spend some of your time to put that money to work for you?
Some people will drive all over town looking for a filling station that sells
gas a few cents cheaper than other places. People will pour over newspaper
ads and circulars trying to find the store that has the best price on coffee
or eggs or whatever. And getting up into the more serious money, people
will spend many, many hours researching all about cars and the prices of
various cars and make time-consuming trips to multiple dealerships before
finally deciding to buy.

But when it comes to researching financial products and comparison shopping
the cost of financial services, frugality goes out the window. The same
people do not realize that with just a little effort it is possible to save
many thousands of dollars. For instance, by investing in a mutual fund with
an expense ratio of .4 instead of one with an expense ratio of .8 (all other
things being equal), it is possible to save 10K or 20K or 50K, depending on
how much was invested, over a period of many years in which costs accumulate.
Alas, the expression "penny wise and pound foolish" comes to mind.
 
O

oprah.chopra

Elle said:
Little lesson from education theory: The learning curve is
steep. What was a PITA the first time around is often on the
order of 50% less demanding the second time around.
I agree. I have bought the books suggested by others and will be
putting in the time to undertand all my investment options now.
Nevertheless I still think a traidtional IRA is far more nuisance
than it is worth for a young person . You can only invest paltry sums
yet you would still need to pay a tax consultant every year to figure
out the tax issues with it.
 
J

Justin

I agree. I have bought the books suggested by others and will be
putting in the time to undertand all my investment options now.
Nevertheless I still think a traidtional IRA is far more nuisance
than it is worth for a young person . You can only invest paltry sums
yet you would still need to pay a tax consultant every year to figure
out the tax issues with it.
There is no need to pay any sort of tax consultant. All you need to know
it how much your AGI is, if you have a retirement plan at work and what
the phaseout is. Four or five thousand (next year is is 5K) is not a
small sum to build up over time.
 
D

Douglas Johnson

Nevertheless I still think a traidtional IRA is far more nuisance
than it is worth for a young person . You can only invest paltry sums
yet you would still need to pay a tax consultant every year to figure
out the tax issues with it.
Some things I think you will discover:

1) The best time to save is while you are young. Over time, compound earnings
on savings turn bucks into big bucks.

2) Whether you do that savings in 401k, traditional IRAs, Roth IRAs, or taxable
accounts depends on the details. The usual advice around here is to contribute
to a 401k to maximize your employer's match. Then, max out a Roth, if you are
eligible. After that, it depends on the details of your situation. Personally,
I'm a big fan of low cost, tax efficient taxable savings because you can do
anything you want with the money.

3) I really don't think you need a tax consultant unless your situation is very
complex or unusual. Like investing, income taxes have a learning curve, but
it's not that hard and understanding the tax implications is important to making
good investment choices. TurboTax is a great tool for handling the mechanics of
income taxes, it can deal with quite complex returns. On the hand, a tax
consultant might be useful for advice on tax saving strategies.

-- Doug
 
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E

Elle

Ditto what Justin and Douglas wrote. Plus the internet has
countless, excellent sites and fora on IRAs and taxes. Hang
in there, and remember the only stupid question is an
unasked one (assuming one has made an effort to research a
bit one's self and so focus the question).
 
B

beliavsky

On Nov 27, 12:58 pm, (e-mail address removed) wrote:

I agree. I have bought the books suggested by others and will be
putting in the time to undertand all my investment options now.
Nevertheless I still think a traidtional IRA is far more nuisance
than it is worth for a young person . You can only invest paltry sums
yet you would still need to pay a tax consultant every year to figure
out the tax issues with it.
The reverse is true! Once a young woman puts money in an IRA, there
are no tax issues until she takes money out, decades later. With
taxable accounts, there is a bit of work to do annually, since one
must calculate taxes on capital gains and dividends (which is not
difficult using tax software costing about $50.)
 
R

rick++

I am a conservative investor and am just interested in
beating inflation. I just dont want to be bothered with all the
nuisances of managing brokerage accounts, IRA's, etc..
When you invest in mutual fund you are "hiring its manager"
to do al the messy investing details for you. Just sit back and
pretty much forget. There are several mutual funds which
invest two asset classes- stocks and bonds- which are considered
fairly safe when kept for a decade or longer. And these return
twice as much a CD. These mutual funds are either called
balanced funds or target-date funds. You just need one.
 
