Investment Account Options

[brokeinok]

I'm taking a non-official poll.

My credit repair is going well and I'm really starting to get a handle on my finances. My next step is saving, investing, etc. I've opened an ING Orange account (thank you AK for the suggestion) and part of my check is going directly into that. Now I would like to start a small investment account.

What companies does everyone use for this? What do you like, not like about their service? How easy is it to navigate their site, make trades, get money out?

I need a company that will let me start small. I've inspected several sites online ETrade, Ameritrade, etc. My problem is that I want to start with maybe $200 and work up, many want a minimum of $1000. Any ideas?

Thanks in advance.

[ctfudge&bankofC-ville]

Think about whether you would like to open something like a Roth IRA, or a regular taxable account. Then think about whether you would like to throw a chunk of money in (you mentioned a few hundred dollars or a thousand) or whether you'd like to just go on an automatic investing program, which will allow you to invest in many stocks or mutual funds for as low as $20 per month, with no initial investment amount other than the $20 or $50 per month you choose to invest on a certain day each month (drawn out of your bank account automatically, as you set it up). Then, next think about what sort of security you'd like to invest in (stock or mutual fund, etc.)

Maybe it would be more clear if I gave an example. I realize most people are not USAA members, and their terms are particularly easy, but I think you can find these terms with other investment houses. (Vanguard is one that comes to mind - they make things pretty easy.)

In USAA, I invested in USAGX (Precious Metals and Minerals fund) at a cost of $50 per month, drawn automatically out of my checking account (my account at a local bank - it could be any account.) Normally there is a $3000 minimum to invest in that an many of their funds (and that's pretty typical; minimum investments run around $2500 but sometimes more or less) but that minimum is waived if investing automatically and regularly with a minimum of $50 per month. They have a select few other funds that you can get into for only $20 per month. But those are not to my taste - low risk, low return (in my opinion - I don't know if they're really classified that way.)

On the IRA side, though, if you were investing in the same fund in a Roth account, you could get in for a minimum of only $250 or the same deal with automatic monthly investments. As you can see, either way you can get around the minimum if you pledge to invest monthly, and if you want to start with a lump of cash, requirements to get into IRAs are usually $500 or less.

Similar terms can be found elsewhere - you have to read around re: the exact terms offered, wherever you think you might want to invest.

I happen to use Firstrade for most of my investments and I have been very happy with them. Whenever I have needed to call them, they answer right away with a "Hello" - no endless phone trees. Just "press 1 to make a trade or press 2 for anything else" and I get a helpful, real live person right away. They've even hurried things up for me, I think, in getting transfers credited sooner rather than later, etc., so I really like them. I hope this has been a helpful starting point, even if not very specific, or too specific for your needs, but it gives you an idea of how to start reading around and comparing terms.

[DHK]

I'm taking a non-official poll.

My credit repair is going well and I'm really starting to get a handle on my finances. My next step is saving, investing, etc. I've opened an ING Orange account (thank you AK for the suggestion) and part of my check is going directly into that. Now I would like to start a small investment account.

What companies does everyone use for this? What do you like, not like about their service? How easy is it to navigate their site, make trades, get money out?

I need a company that will let me start small. I've inspected several sites online ETrade, Ameritrade, etc. My problem is that I want to start with maybe $200 and work up, many want a minimum of $1000. Any ideas?

Thanks in advance.

First, SAVE.

It is my opinion that there's only one kind of person who invests their money before they save their money --- a DUMB person.

Learn to SAVE your money and have it work for you in CD's, etc.

BTW, I'm a big fan of DCU's 3-12 month CDs because you can keep adding to them at anytime! ($100+ each additional contribution after opening balance of $500.)

As far as an investment account... you're noticing that it's difficult to start with small dollars.

I have a mutual fund company in mind that will let you start with $50 and $50 per month, but they require that you work with a broker to open the account (www.americanfunds.com). Most brokers will have their own minimums besides the mutual fund company's minimum requirements. They're a great mutual fund company with consistent results (check out CAIBX & CWGIX).

Are you contributing to your 401k?

[ctfudge&bankofC-ville]

Aren't American Funds load funds?

