This is just peachy - Page 2

Spiffor · June 11, 2003, 16:59

Well, since 401k doesn't seem to work, why not have a proper social security then ? Like 401k, it is a mere redistribution of money. 401k proves to be even more inefficient as a redistribution method than the old pension system, so it is about time to get rid of it now

Oerdin · June 11, 2003, 17:20

The 401k isn't designed to redistribute anything to anyone. It is designed to allow people to volintarially save money for retirenment without paying taxes on it.

Boris: I did need to chill out after the first post but I'm better now.

Anyway I guess I'm one of those big picture guys who's always trying to do long term planning. My goal is long term financial independence and I'm feeling like I'm behind where I should be to meet that goal.

Spiffor · June 11, 2003, 17:27

It is a redistribution method :
the money you put in a 401k is not put in a vault for 30 years. It is immediately injected in today's economy, and it gives you the right to take from tomorrow's economy. In the end, you'll get some money from tomorrow's economy just as the old retirment system did.
Except that this redistribution suffers from the crookness of the market rather than the inefficiency of bureaucracy.

There's a reason why capitalization systems are much less fashionable in countries currently redefining their retirement systems...

chequita guevara · June 11, 2003, 17:28

Quote:

Originally posted by Jaguar Warrior
Has anyone ever said "this is just peachy" in a non-sarcastic way?

Yes. I was talking about a peach milkshake. Mmmmmmmm, peach milkshakes.

Boris Godunov · June 11, 2003, 17:29

Quote:

Originally posted by Oerdin
The 401k isn't designed to redistribute anything to anyone. It is designed to allow people to volintarially save money for retirenment without paying taxes on it.

Boris: I did need to chill out after the first post but I'm better now.

Anyway I guess I'm one of those big picture guys who's always trying to do long term planning. My goal is long term financial independence and I'm feeling like I'm behind where I should be to meet that goal.

It's precisely because 401(k)s are longterm that you need not worry so much. It might make you do something rash.

You are 40 years from retirement. Think of where the DJIA was 40 years ago, compared to today.

Oerdin · June 11, 2003, 17:31

Please tell me why it is redistribution again. I honestly didn't follow that. The 401k allows me to take my money and invest it in securities without paying taxes of any kind provided I agree not to touch it (with a few exceptions) until I am old enough to retire. In essience it is a nontaxable retirement savings account which never recieves any government money.

I do get a certain percentage of funds from the company if I stay with them long enough to be vested but that is like a profit sharing bonus more then a government income redistribution.

Spiffor · June 11, 2003, 17:36

"Redistribution" doesn't necessarily mean "government-mediated redistribution". It just means that, when you'll be old, you'll take money from 2040's economy, and not from 2000's economy.

Sure, you made this money in the 2000', but it has been invested almost immediately in the economy when you put it at the bank or at the stock market. As such, you give your wealth away and have a right to take it back in the future, to take it back on the future's economy.
To put it bluntly, you'll suck 2040's economy without making money in the 2040'. It's a form of redistribution, even if the State isn't involved.

Oerdin · June 11, 2003, 17:56

I'm going to have to disagree with you Spiffor. Nothing has been taken away from 2040's economy since the money never changed hands. I have my money and I'm choicing to do one thing with my money and if in the future I choice to do something else with my money (like spend it) then I still haven't taken anything.

The only way you can see it other wise is if you consider every single market transaction to be redistribution which is possible but then we are no longer talking about the common English term known as "redistribution" since we have defined it to mean something else.
What your claiming seems to me like claiming that by choicing to by clothes instead of vacations I am redistributing income that really should have gone to vacation companies. The vacation companies never had it so why would I have taken from them? Also if I buy a house as an investment, with the thought that I'd sell it later at a higher price (since the amount of land stays the same but the population & demand keeps going up) then am I taking from future generations? Nope, I have an asset which I can do with as I please. No redistribution is envolved.

Inverse Icarus · June 11, 2003, 17:57

Quote:

Originally posted by Cruddy
You lucky sod. Dog food? I dream of beans on toast when I'm munching away on gravel.

beans on toast? god, next you'll be putting them on eggs.

