Mutual Funds

aReformedPatriot · Aug 22, 2005

Can someone reccomend to me so good mutual funds, and also give me some solid advice for a 21 year old college student as to whether I should go ahead and get into one. Im pretty much broke but Id like to stick about $1500 into one for the long-term. It would be a goal not to really touch it until I am about 27-30 when I will have lots more time to deal with it.

gnine · Aug 29, 2005

Hi Envoy,

Can't say that I know many funds in the US, but my general advice would be that you need to look at your current and future circumstances... although I've got financial planning postgrad qualifications, I'm going to depart from the orthodox advice a little, based on a bit of life experience.

If you're currently near broke (as you're a student), but at some stage in the next few years you're expecting to graduate and get a job, then there is little point in going from "near broke" to "destitute" now - all for the sake of $1,500, which in the scheme of things, is a small amount of money.

My opinion is that its far better to use that $1,500 now to buy yourself some comfort over the next few years rather than living on the breadline, because when you've got a full time job, you can save back the $1,500 easily plus more, with very little effort.

If you were earning a regular income, my advice would be completely different - then you could put the $1,500 aside and add to it monthly.

The other thing, of course, is that with all investments with worthwhile growth, there is risk... you need to ask yourself if you can afford to lose 25-30% of that $1,500? Would you ever need to call on that cash? If so, put it into a cash account where its safe. A rule of thumb is that you should aim to have 3 months of liquid assets put aside for living expenses should life take an unexpected turn.

p.s. You're unlikely to have more time when you're the venerable age of 27-30

DISCLAIMER: This advice is given without regards to your personal circumstances - you should only act on advice after first discussing your circumstances with an authorised representative.

aReformedPatriot · Aug 29, 2005

gnine said:
Hi Envoy,

Can't say that I know many funds in the US, but my general advice would be that you need to look at your current and future circumstances... although I've got financial planning postgrad qualifications, I'm going to depart from the orthodox advice a little, based on a bit of life experience.

If you're currently near broke (as you're a student), but at some stage in the next few years you're expecting to graduate and get a job, then there is little point in going from "near broke" to "destitute" now - all for the sake of $1,500, which in the scheme of things, is a small amount of money.

My opinion is that its far better to use that $1,500 now to buy yourself some comfort over the next few years rather than living on the breadline, because when you've got a full time job, you can save back the $1,500 easily plus more, with very little effort.

If you were earning a regular income, my advice would be completely different - then you could put the $1,500 aside and add to it monthly.

The other thing, of course, is that with all investments with worthwhile growth, there is risk... you need to ask yourself if you can afford to lose 25-30% of that $1,500? Would you ever need to call on that cash? If so, put it into a cash account where its safe. A rule of thumb is that you should aim to have 3 months of liquid assets put aside for living expenses should life take an unexpected turn.

p.s. You're unlikely to have more time when you're the venerable age of 27-30

Fascinating.

This is my situation a little more described. When I get out of college I will have a student loan to repay and I would like to do that rather quickly so saving up may not be that easy of a thing to do. The thinking is that if I were to open a mutual fund now and leave it for a number of years (over the long term, I can afford to take a hit) then I would be able to call upon the gains when the time is needed for me to use them.

So in light of that, do you still think it would be wise to wait. I am a pretty simple man with regard to comfort especially since I plan to devote a huge part of my pay to debt repayment in the future. I expect to live quite poor for 2-3 years

gnine · Aug 29, 2005

The Lord's Envoy said:
Fascinating.

This is my situation a little more described. When I get out of college I will have a student loan to repay and I would like to do that rather quickly so saving up may not be that easy of a thing to do. The thinking is that if I were to open a mutual fund now and leave it for a number of years (over the long term, I can afford to take a hit) then I would be able to call upon the gains when the time is needed for me to use them.

So in light of that, do you still think it would be wise to wait. I am a pretty simple man with regard to comfort especially since I plan to devote a huge part of my pay to debt repayment in the future. I expect to live quite poor for 2-3 years

Depends on the nature of student loans - in Australia, they are only indexed by the inflation rate. As a result, its often not in your best interests to pay them back quickly, as if your going to take on more debt for a house or something, then you would simply be exchanging one debt at the rate of inflation, for another at the higher home mortgage rate.

But if the loan is at commercial rates and interest payments are not tax deductible, then it is (from a purely financial point of view) best to pay it off as quickly as possible - as you already know.