[debtmamma]

First, SAVE.

It is my opinion that there's only one kind of person who invests their money before they save their money --- a DUMB person.

Learn to SAVE your money and have it work for you in CD's, etc.

BTW, I'm a big fan of DCU's 3-12 month CDs because you can keep adding to them at anytime! ($100+ each additional contribution after opening balance of $500.)

As far as an investment account... you're noticing that it's difficult to start with small dollars.

I have a mutual fund company in mind that will let you start with $50 and $50 per month, but they require that you work with a broker to open the account (www.americanfunds.com). Most brokers will have their own minimums besides the mutual fund company's minimum requirements. They're a great mutual fund company with consistent results (check out CAIBX & CWGIX).

Are you contributing to your 401k?

OK LOL I skipped that part! Why save in a CD first?

[daveyzzz]

I've used most of the discount brokers and I have to say Firstrade has been the absolute best to work with. I am pretty sure you can start an account with no minimum. If you want to avoid paying taxes on your gains you should probably open a ROTH IRA with them. You can usually get into an IRA arrangement with as little as $50 a month on an auto investment plan.

If you are only investing amounts that small you do NOT need to use a broker, because they will just make you BROKE-R. I think the average fee for a broker assisted mutual fund trade is $49.95. (Let's do the math on that one - $50 a month less $49.95 fee. What's that work out to as a percentage return?) On Firstrade many funds have no commission at all ! You can do the research yourself using smartmoney.com, morningstar.com, finance.yahoo.com, money.cnn.com - with all the resources to research history you should be able to pick out some decent choices to place your investment. It's a buyers market right now.

If you have questions you can PM me or just call Firstrade. They are the only place I have ever dealed with where a human picks up the phone every time I call. (No voice mail tree of doom)

[ctfudge&bankofC-ville]

The return at one year for CAIBX and CWGIX are about 5% and 2%, and if you had invested six months ago, you'd be at about minus 6% and minus 8%. Not what I'd call a good option for the small investor. That's not even counting the 5.75% loads to get into those (further reducing returns.) I believe DHK said in another thread that he/she has experience with advising the high-net-worth investor, but not as much with the little guy.

Saving money in a CD will get you exactly that - a bunch of money that you set aside that has gained a little bit of chump change. Same with money markets, etc. Some people are more aggressive than others in their investing strategies, but make sure that at the very least you aren't fattening a fund company's or a broker's wallet at the expense of getting ahead, yourself.

401Ks are great if there is a match (most have them), since that's a guaranteed gain on your investment, but otherwise, they're just a tax-deferred way to pick from some choices that may be OK or may be mediocre and not worth your time. (Although the question of sheltering some of your income through a 401K with even bland investment options is another, more complex, issue altogether not within the scope of what I can get into on a message board, because there are so many individual factors.) Plenty of people don't have a 401K account because their employer does not offer one.

[DHK]

Aren't American Funds load funds?

EVERYTHING has a "load". Doesn't Starbucks have a "load"? Does your favorite theme-park have a "load"?

What we're really talking about are expenses.

Think of "loads" (to use that term) as a pre-payment of management expenses. Similarly, think of it like POINTS on a mortgage. You pay points to lower your ongoing interest cost of a mortgage. You pay a "load" to buy down your ongoing cost of holding the mutual fund investment. The longer you hold the investment, the cheaper it is.

Yes, for the LOWER dollars, that load will be as much as 5.75%. It gets lower the more money you have (over $25k).

What's important to realize are 3 factors with EVERY investment:

Risk

Return

Cost

You cannot look at each one in a vacuume to say that an investment is a good one or not.

I suggested that you look at CAIBX and CWGIX, and someone was looking at the 1-year return. If you are only investing for a 1-year period... DON'T. If you cannot commit to a minimum of 3 years (and preferably 5+), don't invest. Particularly in this market environment right now. Too volatile for short-term investors.

Take a look at the 5-year returns. Take a look at the VOLATILITY during the past 5 years. Compare that to the benchmark indexis and compare the costs of being in such an investment.