Oerdin · June 11, 2003, 19:18

I asked my aunt about index funds and this is what she said:

Quote:

Index fund just buy the broad market like the S&P 500 and pay a fee to do so. Effectively they buy every stock in the index in proportion to the weighting each stock is of the index. You just take the market ride, upside and down, with no analysis or stock picking skill for your fees.
Personally, I think one of the big benefits of a fund manager is his ability to soften the downside for you. Check out the performance of some of the funds you have chosen and you will see that they have performed
better than index over the last three years. If you were in the index funds this would never be the case. In a market 'bubble' like we saw in the late '90s most managers will not do as well as their relative style
index because they recognize the overaluation. This is the period when index funds do well.

Anyone agree or disagree?

Q Classic · June 12, 2003, 01:32

hey oerdin, if you disable yourself now, at least you'll get social security...

as it stands, by the time you're retired (if you're like me, and under 30), odds are social security will be bankrupt/gone, so all your taxes that went to it were a lousy investment.

Harry Seldon · June 12, 2003, 09:12

I disagree with your aunt. Most managed funds underperform. Sure the index funds lost money the last three years. The DJIA dropped 6,000 points. It will go back up though and it offers a more consistent return. The Motley Fool has a good comparison at www.fool.com if you want to check it out.

JohnT · June 12, 2003, 09:56

Quote:

Originally posted by Oerdin
I asked my aunt about index funds and this is what she said:

Anyone agree or disagree?

Let me requote:

Quote:

Personally, I think one of the big benefits of a fund manager is his ability to soften the downside for you. Check out the performance of some of the funds you have chosen and you will see that they have performed
better than index over the last three years.

In regards to your aunt, please note that what you are purchasing are not investments, but rather gambles that this particular money manager can beat the market. You are betting on him, not the market, and if you are comfortable with that strategy, fine.

But for only a 3 year period? Ask her what this guy's record is over 10 years, or 20 years.

Japher · June 12, 2003, 11:45

I think you aunt is as right as anyone else will get (but she still has issues). My dad swares on mutual fund. He owns like 3 stocks, 10 funds, and 2 indexes.

The one that has made him the most is one of the stocks (a bank stock). His funds always under perform the market, yet his indices always perform at the market, at least you can be sure of that.

Quote:

Index fund just buy the broad market like the S&P 500 and pay a fee to do so. Effectively they buy every stock in the index in proportion to the weighting each stock is of the index. You just take the market ride, upside and down, with no analysis or stock picking skill for your fees.

She might be confused with other spiders here, but broad index funds generally only have the normal fees associated with trading of any vehicle. While S&P, DOW, Russel 2000, etc. have to change quarterly as stocks enter and leave the funds holdings, thus giving you a turn over. Yet, stock that reside in these indeces rarely change, and you can bet on a less than 1% fee per year.

Also, no amount of analysis can really tell you what the future will hold. A small amount, which you canb and should do yourself, will tell if the company is about to fold. Personally, I don't like anyone to tell me what to buy, or even worse buy it without my permission! Which is exactly what fund managers do. If you think you are getting anything out of their analysis ask them to see it... You might be surprised at how long it takes them to produce it.

On the same note, stock picking skills?!!! What are those?! My stupid broker has just as much chance as I do at picking a winner. I just don't trust them enough. They have hundreds of people giving them money, why would they value you over someone else? You let your accountant do your taxes without knowing something about accounting, chances are you will end up with an awful accountant... Educate yourself enough to learn what it is you need to feel secure in your investments.

Quote:

Personally, I think one of the big benefits of a fund manager is his ability to soften the downside for you. Check out the performance of some of the funds you have chosen and you will see that they have performed better than index over the last three years.

That ain't softening the downside, that is one good year! Or, during the tech bubble, 5 good years. A fund manager is good for nothing...

Quote:

If you were in the index funds this would never be the case. In a market 'bubble' like we saw in the late '90s most managers will not do as well as their relative style index because they recognize the overaluation. This is the period when index funds do well.

Manage your own funds...

Oerdin · June 12, 2003, 13:28

In essience aren't we paying a fund manager to closely watch the market and to key in to trends which we ourselves are to busy to do?

Japher · June 12, 2003, 13:38

Quote:

In essience aren't we paying a fund manager to closely watch the market and to key in to trends which we ourselves are to busy to do?

That is just my point, however. What is to say they are watching the market that close or that they can recognize said trends? I can, and will, assume that they are watching the market closely, but what are they watching? Indexes, individual stocks, futures, trackers, their own portfolio? I would rather watch my own portfolio, so I assume they would to, that says nothing to their knowledge of options...

