Investment Advice

Last month we achieved an important milestone. We cleared our credit card debt. Living in the U.S. for nearly 8 years (will be 8 in couple of days) most of that time as a student eventually lands you up in credit card debt courtesy either necessary items like laptops, mandatory semester fees, or luxuries like traveling around the U.S. Somehow I landed in the U.S. with only $4200 in my pocket and although I was funded throughout my graduate school, you still have other incidental expenses, right? To be fair, my parents did pitch in at time when the need was dire.

At one point in time, I was nearly 12K in debt but that lead to a timely wakeup call for better financial management. Moving to Texas, one of the cheaper states to live in the United States, a generous assistantship stipend, and cutting back on luxuries helped in a speedy recovery. Ash had her share of debts thanks to the in-state tuition she was paying for grad school and the car she bought after a year in Texas to commute from Houston. But clearing her debts became lot easier when she started working full-time so she achieved her debt-free status much earlier.

Clearing your debts while being a student is no easy task so I’m quite proud of my achievement although I’ll admit that online earnings (Adsense, etc.) and taking advantage of those 0% APR schemes did play a part. I wouldn’t recommend the latter to those who are flimsy with their financial management because one slip up and you screw up your credit history for a long time. I never missed a payment on my credit cards and always paid more than the minimum. Tackling the cards with the highest APR first or moving the balances to a low APR and paying them off with a vengeance is just one way to go about controlling your finances.

While I was paying off my debt, I still kept adding albeit a little to a savings account. ING Direct provides great rates although WAMU has been looking good recently. The size of my savings from couple of years back was evident when my annual interest was a measly $12 but it is safe to say that I earn much more than that in a month now from my savings. But as any financial guru worth his salt will attest that putting your savings in a savings account is like giving the bank a cheap loan. So that’s where you come in, dear readers – I would like some investment advice.

I am what you would call a conservative investor. I am definitely not the guy who would take chances in risky stocks and am definitely don’t aspire to be Harshad Mehta or whoever the current stock market king is. My dad never invested in the stock market saying, he doesn’t have the luck and instead choose to invest in real estate which did pay off handsomely. But even he will admit that in times of need, real estate is extremely difficult to liquidate. So naturally investment and financial management other than that in real estate wasn’t something I learned from my dad.

I’ve been reading up on some basic investment advice but the amount of stuff that is out there is enough to make your head spin especially for a newbie investor. Also, with the economy tanking in the U.S., I’m not even sure if it is the right time to invest. I lean more toward money market accounts or mutual fund index funds but they may not be the best bets today. I’m slightly aware of Vanguard’s Online Personal Fund Manager and even ING Direct has a Sharebuilder option.

Do you recommend any must-reads? What investment advice would you consider paramount to a newbie conservative investor? What options/funds are the best for investing in today’s market and how will they change if and when the economy improves?

Tweet This“Investment Advice” [Short URL: http://www.ipatrix.com/?p=2650] was published Monday, August 4th, 2008 at 1:19 pm by Patrix, filed under Personal, and tagged as , , , , . Both comments and linkbacks are closed.

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  • http://www.parablog.com/wp/ Parag

    Congratulations on being debt-free! It is just wonderful. Savor the feeling till you buy a house and get a big mortgage. :)

    Our dads think the same way. So, I had no help from him other than his advice about regularly buying post-office bonds. The equivalent here is US savings bonds. You can buy those at treasurydirect.gov. You can buy all US government bonds at that site.

    As a student, you don’t have any retirement program with the university. So, I’d suggest that you should open Roth IRA accts for both you and Ash. You don’t get any upfront tax benefit, but you never pay taxes on it when you get it out. You can put $5000 each for this year.

    If you don’t want to keep your money in savings acct, then money-market funds are not good either. They yield about the same interest. You can access index funds at almost any financial institution. Vanguard, Fidelity, Sharebuilder… the list can go on. Find index fund with lowest fees and make sure that you include one to get about 30% exposure to foreign stocks.

    I am a big fan of Sharebuilder.com. I have been using them for about 6-7 years now and have only good experience.

    Instead of reading one big book about personal finance, I’d suggest you start a subscription for “Kiplinger’s personal finance” magazine. Learning these things in small doses and getting things repeated is the best way to get them in your head.

    Enough of my rambling! If you are interested in any one thing, email me and I’ll be happy to talk with you more.

  • http://simpli.fied.in Prashant

    Congratulations! It is a big deal to become debt free and you have accomplished a milestone. You are rightly proud.

