Well, later I’ll have some more time to weigh in. In the meantime, it looks like you could seriously benefit, long term, from some good, unbiased, professional financial advice. The guys to get it from? DEFINITELY not your friggin’ bank! Those guys exist to sell CD’s. Everything else is a fallback position and very possibly loaded. Now, a CD isn’t a bad thing at all for short-term money, such as the down payment you’re going to want to come up with for the house. I prefer maybe a short-term bond fund, though, if you have an 18 month time horizon. Little more risk, little more return. But that’s small potatoes.
Main thing you want to do is go find yourself a Certified Financial Planner–that’s C.F.P.
NOT a friggin’ insurance salesman who calls himself a financial planner and then tries to pitch “whole life,” “universal life,” and annuities. Those are good for his commissions, but bad for your portfolio. (Fees are too high.)
Find a good ‘fee-only’ C.F.P. (meaning you write him a check for his advice, he’s not working on commission. So there’s no potential conflict of interest whatsoever. Not that it’s wrong, but you need a good LONG TERM plan, and for that you needn’t be paying a load. His advice will pay you dividends for many years, or many decades.)
So how do I find a good C.F.P, you ask? Well, you could try their website: http://www.cfp-board.org/ I think.
Or, the October issue of Mutual Funds Magazine will be publishing a table of some of the best financial planners in the country, on a peer-nomination business. That’d be a good place to start.
Sounds like you’re Self Employed, so you’re going to want to ask him about how to set up a SEPP (Self Employed Pension Plan or Simplified Employee Pension Plan),
You’re going to want to decide between a Roth and Traditional IRA. And you may want to look at starting yet another one for your spouse (even if she doesn’t work, she can work for your business, and you can pay her right into that IRA.)
If you have children, you’ll want to ask about an Education IRA or a Section 529 college savings plan as well.
Since you won’t be able to put all your eggs into the IRA’s (the law only allows you to put so much in per annum) then tax-efficiency is going to matter.
I respectfully disagree with “building your own mutual fund” with the top 20-30 stocks of the Dow or S&P 500 for a couple of reasons. 1. This system self biases in favor of buying stocks while they’re expensive. That’s why they’re at the top of the Dow (which isn’t market cap weighted) or the S&P 500 (which is.) It’s better to buy cheap than to buy expensive.
Some sophisticated investors can do quite well building their own fund, and it does have some advantages in that you can control when you pay taxes on gains--control you lose when you work through a mutual fund.
But it sounds like, with just 20,000 going in, you’d benefit more from the professional management of a good, diversified, no-load, and low-expense mutual fund (probably an index fund).
Index fund expenses (fees) are extremely low, and since there is very little trading within the fund (it buys stocks within an index and holds them as long as they remain within the index), there are few buys and sells, and so the funds are naturally very tax efficient. It’s not going to make sense to have a private professional portfolio manager until your portfolio is at LEAST $100,000. (Most firms won’t look at anything less). And even then you’d be paying 1-1.5% or even 2% per year in fees (as opposed to 0.18% for the Vanguard 500 Index fund or 0.20% for the Vanguard Total Stock Market fund.
Further, since you admitted you were pretty novice about investing, you’re the LAST guy you want picking your own stocks.
So: I’d steer you towards an index fund (I like Vanguard’s 500 and Tot. Stck Mkt. Also, look at their Balanced (60-40 split between stocks and bonds, generally) but Vanguard, Fidelity, TIAA-CREF, USAA, and T.Rowe Price, all will take good care of you.)
Now, how much of that ought to be in stocks is something to discuss with a planner. A lot of that will depend on your own personal comfort level with risk and risk tolerance.
Sector funds are for millionares and suckers. Doesn’t sound like you’re one of them yet.
Some reading:
Mutual Funds for Dummies is excellent, I think. Start there.
Then Peter Lynch’s “One Up on Wall Street” and John C. Bogle’s “Common Sense and Mutual Funds.”
Then learn everything you can about Warren Buffett and how he picks stocks.
That’s a start. More later.
Oh, who the f**** says you have to live in a 150,000 dollar house? (unless you live near S.F, NY, or Honolulu. Then you’re stuck.)
One other thing: the Short Term stock market is for suckers.
What city are you in, anyway, beatle?