But really, with $1,500, even if it went spectactularly well at a compound rate of 15% per year for 5 years, it would only grow to $3,000 (and thats ignoring tax) - which probably not a large enough rate of growth to put much of a dent in your loan. Like with most financial planning questions, its really a lifestyle choice between two options in your case as below:

How much are you prepared to forgo now and for the next 5 years for the benefit that you will get in the future? You can be pretty sure that your future benefit will be capped at around $1,500 after 5 years, and will probably be less... in return for that $1,500, is it worth giving up the benefit that this could give you in good times with friends over the next 5? Particularly if that benefit can be saved with far less sacrifice in 6 years time when you have some earning capacity.

Just some things to consider...

DISCLAIMER: This advice is given without regards to your personal circumstances - you should only act on advice after first discussing your circumstances with an authorised representative.

aReformedPatriot · Aug 29, 2005

DISCLAIMER: This advice is given without regards to your personal circumstances - you should only act on advice after first discussing your circumstances with an authorised representative.

haha, I am calling my lawyer now!!!

But if the loan is at commercial rates and interest payments are not tax deductible, then it is (from a purely financial point of view) best to pay it off as quickly as possible - as you already know.

Yep, this is me

I take donations lol.

But really, with $1,500, even if it went spectactularly well at a compound rate of 15% per year for 5 years, it would only grow to $3,000 (and thats ignoring tax) - which probably not a large enough rate of growth to put much of a dent in your loan. Like with most financial planning questions, its really a lifestyle choice between two options in your case as below:

How much are you prepared to forgo now and for the next 5 years for the benefit that you will get in the future? You can be pretty sure that your future benefit will be capped at around $1,500 after 5 years, and will probably be less... in return for that $1,500, is it worth giving up the benefit that this could give you in good times with friends over the next 5? Particularly if that benefit can be saved with far less sacrifice in 6 years time when you have some earning capacity.

Hmm, stuff to think about. We Bible College students are fairly simple and are quite fond of Pizza and Blockbuster Video. Perhaps I'll just put it toward that deep sea fishing trip I've been wanting to go on for about a year now.

I'll pray about it.

Thanks

billwald · Aug 29, 2005

"Neither a borrower nor a lender be."

hippie · Aug 31, 2005

The Lord's Envoy said:
Can someone reccomend to me so good mutual funds, and also give me some solid advice for a 21 year old college student as to whether I should go ahead and get into one. Im pretty much broke but Id like to stick about $1500 into one for the long-term. It would be a goal not to really touch it until I am about 27-30 when I will have lots more time to deal with it.

Dude talk to lots of people you know, such as the prof's at college, your parents, friends and anyone else that will listen. Go visit some of the brokerage firms in your area (although be prepared for some high pressure tactics).

Once you've done all that ask yourself "Am I being realistic?"

I don't think so because I don't consider 6 -7 years for a 21 yr old to be long term. If you were in your 50's maybe but 21? Long term for you should be 15 - 20 years

aReformedPatriot · Aug 31, 2005

hippie said:
Dude talk to lots of people you know, such as the prof's at college, your parents, friends and anyone else that will listen. Go visit some of the brokerage firms in your area (although be prepared for some high pressure tactics).

Once you've done all that ask yourself "Am I being realistic?"

I don't think so because I don't consider 6 -7 years for a 21 yr old to be long term. If you were in your 50's maybe but 21? Long term for you should be 15 - 20 years

I understand your reasoning very well, but over half a decade is a long time for me. I am trying to figure out the best way to begin some financial planning so that in my future, when I begin to plant myself, I can begin to call upon my assets according to needs. Having watched my parents I feel that the younger one starts the better.

hippie · Aug 31, 2005

The Lord's Envoy said:
I understand your reasoning very well, but over half a decade is a long time for me. I am trying to figure out the best way to begin some financial planning so that in my future, when I begin to plant myself, I can begin to call upon my assets according to needs. Having watched my parents I feel that the younger one starts the better.

