It’s been a few weeks since tax day, and that means my time is short. In a very little while my knowledge of and attention to my finances will transform back into a pumpkin, returning to its default state: quarterly comparisons of my checking balance and bar tabs to determine whether I should be drinking less, more, or much more (there are some discontinuities in the function).
I really, really hate dealing with money. It stresses me out, leaving me irritable and petty. Online bill payments have made my life significantly better, so much so that I’ve completely surrendered myself to them. For a while I insisted on manually responding to electronic bills. Then I automated known outgoing payments like rent. Then I set things up to automatically pay incoming bills. These days I’m perfectly happy to hand my SSN and a cheek swab over to even the shadiest vendor’s auto-payment system. So what if they route payments through a Nigerian goldenpalace.com subsidiary with an expired SSL certificate? I don’t care. I just want to be left alone until someone tells me I’m supposed to appear in court.
But like I said, I’m still in the midst of one of my financial waking periods, and I should probably seize the moment. I know it’s uncouth to complain about not knowing what to do alllll one’s vast estates and holdings. But, like a musician who can’t help recording a sophomore album about how there’s a downside to fame (man), I can’t resist. The fact is that once, a long time ago, I was capable of saving money. For a while, I did so. The result was not a princely sum by any means, but enough that I should probably figure out something to do with it: partly because I may someday have expenses beyond electronics, beer and rent; but mostly because I’m tired of Bank of America employees stifling laughs and avoiding eye contact whenever I walk by one of their branches.
The obvious answer is to invest it somewhere. But where? And how? It’s tempting to fritter it all away on hand-picked stocks, but a long-gone intern’s incessant prattling about his portfolio convinced me that E*Trade’s potential for turning me into an insufferable ass makes it an undesirable investment vehicle.
Besides, I remember the lesson taught to me by my ECON101 instructor (author of economic mystery novel The Fatal Equilibrium — yes, really): no matter what you think you know, the market already knows it and has priced itself to reflect it. Got a hunch? The market’s on to you. Heard a hot tip? The market did, too. Did you just invent a cheap & effective robot bride at a secret facility buried deep within the earth’s crust? Sorry weirdo, the market was hiding in the ductwork and has already radioed the news back to the trading floor. Even if you caught it, it’d just crush the cyanide-filled false molar implanted in its jaw before you could get any information from it.
So the thing to do, apparently, is to find an index fund, which lets you spread your investment across the top 500 or 1000 stocks in various segments of the market. This strategy gets around the problem of your not being very good at picking stocks AND the problem of professional stock-pickers not being very good at picking stocks.
All I really have to do is find somebody who’s willing to sell me one of these things, then pick one. Figuring out which business to hire has proven unusually difficult, however. My tried & true method for this sort of thing is to find the firm with the best cartoon mascot. For example, if I was still in the market for car insurance I’d obviously have to give my business to the creators of sexy cartoon minx Erin, who periodically fights robotic menaces with an unnamed animated lummox (can’t you see he’s all wrong for you, Erin!?).
But things aren’t as clear-cut in the financial arena. The closest thing to a cartoon that I can think of are these Charles Schwab commercials that rip off Waking Life:
Counteraguments aside, I decided to give it a shot. But it’s hopelessly confusing. There are tons of funds. And although they’re rated with a varying number of stars along just a few axes (in order to assist stupid people like myself), the overall risk/reward relationship doesn’t appear to be zero-sum. This leaves me wondering why anyone wouldn’t just pick the one with the best combination of stars — and why it’s so hard to use the interface to find that one (maybe this is why investment bankers are so well-paid). Until I figure out the answers to these questions I’m too terrified to do anything.
Jesus. I have friends with savings. Who are looking to INVEST. When I’m homeless and unemployed at 65, can I come live in your house, Tom?
