Newbie to stocks
August 2, 2021 12:49 AM Subscribe
I’ve just started putting a part of my savings in stocks. I am not intending to buy and sell, I just want to sit peacefully on some stuff until retirement in twenty years. For that reason I am looking at some big stocks like Disney for example. But…
If I can only afford like two of a stock, is it better to buy two or is it better to find a fund that holds more stock or is it better to buy more stock in one of the big shareholders? Are there other options ivv be am not considering?
If I can only afford like two of a stock, is it better to buy two or is it better to find a fund that holds more stock or is it better to buy more stock in one of the big shareholders? Are there other options ivv be am not considering?
The usual advice is to invest in an index fund, unless you think you can choose investments better than the folks who do this full time (and even they don't usually beat the overall market). Vanguard has targeted retirement funds that make this very easy
posted by chrisamiller at 1:02 AM on August 2, 2021 [45 favorites]
posted by chrisamiller at 1:02 AM on August 2, 2021 [45 favorites]
Seconding index funds.
One company of any variety might have a scandal or just be subject to the vagaries of fate. Funds spread your risk.
If you want to be clever about it you might find a fund in a broad area you favour - obviously monetary returns, but you might also care about choosing something in line with your ethics.
But whatever you find, there are costs involved in managing the fund. For instance, Vanguard have index trackers where the costs are down in the small fractions of 1% because buying and selling shares is mechanically determined by what's in the index. Managed funds might try to charge you 1.5% or more to pay the managers for picking (hopefully) better stocks, but statistically they tend to do worse over time even if they outperform the broad market on some occasions.
I just buy Vanguard's S&P tracker, and I plan on leaving my money there for a long time so that the gentle rise overwhelms the daily and yearly fluctuations.
posted by How much is that froggie in the window at 1:48 AM on August 2, 2021 [4 favorites]
One company of any variety might have a scandal or just be subject to the vagaries of fate. Funds spread your risk.
If you want to be clever about it you might find a fund in a broad area you favour - obviously monetary returns, but you might also care about choosing something in line with your ethics.
But whatever you find, there are costs involved in managing the fund. For instance, Vanguard have index trackers where the costs are down in the small fractions of 1% because buying and selling shares is mechanically determined by what's in the index. Managed funds might try to charge you 1.5% or more to pay the managers for picking (hopefully) better stocks, but statistically they tend to do worse over time even if they outperform the broad market on some occasions.
I just buy Vanguard's S&P tracker, and I plan on leaving my money there for a long time so that the gentle rise overwhelms the daily and yearly fluctuations.
posted by How much is that froggie in the window at 1:48 AM on August 2, 2021 [4 favorites]
The /r/personalfinance subreddit has a very comprehensive flowchart which covers the best thing to do for most people, which is, as above, investing in index funds.
It’s boring, but it reduces risk and, on average, outperforms most active funds over the 20-30 years you’re talking about.
posted by Happy Dave at 3:24 AM on August 2, 2021 [12 favorites]
It’s boring, but it reduces risk and, on average, outperforms most active funds over the 20-30 years you’re talking about.
posted by Happy Dave at 3:24 AM on August 2, 2021 [12 favorites]
Here is my little anecdote about buying and holding stock.
I was gifted some Pfizer stock for my 14th birthday.
You may have heard of Pfizer recently, contributing to covid vaccine development and production and literally saving the world. Pfizer is having a very good year. Hard to imagine a better one.
My Pfizer stock is almost worth today what it was purchased for 22 years ago. Almost but not quite.
Buy index funds.
posted by phunniemee at 4:57 AM on August 2, 2021 [26 favorites]
I was gifted some Pfizer stock for my 14th birthday.
You may have heard of Pfizer recently, contributing to covid vaccine development and production and literally saving the world. Pfizer is having a very good year. Hard to imagine a better one.
My Pfizer stock is almost worth today what it was purchased for 22 years ago. Almost but not quite.
