Author Topic: New and not sure how to proceed  (Read 4590 times)

stephie_corin

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New and not sure how to proceed
« on: August 18, 2014, 10:40:23 PM »
Hi there,

We are a family of three with a young toddler boy. We are embarking on our MMM journey and have been actively cutting costs and saving for a few years now. We have saved a reasonable sum of money in bank accounts in different currencies (we are expats). I'm poised to buy into some vanguard funds however my dad is telling me that the US stock market is likely to fall soon and I would be better off putting the money in a fixed term deposit account and hold off for 12 months.

Full disclosure: I have no investing experience!

I just wondered if anyone had any thoughts.

Thank you!

RichMoose

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Re: New and not sure how to proceed
« Reply #1 on: August 18, 2014, 10:49:54 PM »
The general message you will hear on this forum (and many other frugal, non-active investment style forums) is DO NOT TRY TO TIME THE MARKET!!! It may continue to go up for 2 years, it may crash this Friday, who knows, who cares.

Most of us take the view that if you are investing for the long-term, just buy now and keep buying so you benefit from dollar cost averaging.

Goldielocks

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Re: New and not sure how to proceed
« Reply #2 on: August 18, 2014, 10:53:19 PM »
Playing the currency market and timing investments is hard. Most of us can't do this.  So you need a plan.

The question is if you will retire to US?   If so and long horizon, I would not worry, as your losses adjust with the country you plan to stay in, like an inflation hedge in reverse. .  In this case,

Try placing an order for less than the current price, to see if your dad is right.  If if fills, then your losses are less. 

I choose to keep 80% of my portfolio in stocks where I will retire, not USA,, even if in local currency adjusted indexes tracking the us exchanges, and 20% remains in directly invested us stocks.

Will buying vanguard be hard or expensive if you are not in the USA? 

Note...

It can be hard to find a wide selection of blue chips and index funds on some of the non us exchanges. 

tommy murph

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Re: New and not sure how to proceed
« Reply #3 on: August 18, 2014, 11:03:42 PM »
Hey stephie_corin,

Your dad might be right that the market is due for a correction but that shouldn't deter you from starting to invest ASAP. Who knows, the market could continue to expand for another 2-3 years. Below are two helpful posts to read through to get a basic and simple but detailed understanding of investing and how/where to do it.

http://www.mrmoneymustache.com/2013/03/07/how-about-that-stock-market/
http://www.johnnymoneyseed.com/investing/a-kick-in-your-teeth-guide-to-investing/

The MMM post includes great links to another must-read financial independence blogger, Jim Collins.

Another great resource is the Boglehead forum and wiki: http://www.bogleheads.org/wiki/Category:Getting_started

As you'll read in these links and here at MMM, there's pretty much a consensus that basic, simple, boring, low-cost index investing -- held for the long term -- is the way to go.

Hope this helps!


hexdexorex

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Re: New and not sure how to proceed
« Reply #4 on: August 18, 2014, 11:06:51 PM »
Yep timing the market is purely speculative. If you take a look at the 90s it was up the entire time...and all along the way people were saying its at a all time high and will drop.

With that being said it is scarier for me than it has been in the past 4-5 years...so my 6 month emergency fund is growing to 12 months.

If you look at all assets...stocks are still preferable to cash...bonds...and most real estate. There are still some real estate deals if you are willing to put alot of time into it, but no where near the amount in 2010. All are overpriced compared to a few years ago, but stocks are still the asset that allows tax free income growth.

stephie_corin

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Re: New and not sure how to proceed
« Reply #5 on: August 18, 2014, 11:23:43 PM »
Thanks very much for the advice and links to additional information.

I'm an Aussie and my husband is from the UK. We can buy Vanguard in our home jurisdictions or buy into the US Vanguard 500 through a friends provident fund. My dad was worried that a US fall will also impact the Australian market. I can appreciate that it's impossible to time the market and right now our money is earning 1-2% interest!! I can definitely see the appeal in getting into the share market as soon as possible.

How much do people generally keep in cash as an emergency fund? My husband will still work for another two years full time before we "retire".

Thanks again!

RichMoose

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Re: New and not sure how to proceed
« Reply #6 on: August 18, 2014, 11:33:25 PM »
Thanks very much for the advice and links to additional information.

I'm an Aussie and my husband is from the UK. We can buy Vanguard in our home jurisdictions or buy into the US Vanguard 500 through a friends provident fund. My dad was worried that a US fall will also impact the Australian market. I can appreciate that it's impossible to time the market and right now our money is earning 1-2% interest!! I can definitely see the appeal in getting into the share market as soon as possible.

How much do people generally keep in cash as an emergency fund? My husband will still work for another two years full time before we "retire".

Thanks again!

Where do you plan on retiring? Could you stomach a 30 - 40% temporary drop in value for your portfolio and still retire in 2 years? Also remember that generally markets bounce back from a drop in a few short years.

Generally 6 months expenses is a good rule of thumb for emergency funds.

Edit: Also at 1-2%, you're actually losing money considering inflation.

stephie_corin

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Re: New and not sure how to proceed
« Reply #7 on: August 19, 2014, 02:35:07 AM »
We don't know where we will retire - most likely Australia or Europe.

Is a 30/40% drop likely? That would derail our plans. Although in two years we still plan to work and earn enough to live off so I guess such a drop wouldn't matter that much in the long term.

I know that the money is wasted sitting in bank accounts but I've been too nervous to commit to anything :(

Goldielocks

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Re: New and not sure how to proceed
« Reply #8 on: August 19, 2014, 07:51:10 AM »
You are young enough that a 30% drop will not matter,except to work longer and delay pulling it out.

Wait for the rebound while working part-time, etc.

Don't go all in to us stocks if that currency is not what you will retire on.

stephie_corin

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Re: New and not sure how to proceed
« Reply #9 on: August 19, 2014, 08:10:27 AM »
Thank you! Appreciate the advice!

Murse

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Re: New and not sure how to proceed
« Reply #10 on: August 19, 2014, 09:22:56 AM »
I am surprised no one has yet sent you to Mr. Collins stock series. It is very, very good. His series is a great starting point without intimidating vocabulary. This should be your first stop in my opinion. http://jlcollinsnh.com/stock-series/


Dyk

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Re: New and not sure how to proceed
« Reply #11 on: August 19, 2014, 09:59:31 AM »
You know the bank account won't get you to retirement.  So, there are stocks, etc.  Scary, yes, but look at the worst case scenario:  http://awealthofcommonsense.com/worlds-worst-market-timer/

stephie_corin

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Re: New and not sure how to proceed
« Reply #12 on: August 19, 2014, 10:46:51 AM »
Thanks for the additional links.

I've opened a share trading account today in Australia and plan to buy some ETFs.

For a newbie is there any benefit in having a diversified portfolio (Aussie index, world index and bond index) or should I just stick to the Aussie index? It seems I should have a few different indexes and buy more of the under-performing ones at the point of investing more money.

Also, any views on whether I should space out our existing savings in $10k purchases every week/month or just buy everything on the same day?