Investing and Stocks

stlsmoore

I was wondering how many IT folks here have stocks and how successfully you guys have been? I plan on investing in some a few years down the road once my debt is paid off. Do you guys typically invest in high-risk, low risk, bonds, etc? I'm pretty young so I really want to invest a part of my funds into high-risk options and the other into fairly safe stocks and/or bonds. If I loose all my money so be it for now I won't start off investing a lot of money anyways I bet.

Really I would love to be a angel investor but it seems like you have to be loaded in order to do so. Is there any websites or places you guys know of where you can participate in angel investing with substantially lower capital $1000-$10,000? I know people post all the time on youngentrepreneur.com asking for these type of funds but I'm a little wary of doing that with no middle-man company there to make sure the investor gets their cut. I'm interested to here what you guys have to say!

EdTheLad

If you want high risk high returns trade currencies.Stocks can be manipulated to easily, in the current market, currency is fluctuating up and down alot so there is money to be made.

Vogon Poet

1. Pay off debt
-you mentioned this, good thinking to do this first

2. Buy, don't rent
-number one way to increase wealth is through home ownership

3. Max out contributions to anything your company matches (thrift savings plan, 401-k)
-it's free money and it kills me when people don't do this

4. Max out Roth IRA contributions
-don't get fancy, pick a mutual fund from a well respected company

5. Now try some fun investing (yea!). I would suggest putting together a make-believe investment portfolio of $10,000. Pretend to buy stocks, track them, and learn about the market. Angel investing may sound great, but I wouldn't touch it unless I had a lot of money that I wouldn't mind losing.

6. Oh yeh, almost forgot, keep getting certs and skills so you can land better paying jobs.

gojericho0

For simplicity I usually just do a mixture of unmanaged stock mutual funds and bonds. Good investment websites like morningstar and yahoo finance will help you do research and learn the basics.

My best advice for you and it has worked so far with me is buy your mutual funds when everyone else is selling and the economy is bad. Your funds will most certainly still go down, but they eventually will go back up and earn you profit. When the economy is doing great and everyone is buying, purchase your bonds. They will not gain near the return as your stocks/mutual funds, but once the economy goes back down you will be good to go and not take a huge loss. Keep doing this with each cycle of the economy

hetty

I would agree with point #5 by Vogon Poet. Play it safe for the time being, learn what to do, learn from your mistakes. If you are good at it, use real money.

Warren Buffett: Prioritize Career Building Over Market Studying

royal

I'm 27 and this is what I have been doing after a lot of research:
1. I match my 401K. Always will due to free money.
2. I invest in a Roth IRA.
3. Purchasing a home
4. Paying off debt (trying to)

Now that I am becoming a home owner, my monthly net income that I can save is quite a bit less. Granted that most of the payments the first several years go to interest/taxes, a lot of it becomes tax deductible which means quite a bit of the money comes back at the end of the year.

My school loans are very low interest so I am in no rush to pay those off. I have no credit card debt. I also currently have 4 months of living saved up in a liquid emergency savings account should I lose my job, begin to have health issues, or I need maintenance on the house/car. I plan on eventually increasing this to 6 months of living.

As for now, there's a few things I need in my house. This is furniture, a 2nd bed for the guest bedroom, and new home office equipment. I have to balance this with paying off my car debt as well as investing in my IRA. I think having a 401K, a house, a Roth IRA, as well as an emergency fund are really good goals to go for. Since I have not purchased my house yet, my closing is set for late June, I still have to wait a couple months after moving in to see how my money flows and the expenses associated with it before I can revise where my monthly income goes and how much money I really have to work with.

All this has to be done in baby steps though. When I was younger, I really wanted a job where I can afford putting into a 401k. I finally got a job where I could do this. I always wanted to move out of my parents and get an apartment. That finally came and now I'm getting a house, something I never dreamed about! And heck, putting into a Roth IRA?!?!?! I couldn't even do a 401K before. And I couldn't afford either of those before and how would I have an emergency fund.

So as I said, set some goals, strive to achieve them, and they will all happen eventually.

Good luck!

stlsmoore

Thanks for the replies, yea I actually started practicing with a $10,000 play money account on investopida.com I think they have really good information also.

hypnotoad

What do you guys think of stocks like Cisco, Juniper, Microsoft or even small-cap tech stocks like Extreme Networks, Entrust, or Seagate?

All my friends are buying oil stocks and telling me tech stocks are dead. People tell me that these stocks are going to be hurting in a recession.

I can't help seeing the great products some of these companies make and that we still have a huge increase in demand for infrastructure in the next few years. Aren't you supposed to invest in what you know?