Buy index funds.
posted by phunniemee at 4:57 AM on August 2, 2021 [26 favorites]
I think the default should be to buy index funds, perhaps something like Vanguard’s LifeStrategy which has a percentage in stocks (say 60%) and the rest in bonds (40%). The latter will tend to counteract big movements in the former but also, probably, reduce long term growth. The longer you’re investing for and/or the bigger your appetite for risk, the more you could increase the stocks ratio (e.g. to the LifeStrategy 80/20 fund).
I would only deviate from the “buy an index fund” advice if you have a good reason, or good knowledge as to why you’re doing it. You know a huge amount about a sector and are confident it will do better than everyone else thinks? Sure, buy stocks in a range of companies in that sector! Or you have some “spare” cash you can afford to lose and want to gamble on your favourite company outperforming the market? Go for it, buy loads of their stock!
But for most of us, spread the risk and buy inexpensive funds that track a broad global index.
posted by fabius at 5:10 AM on August 2, 2021 [1 favorite]
I would only deviate from the “buy an index fund” advice if you have a good reason, or good knowledge as to why you’re doing it. You know a huge amount about a sector and are confident it will do better than everyone else thinks? Sure, buy stocks in a range of companies in that sector! Or you have some “spare” cash you can afford to lose and want to gamble on your favourite company outperforming the market? Go for it, buy loads of their stock!
But for most of us, spread the risk and buy inexpensive funds that track a broad global index.
posted by fabius at 5:10 AM on August 2, 2021 [1 favorite]
Let me expand on buying funds instead of individual stocks.
The key word is "diversification." You will get a higher return without higher risk by owning a range of stocks. Then the failure of one stock or of one area of investment will hurt you less. No one can predict when great success or great failure will happen, without using insider information which would be illegal.
I've had several friends who bought a stock in one industry. For a few years, they had great returns. So they bought stocks of other companies in the same industry. Due to technology changes, those industries' stocks suddenly lost value so my friends lost a great portion of their investments.
Yes, some people beat the market for awhile. But returns from any subset of stocks picked at random will sometimes be worse than the market and sometimes be better. Those outcomes have nothing to do with the investor's savvy. Even Warren Buffett has sometimes made mistakes. (Note that Buffet does not buy-and-sell; he buys and holds.)
Owning funds also relieves the individual of a lot of anxiety.
posted by tmdonahue at 6:03 AM on August 2, 2021 [2 favorites]
The key word is "diversification." You will get a higher return without higher risk by owning a range of stocks. Then the failure of one stock or of one area of investment will hurt you less. No one can predict when great success or great failure will happen, without using insider information which would be illegal.
I've had several friends who bought a stock in one industry. For a few years, they had great returns. So they bought stocks of other companies in the same industry. Due to technology changes, those industries' stocks suddenly lost value so my friends lost a great portion of their investments.
Yes, some people beat the market for awhile. But returns from any subset of stocks picked at random will sometimes be worse than the market and sometimes be better. Those outcomes have nothing to do with the investor's savvy. Even Warren Buffett has sometimes made mistakes. (Note that Buffet does not buy-and-sell; he buys and holds.)
Owning funds also relieves the individual of a lot of anxiety.
posted by tmdonahue at 6:03 AM on August 2, 2021 [2 favorites]
Very obviously you should be invested in a passive (aka index) product - though if its in a taxable account an ETF is probably more tax efficient. The bigger question for you is your risk tolerance which drives how much in stocks vs lower risk investments. Can't answer that but an OK rule of thumb is "don't invest anything in equities you couldn't tolerate ten years of no returns from."
Its also important to note that investing in a narrow index/passive product is in and of itself an active investment decision. I.e. buying an ETF that only owns the index in one sector is not actually giving you the broad exposure to equities you should be looking for.
To answer your question - generally speaking = it doesn't really matter how many shares of something you own, but rather what % of your portfolio the value of the holding makes up. I.e. owning ten shares priced at ten is economically the same thing as one share priced at 100 or 100 shares priced at 1. What really matters in this context is diversification - which should be done at a name and sector level. Having said that - you should put nearly all of your money in a broad index and if you enjoy the idea of investing then take some small proportion of your savings and invest that in individual stocks that interest you. That way, your portfolio is still broadly diversified.
posted by JPD at 6:04 AM on August 2, 2021 [1 favorite]
Its also important to note that investing in a narrow index/passive product is in and of itself an active investment decision. I.e. buying an ETF that only owns the index in one sector is not actually giving you the broad exposure to equities you should be looking for.