    It does not take too much to do some basic financial planning; you seem to have done plenty with handling all that credit card debt already.

    Here are a few good reads that I have found influential in setting up my hassle-free portfolio of investments:

    http://www.bogleheads.org/wiki/index.php/Books:_Recommendations_and_Reviews

    I loved reading through these:
    Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor – John C. Bogle
    A Random Walk Down Wall Street – Burton Malkiel
    The Four Pillars of Investing: Lessons for Building a Winning Portfolio – William Bernstein
    The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street and Get On With Your Life – Bill Schultheis

    My singular advice on financial planning is to plan out specific financial goals and then go about setting a time-based plan to achieve those goals. The more open ended your financial goal, the more fuzzy it will be for you to achieve it. A goal like, I need X dollars for Y activity by Z date, is more likely to be met than, I want to be rich and not worry about money.

    I am not a financial professional and so take this with all the skepticism you can afford.

  • http://www.ipatrix.com Patrix

    Parag, thanks for the quick advice. I was thinking of you even as I wrote this post asking for advice. The home mortgage is not exactly a debt the way CC is because your home is still making money and you own more of it every day.

    As for Roth IRA, do you get penalized if you withdraw early? I ask because we are not sure if we will stick around in this country. Glad you warned me about money market accounts. Yup, I was leaning toward moderate conservative index funds with some foreign stocks but as you said, there are so many that makes choosing one extremely difficult.

    I will definitely email you to ask more questions.

    Prashant, thanks for those excellent recommendations. Like my dad, I’m skeptical of the stock market as well mainly due to my lack of knowledge and enthusiasm to be an active participant. Your time-based plans advice makes perfect sense as well. I subconsciously used to do that with regards paying off my debt.

  • http://simpli.fied.in Prashant

    Patrix, you bring up a good question about where you will be in the future. That is the type of questions that your goal setting session should resolve. Any good financial professional will first work with you on setting goals.

    Excellent suggestion by Parag on the Roth. It seems to be a very lightly used investment vehicle/account type. Definitely keep that in mind once you have figured out the time horizon of your goal.

    If retirement is your goal, then your investment vehicles, account types, etc. will be different than if you were goal were to buy a car or finance a child’s education.

    I would spend more time on understanding your own personal/family goals, than worry about which index funds etc to get into. Let the money sit in a high-yield FDIC insured savings account like ING or HSBC Direct while you work out the goals piece.

  • http://www.ipatrix.com Patrix

    Prashant, you are right. Once I graduate and get a job, I will be in a better position to know where I will be in the foreseeable future which in turn would help me make long-term goals as well. That was the reason I am dilly-dallying on making any major investment decision because quick liquidity without too many penalties is my top priority. And yup, the savings current sit safely at ING earning a tidy interest. I just didn’t want to incur opportunity cost for delaying investment hence this post.

  • http://adityaramgopal.com Aditya

    Jesus! You just cleared your debts? I took a loan of $6000 which thanks to interests and the weak dollar pushed my final amount to $9000. I cleared that in May and am debt free. Of course, being an intern helps. :) Regarding investment advice, I believe running a successful blog and then being bought out for a handsome sum by some biggie is quite tempting ;)

  • http://www.ipatrix.com Patrix

    Aditya, kya karein…we are public policy and urban planning students. We neither get never-ending high-paying internships nor are our blogs ever bought out :) We take the slow painful road to a debt-free life.

  • http://usthamizhan.wordpress.com .:dYNo:.

    The best I could suggest you is to consult a financial adviser. Not the one’s at your bank or investment houses… they just try to sell their brand of mutual funds which pays them a commission. Try to find an independent financial consultant and don’t be afraid to pay $200-300 for the advise. My experience was that it was worth spending that money. A good financial adviser would be able to help you choose your “style” of investing and select multiple options for you to choose for each style. Many investors start with no load funds provided by Vanguard usually the index funds.

    Set aside a % of your saving towards emergency fund (usually 3-6 months of family expenses) and set some money to learn investing. Use $0 trade sites such as Zecco.com to learn how o trade and try buying index ETFs and then you can slowly start building your portfolio. If you are uncomfortable using real money to invest use trading simulators and learn to trade with play money provided by simulators.

  • http://www.yaxislive.com Rajesh Kumar

    Congrats Patrix. Your sense of relief and achievement is truly perceptible.