I've recommended these funds for quite some time, and my clients have been very happy. It's not a professional recommendation that I'm making to anyone here, as everyone should consult a licensed professional in their state for their own situation (disclosure), but I've really done well with these funds.

If you really want to have fun with comparing expenses, try this link:

http://apps.finra.org/investor_Information/ea/1/mfetf.aspx

This is the official FINRA (formerly NASD) link to compare mutual fund expenses.

Try comparing 2 similar funds - like American Funds Capital Income Builder - A (CAIBX) to Fidelity's Capital & Income fund (FAGIX).

Try putting in the following low amounts:

$10,000 investment

8% assumed rate of return

5-year holding period.

Which was cheaper for the TOTAL holding period? Fidelity. (Duh)

But, which would you have seen the greater return?

Here's morningstar's report on the American Fund (CAIBX):

http://quicktake.morningstar.com/fundnet/Snapshot.aspx?Country=USA&ss=gf&Symbol=CAIBX

Here's morningstar's report on the Fidelity fund (FAGIX):

http://quicktake.morningstar.com/fundnet/Snapshot.aspx?Country=USA&ss=gf&Symbol=FAGIX

Which fund would net you the most money at the end of 5 years, if you had invested 5 years ago?

I would contend that it would be the American Fund because of the more consistent performance.

Cost isn't everything.

Wow. I got long-winded on that one.

[DHK]

OK LOL I skipped that part! Why save in a CD first?

As far as my reasonings, here they are:

1) NO FEES for a bank cd. Investments have fees, whether they are "hard" fees that you see, or soft fees that you can't, there are fees.

2) Volatility. When people have little/modest means, and they see their account value drop 20% in investments, MOST people begin to panic. Why? It's the majority of their savings, and they don't want to feel pain. So they sell out their holdings because they're afraid of losing more than they already have.

I'm only concerned with investor behavior knowing that MOST people will be concerned about the above 2 points.

I don't want to see ANY investor short-change themselves, or think that they can handle volatility when they really can't.

So, imagine that you save up $10,000 and you invest $5,000. You still have $5k at the bank. The $5k you invested drops to $2,500. You're still okay because you have $5k in the bank and you can afford some volatility for long-term gains.

I hope this helps!

[brokeinok]

Perhaps I should have given you guys more info. I already have the 401K, a 457b, and two 401(a)'s through my employer. The 401K and one of the 401('s are matched with max contributions going in. So I already have the low risk, low return kind of thing going.

I'm looking for a little higher risk, aggressive/growth I believe they call them. I am in the middle of setting up a ROTH IRA and I also recently set up a 529 Plan through UPromise to help with saving for college expenses.

So with Firstrade, if I sign up for auto invest there is no minimum to get going? That's kinda what I'm looking for, just to get my feet wet and start learning about this stuff.

Load???? Being the costs associated with the funds? I have alot to learn. Need to go to the library and check out "Investing for Dummies"

[ctfudge&bankofC-ville]

She never said she had more than 25K to invest, to lower a load a percentage point, in one individual fund.

Come on, DHK, you are not speaking to the people on this board and I believe you know it.

"If you cannot commit to a minimum of 3 years (and preferably 5+), don't invest."

I am not going to argue with you. Your philosophy is very school-ish and by-the-book. I'm sure you do great at your job. Our minds will never meet.

What DHK has to say might not apply to your situation (with all due respect, DHK.) I reserve the right (as should everyone) to think for yourself, make your own decisions, and take on risk you feel is appropriate, based on, among other things, your willingness and ability to watch your investments and take action. I have made a return of about 30% in the last seven months, even in this volatile and difficult market, and I don't think I've taken on a terribly high amount of risk (but again, stomachs for risk vary and I won't debate that.) I don't think the average person who does not put in the time I put in, can make that type of return - I admit that I study a lot and watch like a hawk and move in and out of various investments as necessary (and yes, my return includes costs for doing so as well as losses for what I consider learning experiences.)