To answer your question - generally speaking = it doesn't really matter how many shares of something you own, but rather what % of your portfolio the value of the holding makes up. I.e. owning ten shares priced at ten is economically the same thing as one share priced at 100 or 100 shares priced at 1. What really matters in this context is diversification - which should be done at a name and sector level. Having said that - you should put nearly all of your money in a broad index and if you enjoy the idea of investing then take some small proportion of your savings and invest that in individual stocks that interest you. That way, your portfolio is still broadly diversified.
posted by JPD at 6:04 AM on August 2, 2021 [1 favorite]
Even Warren Buffett has sometimes made mistakes.
And he agrees that most people should buy index funds.
posted by Mr.Know-it-some at 6:50 AM on August 2, 2021 [1 favorite]
And he agrees that most people should buy index funds.
posted by Mr.Know-it-some at 6:50 AM on August 2, 2021 [1 favorite]
My Pfizer stock is almost worth today what it was purchased for 22 years ago. Almost but not quite.
I agree wholly with the advice to buy index funds, but Pfizer has been paying you dividends since you acquired it. Pfizer has underperformed the market over the past 22 years, but it still doubled your money.
posted by justkevin at 7:10 AM on August 2, 2021 [3 favorites]
I agree wholly with the advice to buy index funds, but Pfizer has been paying you dividends since you acquired it. Pfizer has underperformed the market over the past 22 years, but it still doubled your money.
posted by justkevin at 7:10 AM on August 2, 2021 [3 favorites]
I agree wholly with the advice to buy index funds, but Pfizer has been paying you dividends since you acquired it. Pfizer has underperformed the market over the past 22 years, but it still doubled your money.
My 330 shares of Pfizer stock have paid me $3200 in dividends over the last 8 years. You'll forgive me for not being impressed by the equivalent average of Netflix & a medium pizza every month.
posted by phunniemee at 7:31 AM on August 2, 2021 [2 favorites]
My 330 shares of Pfizer stock have paid me $3200 in dividends over the last 8 years. You'll forgive me for not being impressed by the equivalent average of Netflix & a medium pizza every month.
posted by phunniemee at 7:31 AM on August 2, 2021 [2 favorites]
I agree with others that you should concentrate on index funds. They lower your risk; you don't want to have your eggs in any one company's basket.
Do be smart about where your stock portfolio is located.
You don't want to store retirement savings in an ordinary taxable brokerage account—since it's for retirement, you should be using a tax-advantaged account. If your company offers a pre-tax 401k or 403b (with a matching plan), make sure you are getting that match.
Or, if you're on your own, you should be using an IRA.
If you have spare money from your paychecks sitting around that you want to invest for retirement, look into a Roth IRA. You can contribute $6000 a year, and your money will grow and be tax-free in retirement.
A good strategy is having a pre-tax 401k (no taxes now, you'll pay them when you withdraw funds in retirement) in combination with a post-tax Roth IRA (populated with money that you already paid tax on, so no taxes in retirement).
posted by vitout at 7:33 AM on August 2, 2021 [3 favorites]
Do be smart about where your stock portfolio is located.
You don't want to store retirement savings in an ordinary taxable brokerage account—since it's for retirement, you should be using a tax-advantaged account. If your company offers a pre-tax 401k or 403b (with a matching plan), make sure you are getting that match.
Or, if you're on your own, you should be using an IRA.
If you have spare money from your paychecks sitting around that you want to invest for retirement, look into a Roth IRA. You can contribute $6000 a year, and your money will grow and be tax-free in retirement.
A good strategy is having a pre-tax 401k (no taxes now, you'll pay them when you withdraw funds in retirement) in combination with a post-tax Roth IRA (populated with money that you already paid tax on, so no taxes in retirement).
posted by vitout at 7:33 AM on August 2, 2021 [3 favorites]
My 330 shares of Pfizer stock have paid me $3200 in dividends over the last 8 years. You'll forgive me for not being impressed by the equivalent average of Netflix & a medium pizza every month.