I really like Vanguard. They have low fees and I’ve never had to talk to a human being. Vanguard Total Market tracks the Wilshire 5000, which is a better index to use than the S&P 500 if you’re looking to just put all your money in one fund because you get mid- and small-caps in addition to the large-caps. Or at least dump your money into a money market at ING Direct so it’s getting a better interest rate than Bank Of America. Again, no humans.
I’ve been reading http://www.getrichslowly.org/blog/ for a while- I think that ANY DAY NOW they’re going to get around to how to pick an index fund. As far as looking at individual mutual funds (how do you tell which ones are index funds??), I pretty much just go for a 10 year return that is as high as possible.
Anyway, I know virtually nothing and I think I’ve made 8% profit dabbling with such things on Scottrade- I started last August. Two of my picks went up, and one went down, but only slightly. (I can give you some tips, for a small fee…)
And yeah, it’s so taboo to talk about investing, because it means you’re not broke. But what the hell, none of my friends read your blog (except for that girl with a penchant for finding rich boys, in contrast to my very good track record for finding broke ones.)
The big question is what do you want to do with your money: maximize the upside or minimize the downside? As these are savings, I assume the latter, not the former.
Unless you’re investing for a time-sensitive horizon (say, you’ve decided to buy a house in five years and are saving towards that), then Becks – as always – has advice you can follow.
The bigger the number behind the index you’re tracking, the better, although the difference between the S&P 500, Russell 1000, and Wilshire 5000 is pretty minimal in your case.
The only thing I’d point out is that, in addition to getting lots of stocks in there, you should look at bonds and “other investments” – if, say, we go into a recession, then financial theory says that the value of your stock holdings will go down and bond holding up. But, then financial theory also said LTCM couldn’t fail.
To pick the first fund I could come up with that had both stocks and bonds in it, some thing like the Vanguard STAR Fund might make sense – bonds, stocks, standard fees, no unusual taxes. Make sure you understand the fees & taxes on the fund you’re looking at, otherwise you might find yourself losing all you’ve earned in interest if you have to unexpectedly liquidate your savings.
And the Esurance chick’s name is Erin? She is a minx…
(The usual disclaimers apply, as well as: as of right now, I have no savings myself; my job depends on getting people to invest in bonds, so I bring my own biases to the table. For God’s sake, talk to someone with more sense before you do anything.)
On a walk to lunch, I was complaining to JP about the lack of a Really Good sandwich shop down near where were we work. We should all pool our money and start one. I’m sure it’d make a killing. Maybe all it would take is a cart, on the opposite side of 15th and K from the burrito guy.
Anyway, I have an ING Direct account, and that’s been pretty darn nice.
Argh, money.
You might want to look into getting a financial adviser. I use one from Ameriprise, and it’s worked out pretty well. If you look around for one that doesn’t charge too crazy a commission, they can generally do better than you could by just sticking it in any old index fund. They also handle all the paperwork involved in setting up retirement accounts (Roth IRAs are your friend! Seriously, it’s like free money), a big benefit. You just send them a check whenever you have some extra money you want to invest, and talk to them on the phone for a couple of minutes every few months. Easy peasy.
i second vanguard.
also, the N has a superhot crush on Erin as well.
The downside is that the guy from that commercial looks EXACTLY LIKE the douchebag ex of my best friend. So, unfortunately, even minxy Erin can’t solve my hated for that cartoon.
Thanks for all the advice, guys. I think I’ll probably find somebody I can talk to and then send them checks and hope for the best.
G: glad we can agree that that cartoon dope isn’t good enough for Erin.
Remember the cliche about opinions? Well, investing advice is the same.
Keeping that in mind, I have two recommendations:
1. Read whatever you can on the subject — preferably in small doses so you can see a mix of perspectives. Articles on Yahoo Finance and money.cnn.com are a good start.
2. Whatever you choose to invest in, pay close attention to the fees. Never feel intimidated to question them and open an account elsewhere. That is where the bank, fund, broker, or advisor makes their money by taking from your pocket. TAANSTAFL, but that doesn’t mean you have to be a sucker.