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Sep. 11th, 2007 | 09:39 pm
posted by: tomahto in smartinvesting

hi! I'm really new to investing. I'm 25 years old and just signed up through my bank to have 50 dollars a month taken out of my account and put into stocks and bonds. the specific things I am investing in were chosen by my bank based on questionnaire I filled out on how much risks I want to take, etc. so I took a look at my portfolio and it says I'm investing about half of the 50 in AGG LEHMAN AGG BOND FUND ISHARES and half in SPY S&P 500 INDEX SPDR. I pretty much have no idea what these things mean, and just hope and trust that my bank knows what the hell its doing! I plan on not really touching it for a long time so I can save up to buy some real estate. I also have some sort of money market account through my work, a 403b retirement fund. I haven't touched that either and am not contributing to it, but my employer is. I post this in hopes that someone could give me a little guidance in plain english and tell me whether or not I'm making good decisions. :)

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from: selfinvest
date: Sep. 12th, 2007 05:01 pm (UTC)
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I may put some information here that you may already know, but others may not.

What is a 403(b)?
The 403(b) is a tax deferred retirement plan available to employees of educational institutions and certain non-profit organizations as determined by section 501(c)(3) of the Internal Revenue Code. Contributions and investment earnings in a 403(b) grow tax deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income.

Basically a 403(b) is a non-profit equivalent of a 401(k). Thus I'm assuming you are a Teacher or work for a non-profit?

Stock Symbol: AGG (AGG Lehman Agg Bond Fund IShares)
This is an ETF/Exchange Traded fund. The Annual Yield is 5.14%. This is pretty close to an IngDirect Savings account. You can do better than this on your own. (My opinion). Their current share price is $100.26. The good thing is that their Expenses are a low .20%

Stock Symbol: SPC (SPY S&P 500 Index SPR)
This is also an ETF that trades 500 Stocks, which gives you a diversified share of the market. The current Dividend Yield on this is only 1.78%. This is less than a savings account. However, ETFs do trade on the stock market and move daily in price. Since Inception is has averaged 10.59% Total Return. They pay their dividend Qtrly, thus you are only compounding Qtrly. Again I'm sure you are reinvesting your dividends?

I would say based on the results of your questionnaire you are conservative investor.

Due to you being a long-term investor you may be able to take additional risk. This varies from person to person; never take more risk than you are truly comfortable with. You can take a bit more risk.

Let me give you an example of compounding dividends, I used a bankrate.com calculator:
Scenario 1: AGG
Starting Deposit: $25
Additional Deposit Monthly: $25
Reinvesting Monthly Dividends: YES
How Long; 10yrs
Ending Value (Assumed): $3953.03

Scenario 2: ZTR
Starting Deposit: $25
Additional Deposit Monthly: $25
Reinvesting Monthly Dividends: YES
How Long: 10yrs
Ending Value (Assumed): $5261.42
Both SPY & ZTR are conservative investments, but I wanted to show the difference between AGG 5.14% Dividend vs. ZTR 10.24% Dividend. I choose ZTR for comparison purposes because I familiar with it and both trade U.S. Government bonds.

Does your bank charge you additional commissions for this account?

For some definition of terms feel free to check out my site:

Http://selfinvest.livejournal.com
Self Investing On Minimum Wage

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Diddle McGriddle

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from: tomahto
date: Sep. 12th, 2007 05:34 pm (UTC)
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fascinating! I never knew why we had 403(b)'s instead of 401(k)'s. I'm an animal control officer employed by a humane society.

yes, I am reinvesting my dividends. and my bank charges $4.00 commission per trade.

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from: selfinvest
date: Sep. 12th, 2007 07:28 pm (UTC)
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Wow! You are putting up 16% of your invested money just for commissions! Being that you are on the right track by starting to invest, I would suggest something like Zecco.com or even buyandhold.com. They maybe do it yourself, but you can save allot of money.

Zecco charges $0 and Buyandhold will charge anywhere from $6.99 for two trades per month or nothing for certain types of IRA's. Based on the returns you are getting from AGG & SPY through your bank, it would take 1-3yrs just to break even because of their commissions.

All brokerage firms make money on the spread between bid and ask price. So by charging commissions to you they are double dipping. Being you are a bank customer I'm guessing they are giving you a discount.

Corey

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Diddle McGriddle

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from: tomahto
date: Sep. 12th, 2007 08:48 pm (UTC)
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damn. I have no idea how to invest on my own though, and which stocks to pick for a good long term investment...guess I better read up.

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from: mill1on
date: Sep. 6th, 2008 09:41 am (UTC)
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Here's a safe way of earning money ONLINE :)
You'll earn just by clicking on ads, reading e-mails, or viewing websites!
You'll earn more if you refer, and you can advertise, too!



or

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