This in fact points to another great advantage of funds: reinvesting dividends. You can't (or couldn't until recently) reinvest dividends in a single stock because you could only hold whole units of stock, and you had to pay commission on stock trades. But with mutual funds, you can just set a simple option on a website and experience the magic of compounding.
posted by goingonit at 8:00 AM on August 2, 2021
This in fact points to another great advantage of funds: reinvesting dividends. You can't (or couldn't until recently) reinvest dividends in a single stock because you could only hold whole units of stock, and you had to pay commission on stock trades. But with mutual funds, you can just set a simple option on a website and experience the magic of compounding.
posted by goingonit at 8:00 AM on August 2, 2021
My 330 shares of Pfizer stock have paid me $3200 in dividends over the last 8 years.
To make this less abstract, about $15k invested in VTSMX instead would be worth around $34k vs $15k + $3200 in dividends = $18k over the same 8 year time period. Sure there are some stocks that probably dramatically surpassed that VTSMX gain, but are you lucky enough to pick them?
posted by The_Vegetables at 8:07 AM on August 2, 2021 [6 favorites]
To make this less abstract, about $15k invested in VTSMX instead would be worth around $34k vs $15k + $3200 in dividends = $18k over the same 8 year time period. Sure there are some stocks that probably dramatically surpassed that VTSMX gain, but are you lucky enough to pick them?
posted by The_Vegetables at 8:07 AM on August 2, 2021 [6 favorites]
I second the suggestion of using a Roth IRA account, and investing in index funds.
Another type of mutual fund that can be useful is a targeted date fund. As a rule of thumb, the sooner you need the money, the less risk you should take with it. These funds try to handle that for the investors, by changing what the fund invests in as the target date approaches. I like index funds better - but this is one extremely hands-off option.
posted by mersen at 9:25 AM on August 2, 2021
Another type of mutual fund that can be useful is a targeted date fund. As a rule of thumb, the sooner you need the money, the less risk you should take with it. These funds try to handle that for the investors, by changing what the fund invests in as the target date approaches. I like index funds better - but this is one extremely hands-off option.
posted by mersen at 9:25 AM on August 2, 2021
Do be smart about where you buy & hold various funds.
Generally: put bond funds in a tax-sheltered account, like a 401k or an IRA. Put stock funds in an investment (taxable, brokerage) account. This is because stock funds tend to be more tax-efficient than bond funds, and tax efficiency is what you want now, you want to put off paying taxes on the gains as much as you can.
Always: pick low-cost (expense ratio, ER) funds.
I have: a low-cost whole-market index fund (mine is Vanguard Total Stock Market, VTSAX, VFIAX (500-index) also works, and every brokerage will have a version, look for ER < 0.2 at most) in our Vanguard taxable brokerage account.
I also have bond funds (Vanguard Total Bond) in my tax-sheltered retirement accounts.
My husband's version of retirement account has only expensive (ER > 0.75) stock index funds. But he has a target-date and a balanced (60% stocks, 40% bonds) fund that are cheaper available there. So his stuff is in the balanced fund.
Target-date funds are better in a tax-sheltered account; they'll cost you some taxes in a brokerage (taxable) account.
posted by Dashy at 10:46 AM on August 2, 2021 [2 favorites]
Generally: put bond funds in a tax-sheltered account, like a 401k or an IRA. Put stock funds in an investment (taxable, brokerage) account. This is because stock funds tend to be more tax-efficient than bond funds, and tax efficiency is what you want now, you want to put off paying taxes on the gains as much as you can.
Always: pick low-cost (expense ratio, ER) funds.
I have: a low-cost whole-market index fund (mine is Vanguard Total Stock Market, VTSAX, VFIAX (500-index) also works, and every brokerage will have a version, look for ER < 0.2 at most) in our Vanguard taxable brokerage account.
I also have bond funds (Vanguard Total Bond) in my tax-sheltered retirement accounts.