What do you guys thinK?

HeroPsycho

Lot of good advice in this thread.

Few comments I'd like to make here, as I'm trying to get my financial life in order.

First off, I wholeheartedly agree that spending gobs of time playing the stock market is usually not going to be nearly as much of a return in most cases as investing your time in yourself. Focus on your career!

Secondly, don't be afraid to invest money in yourself. If your job won't send you to that CISSP training you need to get the cert, invest your own money into yourself.

Thirdly, and this blows my mind because of how many people don't understand this, have a sound deliberate plan for your debt reduction/money saving. This isn't very difficult, and it surprises me how many people (including my wife) don't understand this. Approach all debt and savings from an interest rate perspective.

Let's take a hypothetical scenario of someone who has the following debt and opportunity for savings.

Debt:

Credit card with $5000 debt @ 10% interest (minimum payment = $100)
Student loan of $1000 with 8% interest (minimum payment = $50)
Employer matches 100% for 401K up to $200 per paycheck

Here's how to approach this. First, determine how much money you can afford to allocate to all three total. Also, determine the minimum payments of each credit card. Then you allocate. You want to put as much money as possible on the best "investment" you have. Think of your debts as investments with the return rates of their interest rates.

In this case, the best investment is the Employer matched 401K up to $200 per paycheck. Why? it's a +100% interest investment for you. So you definitely want to put in the full $200 a paycheck if possible.

The next best investment is paying off the credit card because it's 10% interest, where as the student loan is 8%, not to mention interest on student loans is a tax deduction.

So, let's say you have $400 you can throw at these a month. You would pay the min for each the student loan and the credit card and contribute $200 to 401K. I know a lot of people who try to disagree with that, but the bottom line is you're losing 10% or 8% annually on those debts, but you gain 100% of your money by putting it in 401K, plus potential returns on the funds you choose. No brainer there. I see a lot of people say, "pay debts off first, THEN invest in 401K, etc." Absolutely not true. If your employer even matches only 20%, that's still better than virtually every credit card interest rate out there. Put the money in 401K, you're still better off.

But let's say you have $500 a month to throw at these. Here's where I see people make a mistake. They see the student loan as a smaller debt you can pay off faster, so they'll put $200 in 401K, pay the minimum of $100 on the $5000 loan, and then throw the rest at the student loan. Absolutely not the right way to go. Paying the student loan off first in that scenario quicker only stops you from writing two checks longer, that's it. You have to look at this from the perspective of debt is debt, no matter how many people you owe money to. The penalty for debt is interest. Pay the highest interest debt off first. In this case, you should contribute $200 into the 401K to get your match, a minimum payment on the student loan, and the rest on the credit card. That reduces your highest interest debt at the "expense" of not reducing a lower interest debt, so you have a lower debt at 10% interest with a slightly higher debt at 8% interest. You're better off!

Finally, aside from investments higher than your debt interest rates, you absolutely should save up a rainy day fund before heavily investing. Generally speaking, short term debt interest rates are higher than most investment return rates, not to mention that debt interest rates are guaranteed debt, where as investment returns are anything but, so you're better to save the money in some type of higher interest savings account or money market fund to cover emergencies than immediately investing in things like stock. Save enough to cover six months of living expenses to cover yourself from unexpected job loss or other unforeseen circumstances. That way, you won't need to whip out the credit card in an emergency anymore, which would probably wipe out whatever gains you made in the stock market you might have gotten if any.

Hope this helps!

royal

Completely agree. Almost pay the higher interest rate first. My student loans are luckily fixed at 3.25%. That's about $200 a month for the next 20 years! But still, the interest rate is low, so my focus is paying off my car and investing. My car is at 5.7% and a Roth IRA can potentially give you a 10% return which makes more sense to finish paying off the car so you don't waste interest and then investing since I would gain more money in the long run from investing into retirement rather than paying off school, especially when you take compound interest into perspective.

Vogon Poet

nl wrote:

All my friends are buying oil stocks and telling me tech stocks are dead. People tell me that these stocks are going to be hurting in a recession.

Evaluate stocks on a case-by-case basis. Jumping on the bandwagon can be OK in the short run, but you're buying high and you might not know when to get out (e.g. .com's, Enron, real estate, Marathon oil, tulips, etc.). Learn what makes a good stock and what your risk tolerance is.

