My income has been steady over the past few months, so I have concentrated my efforts on funding my Roth IRA account. My goal is to fully fund the account for the 2013 tax year. I've been working toward that goal to the detriment of paying off my credit cards and building an emergency fund. I have no emergency fund. I feel that I will never get this year back to build up a Roth IRA, so I have to start using my retirement building years productively. In this case, I have to start using them because I have neglected to do so for so long.
So far, I have contributed $1170 in my Roth. I calculated that I can contribute $170 a week minimum to make it to April 15, 2014 for the 2013 tax year. I've actually been contributing more than that $170 threshold in the event that I have a period of unemployment.
I really don't have specific plans for investing. At first, I started putting my money in a S&P 500 Index fund with low fees. In addition to this IRA, I have $8,000 from an old pension and 401K in a rollover account. These investments are in mutual funds. Since the bulk of my small estate is in mutual funds, I decided to dabble in stocks.
I feel that I have a good grasp of financial analysis. I did a lot of work in securities litigation so I'm familiar with the concept of securitization. However buying stock as a small potato investor is difficult. For one thing, I don't really have a lot of money to invest up front, so I buy a few stocks at a time. Plus I am with E-Trade and the commission is $9.99 a transaction for stocks. At the time I created my Roth IRA, I did not think that I would want to buy and sell stocks. At this point, I really don't want to change accounts because I already have my money with them and it's easier to keep track of contributions if you have one account.
I'm not even sure if I should buy stock since I buy stock a little at a time and right now, with the commission costs and market "losses", my stocks are worth "less" than my contribution. My thought is that perhaps mutual funds and stocks are really not great investments for retirement. They can gain a lot of traction, but they also can "lose" as well. I even wonder if my "losses" are really losses. The stock market is so speculative and stock prices increase/decrease on the whims of the buyers and sellers. I guess if a lot of people want to buy a stock, it may say something about a company's value. But is that really the case?
I purchased shared in three companies: Nokia, Ford and Coty. I needed a new cell phone and got so excited when I saw the Lumia at Verizon. I did not buy the Lumia because Verizon wants to phase out the unlimited data plans so I had to buy a phone full price on the market and have them hook it up. I went with an LG Intuition that cost significantly less from an Ebay seller (plus I got it brand new) than the Lumia would have cost from Verizon. However I was sufficiently impressed that I thought that maybe I should get stock in that company because the phone was so sharp. The price was affordable and I bought a few shares. With my next contribution, I wanted to buy more shares of Nokia. I really like the phone that much. It seemed that either a lot of investors really liked the Nokia phones or were just gambling with the stock because the price increased very quickly. I got scared and decided not to acquire more shares.
My next purchase was Coty stock. I was shopping at TJ Maxx and picked up Meow from Katy Perry and JLo's Glo. I knew that Coty made those perfumes and then I decided to see if they had stock. Amazingly enough, Coty was listed and had just had an IPO. Furthermore, the stock was priced a little more than $16 a share. That's less than a bottle of those perfumes I had picked up and only a fifth of what I spent for JLo's Glo back when it came out on the market. Then I looked at Coty's 10K filing and got even more excited. They own Sally Hanson as well! My thought was that I probably had spent at least a few thousand dollars on Coty products in my lifetime and that investing $200 would not be the worse decision in the world. It was confusing, because analyst reports said that Coty’s IPO was "not beautiful" and that it was not for the stockholders but for the current shareholders. They also said that Coty wanted to issue stock so it can make more acquisitions. Now how do I interpret this analyst report? I know what I spend on Coty. The analysts are saying that the shares are not that great and the price is only $16 a share, yet I have a few hundred dollars of its products sitting on my shelf. I went with my gut and bought the stock because my rationale was that the money I spent on Coty products is dead, however at least there was a chance that the stock may pay a dividend or increase a value. It certainly is doing more than just sitting on my shelf.
My most recent purchase is Ford. My family has a lot of experience with Ford cars. I have owned two Ford Tauruses that were acquired used and two Lincolns that were passed down from my father. I gave the Taurus cars away when I got my Lincoln and one Lincoln went to 350,000 miles and the other was over 400,000 miles before Sandy destroyed it. My father routinely gets 300K+ on his Lincolns and he takes very good care of the cars. So Ford is priced well now and I guess everyone is buying it because it posted good earnings. With the government bailout of GM, Ford’s stock took a beating. This is the issue I have with stocks and stock prices because they fluctuate so much even if the company is good and makes a great product. So is Ford intrinsically better now than it was 4 years ago? Or does opinion play too much of a factor in stock pricing?
The hardest part about a Roth IRA is that unless the contributions are in a bond or CD, or just sit in the account, the money fluctuates. A $5,500 contribution may be worth more, or it could be worth much less depending on the market. Even mutual funds are not immune from these fluctuations. They always recommend that people have to take risk and buy stocks or stock based investments however there are no real guarantees that the stocks will be valued at what you paid for them. It just seems that timing plays so much of a role in whether your investment will make money or not.
I'm not really sure what is really the best investment strategy is. I guess all I can do is take a chance and hope it all works out.
Directionless Investing
October 29th, 2013 at 12:47 am
October 29th, 2013 at 01:32 am 1383010363
And why are you so stuck with Etrade? It's your future. Keep that account if you wish but open an IRA with less fees and more options. It's your future!!
October 29th, 2013 at 03:29 am 1383017376
I think $9.99 per trade is very steep and is going to significantly eat into your returns. (Remember, you will pay again when you sell). There are several places where you can trade ETFs for free. Vanguard is one, Schwab is another. Perhaps E*Trade has some as well?