The investor without many thousands of dollars to invest isn't really going to get much out of what you have to say, DHK. That's just my opinion (and I've proven it through personal experience.) I suspect, after having spoken with people with viewpoints similar to yours, that I'll be challenged to come back with an update after some period of time - and that's fine. I've been updating for seven months now and have gone through some backslides and advances but generally, as you yourself have said, even on such a small "time scale," (I guess you'd consider it miniscule given your advice not to invest at all without at least a five-year starting horizon) the gains smooth out and become more consistent over time.

[DHK]

Here's the page for all the prospectuses for American Funds:

http://www.americanfunds.com/funds/prospectuses.htm?r=h_c

Scroll down to the Capital Income Builder and click on it (just to maintain consistency in this thread).

Go to page 7.

You will see "Shareholder fees" and "Annual Fund Operating Expenses".

Let's look at the A-type. The "A-type" has a 5.75% up front charge. Okay. Now let's look at the Annual Operating Expenses. The total is only .58.

That means that if your account does 10%, you'll only see 9.42% (basically).

If your account goes DOWN 4%, you'll see a loss of 4.58%.

The other types of expenses that don't charge up front (like B & C-tyes) have HIGHER ongoing costs. (BTW, on page 25, there's the breakpoint schedule for larger purchases.)

Well, what about Fidelity's costs?

They help to promote the idea of "no-load", but what they're really trying to say is that they won't charge you UP FRONT.

Okay, so where do they make their money? This is capitalism, and Fidelity is a business, not a charity.

They have their "mark-up" as well.

Here's Fidelity's page on their prospectuses:

http://personal.fidelity.com/research/funds/?bar=c

Scroll down to view the Capital & Income prospectus dated 10/16/2007.

Click for the Fee table and you'll see that they have a total expense charge of .76%.

Now, I already admitted that the American Funds was MORE expensive, but there's fees in either case.

So, if you're going to pay fees (whether seen or not), doesn't it make sense to get the most out of them?

Sometimes if you pay MORE out of pocket, you might get back that much more IN your pocket.

Okay... time to get off my soap box now.

[ctfudge&bankofC-ville]

DHK is going off on a real tangent about whether similar funds with or without a load (that's a sales charge you pay to begin investing the money you had to invest, which is now minus the load you just paid) perform better or worse than one another over time.

This is a really close zoom-in to a fine detail.

Zoom out and look at the big picture. There are mutual funds (if that's what you choose to invest in), many of which happen not to have loads, and can also have low-ish management expenses - you'll have to research those individually) that can do much better than the ones he/she (sorry, not sure which) has named. DHK is really pushing funds from one fund house, by the way - that's obvious - and there are scores of fund houses out there. So I would never start by picking a particular fund house, (a salesman would, though.)

Good luck!

[DHK]

She never said she had more than 25K to invest, to lower a load a percentage point, in one individual fund.

Come on, DHK, you are not speaking to the people on this board and I believe you know it.

"If you cannot commit to a minimum of 3 years (and preferably 5+), don't invest."

I am not going to argue with you. Your philosophy is very school-ish and by-the-book. I'm sure you do great at your job. Our minds will never meet.

What DHK has to say might not apply to your situation (with all due respect, DHK.) I reserve the right (as should everyone) to think for yourself, make your own decisions, and take on risk you feel is appropriate, based on, among other things, your willingness and ability to watch your investments and take action. I have made a return of about 30% in the last seven months, even in this volatile and difficult market, and I don't think I've taken on a terribly high amount of risk (but again, stomachs for risk vary and I won't debate that.) I don't think the average person who does not put in the time I put in, can make that type of return - I admit that I study a lot and watch like a hawk and move in and out of various investments as necessary (and yes, my return includes costs for doing so as well as losses for what I consider learning experiences.)

The investor without many thousands of dollars to invest isn't really going to get much out of what you have to say, DHK. That's just my opinion (and I've proven it through personal experience.) I suspect, after having spoken with people with viewpoints similar to yours, that I'll be challenged to come back with an update after some period of time - and that's fine. I've been updating for seven months now and have gone through some backslides and advances but generally, as you yourself have said, even on such a small "time scale," (I guess you'd consider it miniscule given your advice not to invest at all without at least a five-year starting horizon) the gains smooth out and become more consistent over time.

First, I agree with your right to disagree with me in a very agreeable way!

