Jump to content

Roth ?


Guest lrc425
 Share

Recommended Posts

Guest lrc425

I have been investing in my roth ira for approx. 3 1/2 yrs, I am 33 years old & I contribute the max each year. I have noticed that the only increase in my roth is the monthly contribution I am putting in. I had a financial advisor who gave me poor advice & I am looking for advice on how I can get my roth ira to grow.

Thanks!

Lisa

Link to comment
Share on other sites

LRC - the last 3 1/2 years have been choppy waters for many investors, a mix of modest up periods offset by some down periods. You are not alone in wondering if your Roth is "performing". In many ways, while this may be disappointing, it is not completely unexpected. The markets don't consistently chug up hill at a 10% clip each year.

However, good years significantly outnumber bad years and the best of the good years are much more up than the worse years are down. (not easy to say, more easy to see in a time series) When I teach my Junior Achievement economics students about the stock market, I ask some of them to compile the total up and down years and then look at the five best and worse. I use a couple of time series that cover anywhere from 50 to 73 years. There is nothing like hands on working with data to demonstrate that while the "market" does not always go up, the long term trend has held for many decades, demonstrating that wars, drought, inflation, depression or which party holds the White House is not as significant as the economic drivers of capitalism.

If you will post some additional information about the investments in your Roth, I will give you a second opinion. Are we talking about mutual funds? Are you paying front end or exit commissions (also called "loads")? Did you contribute in lumps (dates would be helpful) or on a systematic investment from your checking account? Has you advisor changed your investments or kept you in the same positions? How much time a month are you willing to spend making investment decisisions? When a position goes down, are you more inclined to buy or sell? What annual rate of return do you expect? Tell me something also about your attitude about risks. (lots of questions, hopefully your advisor asked you some of the same ones)

Post again, and I will give you an alternative view. I will need the exact name of your holds... preferably the multiple letter symbols that you will find on your monthly statements.

Link to comment
Share on other sites

Guest lrc425

My checking account is automatically deducted $250 each month. My statement indicates Cash & Money Market Funds; description is Bank Deposit Sweep Option (I have no clue what this means). The other is Open End Mutual Funds; PIIBX & VVPAX. I have had these same investments from day one. I no longer use this is initial investor. Any info would be most appreciated.

Thanks, Lisa

Link to comment
Share on other sites

PIIBX

Morningstar Category Conservative Allocation

Morningstar Rating *

Expense Ratio % 2.44

Front Load % None

Deferred Load % 5.00

IMHO, the only person making money from this fund was your advisor. Couldn't find a listing for WPAX.

Here's my suggestion:

READ, READ , READ about Mutual Funds and Asset Allocation. lots of great articles out there on these topics. Armed with that knowledge:

1) Go to Google, type in "Asset Allocation Tool" Here's a couple that came up.

http://www.smartmoney.com/oneasset/

http://financialcalculators.americanexpres...eng/asset01.fcs

Run through a couple of the calculators to get your preferred mix of Stocks, Bonds, Cash based on your investment horizon and risk tolerance.

Quicken and Morningstar also have good tools if you want to go through the minimal trouble of registering. Also, odds are good that your current financial institution has the same kind of tool somewhere on their web site.

2) Armed with your preferred mix, hit Morningstar, Yahoo, Amex, Quicken , your current financial institution and hit their Fund Screener. Load in the type of fund your looking for, performance, expenses etc. for each category. I'd look for

below category average expenses

above category average performance for 5 & 10 year horizons

Morningstar rating of 4 *'s or better

No front end load

No deferred load

Initial investment of 1000 (I'm assuming your current Roth balance in the 8 - 10 k range which would let you pick 8-10 funds)

3) Get a quote from your current institution on how much it's going to cost you to exit entirely and how much you can transfer without incurring the deferred load

4)Set your final fund selection based on the $ that will be available

5)Shop for a financial institution that will let you have those funds, has low expenses for maintaining the Roth, accepts direct deposit in return for lower fees

Repeat 1 - 4 every 3 months, ay least every 6 in the event that your fund changes or your risk tolerance changes and/or to rebalance your portfolio back to your original asset allocation.

I won't kid you, there a big initial investment of time and effort. But, it will payoff.

