View Full Version : All right, people, time to pick financial services institutions
11-19-2002, 11:27 AM
No, I am not looking for free stock tips or planning advice, not to worry. This is just a little poll about whom you give your money to.
I'm 24, unmarried, and have finally wrangled my financial life into submission. Basically, I have a few grand laying around and can save a fairly significant percentage of each month's wage.
So yeah, it's time to give myself a little present for the holidays.
I'm not looking to get rich quick by any means, or even get "rich" at all. This is for long-term wealth building. An IRA or three, index funds, etc.
So where do you go? How much do you like your financial services provider? How's the customer service? Do you get your statements on time? Do you actually have a real "relationship" with anyone? Can you make regular deposits online?
I have the usual options: my bank (Chase), Schwab, American Funds, etc.
For the record, my employee 401(k) plan here is not worth investing in. I only become eligible after one year, it is not company matched, and I will not be at my current job long enough for it to accumulate anything substantial.
11-19-2002, 11:54 AM
I'm your age, and I'm with USAA. Very good customer service and a broad range of options, plus a nice Web interface. I have my car & home insurance through them, as well as my usual banking stuff (no ATM fees ever), investments and they were the firm we used to buy our house (now selling, though, also through USAA...). Two catches, though: a lack of brick & mortar locations, and you must be qulaified to become a member.
www.usaa.com , if ya wanna check it out
11-19-2002, 01:52 PM
There is obviously not a single right answer to your questions, but here are some thoughts.
1. Find out who the partners at your firm bank with (law firms often have historical relationships with banks). Many banks have a "private banking" division, often with an individual account manager dedicated to a particular profession--law, medicine, etc. If you can get a personal banker, you have someone to turn to with questions, and can often get stuff done over the phone (most banks also have automatic telephone banking, which I use as much as the atms). They probably won't publicly sneer at a limited balance if you call a particular person and mention the name of the partner who suggested you call.
2. Even if you don't plan to stay long and even if there is no match, you should do the 401(k) once you've been there a year. You can always roll it over (not difficult) if you leave. Also, a 401(k) is a good way to get "practice" investing. Most 401(k)s have a limited range of mutual funds to choose from which you access without going through a broker. There is almost always a money market option (safest), an index fund option (middle) and a growth fund option (more risky). You will probably get online access to your account and you can follow your funds in the newspaper.
3. My bank, which I am moderately satisfied with, does not have any NY retail operations. If you may move in the future, think about a nationwide bank--Citibank has operations everywhere. I have a Citibank Mastercard and have no complaints on that. OR--think local. Credit Unions are often good values and will do the personal relationship thing.
4. If you have never invested before, I would suggest starting with an index mutual fund. Vanguard's S&P 500 Index Fund is known for its low fee structure and it is big and mainstream. You can set up an account by starting the process online. (http://flagship.vanguard.com/VGApp/hnw/PersonalHome) Of course you can lose money--any fund that tries to match the market will have lost money in the last few years.
11-20-2002, 12:32 AM
Hello--I've spent the last three years as a consumer personal finance journalist. No axe to grind at all. Totally objective. Yes, some mutual fund families are definitely better than others. Some of them downright suck.
I'm assuming you're happy with your bank. The only full service bank I absolutely despise with a passion right now is First Union Bank. They will rape you with fees.
My bank is Bank of America. Not that they're great, but they're ok. I've never had problems with them I couldn't resolve, and I can always find an ATM. I trust them more than Citigroup.
As for mutual funds, assuming you're young and make less than about 40k per year, you're probably better off with a Roth IRA than with a traditional IRA.
Here's what you do:
Scrape together a few month's bare bones living expenses and keep that in a saving or money market account. Let your comfort level be your guide as to how much to save. A guide is 3 months or so. Sounds like you're well on your way, if you've wrestled your financial life into submission congrats.
Second: AGGRESSIVELY get debt-free, except for your home mortgage, and maybe student loan debt if the interest is deductible and low.
