Expert: Tad Borek Date: 2/1/2004 Subject: Investment Strategy
Question Hello Tad,
I will give you a little information about myself and maybe this will be of use to you in possiblly helping me.
I am 49 years old. At the present time I am working as a millwright at a tire factory. I am married. My wife works for a dentist office. We have no children. My wife and I live what I consider to be a fairly conservative lifestyle. We own a modest home. It is payed for. We have no debts. I have always hated debt and so once the house was payed off I tryed never to borrow again. Our vehicles are payed for so we have no payments. We have no credit card debt. I have a 401K at work. I also have another IRA from a previous job. These accounts are managed by professional managers and I have the option of moving the money around in several different funds in the plan. I usually choose the stable fund for most of the money. I also have a Roth IRA with about $6,000.00. This money is just sitting in a money market and is not making anything, but I haven't lost it either. I also have some money in my personal money market account that is also not making much. About 1%. I am trying to find something to do with these accounts that is fairly safe but that might earn some kind of a return. I was wondering if you might have any suggestions? Some kind of index funds maybe? And also I am wondering about timing. Timing the market seems to be hard to do but I would think that it might be somewhat possible. Surely the economic conditions that we have today have existed at sometime in the past. Huge federal budget defecits, tax cuts, election year. The value of the dollar falling. Low interest rate. I am sure that these conditions have existed in the past and have affected the stock market, but I am not sure where to look for charts and I am not sure that I would be able to interpret them.
Thank you for any help that you might be able to give me.
Sincerely,
Steven A. Bose
Answer Hi Steven-
I think my best advice is to visit the web site www.vanguard.com and read their information about choosing mutual funds to invest in. While a money-market account is stable in value, it's not expected to earn much over the long run. So for money that you're fairly sure will sit for awhile, you probably want it in something with the potential for higher returns.
Vanguard's funds are investor-owned so have very low expenses. Their specialty is index funds of various types, which are ideal as long-term investments that you keep adding to from time to time, but otherwise leave more or less alone. There are many types of index funds, investing in different types of bonds, stocks, etc. So even if you want to be conservative with your money you can do so with mutual funds - just pick funds that buy conservative investments.
As a starting point: long-term money like that invested by a company's pension fund is often something close to 60% stocks, 40% bonds. If you look up Vanguard's "balanced" index fund, you'll see a similar mix. So maybe that's a starting point - read up on that type of investment and see if you prefer something more, or less risky, and go from there. I often mention that fund as a possible "single decision" long-term investment...it's neither incredibly risky, nor incredibly conservative, when held for a long time.
As for timing the market - I'd advise against trying. Most people have better results if they simply "dollar cost average" meaning add to your investments on a regular schedule, so you don't force yourself to make the timing calls. Timing the market is very difficult and frankly, I still haven't met someone who I'm confident is good at it (professionals included). You may have heard some of the stats, like if you'd missed the ten best days in the stock market over the past 10 years, you'd missed a huge part of the returns...the point is, it's usually better to keep chugging along rather than trying to nip an extra percentage point or two here & there. Plus it frees up your time for doing something more interesting than watching the daily nonsense about the market!
I've mentioned Vanguard above but of course there are other fund companies out there. I think Vanguard is one of the better options for do-it-yourself investors who want to pick some funds that they plan to invest in for a long time. Frankly too many of the other companies are in it to earn a buck for themselves rather than for you. So it's at least a good starting point - and their basic materials on the site about picking funds are pretty good.