Link to comment
Share on other sites

Couldn't find a listing for WPAX.

I think you mistook two V's for a W there, Demosthenes. Very much like the other fund, VVPAX is a two-star "Conservative Allocation" fund with a 5.75% front end sales charge and ongoing annual expenses of 1.67%. It looks, lrc, like the advisor had you pegged as a very conservative type of investor. Assuming that is (or was) indeed the case, they probably did as well for you as any commissioned salesperson could have. At least these funds were diversified (not individual stocks), with allocations across stocks and bonds.

Still, the expenses are hard to justify. Far better to spend a little time as Demosthenes suggests and educate yourself about your options, then choose broadly diversified no-load funds that match your risk tolerance. Keep reading old threads on this site and you'll find a ton of good info on getting started down the right road.

Link to comment
Share on other sites

Whoaaaa Nelly ! We got this here so called investment "advisor" tied up to the corral and are deciding if that barrel of hot tar and those pillow feathers are needed.

LRC - I believe you have gotten off completely on the wrong track and if the following sounds harsh, I hope you will understand that I have to cover a lot of issues and there is a large number of visitors to this site that have the same problems getting started with investing.

What I took from your first post: (1) you don't know what you own, (2) you don't understand your statements, and (3) you relied on a salesperson to make your investment decisions. You just "bought" about $10,000 of a product that you apparently did not spend much time to understand. I suspect that if you spent $10k on a trip to Europe, you would have spent a lot more time before you boarded the plane than you spent on this investment.

Your advisor (arghh, I use that term very loosely) has put you into two funds that are awful. The ING group makes oddball commercials, but apparently comes up short on these offerings. Let me count the reasons:

PIIBX (all mutual funds have five letters and their symbol ends in X) This is ING fund called Principal Protection II that has some trick components, like promising no decline in principal in the first five years... but language that is so convoluted that I still can't completely comprehend the meaning after five readings! It supposedly has 80% of its assets in stocks (not! see below).

1. 2.44% annual expenses! This is really bad, way too high for a fund that holds almost the same stocks (when it holds stocks) as the Vanguard 500 that has annual expenses of under 0.2%. Translation - you are giving up more than 2% for supposed active management.

2. This fund is supposed to be 80% in stocks - but in the most recent snapshot shows that they are 90% in various bonds. In the investment business that would be called serious "drift" - Robinson Crusoe type drift.

3. This fund has a 5% back end commission, which apparently declines over five years.... I note that the ING site did a good job of hidding this fact and did not fully explain it.

4. Performance of this fund for the past three years has seriously lagged the S&P 500 and the fund ranks in most services in the bottom 10% of all funds.

5. I note that this fund says it is "conservative" allocation. Now there is a term that is misused. Money contributed to this fund has not kept up with the rate of inflation.... how could it when low yielding bonds get 2.44% taken off the top for expenses?

V V P A X - Principal Protection V, again an ING fund

1. This has a 5.75% front end load - that is money that goes to ING for paying your "advisor" a commission. Note, that about 1/2 of all funds have no such front end or back end loads... these are called NO LOADS. You are not yet back to even on this fund after getting hit for this front end load.

2. Did you know that although this fund says it should be 80% in stocks that at this moment it has 75% of the portfolio in bonds. Another "conservative" approach that is not keeping you ahead of inflation. Another example of drift away from what some summaries of this fund say is the focus.

3. 1.67% annual expenses - better than 2.44% but way way too high. There are many NO LOAD funds with annual expenses below 1%... some even below 0.2%.

4. One reason for the high expenses might just be the 53% turnover of holdings. Since this fund is supposed to contain blue chip (large, big name) companies and government bonds, why the need for high turnover?

5. This fund started in Jan 03 and the assets rose 1.35% in the first 9 months, then up 2.4% in 2004. Not exactly great performance. It ranks near the bottom of all funds.... but hey, you get to tell your friends you have "convservative" investments. (clearly a marketing gimic rather than a great approach to investing)

Conclusion 1: These two funds are awful. If you had invested in a basic index fund, you assets would have increase about 15%. The data on these two funds suggests that you current balance is less than what you contributed. They are not likely to produce reasonable results - like the basic one of keeping your money ahead of inflation for starters. The loads and annual expenses are not reasonable. Sell them.