Third: If your employer matches your 401k contribution, contribute as much as you can to at least pick up the match. (Post your options and I'll identify the stars and dogs for you, too.)
THEN max out your Roth. THEN go back and max out your 401(k) contribution. (The reason it's usually best to do it in that order has to do with expected marginal tax rates at retirement.)
If your employer doesn't match, or you don't have access to a 401(k), then go for the Roth IRA first. It's more flexible and for younger investors in the lower income strata, you'll likely wind up with more money at retirement after taxes.
Now, as for selecting a fund company, that depends on whether or not you use an advisor.
If you use an advisor, expect to pay a sales load. Everybody says they're evil, but I disagree. Good advice is worth something--especially given some of the breathtakingly bad investment decisions even smart people make on their own.
My favorite load company, all around, is American Funds, no question. For small cap exposure, though, I like Wasatch for growth funds, and FPA Capital for small value. Bob Rodriguez is a helluva manager.
My favorite No-Load companies: I like Vanguard a lot, if you can come up with the 1,000 dollar minimum investment it takes to open a retirement account, per fund. That's where I keep my own personal Roth IRA: specifically in the Vanguard Total Stock Market fund, which is a really good choice for a first fund. (I'm assuming you're young here--in your 30s or younger. Write back if you're not--we'll talk more about bonds, too).
The pitfall with Vanguard, though, is it has so many freaking funds that a novice investor can get into trouble unless he educates himself on how to build a diversified portfolio. It's also easy to get overwhelmed by a lot of choices.
To sidestep that, consider TIAA-CREF (www.TIAA-CREF.org).
They only have a few, basic funds to choose from, and you can't go too far wrong. Low expenses, and their low minimum investment is much easier for new investors to swallow than Vanguard's. So it's easy to get started.
I'm not too keen on USAA, to be honest. Overall, I like them as an insurance company. But they just fired almost all their stock fund managers a few months ago in one massive bloodletting. Reason: lackluster performance. Avoid them until their new managers prove themselves. Their S&P 500 fund is ok. They're ok for bonds. Avoid them for stocks.
As an actively managed alternative to the Vanguard 500 fund or the Vanguard Total Stock Market Index Fund, I like Dodge and Cox Stock.
Fidelity is a fine family, too. It has a lot of the same advantages and disadvantages that Vanguard does. More emphasis on active management. I'd give Vanguard the nod for index funds. I like Fidelity a little better on the Small Cap side, thanks to the strong Fidelity Small Cap (Paul Antico) and brilliant Fidelity Low-Priced Stock (managed by the brilliant Joel Tillinghast.) Low-Priced is closed to new investors now, but it should reopen soon. A portion of my own 401(k) money is invested with Low-Priced.
T. Rowe Price is outstanding overall, as well. Low expenses, excellent managers, good service. Great website. I love the Monte Carlo simulation financial planning calculators.
For International funds (maybe about 10% of your portfolio down the road, but don't sweat it if you can't do it right now), I like Harbor International, Oakmark International, Artisan International, and Tweedy, Browne Global Value. (Tweedy, Browne totally hedges its currency risk, where the others don't, I believe. Unhedged is usually more volatile, but with a declining dollar, the odds are on the unhedged funds outperforming, IMO.)
For loaded International funds, I like First Eagle SoGen, managed by Jean-Marie Eveillard. I also like the Matthews funds for Asian exposure.
Fund companies to avoid: AXP, which is American Express. And avoid American Express Financial Advisors who steer you into AXP funds. They suck. They will get better--AXP is really pulling out all the stops recruiting top managers right now. But why pay the fees?
I'd also avoid Janus. Nothing personal against them--smart people. But they've proven they can't cope with value-led or bear markets. They crashed and burned.
Avoid fund companies associated with brokerage firms. That goes for Merrill Lynch, Smith Barney, Nations Funds (run by B of A), Evergreen (Run by Wachovia), etc. Fees run high, right along with sales loads, performance is mediocre, and their research is suspect.
Avoid sector funds for now (Technology, restaurants, precious metals, etc). Down the road you may want to add a REIT.