If you want to stick with individual stocks, I suggest you save up money (in the cash account inside your IRA), and make fewer purchases with larger amounts.
October 29th, 2013 at 02:42 pm 1383057726
As for ETFs, to me they are very similar to CDOs and CDO squared. At least that's what I get when I read about them because they are based on underlying stocks/commodities/whatever that comprise some sort of index. We all know what happened with CDOs when they became very popular. A CDO and a CDO square in itself is not a bad investment vehicle, and ETFs are probably okay as well. However I feel that they are being oversold as this easy low fee investment and a lot of little people are buying them and bigger institutions that know what they are doing are shorting them.
It seems to me that the liquidity of an ETF makes it as volatile as a stock. Etrade has no fee ETFs and I think they waive their commissions for ETFs. I might try an ETF but I think that it is odd how it is being pushed ahead of a mutual fund. The concept of a mutual fund is a lot easier to understand and is less attenuated than an ETF.
I would be happy to hear from someone who has a different take on ETFs.
October 29th, 2013 at 05:32 pm 1383067963
I believe that Charles Schwab has a $100 minimum to open an IRA and charges no fees. Additionally, they offer a dozen or so ETFs which may be traded with no commission. A complete portfolio can be made using only the no fee ETFs.
If you prefer to stay away from ETFs, you can open an IRA at Vanguard with $1,000 if you choose either the STAR fund or a Target Retirement fund. There is no annual fee if you elect to have all correspondence delivered electronically. The expense ratios of both funds are quite low. STAR invests in actively managed VG funds, the TR funds invest in VG index funds.
October 29th, 2013 at 05:55 pm 1383069329
Personally, since dividend stocks treat me right, I've put some of my Vanguard money into their high Dividend mutual fund.
October 29th, 2013 at 08:53 pm 1383080034
The fees are a few more dollars per trade at Etrade but I like the interface and and my goal is somewhat similar to baselle's strategy- buy stocks that produce dividends that I can hold. I'm trying to pick stocks that are undervalued. It's really difficult because sentiment drives up the value. I don't know why Coty's IPO did not take off yet everyone is excited about Twitter and Facebook. All those ads have to have something behind them to sell. Who's going to make the stuff that is advertised on these virtual mediums.
I've been researching those ETFs some more. One thing that seems odd is that in comparison to S&P 500 Index funds, they don't produce as much dividend income. Why is that if the ETF is following the same index? Is it because there aren't nearly as many underlying stocks in an ETF as there is in a huge mutual fund?
October 29th, 2013 at 09:46 pm 1383083162
Check out Seeking Alpha for stock gossip ... I like them much better than the Motley Fool.
I've heard that ETFs still have administrative fees compared to completely passive trading, plus I think each shop has their own proprietary recipe so none perfectly match the S&P. Check and see if Vanguard's EFT compares with Fidelity's or T Rowe Price's and see.
October 29th, 2013 at 10:07 pm 1383084454
Vanguard's S&P 500 Index mutual fund, investor shares, has a yield of 1.98%.
https://personal.vanguard.com/us/funds/snapshot?FundId=0040&...
Vanguard's S&P 500 Index mutual fund, admiral shares, has a yield of 2.10%.
https://personal.vanguard.com/us/funds/snapshot?FundId=0540&...
Vanguard's S&P 500 Index ETF has a yield of 2.10%.
https://personal.vanguard.com/us/funds/snapshot?FundId=0968&...
The yield is lowest on the investor shares because it has the highest expense ratio. Admiral shares, available with 10k or more, have the same expense ratio and yield as the ETF version.
October 29th, 2013 at 10:29 pm 1383085771
October 29th, 2013 at 10:37 pm 1383086233
October 30th, 2013 at 05:48 am 1383112124
"How do I achieve this?" Well if anyone really knows, they are extremely good at keeping a secret.
Take a look at the dividend yield of your stocks. For example, Coca Cola (KO). It pays a dividend of $1.12/yr/share. You would need about 22,321 shares of KO to generate $25K; at $40/share means you need to put in about $892K in KO. Now all is not totally lost; the power of reinvesting dividends means that with time you buy a good chunk of those shares with the dividend the company is paying you. It will take many, many years to do this, and you need to invest in companies that will last for many many years.
October 30th, 2013 at 06:22 pm 1383157339
Health permitting, I have a 30 year plan for accomplishing this and I hope that I have 30 years of earning years ahead of me.
October 30th, 2013 at 08:00 pm 1383163232
If you visit his site, look at his blogroll. There are quite a few which will likely interest you.
I think if you want to go this route, you should start reading and learning as much as possible. Good luck!
October 30th, 2013 at 09:51 pm 1383169882
October 31st, 2013 at 09:21 pm 1383254478
Baselle- Thanks for all of your advice-
One question- do you have to pay taxes on the dividends that go into purchasing new shares or is this all in a roth account. Because I was thinking that I may want to invest in a personal brokerage account but am not sure about the tax implications of that - especially on gains on stock that I choose to hold and not sell.
November 1st, 2013 at 11:29 pm 1383348584
Inside a Roth, I would consult a CPA.
Taxes on stock gains only are realized when you sell. If you hold the stock for at least a year before selling, you incur long term capital gains tax which is less than short-term (shorter than a year).
November 3rd, 2013 at 07:36 pm 1383507418
November 9th, 2013 at 09:20 pm 1384032036
April 29th, 2020 at 07:03 pm 1588187036