C

Cheryl

You state that you are a conservative investor. You need make sure
you are truly "conservative" and not just scared of investing. There
are many factors that go into your decisions on what types of
investments would be right for you. Here is a short quiz that should
help you to determine your risk tolerance. (I am new to this blogging
thing, so I hope it formats okay. If not, let me know and I will
email you the quiz):

What is your current age?
25 or younger Give yourself 5 points
26-55 Give yourself 4 points
55-66 Give yourself 3 points
67+ Give yourself 1 point

What is your marital status? If you are:
Single add 4 points
Married, no dependents add 3 points
Married, 1-3 dependents add 2 points
Married 4+ dependents add 1 point
Married or Single, Retired add 0 points

How's your health and the health of your dependents?
Great! No family history of med issues add 3 points
3-4 doctor visits/year, no real history medical issues (just colds,
etc) add 2 points
3-4 doctor visits/year, family has short medical history add 1
point
Ongoing medical issues add 0 points

How much of your income goes to saving/investments?
10% of your gross salary add 4 points
5% of your gross salary add 3 points
3% of your gross salary add 2 points
1% of your gross salary add 1 point
Living paycheck to paycheck add 0 points

How much have you already saved?
30 times your gross annual salary add 6 points
20 times your gross annual salary add 5 points
10 times your gross annual salary add 4 points
5 times your gross annual salary add 3 points
3 times your gross annual salary add 2 points
2 times your gross annual salary add 1 point

How do you feel about financial loss? If you:
Can sleep soundly after loosing $1,000
on a single roll of the dice add 4 points
Set aside money to lose in Vegas add 2 points
Can't stand to lose $.25 in Vegas add 0 points

How much debt do you currently have?
No debt add 4 points
Good debt* only (annual payments
less than 50% of annual income) add 2 points
Bad debt - less than 3% net income add 0 points
Bad debt - more than 3% net income minus 3 points
Bad debt - more than 5% net income subtract all points
(*Good debt is debt that you have taken on which should enrich your
bottom line, such as a mortgage or student loan. Bad debt is
everything else.)

Now, add (or subtract) points as necessary. If you total is:
0 - 10 Low Risk Tolerance
11-14 Modest Risk Tolerance
15-19 Medium Risk Tolerance
20-25 Medium High Risk Tolerance
26-30 High Risk Tolerance

You may find that your investing style should not be as "conservative"
as you once thought. (Which doesn't mean you shouldn't hold
conservative investments - the key is diversification and balancing
conservative investments with some riskier investments)

As for not wanting "to be bothered with all the nuisances of managing
brokerage accounts, IRA's, etc," you are truly doing yourself a
disservice in the long-run by not investing more time into your money
management. It is like saying you don't want to be bothered going to
the doctor when you have a huge growth on your face...it is something
you just shouldn't ignore!!!

And whether you decide to use a financial planner or go it alone, you
still need to educate yourself on financial matters. The list is long
and broad of people who put their complete faith into their planners,
and, at the very least aren't satisfied because they can't properly
articulate to the planner what they want, and at worst, are taken to
the cleaners.
 
D

Default User

jIM wrote:

Tools like this are effective, but comparing rolling dice in Vegas to
investing is not a good example of taking risks. Most of questions
above are external to investing (age, marital status, health) and not
core to investing (what % of income do you save, how much have you
already saved).
Yeah. I wouldn't risk anything in Vegas because I know the long-term
odds are against me and I get no pleasure from gambling.




Brian
 
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Z

zxcvbob

Douglas said:
I live very frugally and save a lot , so each month I find
myself with $5-10k sitting in my bank account.
[snip]
www.assetbulider.com for low maintenance investments. Figure another 4 hours to
understand and pick a portfolio that suits you. Open an account at Vanguard or
Fidelity or other low cost broker (1 to 2 hours).

After that, you will be spending 5 to 10 hours a year on transferring new money
to the account, rebalancing, and additional income tax work. With $5,000 to
$10,000 per month to invest, you will be getting CEO pay rates for those hours.

-- Doug


I assume it's the same $5-10k each month, mostly. $5000 per month in
discretionary income is a *lot* of money; hard to achieve even if
someone else is paying all of one's living expenses. Having a checking
account balance that fluctuates between $5000 and $10000 over course of
a year is something totally different.

Bob
 
C

Cheryl

Tools like this are effective, but comparing rolling dice in Vegas to
investing is not a good example of taking risks. Most of questions
above are external to investing (age, marital status, health) and not
core to investing (what % of income do you save, how much have you
already saved).

Use the tool to help the decision. DO NOT rely on one single tool to
make decision for you. Use 3-4 similar tools and see if they suggest
the same thing. Similar tools on Vanguard's web site, T Rowe Price's
web site or similar will even construct the portfolio for you (using
their mutual funds).