Avoid one-trick pony fund houses like First Hand and Munder.
Avoid Van Wagoner.
That ought to get you started. Write back if you're over 40, though, and write back if you have children--we need to talk about college planning, as well. And insurance!
11-20-2002, 12:34 AM
Oh, NOW I notice your 401k is unmatched and you're 24 and unmarried. Nevertheless, the same advice holds.
Might read Mutual Funds for Dummies, by Eric Tyson, MBA. I was very impressed. For a more sophisticated look at mutual funds, try John C. Bogle's "Common Sense on Mutual Funds."
11-20-2002, 08:51 AM
Wow, that was amazing, Hickory6. I have read Eric Tyson's Investing for Dummies, and I found it quite helpful. I have learned quite a bit from my profession, but unfortunately reading about the massive debt facilities of bankrupt corporations doesn't exactly help my own financial planning. :)
FTR, I don't own my own home (yet), and since I live in NYC, I make rather more than $40k per year. My student debt load is minimal, and I have zero credit card or consumer loan debt. I have three or four months of expenses in low-interest bank account just in case I get fired for slacking and posting to the SDMB. ;)
Thanks especially for the specific fund recommendations. I am giving myself until the end of the year to look into them before I make a decision.
11-20-2002, 08:52 AM
Oh, Humble Servant, I asked around a little about investment opportunities for members of my firm, and apparently the partners' connections are closely guarded secrets. Oh well. Was a good idea, though.
11-20-2002, 10:14 AM
Remember that you actually have until April 15th to make your IRA contributions for 2002. So if you're not ready at the end of the year it's not the end of the world.
That does NOT hold true for your 401(k). I'd go ahead and contribute as much as you can. When you leave the company, you can always roll that over to an IRA. And even if your fund selection is weak, the advantage of tax deferred growth will probably more than compensate for that weakness, compared to not contributing at all.
You'll have to do a little number crunching to figure out whether to do a Roth or a traditional IRA.
Here are some rules of thumb, courtesy of T. Rowe Price's website.
-- If you expect to accumulate a large sum in your IRA, either because you have many years for the investment to grow or because you are investing aggressively, the benefits of the Roth IRA increase.
---If you plan to withdraw the money during retirement over a shorter period than the 20 years used in our examples, the advantage of the Roth IRA would be reduced, but probably not eliminated.
---If you fall into a significantly lower tax bracket after retirement, the Roth IRA's advantage would be reduced and possibly eliminated. In particular, older investors whose tax rate later drops sharply in retirement might receive more after-tax income from a deductible Traditional IRA than a Roth IRA.
If your state taxes these earnings, it would reduce the Roth IRA's advantage. No state taxes are assessed on earnings in our examples.
Strive to get some exposure to large cap, mid cap, growth, and value stocks within your fund selection.
Oh, I left out a couple of funds I like--I like Tom Laming's Buffalo Funds, especially Small Cap and USA Global. Midcap is good, too.
The limiting factor's going to be how much you have to invest at the same time. You can't start with more than 3,000 in a Roth or Trad IRA--that's the annual limit. But you can stretch that by using your 401(k) AND your Roth, and diversifying your investments across the two accounts.
One technique--Use the 401(k) for a large cap S&P 500 index fund. That's just fine for large cap exposure for now, and more fund selection probably won't add a lot of value in the large cap world.
This will save your 3000 limit to spread among small and midcap funds, an international fund, possibly a REIT (although I'm not in a huge rush to add one right now).
Good fund selection can help you more in the more volatile areas like small cap--distributions of returns tend to be narrower among large cap funds. So saving the small caps for your IRA, where you have unlimited fund selection available, makes sense.
For anyone who's older and who's lurking, it's important to season your portfolio with bond funds. They tend to move differently from stocks, and so mixing the two will reduce overall volatility, increase predictability, and yes, increase total returns, since volatility in itself produces a drag on returns which is difficult to explain.
