and Choupel, depending on where you live and what your situation is (first time home buyer?) we are seeing no money down loans again and with rates at 3%, if you can find a deal, it may be worth stretching at this time.
Thanks, David. It's always interesting to hear what financial planners are doing with *their* money.
Whsyrdaddi, Morningstar is your daddy! I use this site first because they not only clearly tell you the expense ratio but also how it compares to the category of funds you are looking at.
Reasonable fees - hmmm. Very good question. Saw the Hatteras fund in a potential client's portfolio this week - they are getting almost no return and paying 3.99% for the privelege. This is sold as a 'hedge' alternative type fund to retail investors - I'd say that's exhorbitant. Sometimes, an active fund is worth paying a little more for because the manager is so diligent and good. Most times, it pays to index or choose a good low cost fund. International will almost always cost more because they have more to deal with - currencies, governments, etc.
Great advice on fees, all. Here's another question from jkinning.
Whs - I look for funds for my clients that have expense ratios of under 1%. You van get the same type of index returns with ETF's (exchange traded funds) usually at a much lower fee than actively managed funds and many less than index funds.
@Whysyrdaddi: Average mutual fund fees are about 1.2%, higher for foreign stocks. We build portfolios with average expenses of 0.38%. Even that could be lower except that we use some country specific ETFs that have expense ratios of 0.55%. By way of comparison, Vanguard Total Stock Market (VTI) or Vanguard 500 (VOO) have expense ratios of 0.07%
Our rule is a lower cost fund for the same index is nearly *always* better. In fact they often follow the index better and have a larger number of holdings as well. The same rule can also be express, when Vanguard has an offering it is usually better!
Paying more in expense ratio costs has to be justified by a higher expected return. Usually that is not the case.
We also have a follow-up from Choupel.
jkinning - life insurance purchase would be based on your particular needs and variables - it's not an investment (or it would be registered, right?) so we're comparing apples and oranges. Can you be more specific?
@JKinning: My father got started investing back in the early 1960s after reading a book entitled, "Buy Term and Invest the Difference". He gradually invested and each time his investment had grown to a unit of his term life insurance he would drop that unit of term life insurance. He went on to become an investment advisor and then my mentor in the business. Investments can be used for anything and invested anywhere with greater choice and lower fees and expenses. There are a few specialized uses of whole life in estate planning. For the rest of us, term insurance is usually better.
choupel - I've bought and sold 13 homes. I think rates and points are always negotiable. I like your plan to save $15k/year - that's excellent.
That's a great story. Thanks, David.
Alright, here's a question from John.
jkinning - I prefer ETF's to mutual funds for several reasons because I can buy or sell during the day, place stop loss orders and have lower fees in general. I've never been a fan of permanent life insurance as an investment. Consider buying the needed amount of term and invest the rest.
And another one from Stu -- certainly a question many of us struggle to answer.
Thanks, Randy. Some sound advice for jkinning on life insurance.
stu - Number 1 is cash reserves, number 2 is retirement, number 3 is college in my opinion. Cash reserves are the most important.
And Bonnie, we have one more follow-up for you from Choupel.
Stu - retirement. Your daughter will find a way to get to college - it's not that hard to do. What is hard to do is pay for an expensive college. Since she is only 4, you have 13-14 years to figure this out sanely. Start saving aggressively for retirement as the time value of money is slipping away for that goal. You can do it.
Stu: your retirement is priority #1. College savings is 2nd.
Stu, they don't offer any scholarships, grants or subsidized loans in retirement. Your daughter will have ample opportunity to pursue her dreams and will be best served by an example of you taking care of your own.
Always nice to hear all of the advisors agree. Retirement it is!
john - Wow. Short question...long and complicated answer.
Choupel - is your question about investing cash at over 3%?
John - MLP's and UBTI within IRA's can be tricky. This is one for a really well versed CPA.
John, Generally speaking, the distributions paid by MLPs are likely to be considered UBTI. If an IRA or 401(k) earns more than $1,000 of UBTI annually, the UBTI income above $1,000 is subject to tax even if the securities are held in a retirement account.
sorry, Choupel, the screen moved you down there a bit - I can't give specific advice to you personally but I can suggest you check out Vanguard's bond funds and their TIPS fund and their REIT fund and if you work with and advisor who uses Dimensional funds, check out their offerings as well - make CERTAIN whomever you purchase through knows your goal and time horizon.
Choupel: You don't have to write off CDs completely. You could build a CD "ladder" with CDs of different maturities. For example you could buy 3 CDs maturing in 1-, 2-, 3-years. If rates rise, you will e at least part of your savings maturing that can then be reinvested at the higher rate.