Conclusion 2: LRC, you need to spend more time learning how to invest and to understand what you are "buying". I highly suggest that you get a copy of the March issue of Consumer Digest and spend an hour reading the articles.

Conclusion 3: I think your investment advisor gave you very poor advice. Fire him or her. You are age 33 and should have been investing in broad based stock funds that actually were in stocks. These two are not. You have many decades of investing and you can't build a decent retirement nest egg if you only make a few percent return. It is OK to mix stocks and bonds, but these two funds are so heavily in bonds you might as well call them bond funds. ING seems to be marketing gimic funds based upon fear of investing. An educated investor would not buy this stuff.

LRC - the research to respond to your post took about 40 minutes and involved Google searches, and looking at mutual fund summaries at Etrade and Schwab, then about 30 minutes to type. I agree with most of what Demo and TY posted. You need to understand that ultimately you could to have hundreds of thousands of dollars (if not millions) in your Roth if you make wise choices... and that really takes some time.

I know I did not address the question of how to proceed, post again if you want me to lay out some options and suggest a path.

Link to comment
Share on other sites

Demo said:

below category average expenses

above category average performance for 5 & 10 year horizons

Morningstar rating of 4 *'s or better

No front end load

No deferred load

Initial investment of 1000 (I'm assuming your current Roth balance in the 8 - 10 k range which would let you pick 8-10 funds)

I agree on: Morningstar as a screening tool, choosing NO LOAD funds, and avoiding deferred (back end or exit) load funds.

But, I would not suggest that folks pick 8-10 funds. Too much work. Plus, most of the diversification of the portolio can be accomplished by picking just one or two general funds. One or two well managed funds (either actively managed NO LOAD or index fund) with perhaps 300 to 500 holdings each is probably just as effective as 10 funds with a 1200 holdings and very likely more than 50% overlap. Overlap in holdings becomes even more likely with large funds, which because of their size must hold the stock of large companies like Walmart, GM, GE, Microsoft and Johnson&Johnson.

I would not suggest that someone switch around funds on a 3 or 6 month schedule. First, the temtation to chase recent hot performance is generally a bad idea. And, frequent switching increases the workload and tracking requirement. For some funds, you might get charged for short term changes... something getting more common. Remember, past performance is not a very good predictor of what will happen in the next 3-6 months. You don't need to hit the 90% mark of perfection to produce great results in your Roth.

The two biggest factors that will effect the growth of your Roth assets are: (1) time for compounding, and (2) asset allocation. If you buy on the worse day every year (at the market peak), you still will get very good results over many decades because of tax free compounding. Asset allocatioin refers to what broad catagories of investments are in your account. Money market funds or CDs earn very little on average. Government bonds are next in the food chain. Then other bonds. Then equities (stocks). Lower risk and especially guarenteed investments give the lowest returns - they don't need to pay more because they have the appeal of "safety". The higher risk catagory - stocks - has short term flucuations, but over the long haul, many decades, produces the best returns.

I would rather a new investor spend more time understanding investments rather than devote so much time in short intervals making new decisions. If you spend more time learning and make good choices, you might just be able to keep your funds for a long time. For example, consider a fellow that picks two funds that return 15% in a good year when the average fund is up 13%. That is a decent result. You can get into a lot of trouble switching to any fund in the top 10% that might have been up 20% that year. {ask some of those folks who chased the dot.com, tech and telecom funds in 1999 how they feel about performance chasing]

Link to comment
Share on other sites

Ty said:

At least these funds were diversified (not individual stocks), with allocations across stocks and bonds.

I though so at first because that is what some of the summaries said. BUT, right now both of these funds have swung way over towards bonds. There is a good lesson here - funds do not always remain true to their stated investment plan. In the biz, this is called "drift".

One way to check if a fund has changed emphasis is to look at the top holdings and the main assets catagories which are included as either charts or tables in most fund summaries.

Thanks TY for figuring out W was actually VV. I spent too much time trying different possibilities in Google with no success.