Suffice to say that a portfolio which returns 8% per year at a constant rate will outperform a portfolio which goes up and down, but returns an average of 8% every year. This phenomenon is not widely understood, and is called "volatility drag."
For no-load bond funds, I'd start with Vanguard's Total Bond Market Index. Be advised--this fund contains no exposure to high-yield, or junk bonds. So you may want to add a little octane. Or not.
I don't have a strong opinion on no load high yield funds right now--no real favorites.
Another great alternative is Harbor Bond--Bill Gross is one of the best anywhere.
For load bond funds, start with PIMCO Total Return, managed by Bill Gross. You may be able to get this with no load in your 401(k). Check.
I am also very impressed with Bob Rodriguez's FPA New Income. The man hasn't had a down year since 1976, I think. Haven't checked in a while, but that's a hitting streak of DiMaggian proportions.
I'm not Mr. REIT, but you won't go far wrong with Vanguard or TIAA-CREF or T. Rowe Price.
Pay little heed to what gets five stars on Morningstar. Look at long term (10 year) performance relative to peers. Look at manager tenure/track record. Avoid rookie managers. Look at volatility relative to other similar funds (I like Standard Deviation as a measure of volatility rather than Beta).
Look at how a fund does in bull markets as well as bear markets.
Have fun. I love this stuff! :)
11-20-2002, 11:57 AM
Maeglin, I don't necessarily have advice on financial institutions, but I have a strong suggestion about your method of investing: Make it automatic!
When I was more-or-less in your situation I did two things. First I made a big contribution to my firm's 401(k). I'll leave the debate over whether it is better to put money into a 401(k)/IRA or a Roth IRA to others, but having a big 401(k) contribution meant I never saw the money to have the opportunity to spend it. I can't
Second, I had a program where I had funds automatically withdrawn from my checking account and invested into mutual funds. I had direct deposit that hit my account on the 15th, and on the 16th I had the fund company take out a chunk and split it into a few stock and bond funds that I had selected. Again, I never saw the money. Most mutual fund companies will be very happy to do this for you, even with relatively small accounts, because they know investments will keep coming in and the acounts will be gradually growing. Often, they will waive the minimum balance requirements for these type of accounts. The technical term for this type of investing is "dollar cost averaging" because you are investing every month no matter what the market is doing. I call it "keeping cash out of my free-spending fingers."
11-20-2002, 01:56 PM
Thanks. Automatic monthly or semimonthly deposits are exactly what I had in mind. I don't want to dump my entire surplus into investments at the same time, especially given the current state of the market. Since I really am in no hurry to make a lot of money, dollar cost averaging will save me some $$$ in the short term.
11-20-2002, 05:27 PM
Actually, lump sum investing historically beats dollar cost averaging in over a year or more about two thirds of the time.
Confusion favors the bold. :-)
11-21-2002, 08:29 AM
Curious. Eric Tyson says the exact opposite in his book on investing.
11-21-2002, 09:48 AM
I've read both opinions on averaging too, and here is what I think happens: if you start with a lump sum, it's probably best to get the whole amount invested immediately to get the time benefit. Since "the market always wins in the long run," statistically this should beat waiting to dribble in the investment over time. However, if you don't start with a lump sum, there is a lot to say for putting the money in regularly as you get it--you're going to even out the ups and downs occurring in any given month by doing this. So I think there is some truth in both statements.
I will second the praise for TIAA-CREF (that's the college teachers' fund that has been around forever and recently opened to others) and PIMCO.
I hate load funds (that means paying a sales commission of sometimes as much as 7%--even if you pay it on the "back-end" when you withdraw funds). They may be worth it for people who need investment advice, but it is not that hard to pick a big well-known mutual fund--paying for specific stock trading is another thing. Anyway, if you want to follow the fund yourself, learn about investing, are willing to pay attention to your quarterly reports and will make the effort to read up on the fund, its track record, its manager and its history (almost certainly available online for non-fly-by-night funds), then don't pay a load.
But then, I'm a cheapskate.
vBulletin® v3.7.3, Copyright ©2000-2013, Jelsoft Enterprises Ltd.