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Old 01-14-2020, 04:04 PM
KneadToKnow is offline
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Fight my ignorance re: discount brokerages


My only investing experiences to date have been with my 401(k) and my HSA. In both circumstances, I had a list of available investments to choose from.

Now I'm looking to step outside of those and invest a little on my own. With a discount brokerage like Fidelity, Charles Schwab, Ally Invest, etc., am I essentially able to select from any investment out there in the world? Or at least in the U.S.?

(My failed attempts to Google-fu an answer for myself makes me fear that I'm too dumb to have money to invest.)

Help? Suggestions?
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Old 01-14-2020, 05:04 PM
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Originally Posted by KneadToKnow View Post
My only investing experiences to date have been with my 401(k) and my HSA. In both circumstances, I had a list of available investments to choose from.

Now I'm looking to step outside of those and invest a little on my own. With a discount brokerage like Fidelity, Charles Schwab, Ally Invest, etc., am I essentially able to select from any investment out there in the world? Or at least in the U.S.?

(My failed attempts to Google-fu an answer for myself makes me fear that I'm too dumb to have money to invest.)

Help? Suggestions?
Worked in the industry for 12 years. The answer would be no, but Ďinvest a little on my owní sounds like youíre looking to pick up a few shares of a stock. So, sure if you want to buy some shares of Starbucks or Apple, thatíll be easy.

If youíve just been told to buy bitcoin or trade Forex, maybe not.

Any investment in the world? No. Are you talking about foreign stocks that arenít traded in the USA then a big maybe applies. Typically thatíll require more than a couple grand in the account. Foreign bonds? Again a big maybe. The Iraqi Dinar? That scam has been going around for years

Precious metals? Holding physical gold is a pain. Gold futures are easier and trading GLD or GDX is easy.

Also, whatever seems to be too good to be true is too good to be true.

If you have some examples as to what youíd like to invest in, go ahead and mention them.
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Old 01-14-2020, 05:13 PM
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You can basically pick from any investment they offer. Those particular firms are likely to offer access to essentially any: publicly-traded listed securities (i.e., stocks and ETFs that trade on stock exchanges); securities options (if you are qualified to trade options), Treasury bonds, corporate bonds, municipal bonds, and perhaps a few other incidental things, like foreign currencies. When most people talk about investments, these are the things they are generally talking about.

You probably won't be able to trade in certain types of securities that carry additional restrictions, such as private placements offered under Securities Act Regulation D, which are only offered to accredited investors (i.e., investors with a net worth of over $1 million). These include things like hedge funds and private equity funds.

Some things, like foreign securities that are not registered in the U.S., may also be available but only if you initiate the trade with them. That is, they can't recommend or promote a transaction in unregistered foreign securities but they may be able to effect a trade as your agent in those securities on a foreign exchange. (Generally, they do this by working through a foreign broker-dealer).

There are a whole host of other investments which these brokers probably don't offer, like gold bullion, cryptocurrencies (e.g., Bitcoin), antique furniture, whole life insurance, baseball cards, or Beanie Babies. Some of these things are only investments in the loosest sense of the word but "investments" isn't a precisely defined term, so it's hard to say there is any place that offers access to "every" investment.

Last edited by Tired and Cranky; 01-14-2020 at 05:14 PM. Reason: Man. ninja'ed almost entirely by dalej42.
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Old 01-14-2020, 05:30 PM
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Originally Posted by Tired and Cranky View Post
You can basically pick from any investment they offer. Those particular firms are likely to offer access to essentially any: publicly-traded listed securities (i.e., stocks and ETFs that trade on stock exchanges); securities options (if you are qualified to trade options), Treasury bonds, corporate bonds, municipal bonds, and perhaps a few other incidental things, like foreign currencies. When most people talk about investments, these are the things they are generally talking about.
Aaaaaaaand mutual funds. Let's not forget mutual funds.
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Old 01-14-2020, 05:33 PM
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Thank you all! I had at one point in drafting the OP specified that I'm looking at municipal and corporate bond mutual funds*, so as those are not nearly so esoteric as Iraqi dinars or hedge funds, it sounds like I'm one step closer to earning better returns on my emergency fund.

*Namely DODIX and FLTMX at present.

Last edited by KneadToKnow; 01-14-2020 at 05:35 PM.
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Old 01-14-2020, 05:40 PM
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Aaaaaaaand mutual funds. Let's not forget mutual funds.
Truth. However, my experience with Fidelity has been that they may charge transaction fees for purchasing non-Fidelity funds, even if those funds are themselves no-load. That *may* have changed, though.

For a new investor, buying an index ETF (like a mutual fund, but trades like a stock), might be the best way to start.

The other thing one can do is to go to a low fee mutual fund company like Vanguard to buy their funds directly.

Last edited by RickG; 01-14-2020 at 05:42 PM.
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Old 01-14-2020, 05:59 PM
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Originally Posted by KneadToKnow View Post
it sounds like I'm one step closer to earning better returns on my emergency fund.
Alarm bells are going off.
Stocks, bonds, & mutual funds are all subject to market variations. Right now the market is up, but we will have another downcycle/recession. I can't tell you specifically when but it will happen.