I'm not a big fan of sector investing except for very short periods. Commodities are hot right now, but will take a beating when the Fed shores up the dollar after this election year. Some tech companies will not do well, others will.

eMeS

stlsmoore wrote:

I was wondering how many IT folks here have stocks and how successfully you guys have been? I plan on investing in some a few years down the road once my debt is paid off. Do you guys typically invest in high-risk, low risk, bonds, etc? I'm pretty young so I really want to invest a part of my funds into high-risk options and the other into fairly safe stocks and/or bonds. If I loose all my money so be it for now I won't start off investing a lot of money anyways I bet.

Really I would love to be a angel investor but it seems like you have to be loaded in order to do so. Is there any websites or places you guys know of where you can participate in angel investing with substantially lower capital $1000-$10,000? I know people post all the time on youngentrepreneur.com asking for these type of funds but I'm a little wary of doing that with no middle-man company there to make sure the investor gets their cut. I'm interested to here what you guys have to say!

Much good advice you've received here from other posters...I worked in/around IT in financial services for most of my career....my thoughts:

I'm making an assumption that you're in the US? If not then what you do/how you do it might be very different than for a US citizen. As always, seek the advice of a competent and qualified professional such as an accountant or a financial advisor.

Pay off debt - Debt is not necessarily a bad thing, especially if the interest is tax-deductible. Unfortunately, there are only a couple of forms of tax-deductible interest left. One is home mortgage and another is the interest incurred on student loans.

Take advantage of instances where debt interest is tax deductible - As mentioned, buy real estate. Unless you are independently wealthy, you will finance this purchase. All of the interest that you pay will be deductible. Interest on student loans is also tax-deductible, up to certain income limitations. Also, the taxes that you pay on the real estate will be federal tax deductible.

Student loans - I sometimes hear a lot of negativity about student loans. Having the savings for education is best, but, in fact, student loans are one of the best ways to finance your education, if you don't have the cash available, and do not otherwise qualify for a scholarship or other educational assistance. Generally these are low interest rate loans that do not require payment until 1 year after graduation (or, when the borrower stops attending school!). Then, the interest on these loans becomes deductible.

The 10%/Pay yourself first rule - I recommend reading a book called The Wealthy Barber by David Chilton. The most important piece of advice in this book is that you should save an invest 10% of every dollar that you make, before taxes or any other deductions. This is also before 401k or other investments.

Build up an emergency fund - Save 10% of every dollar, until you have enough cash in a high-interest savings account to cover your living expenses for 3 to 6 months, depending on your risk tolerance.

401k - I'm not a believer in maxing out 401k contributions. You lose investing flexibility with your dollars invested through that route. Many plans only allow as little as 4 different options for investing those dollars. However, it is important that you contribute as much as required in order to get the maximum company match. Not taking the maximum company match is the equivalent of denying yourself a raise.

Investing - Open a brokerage account. You have many many options here. I have a standard brokerage account that has checkwriting capabilities and an atm card, and I have another that is called a "Brokerage IRA". In my standard brokerage account, standard capital gains and tax rules apply, however, in my brokerage IRA, I benefit by having an account where I can trade individual securities with the tax benefits of an IRA. Depending on your risk tolerance, you can invest in mutual funds, individual equities, bonds, etc...

Margin - If you are going to get serious about investing, get approved for margin. This is one of the other types of interest that is tax-deductible. Proper use of margin allows you to dramatically increase your returns.

Second home - Interest and taxes paid on a second home are federal tax deductible as well in many cases. I have an uncle that owns a large RV. This for tax purposes qualifies as his 2nd home because it has a kitchen and a bathroom. The same can be done with boats I believe.

I have been investing for many years. I started with mutual funds in the late 80's. It wasn't as easy for individual investors to invest back then, because trading wasn't online. All trading was done by brokers over the phone, and typically the cost of one trade was $65+ depending on the broker and your level of trading. Thus, back in those days if you weren't trading a huge position, the transition costs would eat into your profits quickly.

In the early 90's I began investing in individual equities. As the mid-90's approached, I continued doing this, but became more technology-focused in my investing.

Around the same time I started to write what are called "covered calls". In essence, if you own a stock and you plan to hold it, a covered call lets you generate additional income by offering someone the right to buy your underlying stock at some point in the future at an agreed-upon price. I did this for many years with individual equities, and did very well doing it.

Around 2000-ish when the dotcom bubble burst, I watched many many people lose 60%+ of their net worth. I think this happened primarily because they were chasing trends and looking for big wins, which were common in the 90's. In those days I always tended to stick with stocks of larger, well-known companies.

In what was one of the most fortuitous moments in my life, right before the market crashed in 2000 I was going through a divorce. In an effort to make things less complicated, my ex and I totally sold our equity positions around February 2000 and moved to 100% cash. So, in a sense I only lost 50%, but none of the value disappeared!