There are MANY schools of thought on how to invest. To each, their own.

I hope I don't come across as "argumentative", but passionate about what I speak of.

You're right, that I know that we're not talking about more than $25k. It's a much smaller amount.

If the person choosing to invest is willing to "risk it" and will ride through the difficult times, and even put MORE money in while things are down, then they'll do alright.

I come from the advisor viewpoint that not everyone can tolerate what they SAY they can tolerate.

I don't know what specifically you are doing to earn a 30% return on your money over the past 7 months... but I do say GOOD JOB!

But, for most people, we need to keep proper expectations in place.

- Your money WILL fluctuate in value.

- If you don't have adequate back-up funds, or the attitude to watch and expect this money to fluctuate --- you WILL feel uneasy about volatility.

- If you watch your account DAILY --- you WILL feel uneasy about your account balance (unless it's consistently going UP).

That's MY viewpoint. We may never agree, and that's okay. Let each reader come to their own conclusions.

[daveyzzz]

Sounds like Firstrade would be perfect for you, especially since you are already covered with your 401k,475b,401a's and a 529! I just verified there is no minimum initial investment, which is perfect for a small investor such as you or I.

If you have the stomach for a little risk and you believe like I do that foreign investments might do better than domestic equities in the coming months - you might want to look into ETFs. They trade like stocks with a $6.95 commission and if you stay in them for the year they pay dividends at year end. The bonus is you can get out when they turn sour without any penalties.

There are also a great number of oversold undervalued stocks out there. I bought 120 shares of eTrade (ETFC) last week which has been beaten down like a 20 year old plow horse and I'm already in the green. If it goes under I will be out a couple of hundred bucks. If it goes up even a few dollars I'll have a free month's rent sitting there to pluck whenever I want it. That's just fine by me.

As for load - you want to stay away from any fund that charges a load unless you are investing in the thousands. Even then - they would need to have damn good returns and manager tenure before I would even think about lining someone else's pockets with an extra fee. If the fund is really good and the manager is experienced then a load is acceptable. You are paying extra for their experience.

I think several of us here are on the same page - small time investors with a little bit of cash. Why not have it work for you? With great risk there can be great rewards.

Now with all that said I agree with most of what the other poster here has said about using a professional if you are a novice investor with a lot to invest. You can lose it all in a hurry if you do not know what you are doing. If you are only talking about $50 at a time or $1000 , it is a great way to learn about how investing works. Start small and work your way up. Do your research first and you will be fine. Good luck and let us know how you do.

[ctfudge&bankofC-ville]

Thanks, DHK - I can see that you're a very nice person who means well (so do I!) and I think you know just about everything there is to know in your field, and I respect that very much! I'm sure you help a lot of people more than I'd ever be able to. But I thought I might be able to help one person, just maybe.

What you said about uneasiness - yep, we have jumbo bottles of Tums around. (OK, I don't need them, that's just figurative - the hub takes them but he always has). I have the mental power to not the the fluctuations bother me, but I know many people are not the same (to which I would say - why bother investing, then? But again, that's just a fundamental difference in philosophy, and there's no right or wrong.) And, yes, I've plowed more money in, during the worst of times, confident it will pay off in a big way.

I'm sure you're right about what most people can live with and what they expect. I know I'm not "most" people (me and the hub - we work as a team).

I have not meant (primarily) to be argumentative, either - I just wanted to help what I see as a "little guy" get started in something where she might get the satisfaction of seeing some return quickly, rather than seeing fees and whatnot bring a tiny or negative return.

As for what I've been doing for the 30%, it's mainly a lot of emerging foreign markets. I enjoy managing this myself but I know that plenty of people don't.

It seems more cost-effective, though, for the just-getting-started investor, who has even a little interest in these matters, to manage it for her/himself.

[DHK]

DHK is really pushing funds from one fund house, by the way - that's obvious - and there are scores of fund houses out there. So I would never start by picking a particular fund house, (a salesman would, though.)

Good luck!

I've worked with other fund companies before.

I haven't been happy with them.

Franklin Templeton, for example, has higher expenses compared to American (sometimes MUCH higher). Their overall performance hasn't been as consistent.