Link to comment
Share on other sites

Guest lrc425

Thank you John G! Unfortunately, you are correct I did not take the time to educate myself I was careless & trusted this so called advisor because his father is my boss! I read & reread your message it & is all greek to me. I want to sell these & reinvest in better mutual funds but I do not know where to begin. Another advisor was assigned to my account but I am afraid to trust anyone again to invest for me. He has called me recently wanting to discuss opportunities to invest my $$. I am just skeptical I don't want to waste more time & lose more $$. Any input is appreciated, thank you!

Link to comment
Share on other sites

OK, the first step is always to figure out that something is wrong.

Here is what I suggest that you do.

1. Don't add any new funds to these accounts. Let me know if you are trying to put in funds for 2004 by April 15 and I will give you a fast track answer for those dollars.

2. Tell me a little about your training/education/experience which will help me give you some guidance. For example, are you comfortable with doing things on the internet? Maybe you can address how you respond to taking risks - like moving, taking a new job, or how you were brought up to view money matters.

3. My response may have been more detailed or used jargon with which you are not familiar. I can try to clarify.

4. I can give you some suggestions of reading materials that might get you back on the right track. If you want to do this well, and I hope you do because a lot of money will eventually be involved, you probably need to devote about 1 hour a week... maybe a little more when you first get started. Don't be intimidated by the task.... you don't have to be a math wiz or rocket scientist to learn the basics. Some of the best investors I know have just a high school degree. One guy never graduated from HS and has run a deli all his life.

5. If you have kids, we might as well bring them along. Teenagers are fascinated with money and if they have earned income they too can have Roth accounts.

6. At some point, you probably will feel comfortable with a new custodian and will arrange for that custodian to file the paperwork to collect all the assets at ING. But, that is in the future. For the moment, don't do anything with ING or these funds.

Having an advisor that is related to your boss is not a great idea. While there are great advisors, I find that all to often we think folks must know something because we have no experience. Frankly, some of the folks who pass off as advisors are terrible and respond first based upon the interests of their client. I have a friend who lives in the high end world of investing and he has said about money managers and advisors: "these guys are really good at babysitting money, but most of them don't really know much about how to earn money and how to make good investment decisions". Babysitting money - let me define this as sitting on millions of dollars in a fund and taking an outrageous 2.44% each year for minimal effort.

Let me give you some motivation. I did a very rough calculation that if you were to continue on this path, you might be able to built 250,000 in your Roth by age 67. Replacing this approach with something like what many people do which has a significant stock component should build a nest egg between $760,000 and $1.2 million by the time you are 67. I express this as a range because we haven't talked about a reasonable mix of investments for you.

Link to comment
Share on other sites

Guest lrc425

John,

1. My bank account is automatically deducted $250 per month for my Roth.

2. I have a college degree but I have no training or education in this industry, I am VERY green, unfortunately. Every time I try to educate myself I become overwhelmed & just get more confused. I have no issues with taking risk I understand that in order to get anywhere in life we must take risk so I am willing. I am very comfortable using the internet.

3. Your response was great I appreciate you taking the time to deal with me however, it was a little over my head.

4. I welcome any suggestions

5. We do not have kids yet but, I am 5 months pregnant.

Thanks again for all the advice!!

Lisa

Link to comment
Share on other sites

Good for you! You plan for three!

I will post again soon, but want to thing about how to proceed.

Another question: do you have a company program? or are you a teacher by any chance?

Link to comment
Share on other sites

Guest lrc425

By company program do you mean 401K? If so, yes & i invest the max each month. No I am not a teacher.

On another note I have another account that this so called investor opened for me & it is doing nothing as well. The open end mutual funds is FGOBX & he has all my $$ tied up in this one fund. I really want to get out of this as well as for the past 3 years it has stayed within the same $1000 range.

Thanks!

Link to comment
Share on other sites

LRC - when I have time, I will be adding messages here related to general investing knowledge. I would appreciate if you add a reply and let me know if the material is useful.

Given my time limits today, I am going to post on - Rule of 72 and representative returns.

RULE OF 72 - This is a rule of thumb for understanding how fast any asset will grow in value for a specific rate of return. You could do a more precise calculation with an HP 12c calculator or spreadsheet - but this is a fast back of the envelope calculation. Rule of 72: Divide 72 by annual return for the investment to determine the number of years before the investment doubles in value. For example, if you have a $5,000 investment averaging a 7% gain each year, the rule of 72 says (72/7=10+ years) that your nestegg will double in just over ten years. So, in 10, 20, 30, 40, and 50 years your would expect to have approximately $10k, 20k, 40k, 80k, and 160k.