Do the watch or can they recognize trends? Sure. Yet, I am not going to trust them to be experts at this, especially since they are to engrossed in their own portfolios... Therefore, I prefer to take some time to learn these trends, learn for myself to recognize them, and learn how the market performs, before I invest.

So you know, I have a financial advisor, I have know idea why, but every now and then I get some good tips. They know alot about tax sheltering (which is something I don't need) they now how to measure your risk/reward values and they are good to have keep you in check so don't go on a gambling benge. Yet, if he tells me I should buy such and such stock I'm not going to just take his word for it! I will research the stock, research what he says is good about it, check historical situations associated with that stock, read their balance sheets, etc... Sometimes I agree, sometimes I don't. Sometimes I win and sometimes he wins... Says nothing to his knowledge, so I don't just take their words, so I am definitly not going to give them my money to manage on their own.

Case History: In 1992 my dad got a new advisor. He held him for 6 years (as tech was booming), my dad didn't pay attention to his portfolio, it went up 8% in 6 years when the market exploded. Needless to say my dad fired the guy. Some suck, some don't, but if you aren't watching your money, yourself, it may just disappear... Ever hear of commissions?

Oerdin · June 12, 2003, 13:51

I never pay commissions and I try to only invest in funds with an expense ratio of less the 0.75% though 0.5% is better. Still I see your point. Since we can invest in exactly the same manner as the index funds do is the reason for buying and index fund, and paying the fee, mainly useful to smaller investors who wouldn't be able to buy every stock on the S&P500? In essience we're paying them to pool our money so we can benifet from owning a piece of every stock on the index?

If you wanted to trust your own judgement then wouldn't it be best to skip all funds, index or other wise, and simply buy stocks?

Japher · June 12, 2003, 14:09

That's mainly what I do; buy my own stocks, create my own fund. Don't get me wrong, I think a fund or two is good way to balance a portfolio to industries you don't want to keep an eye on, but the lack of control on how active that fund is managed really scares me. What I try to do is find good spiders, than monitor them for a while, check their holdings, then decide... I still don't buy for the spread, I buy for the industry (that is why I like small cap funds)...

Note: commissions are paid to brokers, not by you, to push certain funds that may be, or have the risk to, underperform... They don't volunteer this information, but if you ask they are obligated to tell you... One of my friends is a third party investor who pays brokers these commiusions, and sell funds, insurance, and stocks to high profile investors... Those who need those funds bumped...

Balanace your portfolio, but don't think that a fund, or group of funds,alone does that. How would you feel if you work on the "buy and hold" technique only to find out that you are actually selling/buying stocks every year because your fund manager is way too active? Even 0.5% can be a lot if the fund underperforms...

Harry Seldon · June 12, 2003, 14:12

I buy stocks, too. It gives me a chance to play around and beat the system. I make decent gains with it (up about 15-20%) but I don't have serious cash involved either. I buy index funds because it's a fairly safe way to diversify, if not as safe as a savings account. With index funds at least I don't feel like I need to be constantly researching to make sure I don't ride the Cisco train into the sh*tter.

Oerdin · June 12, 2003, 15:09

So what do you folks think of this plan? For the Roth I'll dunp the Janus Mercury since it's been a dog and pick up a nice shiny Vangaard Index Fund, for the 401k I'll try to roll it over once a year so as to free myself from having to invest in the company's/Fidelity's choice of mutual funds, and lastly I still need to figure out what to do with my house down payment fund. I'd consider stock but my goal is to buy with in 6-7 months so a CD might make a better choice.

What do you folks think of that?

Japher · June 12, 2003, 15:52

I think you have a good plan...

Make sure that you can roll out of the 401k without penalty before doing so, as you suggested.

Take the Vanguard, I think you will be happier, and keep an eye on that manager.

6-7 months is not a long time for any real gains without tremendous risk. CDs are at a low persentage 1-2%. Short term gains are going to be limited at best. Do you have a money market? Do you belong to a credit union? Most credit unions have money market accounts that can earn a little better than the CDs I have been seeing, plus they give awesome home loans. If anything I would take the money for your home and join a credit union (if you aren't in one already, there is probably one available through work) and drop it into a MM account, and forget about it until you want the house. The standing balance on that account for 6+ mos might help you get a better interest rate on your mortgage with that union. I would, before doing this, talk to the bankers and brokers there and see if you can a) qualify for the loan and b) have any advantage if you are a member for 6 mos...

If not, go to Vegas