Financial Advice Thread

[Bonecrusher Doc]

So, with the obvious understanding that this is all amateur advice to follow at one's own peril, I thought a thread like this might be popular (if there hasn't been one already). But also I have a question:

I have some money I want to keep safe for three years, at which time I will want to use it. So basically I'm looking for a very low-risk investment, hopefully beating the rate of inflation. What does the Playground recommend? FYI, I'm in the U.S.

1) high-yield savings account such as ING or Emigrant Direct
2) certificate of deposit
3) money market account
4) other

One thing I'm trying to learn more about are U.S. treasury bonds/notes/securities that protect against inflation, just in case the dollar loses value over the next three years. I was looking at "I" bonds and "TIPS" on TreasuryDirect.gov, but I'm not sure if I'm knowledgeable enough to buy bonds through an auction (how does that work?) and then liquidate them prior to their maturity date, thus incurring a penalty.

[Krrth]

Basically, if you're only going to invest for three years your options are limited. Depending on how much it is, places like ING, Pioneer, or Met may not take it. For example, some ING accounts are subject to minimum investments (ING golden select has a $25,000 minimum with a 10 year min investment period.)





please note I am NOT a licensed agent, but I do work with them. This is based solely on my observations. For real advice, I highly suggest you find a Registered Financial Planner in your area and visit them.

[Narmoth]

Buy gold bars. (Actually, you buy an obligation on gold). Or buy euros. They are more stable than dollars. Other relatively stable coinages are Swiss Franks and krones (Norwegian, Swedish or Danish)

[Krrth]

Buy gold bars. (Actually, you buy an obligation on gold). Or buy euros. They are more stable than dollars. Other relatively stable coinages are Swiss Franks and krones (Norwegian, Swedish or Danish)

I wouldn't do either one, actually. Gold is good for long term usage, but as the economy in the US gets better, the price should go down. Precious metals and jewelry tend to sell well when the economy is down, but not so much when it is up.

As for buying/selling currency, that can be an extremely risky proposition.

[Bonecrusher Doc]

The money is my tax refund. I might be buying a house in 3 years so I would want some down payment money at that time.

My bank does have financial planners I can speak with over the phone, but I was just curious if anybody has any experience with U.S. Treasury products as that is something my bank might not be as likely to recommend as one of their own products.

My bank has a Precious Metals and Minerals Mutual Fund I might consider for the long term (retirement). I agree that gold or perhaps euros might protect me from disastrous devaluation of the dollar, but I'm really just looking for a 3-year conservative investment that ensures I maintain the same purchasing power that my principle has now. Gold or Euros could drop some over the next three years.

So a savings account or a CD guarantees me that I will have the same number of dollars three years from now, plus a little interest, but the problem is that might be worth less then, for example, if I have a CD that gets me 2.5% interest but inflation is 3%, then effectively I've lost purchasing power. (OK, that math may be simplistic but you know what I mean.) I read something about I bonds and TIPS adjusting the amount of principle in accordance with an inflation index, so does anybody know - does that truly protect my investment from inflation? If the American dollar goes the way of the Zimbabwean dollar, will my money be as safe as if it were gold?

www.treasurydirect.gov

I'm curious if any non-UnitedStatesians have similar products available in their countries as well. I will be living in Europe for the next three years.

No need for disclaimers when you post in this thread, the understanding is that this is Amateur Hour! And no need for my question to be the only one under discussion!

EDIT: OK, I seem to have found the textbook answers to my main questions. Still, if anyone has any words of wisdom to offer, I'm interested!

How is the earnings rate of an I Bond determined?

The earnings rate combines two separate rates:

* A fixed rate of return, which remains the same throughout the life of the I Bond.
* A variable semiannual inflation rate based on changes in the Consumer Price Index for all Urban Consumers (CPI-U). The Bureau of the Public Debt announces the rates each May and November. The semiannual inflation rate announced in May is the change between the CPI-U figures from the preceding September and March; the inflation rate announced in November is the change between the CPI-U figures from the preceding March and September.

Can I ever lose money in I Bonds?

No. They are U.S. Treasury securities backed by the U.S. Government. I Bonds even protect you from the effects of severe deflation—the earnings rate can't go below zero and the redemption value of your I Bonds can't decline.
Treasury Inflation-Protected Securities, or TIPS, provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.

TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.

[Don Julio Anejo]

I'd like to make a point that according to most research, professional financial agents are no better at picking stocks than a monkey with darts and a newspaper.

If you want something that's low risk... I would suggest CD. Why? The interest rate is generally set slightly above inflation rate, 0.5% or so. An even better idea would be to do the same but in Euros, they should be more stable in the next few years, since Obama isn't yet done fixing the economy and chances are the dollar might go down quite a bit.