My husband's version of retirement account has only expensive (ER > 0.75) stock index funds. But he has a target-date and a balanced (60% stocks, 40% bonds) fund that are cheaper available there. So his stuff is in the balanced fund.
Target-date funds are better in a tax-sheltered account; they'll cost you some taxes in a brokerage (taxable) account.
posted by Dashy at 10:46 AM on August 2, 2021 [2 favorites]
Generally: put bond funds in a tax-sheltered account, like a 401k or an IRA. Put stock funds in an investment (taxable, brokerage) account. This is because stock funds tend to be more tax-efficient than bond funds, and tax efficiency is what you want now, you want to put off paying taxes on the gains as much as you can.
No, this is completely wrong.
You don't pay taxes on stock accounts until you cash out, so how 'tax efficient' it is year to year is not a concern, unless you are investing high hundreds of thousands to millions of dollars to where the dividends you get become a concern. phunniemee's account of how much actual money made via dividends per year (an amazing amount for $15k in stock in that specific case) is very realistic. So you are concerned about how 'tax efficient' it is when you want to take your money out, which could be $100k or more after 20-30 years. Then paying 25% rate vs 0% (roth IRA) really matters.
You should put both stocks and bonds (I'm not a big bonds guy when you are actively investing and working) in a tax advantaged account if they are available to you, and when you are young you should be allocated like 70% in stocks and 30%(or less) in bonds. When you are close to retirement, then should be the opposite, which the target funds mentioned above do for you automatically.
posted by The_Vegetables at 11:39 AM on August 2, 2021 [2 favorites]
No, this is completely wrong.
You don't pay taxes on stock accounts until you cash out, so how 'tax efficient' it is year to year is not a concern, unless you are investing high hundreds of thousands to millions of dollars to where the dividends you get become a concern. phunniemee's account of how much actual money made via dividends per year (an amazing amount for $15k in stock in that specific case) is very realistic. So you are concerned about how 'tax efficient' it is when you want to take your money out, which could be $100k or more after 20-30 years. Then paying 25% rate vs 0% (roth IRA) really matters.
You should put both stocks and bonds (I'm not a big bonds guy when you are actively investing and working) in a tax advantaged account if they are available to you, and when you are young you should be allocated like 70% in stocks and 30%(or less) in bonds. When you are close to retirement, then should be the opposite, which the target funds mentioned above do for you automatically.
posted by The_Vegetables at 11:39 AM on August 2, 2021 [2 favorites]
You don't pay taxes on stock accounts until you cash out, so how 'tax efficient' it is year to year is not a concern, unless you are investing high hundreds of thousands to millions of dollars to where the dividends you get become a concern. phunniemee's account of how much actual money made via dividends per year (an amazing amount for $15k in stock in that specific case) is very realistic. So you are concerned about how 'tax efficient' it is when you want to take your money out, which could be $100k or more after 20-30 years. Then paying 25% rate vs 0% (roth IRA) really matters.
To the extent a fund takes realized gains and receives dividends you pay taxes on them. And historically a big chunk of SP500 returns come from divvys, so the tax leakage is material.
posted by JPD at 11:49 AM on August 2, 2021 [3 favorites]
To the extent a fund takes realized gains and receives dividends you pay taxes on them. And historically a big chunk of SP500 returns come from divvys, so the tax leakage is material.
posted by JPD at 11:49 AM on August 2, 2021 [3 favorites]
Yes, mutual funds of all kinds (both bond/income and equity) make distributions of income and capital gains that create tax liability for the holder. I think what Dashy is referring to is that income-oriented funds (bond funds) intentionally seek to generate income, which is distributed to fund holders, and therefore creates tax liability. But equity funds also (less intentionally) often generate distributions or capital gains and/or income and therefore tax liability.
A good place to study this, if you want, is by looking at the "after tax returns" of various funds such as on Vanguard's site. For example, the 10 year average return on the Vanguard Total Bond Fund is 3.36%, but it is 2.23% after taxes on distributions. That's like 1/3 of the return lost to taxes on distributions, so Dashy has a good point on that fund. The US Growth Fund (equities) has a ten year average return of 18.91%, or 17.77% after distributions -- so, some tax burden, but not so much as a proportion of the return.