What happens if the same investment grows 10% a year? Well, the rule of 72 says that you will double every 7.2 years and this same initial investment in 50 years would double two more times or grow about $640,000. That's a big difference from 7%... a trip to London, a new car and maybe a summer condo level of difference.

I will apply the "Rule of 72" to some of the basic investment options using some long term average performance to create a ladder of results.

Cash at todays savings account, checking account rates

2% annual rate, taking about 36 years to double

Conservative bonds portfolio

4% annual rate, 18 years to double

Bond mix, government, corporate, etc.

6% annual rate, 12 years to double

Blended stocks and bonds

8% annual rate, 9 years to double

Stock portfolio

10% annual rate, 7 years to double

Stock portfolio slightly biased to growth

12% annual rate, 6 years to double

You can see how it might be nice to double your assets in a shorter time period. But, what about risk? I hope you realize that all investments have risk. The short term risk (under 5 years) is generally related to the level of return. Low returns are usually "safer" but may not give you a chance to reach your goals. Low returns run the risk of not keeping up with inflation... for example your current investments are clearly not keeping you significantly ahead of inflation. However, over long periods of time, the average performance rate is more likely to dominate. For example, every 20 year snapshot of stock market performance in the past 100 years has a positive rate of return. My time series data suggests that there is just one ten year snapshot in the past twenty years that did not have a positive rate of return. While there is some disagreement about the long term average for stocks, but most sources put it just above 10% per year.

Many financial planners conclude that the longer time you are compounding, the greater percent of your portfolio that should be in stocks. But, folks attitudes toward risk and their timetable can vary. Right now lots of folks are scared about owning stocks because of all the dot.com disaster stories. That is sad because back to back bad years are extremely rare. Some of the best up years have followed the annoying down years. More about this later.

My goof. I corrected the bad math above! 72/7 does not equal 7 . . . good thing my mother did not read this post. A good example of the goofs we make when we rush and don't proof our work. I revised the above and hopefully clarified the material.

Link to comment
Share on other sites

Just a tangent here, lrc, feel free to ignore.

Ty said: 

At least these funds were diversified (not individual stocks), with allocations across stocks and bonds.

I though so at first because that is what some of the summaries said.  BUT, right now both of these funds have swung way over towards bonds.  There is a good lesson here - funds do not always remain true to their stated investment plan.  In the biz, this is called "drift".

I don't think it's drift in this case. I think it's a gimmick, as you well said, John. There are funds out there that try to eliminate downside risk while offering "market-like" returns in the good years. They do it by investing in short-term discount notes that will mature at the original NAV, then they roll the dice with the discount amount. One clue is that this fund seems to only allow purchases on a certain date each year, presumably the day they're buying the notes. From my limited experience with these things, I understood that they use leveraged instruments like futures or index options to augment the good years. This fund doesn't seem to do that, so who knows what they were trying to accomplish? The returns would always look more or less like a conservative bond fund (with outrageous expenses). :blink:

Link to comment
Share on other sites

Ty, well said. There is a lot of gimic, plus obscure and conflicting explainations.

Investors should avoid brokers, newsletters, advisors or funds that suggest that they can enter and exit the marketplace to smartly time investments. One of the characteristics of markets is unpredictability on a day to day basis. I have never known or met anyone who can consistently and successfully be a market timer. Is today high or low? Is 2005 going to be a good year or not? I don't know and I don't think anyone else does either.

When a fund says they will be 80% in stocks and they are 80% in bonds - you can't rely upon them.

But, the number one reason for not even considering these funds is the extremely high expenses.

Link to comment
Share on other sites

Guest New2LT

Thanks to all who have contributed...I have learned as much from reading this board as I have from my own research.

I have a few quick questions that maybe some of you may be able to help with as well.

I am commissioning in the Army in May and will be opening up a Roth IRA through my bank, USAA, which has very decent IRA plans, according to my sister and brother-in-law who have had quite decent success. I will be taking part in the Army's Thrift Savings Plan (TSP) but will also open the Roth. After some serious tutoring by my afformentioned "advisors", I have a basic grasp on how a Roth IRA works.