No question but that you should be commended for starting early. I tell my accountng and economics students to exactly the same thing. Ahhh to be young again and think long-term is 6 -7 years!!

bob135 · Sep 19, 2005

This might not apply to you, but from what I've read, mutual funds are generally not a good idea. My understanding is that the consensus among most academic economists is that "you can't beat the market" (the efficient markets theory). I suggest you look at Burton Malkiel's "A Random Walk Down Wall Street."

aReformedPatriot · Sep 22, 2005

bob135 said:
This might not apply to you, but from what I've read, mutual funds are generally not a good idea. My understanding is that the consensus among most academic economists is that "you can't beat the market" (the efficient markets theory). I suggest you look at Burton Malkiel's "A Random Walk Down Wall Street."

What does it mean "to beat the market"? I do not want to be rich I simply wish to have a little extra money.

bob135 · Sep 22, 2005

From what I understand about mutual funds, their big claim is that they can manage your money better than you can. Some even claim to "beat the market" which means they consistently outperform stock indexes like the NASDAQ or the DOW. The problem with mutual funds is that they trade a lot, which adds costs like broker fees and taxes, plus they have to pay the people that run mutual funds. From what I've heard, its much better to buy 20 random stocks and just hold them. You will probably match the market over a period of about 10-20 years, plus you can borrow against the stock if you ever need to.

ClaireZ · Nov 3, 2005

With a 1500$ investment your best bet is likely to buy a bank CD or put it in a money market account. They sell CD's in short term time frames as well as long with a locked in interest rate. Right now it is best to buy a short term CD as interest rates are rising.

If you do decide on a mutual fund look for a no-load fund, that means you don't pay any fees up front.

The Ascetic Crusader · Nov 23, 2005

The Lord's Envoy said:
I am trying to figure out the best way to begin some financial planning so that in my future, when I begin to plant myself, I can begin to call upon my assets according to needs. Having watched my parents I feel that the younger one starts the better.

3 ways to get rich (time tested BTW) :

- Start a killer business
- Buy some killer stock (ferget MFs,RSPs and CDs and that other baloney)
- Buy some knock ´em dead Real Estate

That´s it. No ifs, buts or maybes. BTW, nobody has ever gotten rich off their day jobs.

You sez you got $ 1500 ? Buy a nice suit, rent a Porsche , get some business cards made , drive to your nearest Country Club and start makin´ some business contacts.

Let me know how it goes...

aReformedPatriot · Nov 23, 2005

The Ascetic Crusader said:
3 ways to get rich (time tested BTW) :

- Start a killer business
- Buy some killer stock (ferget MFs,RSPs and CDs and that other baloney)
- Buy some knock ´em dead Real Estate

That´s it. No ifs, buts or maybes. BTW, nobody has ever gotten rich off their day jobs.

You sez you got $ 1500 ? Buy a nice suit, rent a Porsche , get some business cards made , drive to your nearest Country Club and start makin´ some business contacts.

Let me know how it goes...

Whoever said I wanted to be rich?

Lacmeh · Nov 23, 2005

Mutual funds are for the very long term.
It is not true, that buying 20 or so different shares from companies will yield the same performance than mutual funds. Mutual funds work this way:
Pick a few areas of business, where there will be always demand. (automotive, pharmazeutical, various electronics, , buidling and others)
Pick several sound companies within the business area and within the same market segment. Demand will be quite stable and usually growing, should one company fall behind, the others will pick up.
Invest into the selected companies.
Evaluate constantly.
Mutual funds usually have 30 managers minimum in order to keep up on the market, performance and changes in the market. Nobody can outperform a team of 30 or more people all on his own. Besides the average person will not be able to read financial statements correctly or get to know, the criteria for market segmentation and the info for market analysis.

Mutual funds usually double the invested amount in the timespan of 5 to 7 years.
Mutual funds with extreme good performance would be those, who invest into Central/Eastern European companies/real Estate. Simply because of the growth potential due to underdeveloped economies in those countries. With pending EU member status or already member of the EU the growth will happen for about two or three decades until the economies are balanced out with hte other EU members.

CapedCrusader · Dec 14, 2005

my investment professor said that index funds are the safest bet (S&P, etc) for mutual funds/ETFs. I would tell you what mutual funds i have, but i dont know exactly, i just did whatever my investments manager suggested..haha...however ive earned bout 12% return so far, so i guess they know what theyre doing

billwald · Dec 19, 2005

First, in the long run no mutual fund will pay more than loans will cost so best plan is to first get free and clear and stay that way.

Second, the st ock market has become a Ponzi scheme and no one is "investing" in anything. They all play "my computer is faster than yours."

Mutual Funds

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