My definition of an emergency fund is relatively liquid but stable funds; more like a money market. True, the return isn't great but then you're not going to lose any of your principle either.

If you lose your job (more layoffs/company closures in a recession) & get into a car accident you don't want those $x dollars you've saved to be only worth y% of what you saved.
Retirement savings, maybe even college savings, which are both longer term & you'll know when you need them are good to invest in the market as, historically, longer term they'll give you better returns. Personally, I wouldn't do that with an emergency fund, though.
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Old 01-14-2020, 06:01 PM
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Originally Posted by KneadToKnow View Post
Thank you all! I had at one point in drafting the OP specified that I'm looking at municipal and corporate bond mutual funds*, so as those are not nearly so esoteric as Iraqi dinars or hedge funds, it sounds like I'm one step closer to earning better returns on my emergency fund.

*Namely DODIX and FLTMX at present.
I logged into my Schwab and Ameritrade accounts and I can buy both of those mutual funds.

Youíll have an easy time buying most mutual funds that are aimed at the retail investor. Thereís a few that are still proprietary funds and some that are only aimed at institutional investors or 401k plans.
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Old 01-14-2020, 06:48 PM
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The other thing one can do is to go to a low fee mutual fund company like Vanguard to buy their funds directly.
Vanguard has some good funds. I have investments with them and have been happy with the results. YMMV, of course.
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Old 01-14-2020, 10:44 PM
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Alarm bells are going off.
Stocks, bonds, & mutual funds are all subject to market variations. Right now the market is up, but we will have another downcycle/recession. I can't tell you specifically when but it will happen.

My definition of an emergency fund is relatively liquid but stable funds; more like a money market.
OP specified two pretty conservative bond funds, DODIX (taxable about 1/2 US govt and only a few % below investment grade) and FLTMX (pretty high quality tax exempt municipal bonds). Both of ca. 5 yr duration so there could be an angels-on-heads-of-pins discussion of whether an 'emergency fund' should be in intermediate term high grade bonds rather than just money market but it's basically a suitable investment for money you can't afford to lose much of. It's not equities which is what you seemed to take from it.

The main comment I'd make about both those funds is relatively high expense ratio's. Fidelity and some others have matched or surpassed Vanguard on ER's for stock funds but Vanguard's bond fund ER's still tend to be lower than others, definitely lower than either of those. And it's basically money in your pocket to choose a lower Expense Ratio fund of a given kind, as opposed to more obscure and esoteric arguments about *exactly* which relatively safe bonds belong in an 'emergency fund'.

Between taxable and muni, OP should be able to figure this out based on own tax situation.

Also consider that the highest yielding CD's tend to yield more than high grade bonds/funds. The highest, not the avg or the rate at the bank down the street. But as per a site like:
https://www.depositaccounts.com/savings/
Although you have to take into account tax difference there also, the CD will be federal and state taxable, the portion of a high grade bond fund in US treasuries will only be federally taxable, but a lot of them have a mix with corporate bonds also state taxable. And a 5 yr CD, say, ties up the money basically for 5 yrs, you pay some interest penalty (6 mos or a yr typically) to withdraw early. So how likely is the 'emergency'? And maybe getting into a brokerage account could widen horizons to other assets (stocks etc) for money you really need to grow over a long time. But an 'emergency fund' for somebody who doesn't normally expect to draw on it, a high yielding CD could work. The credit risk of the CD is essentially the same as a treasury, give or take legal/political theorizing about Congress's wiggle room to fund one or the other of the FDIC gtee of bank deposits and paying treasury holders, v the fact that the issuing bank still owes you on the CD even if the govt is not paying off bondholders (say temporarily in some political shenanigans type technical default). Anyway FDIC/NCUA gteed CD and treasury credit risk is essentially the same, while high grade muni or investment grade corporate bond credit risk is slightly higher.
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Old 01-14-2020, 11:26 PM
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Also consider that the highest yielding CD's tend to yield more than high grade bonds/funds. The highest, not the avg or the rate at the bank down the street. But as per a site like:
https://www.depositaccounts.com/savings/
Fight my ignorance please, but that link is to 5 year CDs. The OP would be digging a hole a dropping the money in until 5 years elapsed, no? It is an "emergency fund", whatever OP means by that, I'd think "emergency" means liquidity. Thanks. ETA: I realize you had a whole paragraph of explanation after, but it was pretty dense reading.

Last edited by squeegee; 01-14-2020 at 11:27 PM.
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Old 01-15-2020, 01:00 AM
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...sounds like I'm one step closer to earning better returns on my emergency fund.
Ummm, it'd be a lot better if you were gambling with money you WON'T need in an emergency.

The one time I bought stock it was with a couple hundred dollars I'd saved up just to have fun with. So I opened an Ameritrade account, did one trade, then closed it.

My wife made fun of me for spending $20/share on a tech stock just because I liked them (and suspected they knew what they were doing). But it was money I could afford to lose.