I also know to look for things like no loads, low operating costs (1.2% or lower), and their Morningstar rating as a general rule of thumb. I also understand that as a young investor with a steady income for the foreseable future (at least 8 years) and a desire for LONG-term growth I should look for a medium to high risk plan.

My questions are how to narrow down which plan to go for. Since I will be going through USAA, it narrows it down (they are no where near the big time investment firms) but there are still quite a lot to choose from. I've been advised not to choose a fund with too many investors in it, but how many is too many? What should someone in my situation choose, an "asset-allocation fund" or a stock fund, and whats the big difference? Also there are several funds to choose from in each category, for example on USAA's website under high risk, multi-cap and large-cap stocks, there are 10 different funds (may not seem like that many to you veterans but to a 21 year old newbie its too many). Finally, how does one use the information from the "average annual total returns" and prospectus to make a decision?

Sorry for the long post but if anyone has any insight I'd appreciate it (as I'm sure would other trollers of this board, including myself thus far).

Link to comment
Share on other sites

Your check list:

No Load - yes, a good idea

Low Annual Expense - you might even want to restrict the list to below 1.0%

Med to high risk - not sure how you define high risk. You can probably accomplish all your long term goals if you have a broadly defined stock mutual fund. I don't view investing in the stock market when you have many decades as being overly risky. I would use "high risk" to define narrow sector funds or international funds. I would not use high risk to characterize an S&P500 index fund or general stock market fund.

Avoid fund with too many investors - What? I have no clue what you mean by this. The number of investors in a mutual fund has zero impact on the performance of the portfolio. Most mutual funds are large enough to reach some level of economies of scale with regards to cost of customer accounts, and you already get some sense for this with the annual expense number. I would not use "too many investors" as any criteria for selecting. Maybe you mean very large funds because they can't be as nimble and they may have trouble buying shares of smaller companies. While this might be true for the huge funds with 10+ Billion in assets, these funds often do just fine. I am not sure if I would put too much emphasis on this factor when you choose your first fund.

Asset allocation or stock - you are young and have many decades of investing, avoid the gimics and choose a general purpose stock fund for the first year.... I can't get into the USAA website so I can't review the list. Yes, there are many ways to slice "general stock fund" - by cap size (size of companies), growth vs value, etc. An asset allocation fund might try moving money around to "time" the market - which rarely works.... or it could be one of these gimicky "life cycle" fund where they change the blend of stocks/bonds as you get older. Frankly, the gimicky stuff is more hype and marketing than great investment thinking. If you cut and past the general info for one or two funds from USAA I will give you some comments.

Average annual total return - one of the great misleading statistics in looking at funds. Chasing last years performance (oil and resouce area has been hot for more than a year) is rarely a good way invest because last years winners often lag in the next year. I sure hope you don't drive a car by studying what is in the rear view mirror! But.... you get some idea about the volatility of performance by looking at a string of years, and to some extent when you look at 10+ years of data you get a sense for long term average for this style of investing. (note that some funds change styles or "drift" over time)

Let me be very clear about this issue of picking a fund. This is not an optimization process, no matter how many hours you spend. You can't know in advance which funds will be the top performers. Timing of your buys is not worth worrying about either. Make a reasonable choice, watch and learn. In year two you may add to the first fund or choose a second. The three most important factors for long term success are: (1) the asset catagory (stocks vs bonds vs cds, etc) you select... and given the 5+ decades of investing, stocks or equities should be emphasized in your choice, (2) time! not when you buy but how many years of compounding... and your early start is works for you, and (3) keeping expenses down and staying away from loads or commissions.

One thing to definitely avoid is panic over some short term drop in value and pulling the plug. A few years back, we had three bad years in a row. But, many people who stayed with their funds for the past ten years are doing just fine because they have more good years than bad. I sure hope this does not sound like vodoo or magic - its not. When you invest in the stock market you are basically putting your money to work - and capitalism provides some strong incentives for businesses to flourish. Investing in stocks is very different from investing in bonds, CDs, money market accounts, and lots of stuff that includes "safe" in the marketing material. The stock market is tied to the economy and over the long haul, our economy is wired for growth. Owning stocks gives you a chance to partipate in that economic growth. It gets a lot easier to ignor the short term flucuations and stick with a plan when your base of knowledge is strong. Good investors work hard to take the emotion out of investing... they are more likely to buy when the market dips and less likely to panic and pull their funds. If you devote two hours a month to reading about investing and personal finance, you level of knowledge will improve dramatically. Consider subscribing to any of the main stream investment magazines like Money, Worth, and Kiplinger Finance.