If you really want, I can ask my dad. He's a small time hedge fund manager.

Edit: forgot to mention. Mutual finds might not be such a great idea (depends on what Obama does). They're the "investment for idiots tool" and as such usually too diversified to actually make you money. What happens is that they make most of their money through general economic growth (say a company becomes 5% bigger hence makes more money hence share price goes up). Right now we might be moving away from the growth model (or whatever the actualy financial term is) because it can seriously screw up the economy as we've all seen when people suddenly stop buying.

Also, with mutual funds the overall industry growth rate might be less than the inflation if it's a bad year.

[Krrth]

I'm not sure how close you are to retirement age, but when looking at such a fund, I would highly recommend some of the bonus products. Met-Life (Pioneer) and ING both have some very good retirement accounts that provide a 5% or 6% bonus whenever you put money into the account, in addition to interest.

I would be iffy going to talk to your bank about planning. When you talk to an adviser, make sure they aren't captive. They should be able to recommend products from multiple companies, not just in-house funds. A good financial adviser would have you come in for a face to face interview to discuss your goals and plans.


edit: Stay OUT of stocks for the time being. You want nothing to do with them right now. The market will take a while to recover, and is going to be doing a lot of fluctuation.

[Surfing HalfOrc]

Strangely enough, I would recommend the stock market.

Sure, everyone has been flipping out lately, but if you follow it, you'll see that it has pretty much bottomed out. Whether or not it turns into a L shaped graph or into a V is hard to say with 100% accuracy, but the old saying of "Buy Low, Sell High" is still true. And right now? It's as low as it's probably gonna get for a long time.

Look into Morningstar 5-Star Rated funds, or funds that were doing well before the crash. Or look into Index Funds. These are funds that just buy and hold the stocks that make up an index on the market. It's not as flashy as a lot of other stuff, but it's also not as risky. Then in three years, cash out and enjoy.

[Krrth]

Strangely enough, I would recommend the stock market.

Sure, everyone has been flipping out lately, but if you follow it, you'll see that it has pretty much bottomed out. Whether or not it turns into a L shaped graph or into a V is hard to say with 100% accuracy, but the old saying of "Buy Low, Sell High" is still true. And right now? It's as low as it's probably gonna get for a long time.

Look into Morningstar 5-Star Rated funds, or funds that were doing well before the crash. Or look into Index Funds. These are funds that just buy and hold the stocks that make up an index on the market. It's not as flashy as a lot of other stuff, but it's also not as risky. Then in three years, cash out and enjoy.

My main concern about the market is that it may not make up enough of it's loss over the next three years to be worth while. Especially if the amount invested is small.

Mind you, we DO recommend stocks for those who plan on being in the market for the long term.

[Telonius]

US Treasury products (normally bonds, but others as well) are typically low-yield, but very stable. They're typically not what you want if you're looking for a return greater than inflation.

The current economic climate might actually (briefly) make them a better investment than stocks. If there's a period of general price deflation (usually caused by a sudden drop in GDP, such as we're now experiencing), anything with a guaranteed return beats it. Your money is worth more now than it was when you put it in. (Also, the stock market is usually hitting the skids at that point, making stocks a more dangerous option). The flipside of that is that the window of opportunity is usually small to cash in on that. When the government notices a GDP drop happening, they'll typically start printing extra dollars (among other things) to stimulate the economy, which makes your cash worth relatively less. It's a risky proposition either way.

I'd also put in a caution about investing in stocks for the short term. Especially right now, when nobody's really sure which companies are going to still be around in one year, let alone five. If you (as a total amateur, like me) really feel the need to try, just take a plane to Vegas and put it all on black. It'll be quicker, you won't have the high transaction fees to your broker, and hey, at least you'll have lost it in Vegas instead of wherever you live. The day trader who made a billion dollars in the first three days does exist, but he used up enough luck to power entire cities for a month. I am not that guy, and neither are you.

In general, if you live in the US, you're better off getting money by capital gains than by (almost) any other means. The tax is only around 15%, as opposed to around 30% for regular income.

[Don Julio Anejo]

Checked with my dad.

Yep, either CD or bonds. And whatever you do, STAY OUT OF THE STOCK/MUTUAL FUND MARKET. The economy is still going down. It's just going down slower than say, 6 months ago.

Also, stocks are too volatile per se. And unpredictable. Heck, a single confusing comment by a senior board member can make a company's stock plummet 20% in a day. And not recover for months.

Mutual funds work better but only really long-term, say 20 years. In the short term they're all still slowly going down. Except precious metals sector...