I agree that, whatever types of funds/ETFs you are buying, you should first max out all tax-advantaged accounts that are open to you.
posted by Mid at 12:05 PM on August 2, 2021 [1 favorite]
A good place to study this, if you want, is by looking at the "after tax returns" of various funds such as on Vanguard's site. For example, the 10 year average return on the Vanguard Total Bond Fund is 3.36%, but it is 2.23% after taxes on distributions. That's like 1/3 of the return lost to taxes on distributions, so Dashy has a good point on that fund. The US Growth Fund (equities) has a ten year average return of 18.91%, or 17.77% after distributions -- so, some tax burden, but not so much as a proportion of the return.
I agree that, whatever types of funds/ETFs you are buying, you should first max out all tax-advantaged accounts that are open to you.
posted by Mid at 12:05 PM on August 2, 2021 [1 favorite]
I am not intending to buy and sell, I just want to sit peacefully on some stuff until retirement in twenty years. For that reason I am looking at some big stocks like Disney for example.
If you just want to sit peacefully on stuff and watch it grow, the last thing you need to be doing is picking a market segment that looks safe right now and concentrating your investment resources on that.
Diversity is your friend. You want exposure to a wide range of investments across a huge swath of business sectors, because although business as a whole will do well for as long as society doesn't crumble, the same can never be said about any particular slice of it.
In general you can't know which investments within a diversified portfolio will totally tank and which will go to the moon, but the point of having a diversified portfolio is that you don't have to. If an investment tanks, the most you can lose is all the money you bought it for. If an investment wins, there is no limit to the amount it can return for you. That asymmetry means that if you have a portfolio that's half winners and half losers, then as long as the market as a whole is doing OK you still come out ahead even though you don't and can't know ahead of time which half any given investment is actually in.
Which is why index funds, which effectively give you a slice of hundreds of individual investments at once, are the prudent entry-level choice.
posted by flabdablet at 7:11 PM on August 2, 2021 [2 favorites]
If you just want to sit peacefully on stuff and watch it grow, the last thing you need to be doing is picking a market segment that looks safe right now and concentrating your investment resources on that.
Diversity is your friend. You want exposure to a wide range of investments across a huge swath of business sectors, because although business as a whole will do well for as long as society doesn't crumble, the same can never be said about any particular slice of it.
In general you can't know which investments within a diversified portfolio will totally tank and which will go to the moon, but the point of having a diversified portfolio is that you don't have to. If an investment tanks, the most you can lose is all the money you bought it for. If an investment wins, there is no limit to the amount it can return for you. That asymmetry means that if you have a portfolio that's half winners and half losers, then as long as the market as a whole is doing OK you still come out ahead even though you don't and can't know ahead of time which half any given investment is actually in.
Which is why index funds, which effectively give you a slice of hundreds of individual investments at once, are the prudent entry-level choice.
posted by flabdablet at 7:11 PM on August 2, 2021 [2 favorites]
To the extent a fund takes realized gains and receives dividends you pay taxes on them...so the tax leakage is material.
Again, some real numbers instead of theory:
I have $445,000 in a taxable Vanguard account and get about $2500 a year in dividends that are re-invested so I see no cash. (I pay into this after maxing my tax-deferred accounts). I pay my marginal rate on that in taxes. I don't have any forms in front of me, but somewhere around $250 (or less) in tax.
So if you are trying to manage that from a tax perspective, then you have bigger cash flow problems or a much higher dollar amount in your account.
Compare that to what would happen if I cashed it out: I would owe taxes on something like $350,000 worth of earned income.
posted by The_Vegetables at 8:46 AM on August 3, 2021 [1 favorite]
Again, some real numbers instead of theory:
I have $445,000 in a taxable Vanguard account and get about $2500 a year in dividends that are re-invested so I see no cash. (I pay into this after maxing my tax-deferred accounts). I pay my marginal rate on that in taxes. I don't have any forms in front of me, but somewhere around $250 (or less) in tax.