Sneak brag:
SPOILER:
As it turns out, APPL is doing okay. And I get to call it "my" stock, thanks to her mockery.
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Old 01-15-2020, 08:46 AM
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Aaaaaaaand mutual funds. Let's not forget mutual funds.
I was typing as fast as I could and I still got beat. You want me to remember mutual funds too?
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Old 01-15-2020, 09:04 AM
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Fight my ignorance please, but that link is to 5 year CDs. The OP would be digging a hole a dropping the money in until 5 years elapsed, no? It is an "emergency fund", whatever OP means by that, I'd think "emergency" means liquidity. Thanks. ETA: I realize you had a whole paragraph of explanation after, but it was pretty dense reading.
You can withdraw the money, they just deduct some months (usually 6 or 12) of interest. So like I said how likely an 'emergency'? Is it somebody who works temp or 'gig' jobs with frequent periods of unemployment, somebody protected by seniority in a job that doesn't have a lot of layoffs to begin with? The latter person can still have an 'emergency' and need an 'emergency fund' but doesn't have to sweat as much the possibility of losing some interest because they have to withdraw money from a CD early, rarely.

Also to get back to 'dense', that Early Withdrawal Penalty feature amounts to an interest rate option that's got significant value. If you buy a 5yr duration bond fund and 5 yr rates go up 2%-points and stay there, you suffer a market to market loss of a little less than 10% (the duration of the fund will generally declines as rates go up so it's a little less than 5*2%). If you buy a 5yr CD at 2.85% w/ 6 month EWP, you cash it in at full face value, lose only 1.42% from the interest penalty, and go buy a 4.85% CD. If you model that option it's theoretically worth on the order of at least ~0.25% per year. You don't own such an option on a bond fund...in fact non-treasury* bonds in such funds will generally contain *issuer owned* options to refinance bonds if rates go down, an option a bank issuing a CD does not have. So you should really be subtracting something from the stated bond fund yield to reflect that.

*in recent decades treasuries don't have issuer call options, where the govt can recall them early if rates go down, some used to.

Last edited by Corry El; 01-15-2020 at 09:07 AM.
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Old 01-15-2020, 11:58 AM
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As an aside, you might see ads for brokerage firms that offer commission-free trading. While that sounds great, you should be aware that you may end up paying in other ways, such as paying low interest rates on the cash you keep in your brokerage account. This article (paywall warning) describes some of those ways the firm can still make money.

Personally, my tiny portfolio is entirely at Vanguard, in Vanguard index funds, a couple of outside mutual funds and a couple of individual stocks.
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Old 01-15-2020, 12:00 PM
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As an aside, you might see ads for brokerage firms that offer commission-free trading. While that sounds great, you should be aware that you may end up paying in other ways, such as paying low interest rates on the cash you keep in your brokerage account. This article (paywall warning) describes some of those ways the firm can still make money.

Personally, my tiny portfolio is entirely at Vanguard, in Vanguard index funds, a couple of outside mutual funds and a couple of individual stocks.
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Old 01-15-2020, 12:00 PM
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Thanks to everyone for all the great input! We're still evaluating our options, but this discussion has helped me figure out this particular aspect of the problem.
  #18  
Old 01-15-2020, 02:54 PM
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Ummm, it'd be a lot better if you were gambling with money you WON'T need in an emergency.

The one time I bought stock it was with a couple hundred dollars I'd saved up just to have fun with. So I opened an Ameritrade account, did one trade, then closed it.

My wife made fun of me for spending $20/share on a tech stock just because I liked them (and suspected they knew what they were doing). But it was money I could afford to lose.

Sneak brag:
SPOILER:
As it turns out, APPL is doing okay. And I get to call it "my" stock, thanks to her mockery.
And thatís why the ticker symbol APPL isnít in use any longer. Too many people bought that rather than AAPL.
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Old 01-15-2020, 03:15 PM
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And thatís why the ticker symbol APPL isnít in use any longer. Too many people bought that rather than AAPL.
Ohmigod, what did I do? I accidentally bought stock in Appliance Mart! Goodbye, sporty car and week at the beach...

(or it was a typo... good catch!)

Last edited by digs; 01-15-2020 at 03:18 PM.
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Old 01-15-2020, 04:38 PM
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Ohmigod, what did I do? I accidentally bought stock in Appliance Mart! Goodbye, sporty car and week at the beach...[/SIZE]
This reminds me of when my Dad called his broker to buy a few hundred shares of Sysco, the food services company, for the worst possible reason - he started seeing their trucks everywhere and he assumed they were making a fortune. The truth was that Sysco built a warehouse near his office. My dad called his broker on the telephone to place the order back when people both had a broker and used the phone to place orders. His broker thought my dad was referring to Cisco Systems, the networking company. My dad had never heard of Cisco Systems and corrected him but, having a bug in his ear, my dad started watching Cisco stock. While his Sysco purchase went up a bit, for months or years afterward, he would ruminate about how he was thisclose to doubling, tripling, or quadrupling his money on Cisco.
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