The absolute CHEAPEST funds out there are Vanguard funds. I don't like the way they manage their portfolios, but they are the absolute cheapest.

Oppenheimer, again, not as consistent.

Putnam? Has never recovered from their "insider trading" scandal from Elliot Spitzer a few years ago.

MFS? Same deal.

There are many others, but I have a bias towards American Funds.

As things have gone south in the markets recently, I got more calls from people holding other funds with other companies, than I did with people holding American Funds.

Am I a salesperson with only 1 agenda in mind? No - because I can't sell to anybody here.

Again, to recap:

- expenses aren't the only factor, but a major factor in considering an investment.

- have a proper time horizon

- have reserves set aside to give you the reassurance that "not all your money is at risk"

- read the prospectus and know your expenses

- read, learn and absorb to make up your own mind in how to invest YOUR money.

[daveyzzz]

If you watch your account DAILY --- you WILL feel uneasy about your account balance (unless it's consistently going UP).

AMEN !

[rmuse00]

This was a good read! I don't know what y'all said but it was sure intesting.

I have a 401K I have been contributing to for 12 years at my employment. They use Merrill Lynch. I have never, and I mean never, really understood any of this but this thread has really helped me understand a little.

Thanks for having that dialog!

[ctfudge&bankofC-ville]

The funny thing is, the guy who just said "Amen," watches his securities BY THE SECOND and reports to me on instant messenger, "Just made $5.26 in the last five minutes. Oops, there it goes, I'm almost $2.00 in the hole. Oh wait, it's back up to... look! I made my commission back now and I'm in the green!"

[daveyzzz]

It's true - I watch it by the second every second the market is open. I even get up at 3am and check the futures and the foreign markets every weekday and again at 6am before work. I have a watch that gets live feeds of the market in case I have to step away from my computer. That is one way to make 30% returns - but you will spend a "load" on Rolaids and Advil also.

[DHK]

As for load - you want to stay away from any fund that charges a load unless you are investing in the thousands. Even then - they would need to have damn good returns and manager tenure before I would even think about lining someone else's pockets with an extra fee. If the fund is really good and the manager is experienced then a load is acceptable. You are paying extra for their experience.

You bring up an excellent point.

Mutual funds automatically diversify your investment among many different assets - stocks and bonds. There are many different types of stocks and many types of bonds.

However, another important factor worthy of considering is MANAGEMENT diversification. Just because you have multiple assets in your mutual fund doesn't mean that you're very well diversified in each way that your money is managed.

Having multiple MINDS manage your money is a whole lot better than just ONE.

Peter Lynch used to be the manager for the Fidelity Magellan fund - a wonder fund - until he left.

http://www.investopedia.com/university/greatest/peterlynch.asp

(BTW, investopedia.com is a great website to delve into the technical details of investing.)

One reason that I like American Funds is they use a multiple-manager approach. The Investment Company of America (AIVSX) fund has 9 portfolio managers and a few analysts that also manage a portion of the portfolio. CAIBX has 6 managers (I think) and CWGIX has 7 managers.

Multiple minds + multiple asset classes in a proper portfolio may help with the confidence and performance of an investor's account.

[DHK]

It's true - I watch it by the second every second the market is open. I even get up at 3am and check the futures and the foreign markets every weekday and again at 6am before work. I have a watch that gets live feeds of the market in case I have to step away from my computer. That is one way to make 30% returns - but you will spend a "load" on Rolaids and Advil also.

[ctfudge&bankofC-ville]

I think DHK is very glad we are not clients, right about now. (I don't think I could do your job, DHK - I do not have the patience or diplomacy and would tell people off for complaining to me when market conditions are to blame.)

I even thought of saying to Firstrade, when I called them about something else recently, after the "Is there anything else we can help you with today?"

"Yes, can you make the market do better today? It's really bad." (This was on one of the many -275 point Dow days).

I didn't think they'd appreciate the joke. Probably a tired, old, not-funny one there.

[DHK]

I usually ask for "free samples" of money that they might be giving away.

They also usually respond by saying that it happens on the second Tuesday of next week, and to call back then.