So if you are trying to manage that from a tax perspective, then you have bigger cash flow problems or a much higher dollar amount in your account.
Compare that to what would happen if I cashed it out: I would owe taxes on something like $350,000 worth of earned income.
posted by The_Vegetables at 8:46 AM on August 3, 2021 [1 favorite]
I have $445,000 in a taxable Vanguard account and get about $2500 a year in dividends
You must be invested in stock funds, although you don't say.
$500,000 in corporate bonds yielding 5% would give you $25,000 in interest income yearly. That's not a small difference to pay taxes on. And you pay taxes on dividends at your income rate, not as capital gains.
This difference is why I (and many) would advise putting bonds, or mixed funds that contain bonds, in the tax-sheltered side of a portfolio.
I did misspeak above: the issue is that you pay taxes on the dividends, not the gains themselves, yearly, and so putting higher-dividend funds into a tax-sheltered account shelters those dividends.
posted by Dashy at 12:28 PM on August 3, 2021
You must be invested in stock funds, although you don't say.
$500,000 in corporate bonds yielding 5% would give you $25,000 in interest income yearly. That's not a small difference to pay taxes on. And you pay taxes on dividends at your income rate, not as capital gains.
This difference is why I (and many) would advise putting bonds, or mixed funds that contain bonds, in the tax-sheltered side of a portfolio.
I did misspeak above: the issue is that you pay taxes on the dividends, not the gains themselves, yearly, and so putting higher-dividend funds into a tax-sheltered account shelters those dividends.
posted by Dashy at 12:28 PM on August 3, 2021
Again, some real numbers instead of theory:
I understand how the math works. It ends up being 20-30bps annualized for something like the S&P- which is a material #. Besides what you actually said was you don't pay taxes on equities until you generate realized gains. Which like is actually a factually incorrect statement. Most diversified stock funds yield more than 56bps.
posted by JPD at 5:49 PM on August 3, 2021 [1 favorite]
I understand how the math works. It ends up being 20-30bps annualized for something like the S&P- which is a material #. Besides what you actually said was you don't pay taxes on equities until you generate realized gains. Which like is actually a factually incorrect statement. Most diversified stock funds yield more than 56bps.
posted by JPD at 5:49 PM on August 3, 2021 [1 favorite]
Oh lord, do not invest any serious money in individual company stocks. Invest in index funds, or mutual funds with a particular bent if you want.
I do buy the occasional company stock for fun, but it's always in a small enough amount that I am totally ready to see go swirling down the toilet. By the time YOU hear about a great stock, it's waaaaay too late. Fund fund fund, and then let the fund managers deal with it (or let simple math deal with it, in the case of index funds.)
posted by intermod at 8:17 PM on August 3, 2021
I do buy the occasional company stock for fun, but it's always in a small enough amount that I am totally ready to see go swirling down the toilet. By the time YOU hear about a great stock, it's waaaaay too late. Fund fund fund, and then let the fund managers deal with it (or let simple math deal with it, in the case of index funds.)
posted by intermod at 8:17 PM on August 3, 2021
Vanguard or Fidelity index funds like S&P 500 or total stock market index. And whatever you want to put into bonds you can put into a bond index fund. You could also put some into a real estate (REIT) fund if you want to have a little bit in that area as well. What you want is super low fees (expense ratios).
posted by Dansaman at 11:28 PM on August 3, 2021
posted by Dansaman at 11:28 PM on August 3, 2021
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I've got about 1% of a share of Berkshire Hathaway in my portfolio, for example :). Since they're over $400k per share not too many people own entire shares.
The most important thing is to put something in regularly. I usually buy something different every month, although I have a few favourites that I buy a bit more of every now and then. Don't try to second-guess when to buy, just keep doing it.
And, of course, when it all goes to crap don't whatever you do bail out. Almost without fail, staying in for a year (after dot-com collapse, GFC, covid etc) brings you back to where you were or better. If anything, buy more when everyone else is panicking.
posted by tillsbury at 1:01 AM on August 2, 2021 [3 favorites]