Following all of the turmoil from 2000-2001, I started investing almost exclusively in what are called "ETFs", or Exchange Traded Funds.

ETFs are like mutual funds that are priced and trade like a stock. Where mutual funds price at the end of the day, and generally only allow actions at market open and close (there are exceptions!), ETFs trade like stocks. So, I own QQQQ, which is an ETF for the NASDAQ. I can increase or decrease my position at any time by just placing a order through my broker.

Additionally, I sell covered calls against the ETFs that I own, which further increases the amount I make. For example, if I own a 1000 shares of QQQQ valued today at $47.15, I can sell a covered call for $49 to expire in May 2008 at around .30 per share. This nets me an additional $300 (before fees) in income on my ETF position which I intend to hold long-term. This can be done with as little at 100 shares of an equity, but it's better with larger amounts as the transaction costs tend to eat up profit. Personally, I could not see using this strategy with less than a 500 share position.

The other thing that I do is called Prosper http://www.prosper.com/ . Although risky in some cases, I have earned incredible returns in the two years that I have been involved. You can start with low amounts and it's easy to build up over time. There are lots of people that want to borrow money, some at very high interest rates. Recently Prosper increased the borrower rate caps to 36%. Although some would call this usury, the reality is that sometimes people need money and they are willing to offer these terms to get it.

I'm not sure about "Angel Investing"...usually "Angels" have lots of money! I guess Prosper in a sense offers this because you do see a lot of people looking for loans to start new businesses. As far as loaning directly to a person (in the absence of something like Prosper)...I see no benefit to it, especially when you're just starting out.

My advice.....Save and invest 10% (pay yourself first), read some books about investing, avoid scams (pyramid investing, any software that claims to tell you when to buy and sell, etc..), avoid investing where you do not and cannot have the advantage (Forex comes to mind here), talk to a credentialed and qualified professional, and most importantly Don't look for everything to be a home run!. Base hits and consistency over time are in my experience the best ways to create wealth.

MS

stlsmoore

Thank you all for the great advice, I plan on finishing paying my car off in the next 6 months then all I would have left is my student loan. Prosper may be just what I was looking for so I'll check that out. I've also started to buy books and research on investing before I make any big decisions. Is it even possible to become wealthy trading just stocks over time, starting with a low amount of capital?

eMeS

stlsmoore wrote:

Thank you all for the great advice, I plan on finishing paying my car off in the next 6 months then all I would have left is my student loan. Prosper may be just what I was looking for so I'll check that out. I've also started to buy books and research on investing before I make any big decisions. Is it even possible to become wealthy trading just stocks over time, starting with a low amount of capital?

I once read that the wealthiest people tended to make money in real estate (I can't find the article now, but I'll keep looking). However, that all depends on how you define "wealth".

I'm sure there are people that have made a decent amount of money "trading" over time as you say above. I know one guy that quit his IT job in 1999 because he earned quite a bit trading stocks. He was back in IT in 2001. Earning a living by investing as an individual is risky business....my preference has been to be a long-term investor rather than a trader, as my understanding is that constantly moving in and out of different investments requires knowledge, patience, and information that I don't have.

I did intend to say "knowledge" and "information" in that last sentence. By "knowledge", I mean the mechanics of investing, and by "information" I mean an understanding of general and specific events that affect overall market and individual security prices. Generally, small investors in markets work with very imperfect "information" as opposed to large investors and institutions.

For example, there is a role in equities markets called a "market maker". Market makers do what the name implies, they quote both buy and sell prices for equities. Market makers make their profits on the differences between those prices. Small investors trading in small lots will often pay more to buy an equity and receive less when selling an equity compared to others with better information about the bid/ask spread.

Another case where I know this to be true is that large institutions are generally able to learn more about companies than small investors...this is because large institutions have teams of people that spend 10 hours per day researching everything related to a stock. Individual investors don't have these resources available.

I believe "imperfect information" is one of the reasons that most financial institutions espouse long-term strategies for individual investors. The information that the individual investor has is much less perfect than the information that an instituion or large investor has. Because of this individual investors tend to fare better buying and holding equities long-term, as opposed to repetitive trading.

My opinion is that repetitive trading is only slightly less risky than gambling at a casino...negative expectation always has a way of catching up! Make enough negative expectation "bets" or trades, and you will lose. In some markets, such as Forex, for an individual investor the expecation is much worse than what a casino offers....

Tread carefully, and, as always, make your financial decisions based on qualified financial advice from a registered (series 7, and 63) accountant or certified financial planner, rather than the experience of a hand full of people on a forum about IT certifications.

MS

hetty

Anybody got some favoured investing authors?