Link to comment
Share on other sites

Guest New2LT

John, Appreciate the help. A lot of what you said makes sense and will really help me out. I definately understand that I'm young and getting going early so the most important thing for me to do is make an informed decision, not panic, and learn how it works as I go. Here are a few of the funds I've been looking at. Note all USAA funds are no load.

Fund Symbol: USGRX

NAV* $18.01

Morningstar Rating As of: 02/28/2005

Overall 3 year 5 year 10 year

**** 4 4 3

Funds in Category

1,195 1,195 894 318

Rating Category: Large Blend

Operating Expense: 1.01%

Fund Symbol: USMIX

NAV* $10.85

Morningstar Rating As of: 02/28/2005

Overall 3 Year 5 Year 10 Year

**** 4 -- --

Funds in Category

290 290  --  --

Rating Category: Mid-Cap Blend

Operating Expense: 0.50%

Fund Symbol: UVALX

NAV* $12.68

Morningstar Rating As of: 02/28/2005

Overall 3 Year 5 Year 10 Year

**** 4

Funds in Category

785 785 552 243

Rating Category: Large Value

Operating Expense: 1.15%

This may give you a better idea than me of what they're like. If you could maybe enlighten me as to what makes each one good or bad it might help me make sense of it and know what to look for. Thanks again.

Link to comment
Share on other sites

N2LT (new second lieutenant?)

Is there some reason why you want to stick with USAA funds? I see they are No Load. There is very little info that I can pull up on them because most public sources either don't list them or give minimal info due to their narrow base of customers (I assume military only). I found no info on annual fees.

General conclusion: any of these three would be reasonable choices for a beginning Roth.

Nothing in these three gets me very excited either. The Morningstar ratings reflect that these funds have done a little better than average in the past five years which is useful to know but no guarentee that they will do well in the future. I would prefer the annual expenses on two of them to be a little lower. Each of the three focus on different size companies. The first sources I went to did not show major holdings or the percent breakdown of the portfolio. My specific comments are therefore limited by the info I can quickly find.

UVALX - I note that this fund has a new mgr since July 04. They are listed as LARGE VALUE - which means they buy stock of very large companies (like GE, Microsoft, Marriott, Johnson & Johnson), but the notes also say they may own 30% foreign companies via ADR (listed on US exchanges). Not sure why expenses have to be 1.15%.

USMIX - some references say mid cap, others say small cap (small capitalizations - small companies. Capitalization is total shares outstanding times current price.) One profile said that 80% of the holdings would be drawn from the Wilshire 4500 - which might mean that this is 80% indexed or might just mean they use the W4500 as a pool of candidates - I can't tell. They are listed as "blend" which means they include stocks that are "growth" and "value". Growth means companies that are growing in earnings and revenue (think Taser or Google as extreme versions). Value means that the stock seems to be under valued (price/earnings ratio, book value, etc) relative to other similiar stocks. The theory behind value is that under valued stocks should rise to look like their peers, or that you are buying "low". I do like the lower expense ratio of 0.50%. This fund has only been around for 5 years.

USBRX - 1.01% expenses, since 93. One profile said that they were likely to have 65% of the portfolio in dividend stocks, and they were likely to hold corporate debt (bonds). The fund can have 30% in ADRs - international firms.

N2LT ~ remember that as a new investor one of your major goals should be learning more. Don't chase performance. Don't worry about performance. Think long term. If you are in a time crunch, I see no problem with picking from one of these funds. If you have more time, you might want to scan some No Load funds outside of USAA. Once you have made a decision, don't watch the results on a daily or weekly basis - check you monthly statements to confirm that your transactions are posted, then monitor the fund a few times a year. Next year, you may want to continue with your first choices, or find a new fund. (a few funds are OK, but don't go this route if each one is dinging you for an annual fee)

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...