BTW- what are the bonus points if
a) I save 16% of my gross pay
b) you are comfortable losing 1k on a roll of a dice if the same roll
can also make you 10k. Especially if you knew that year in, year out,
a 10k gain is a more probable outcome than 1k loss. Maybe that is a
bad example, but I dislike questions like that.
c) You own your own company
d) You have no problem working past retirement age
Remember, this a quiz about your Risk Tolerance. Once you discover
this, it will help you pick investments that are appropriate for you -
take on too little risk and you won't reach your goals, too much risk
and you set yourself up for disaster. So, using the "roll of the
dice" analogy is one piece of the puzzle to help you figure in your
investment fears. Never take on a investment that keeps you up at
night. But, you don't want your fears to take over your life, so we
figure in your emotions, but we don't let them control you.

As for the "external to investing" questions, these are extremely
important. If you are 65, you cannot take on as much risk as a 25-
year-old, when you get married we have to protect your money more than
if you are single, and of course, if there are health issues, we must
protect your money and limit your risk. Do not underestimate the
importance of these questions. That is why each question has a point
value, and each question is weighted differently.

I do agree with you, however, that you should never use one tool to
make your decisions. You will note, however, that I did not give any
allocation of investments, only a risk tolerance quiz. The allocation
of investments is something that needs to be discussed after you have
determined your risk tolerance.

Lastly, I am glad that you are such a great saver and seem to have
your financial ducks in a row, but I hope you don't work too hard and
are able to enjoy your retirement...it seems that you will have earned
it!
 
J

joetaxpayer

Cheryl said:
You state that you are a conservative investor. You need make sure
you are truly "conservative" and not just scared of investing.
No idea who made this up, but it's of no value at all. Each variable you
offer is not stand alone. On this NG (whatever your interface, this is a
usenet newsgroup) we often talk about a withdrawal rate of 4% at
retirement. This means that one who has 20X their gross salary saved is
already there, more or less. Your quiz can put a 30 year old with this
huge nest egg into a modest risk tolerance. Regardless, I'd not bet
$1000 on dice, yet I've had 100 times that in difference high risk
option positions and not lost sleep.
You conclude with the words Low, Modest, Medium, High. So how do you
equate those with portfolio mix? And, earlier in my life, when I had bad
debt, I still had my IRAs and 401(k) full up, 100% stock funds. Why
would one impact the other?
Sorry, maybe these cute quizzes work for "am I compatible with my
spouse?" (I'm not, and we just had our 13th anniversary) but I doubt any
planner would use any of these questions to assess one's risk tolerance.
JOE
 
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C

Cheryl

No idea who made this up, but it's of no value at all. Each variable you
offer is not stand alone. On this NG (whatever your interface, this is a
usenet newsgroup) we often talk about a withdrawal rate of 4% at
retirement. This means that one who has 20X their gross salary saved is
already there, more or less. Your quiz can put a 30 year old with this
huge nest egg into a modest risk tolerance. Regardless, I'd not bet
$1000 on dice, yet I've had 100 times that in difference high risk
option positions and not lost sleep.
You conclude with the words Low, Modest, Medium, High. So how do you
equate those with portfolio mix? And, earlier in my life, when I had bad
debt, I still had my IRAs and 401(k) full up, 100% stock funds. Why
would one impact the other?
Sorry, maybe these cute quizzes work for "am I compatible with my
spouse?" (I'm not, and we just had our 13th anniversary) but I doubt any
planner would use any of these questions to assess one's risk tolerance.
JOE
I am a planner, and have been for well over 15 years (you can check my
bio). I, and many others (even as noted on this string of replies)
use quizzes like this to help people understand the risks involved in
investing. You are right that none of the individual questions should
stand alone. Each question is assigned a point value, and when added
together give a very good picture of how much risk one can take on.
If a 30-year-old has a huge nest egg, and other matters fall into
place, you will find that his/her numbers will add up to put them into
a higher risk category. Conversely, if the 30-year-old has a huge
nest egg, but has run up debt, is not protected from financial loss,
and has health issues, the numbers will reflect money management
problems and he/she should start thinking about protecting some money
before they lose their nest egg. Financial losses in the market are
quite commonplace.

As far as a portfolio mix, that is the key once you figure out your
risk tolerance. Even a "high risk" investor should diversify and
protect some of his/her funds with lower risk investments, and
conversely, a low risk investor may diversify with some stock
investments. Diversification is the key, it is just a matter of the
weighting of your high risk vs. low risk, and that is what this quiz
is designed to help you figure out.

As to why one financial area affects another, when you are putting
together a solid financial plan, you need to look at the entire
picture. Most often, if you have a lot of debt, it makes no sense to
try to earn a 10% return when you are paying 22% interest (which is
common with credit card debt). I am happy to hear that you had
success with a portfolio invested 100% in stock funds, but you are the
exception to the rule.
 

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