So this week, we're going to have a little Q&A about starting to invest in mutual funds or using an high-yield savings account like ING or Emigrant Direct. These questions arose out of a conversation I had (and of course, was granted permission to reproduce them here!)
Using EmigrantDirect (http://www.emigrantdirect.com) or ING (www.ingdirect.com) will allow you to have an account with as little as $1 in it. I implore you, however, to move your long-term savings out of a regular (low-yield) savings account and into one of these accounts. It's the smart thing to do. Neither of these banks have minimum-balance requirements nor charge any fees. Emigrant's rates are at 5.0% and ING is currently at 4.5%. I use both, and have had no problems.
Mutual funds vary of course. You will have to go to the mutual fund's websites and find out specific information (like fees and expense ratio information). I do of course recommend Vanguard Funds, American Century, and even T. Rowe Price is a nice, long-term company as well (you've seen the commercials). In the end, you'll have to pick which works for you, because each company has it's own investment strategies and charge different rates.
The HY (High-Yield) savings does not have a lock-up date. (Not like CDs, (certificates of deposit) which have a date where your money is "locked up" and cannot be withdrawn until the agreed-upon date, with few exceptions).
You can move the money into a high-yield savings account today and move it out next week. You wouldn't do this of course, if you are trying to get the interest accrual. MF (Mutual Funds) may have some. If you are talking about starting a Roth IRA and using MF, then there will be penalties for trading in and out (like taxes). If you plan to touch the money in the next 5 years or less, put it in the HY-Savings. If you're time horizon is longer, the MF should be OK.
Yes. Minimum 5 years. The "younger" funds have not endured a market cycle yet. So stick with the guys who have shown they can meet-or-beat the S&P 500 over 5-10 years. Don't compromise on this. Some companies show the 1-yr and 3-yr, but that's nothing. Think about it as a coin flips. It's pretty simple to get 3 heads in a row. But if you get 10 heads in a row (on average) then there's some skill there. So you may see some companies that may have stratospheric returns over a short time. They may even turn out to be pretty good. But it's a chance you shouldn't take until they've really proven themselves.
I would start with ING for HY-Savings. It's a slightly lower rate, but its this most user friendly. EmigrantDirect is not as "colorful" but it's still fairly easy to use. If you can use Online Banking with your current bank, this shouldn't be a problem. There are quite a few others out there but I cannot vouch for them at all.
Depends on who you choose. With MF's of course there's nothing guaranteed. But great risk can lead to great reward, and that's why they encourage you to start young (so you have time to recover). This shouldn't discourage you, because the money you put into a MF is money "left over" after you've budgeted anyway. Once you've covered all your expenses, then you invest the rest (in the community and in yourself).
What you have to do is minimize your risk. So when you choose your mutual fund according to what we learned previously, you know you can choose your fund more comfortably. If a Fund has outperformed the S&P 500 for the last 10-20 years, chances are it will continue (not guaranteed of course). When you start investing, there will be some volatility (you will have some really up years, some OK years, and some down ones. By choosing long term funds, making sure the expenses are low (like less than 1%), and diversifying (across growth funds, income funds, international funds, real estate funds, etc.) you will position yourself to be quite successful.
Most funds have "requirements" for initial entry (usually between $1000-$10000) unless you work for a Corporation or other business with a 401(k). I usually think the 401(k) is the best to start with because it's pretty diversified. (Plus the company throws in extra money too). The IRA is what you use if you have even more money to put away. You'll again have to check Morningstar.com or a company's website for more information.
Please Keep your questions and comments coming. See you next week.
--Charles
-What types of fees are there involved with the investment in either the [high-yield] savings or mutual fund?
Using EmigrantDirect (http://www.emigrantdirect.com) or ING (www.ingdirect.com) will allow you to have an account with as little as $1 in it. I implore you, however, to move your long-term savings out of a regular (low-yield) savings account and into one of these accounts. It's the smart thing to do. Neither of these banks have minimum-balance requirements nor charge any fees. Emigrant's rates are at 5.0% and ING is currently at 4.5%. I use both, and have had no problems.
Mutual funds vary of course. You will have to go to the mutual fund's websites and find out specific information (like fees and expense ratio information). I do of course recommend Vanguard Funds, American Century, and even T. Rowe Price is a nice, long-term company as well (you've seen the commercials). In the end, you'll have to pick which works for you, because each company has it's own investment strategies and charge different rates.
-Are there lock up dates where the money would not be accessible, and if so, what types of penalties are there?
The HY (High-Yield) savings does not have a lock-up date. (Not like CDs, (certificates of deposit) which have a date where your money is "locked up" and cannot be withdrawn until the agreed-upon date, with few exceptions).
You can move the money into a high-yield savings account today and move it out next week. You wouldn't do this of course, if you are trying to get the interest accrual. MF (Mutual Funds) may have some. If you are talking about starting a Roth IRA and using MF, then there will be penalties for trading in and out (like taxes). If you plan to touch the money in the next 5 years or less, put it in the HY-Savings. If you're time horizon is longer, the MF should be OK.
-Should I only get with a proven mutual with a 10 year that may not have as good a yield as a younger one?
Yes. Minimum 5 years. The "younger" funds have not endured a market cycle yet. So stick with the guys who have shown they can meet-or-beat the S&P 500 over 5-10 years. Don't compromise on this. Some companies show the 1-yr and 3-yr, but that's nothing. Think about it as a coin flips. It's pretty simple to get 3 heads in a row. But if you get 10 heads in a row (on average) then there's some skill there. So you may see some companies that may have stratospheric returns over a short time. They may even turn out to be pretty good. But it's a chance you shouldn't take until they've really proven themselves.
-Is there a particular company with really good user interface that is easy to understand?
I would start with ING for HY-Savings. It's a slightly lower rate, but its this most user friendly. EmigrantDirect is not as "colorful" but it's still fairly easy to use. If you can use Online Banking with your current bank, this shouldn't be a problem. There are quite a few others out there but I cannot vouch for them at all.
-What are the chances of losing on a mutual fund (negative yield in short or relatively long term)?
Depends on who you choose. With MF's of course there's nothing guaranteed. But great risk can lead to great reward, and that's why they encourage you to start young (so you have time to recover). This shouldn't discourage you, because the money you put into a MF is money "left over" after you've budgeted anyway. Once you've covered all your expenses, then you invest the rest (in the community and in yourself).
What you have to do is minimize your risk. So when you choose your mutual fund according to what we learned previously, you know you can choose your fund more comfortably. If a Fund has outperformed the S&P 500 for the last 10-20 years, chances are it will continue (not guaranteed of course). When you start investing, there will be some volatility (you will have some really up years, some OK years, and some down ones. By choosing long term funds, making sure the expenses are low (like less than 1%), and diversifying (across growth funds, income funds, international funds, real estate funds, etc.) you will position yourself to be quite successful.
-What is a good amount to invest in for mutuals?
Most funds have "requirements" for initial entry (usually between $1000-$10000) unless you work for a Corporation or other business with a 401(k). I usually think the 401(k) is the best to start with because it's pretty diversified. (Plus the company throws in extra money too). The IRA is what you use if you have even more money to put away. You'll again have to check Morningstar.com or a company's website for more information.
Please Keep your questions and comments coming. See you next week.
--Charles
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