[Thajocoth]

All this money-fangled stuff is confusifyin'! I want to know more though... My High School Economics teacher wanted to be one of the cool kids, so I never got an education on economics. I understand savings account, checking account and credit card. Lately I hear lots of other things I don't understand, like "IRA". When somebody says "CD", I think of a round flat thing readable by a computer. Only problem is, I have no idea how to go about learning what all the options are for me to do with my money. And yes, I do want to know ALL my options, what they mean, and their pros and cons before I do anything with it.

[Krrth]

Checked with my dad.

Yep, either CD or bonds. And whatever you do, STAY OUT OF THE STOCK/MUTUAL FUND MARKET. The economy is still going down. It's just going down slower than say, 6 months ago.

Also, stocks are too volatile per se. And unpredictable. Heck, a single confusing comment by a senior board member can make a company's stock plummet 20% in a day. And not recover for months.

Mutual funds work better but only really long-term, say 20 years. In the short term they're all still slowly going down. Except precious metals sector...

Erm.....the market's going back up. It's back over 8,000. All the internal reports from our companies opinioned the economy would start responding in mid 2009, and it appears to be doing so.

Thajocoth
Easiest way? Find a reputable Financial Planner and sit down with them.

IRA= Individual Retirement Account
CD= Certificate of Deposit

[Don Julio Anejo]

DOW and Nasdaq are indices, not a barometer of market health, despite what people make them out to be. They're determined first and foremost by daytraders looking for a fix (ermm, I meant to say profit). Things like unemployment rate or inflation rate are much better predictors. Unemployment is still going up....

That and there hasn't been any serious big-time government aid into the actual economy, only into financial institutions. Which means when (if) it happens, the economy might get better but inflation will rise meteorically. Hence, Euro.

[Thajocoth]

How do I know if a Financial Planner is reputable or not? What should I expect to pay them? I'm in Manhattan, so with Wall St being of walkable distance, I'm sure there's gotta be somebody good nearby.

[reorith]

1. buy the amount you want to invest in decent ar-15 lower receivers
2. hoard your forged steel darlings like a kevlar dragon!
3. wait three years
4. ???
5. profit!

[Krrth]

How do I know if a Financial Planner is reputable or not? What should I expect to pay them? I'm in Manhattan, so with Wall St being of walkable distance, I'm sure there's gotta be somebody good nearby.


Let me put it to you this way: You shouldn't get charged for the first meeting. Look for a notice that says they're affiliated with IARFC (International Association of Registered Financial Consultants). Go see a couple of different people. The better consultants woun't push you to invest in anything until you've had a chance to read the items they give you and had a chance to think.

Don You are correct in that the DOW isn't the sole indicator of health. However, it IS the one most people (including most of the media) use as a basis. Unemployment and inflation are important to watch, but inflation happens no matter what you do and unemployment varies from location to location.

[snoopy13a]

How do I know if a Financial Planner is reputable or not? What should I expect to pay them? I'm in Manhattan, so with Wall St being of walkable distance, I'm sure there's gotta be somebody good nearby.

You don't.

My advice is to do your own research and use a discount broker to make your transactions yourself. Finding a financial planner is hit or miss because while the majority of them are honest, there are quite a few crooks out there.

[Bonecrusher Doc]

Reorith, I had a funny feeling you would appear and mention guns! :smalltongue:
Though seriously speaking, you could be right, but that would require me to know something about buying and selling firearms.

Thajocoth - an IRA is commonly one of the most important investments. Others can correct me if I'm wrong, but my understanding is that you pay less tax on investments in an IRA than you do with non-IRA investments. The catch is that if you pull money out of your IRA before you retire then you pay a penalty.

A "Traditional IRA" is better for someone who envisions themselves being in a lower tax bracket at retirement age than they are now. A "Roth IRA" is better for someone who envisions themselves being in a higher tax bracket at retirement age than they are now.

An IRA account can contain a mixture of investment products such as mutual funds, and CDs. Typically advisors will recommend higher-risk investments when you are young, such as stock-heavy mutual funds, gradually shifting to lower risk investments as you get closer to retirement, such as bond-heavy mutual funds.

Everyone's going to want to invest for retirement. Other than that, your investments depend on your goals and their timeframe, for example, saving for children's education or buying a home.

[THAC0]

The money is my tax refund. I might be buying a house in 3 years so I would want some down payment money at that time.


That's either an epic tax refund or a crappy down payment, I think. :smallsmile:

[Bonecrusher Doc]

It's a generous refund because my salary while I was in Iraq during 2008 is tax-free, but it's definitely not enough for a down payment on a house - just a start, then I'm going to see if I can set up an automatic withdrawal from my checking account each month for the next three years to make up the rest. No buying any D&D sourcebooks for a while, but it will be worth it if I can do it!