  • APB

    Check these out:

    The Two Essential Elements of Wealth Accumulation: http://hussmanfunds.com/html/wealth.htm
    Rich Man, Poor Man: http://ww2.dowtheoryletters.com/DTLOL.nsf/htmlmedia/body_rich_man__poor_man.html

    –

    I will highly recommend picking up a copy of “The Intelligent Investor” by Benjamin Graham. Please get the copy of the latest edition that has commentary by Jason Zweig. http://www.jasonzweig.com/book.html

    You might reach the same conclusions after reading Bogle’s book mentioned by Prashant (I haven’t read Bogle’s books, but his articles are very clear on where he stands).

    There are no easy ways to select mutual funds. If you want to keep it simple, read some of the Lazy Portfolios articles: http://www.marketwatch.com/News/Story/eight-lazy-portfolios-wrestle-now/story.aspx?guid=%7B767BF25D%2DC9D4%2D42D5%2D8843%2D3F074C869DD9%7D

    Beyond that, you may want to go to a website such as Fidelity or Vanguard and take one of their tests on your risk appetite. That will help you get a better sense of the allocation of bonds and equities in your portfolio.

    For amateurs like us, trading stocks is not recommended. One of the mistakes that smart people make is to think that because they are smarter than most at something (say urban planning or blogging), they may also be smarter than most in a stock market. Doesn’t work that way.

    Other than that, there is a wealth of information available everywhere on the web. Of course, your mileage may vary. Enjoy your planning, saving and investing!

  • EC

    Mr P.
    Divvy up your savings between stock market and debt. What you should do is invest in indian equities and debt (if you can) through mutual funds.
    The indian equity market will definitely give you better returns than the US market PLUS you have the added advantage of currency gains since the Rupee dollar is at 43 right now. Over time this will go lower at 40 and less giving additional returns once you redeem. Use the systematic investment route where you will be putting some money in equity mutual fund EVERY month to average out your investment costs.
    Indian govt. debt mutual funds will give you 8 odd % returns risk free! I think you can invest directly in these funds using a PIO card and using an NRI/NRE account.

    I’ve been in the indian securities market ever since I came back (currently working in a financial services firm as well) and have read hajaar books on investing (gotta give credentials lest you think I’m a speculative risk taker and you will end up losing all your money!)

    - elaichi chai

  • http://www.ipatrix.com Patrix

    dyno, I had thought that consulting a financial adviser would be more expensive than that so I might consider that. I was thinking of Vanguard’s Index Funds when I started looking up stuff to invest. Thanks for your great advice.

    Rajesh, thanks.

    APB, thanks for those links especially the ‘lazy portfolios’ one. I definitely do not consider myself smart enough when it comes to stocks so thankfully I am less prone to indulge in those reckless behavior even when taking some risk might prove to be financially beneficial.

    elaichi chai    , glad to see you around :) and glad you reminded me of the Indian investing scene. I was wondering about it but somehow always thought investing in the US would be better but 8% returns looks absolutely tempting.

  • Shanthi

    Vanguard is the way to go. Directly or through retirement accounts, they are the best for long term. But do not plan to pull money out of 401k or iras. They should only be withdrawn early for life threatening emergencies else the penalties are v high. In any case diversify enough so that you will never be too aggressive no matter how bullish the mkts are.

    You could even invest in India through some foreign market funds instead of direct buy. The problem with the Ch-India market is that it is still so young and skittish that the new investors are very panic driven. The IPOs are fine but day trading is really not a long term plan.

    Real estate in TX is a v bad idea as an investment. Just look around you and see how much land is there. The answer will be obvious. Maybe a rental property in some college town is the way? Banglore RE is bubbling and only nris seem to be keeping it chugging along. Don’t know about other metros.

    PS: I had already signed up with Carnival but am thinking a cruise will be a terrible idea for active people. Thanks for your input but we will most likely spend our annv doing something more exciting

  • http://zero.com zero

    u r like 40+ hindi film heros going to college to get degree in arts and teacher teaches them economics in the class

  • http://iamyuva.wordpress.com Yuva

    in US, index linked funds is big investment instrument for conservative investor… ya, vanguard is good. figure out your base currency (INR– if retirement plan.!) workout mortgage plan, and 401k investment plan.

    rule1) investment options depends term & money… amount=1k$ for term=couple of months.. return would be nothing. but ofcourse you can risk it in stock market and get lucky.
    rule2) any investment if returns is less than inflation then you can better spend now.

  • http://iamyuva.wordpress.com Yuva

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