My stock investments

[pyesetz]

A few months ago, I started getting mailings from Putnam Investments, with whom I had never done business.  The mailings purported to tell me how they were going to invest the 401(k) deductions from my future Company ℱ paychecks.  But I haven't worked for Company ℱ since 2006 and am not expecting any future paychecks from them, so I ignored the mailings.

Then I got a statement from The Vanguard Group, saying that all the money had been withdrawn from my 401(k) account but not saying where it went.  Well, *that* got my attention!  So I dug the Putnam stuff out of the wastebasket and logged onto their website.  Yep, that's where the money went.  Apparently Company ℱ decided to change their retirement service provider and my account got dragged along.  They sold my Euro index fund holdings and put me in “Retirement Ready 2025”.  Yuck!  Too conservative!  So I told them to transfer the money to my existing IRA account at Charles Schwab & Co.

Now what?  I’ve got this pile of money I need to invest.  I have never enjoyed investing.  I did a little of it years ago, before having kids.  Anything other than an index fund was just too nerve-wracking.  It was an “up” market back then, so you could buy almost anything and make money.  Things are different today.  Still, I have to try *something*.  So here's what I've bought so far:

RYOCX (Rydex NASDAQ 100 Index).  This is what I had in the IRA before the 401(k) money came in.  It came from pre-tax contributions before Company ℱ started their 401(k) plan.  I bought this in 2001, after its price had fallen for awhile.  It immediately fell some more.  Recently it's been up because it owns a lot of Apple Computer, which has done well with their iPod, iPhone, iPad, iCarly, etc.  I wouldn't buy AAPL stock directly because that company is too litigious for my taste.  But, as Scott Adams says, "Invest in the companies that you hate the most".

TNA (Direxion Small Cap Bull 3×).  This is a triple-leveraged investment in the Russell 2000 index.  If the index drops 30%, then this fund will drop 90%!  I wouldn't normally buy such a thing, but recently I got an email from HTMail offering me a free membership in SmallCapTimer, a service that calculates whether one should be owning TNA (the bull) or TZA (the bear; if the Russell 2000 goes up by 30% then this fund *loses* 90%).  It's been saying "Bull" since August and it usually switches at least every three months.  I'll keep it for awhile and see if I like it.

TD (Toronto-Dominion Bank).  Canadian banks made out like bandits at the Basel 2010 conference, which reduced their capital-reserve requirements while raising American ones.  This stock generates lots of dividends and will probably be doing even better over the next year or two.  I once heard that one should not buy dividend-producing stocks for a retirement account, but otherwise where will the money come from to buy more stocks?  I use TD for my personal banking.

RYN (Rayonier, Inc.).  I used a Schwab stock-screen to find a REIT that yields very high dividends while maintaining a high legitimacy score in Schwab's opinion.  RYN owns forests and has many enemies among environmentalists, so hopefully it will be profitable.  Maybe I'll sell it when I get sick of holding such a slimy stock.  Anyway, only 5% of the money is in RYN, vs. 10% in the other investments.

Cash (USD).  50% of the money is still in cash because I haven't thought of anything to buy with it yet.  I'm thinking of withdrawing 10% of it because of my low tax rate right now.  Why borrow mortgage money at 4% so I can keep a wad of cash earning 0%?

Questions for the audience:

1. Why should stuff like this be kept secret?  If everyone copies me, my investments will go up, right?
2. What stock screens should I use next?
3. The only investment I have faith in right now is Waterloo Region real estate, but there is no REIT for that.  How can I find things to invest in that won't worry me too much?  I'm probably stuck buying only things available from Schwab, so “Ma & Pa’s Waterloo Office Rentals, Inc.” is not a company I can buy.

Comments

[shadowcub67.livejournal.com]

Do NOT pull money out of an IRA/401(k) to replace/buy down a mortgage!

Doing so would cause you to pay taxes AND penalties (10% I believe, in addition to your marginal tax rate) to ELIMINATE the mortgage interest tax deduction. In other words, paying more in taxes for the opportunity to pay MORE in taxes! An exemption from the penalty exists for up to $10k used to purchase a first home, but considering the loss of decades of tax deferred compounding in the IRA, it's really NOT a good idea, in my opinion.

Take your time and find the opportunities you'd like to invest your money in. Personally I like 2 particular "exchange traded funds" that you should be able to access through any broker. "DIAmonds" and QQQ. The former invests to duplicate the Dow Jones Industrial Average, which gives you big stock coverage in your portfolio, and the later to duplicate the Nasdaq 100, which gives you small stock coverage. Typically good returns (~10% like the overall stock market) with minimal to no expenses.

The above is all just the experience/advice of one lay individual. Consult your broker for prospectuses, your tax adviser for specific advice, etc.

[pyesetz]

Howdy, Mr. Bear!

Do NOT pull money out of an IRA/401(k) to replace/buy down a mortgage  Doing so would cause you to pay taxes AND penalties (10% I believe, in addition to your marginal tax rate) to ELIMINATE the mortgage interest tax deduction.

This is usually good advice, but my situation is unusual:

• My income from Company 𝔾 is not taxable in the USA, and I have three dependents, so I can withdraw up to $25,000 with just the 10% penalty and no marginal tax.  My Canadian mortgage is not deductible except for the part that I use for my home office.
• I am expecting to run a deficit for each of the next six years.  I recently refinanced my house, but that might still not be enough money to finish rearing my children.  "Foreclosure" is much worse than "missed opportunity for investment"!
• Over the last ten years, the US dollar has lost 30% of its value relative to the Canadian dollar.  This means that US investments must earn 2.6% per year just to keep pace with Canadian cash stuffed into a mattress, or 6.6% per year to be a better value than paying down the mortgage.

decades of tax deferred compounding

You have a wealth tax ("quantitative easing") going on in the USA.  This is a tax on the currency that stocks are denominated in, so retirement accounts are not exempt and the tax is not deferred.  Only income tax is deferred.


"DIAmonds" and QQQ... Typically good returns (~10% like the overall stock market)

Those are good, but I need higher returns because I can't afford to retire right now and I don't know how many more years I'll be able to work.  Problem: most people cannot beat the market and there is no evidence that I am unusual in this way.

[shadowcub67.livejournal.com]

Those are good, but I need higher returns because I can't afford to retire right now and I don't know how many more years I'll be able to work. Problem: most people cannot beat the market and there is no evidence that I am unusual in this way.

Exactly why I like the exchange traded versions of index funds. I don't expect to be exceptional either. And long term, the stock market indexes have done better than anything else.

[dakhun.livejournal.com]

http://etf.stock-encyclopedia.com/category/

[cassander42.livejournal.com]

Do you ever worry that by investing in corporations, you are supporting the capitalist system of corporations being treated as people and existing only to maximize profit?

Not trying to be silly or rude... I'm kinda curious.

[pyesetz]

Nice!  I just bought some VWO.  Its best quarter was +30% and its worst quarter was -30%.  Hopefully I can stomach that!

[pyesetz]

I like Scott Adams' approach: these companies are screwing you over anyway—why not get some dividends from the evil?

I do not believe that stuffing my savings under the mattress will convince even one robber baron to mend his ways.  Nor do I believe that my choice of investments will have any effect on the extent to which corporations are treated as either people or things, whichever happens to be more advantageous to the robber barons at that moment.