Author Topic: Mutually Funds - Mutually FUN?! Question  (Read 1491 times)

JudaBaker

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Mutually Funds - Mutually FUN?! Question
« on: December 26, 2015, 02:50:42 AM »
Hi All

Welcome to my first thread on this forum. I've only just found this place and so far the money mustache is rubbing me the right way! Good job to all involved.

Anyway, I have a simple question which I'm pretty sure I already know the answer to, but I'd like to ask anyway in the hopes of getting more insight.


A quick background to start things off:

I used to be terrible with money, ABSOLUTELY TERRIBLE WITH MONEY! Consumer debt, lifestyle creep, all of it and more. About 5 years ago I tried to borrow even more money (while already around 15K in debt) and the bank said:

"NO! You suck with money - and we're not giving you any more of it until you sort your act out. Start saving and come back in 6 months." So I took a look at situation and did a bit of reading about the way money actually works - turns out the bank was right, and getting denied a loan was one of the best things to ever happen to me. Instead of a bright shiny BMW and a brand new Triumph Street Triple I went to work on my debt and managed to clear it off over around 1 1/2 - 2 years. Then I left my job to get a degree which I finish in around 6 months (20K interest free student loan [I live in NZ]).

I worked out a couple months ago that despite my current status as a broke assed student earning less than minimum wage (when compared to a full time working gig) I can still bank a small amount every week and have since put away tiny but growing sum of investment savings. This is in addition to what I have in kiwi-saver, which is the investment scheme we have in NZ. In six months time I will be earning a full time wage again and earning actual decent salary. I'm doing a bit of research and small sum investment now, before I have larger amounts to invest.


My question is on mutual funds. My savings is with the NZ branch of Rabobank, they have mutual funds available through various managers with a minimum purchase of $250 at a time. I've bought small amounts of a number of funds, around 70/30 growth/bonds and Fixed Interest. I'm now not so sure about the fees I have to pay - Each fund is slightly different but the general breakdown is as follows:

Entry Fee - one off fee - same for all funds - 0.75%
Management Expense Ratio - yearly fee - varies per fund - range between 0.83 - 2.33%
Max Management fee PA -  yearly fee - varies - 0.7 - 0.4%

The cheapest overall fund is 0.75% entry + 1.49% yearly and the most expensive is 0.75% + 3.58%

All funds have all three fees. I guess what I want to ask is are these fees too high?  It seems like a lot to be paying, considering that there's no guarantee that the fund will generate a profit on any given year. At 0.75 % entry fee I would need around a $4000 + purchase fee on a stock through the cheapest online broker ($30 per purchase) to incur the same entry costs, but would save money on reduced fees.

What I want to ask is this:

Would it be a better plan to save up more in a savings account once I've actually got real money to invest, and then purchase stocks and index funds through a broker?

I've never done any real investing before and I'd like to eventually purchase an investment property, but I also want to own stocks as well to diversify, and I won't have enough for a deposit for a good few years. I don't know s#%t about the stock market - I would likely just buy index funds and forget about them until they're needed, repurchasing as my savings increase. This seems like a solid plan to me - my living costs have been forced right down as a student, and I can happily chuck the increased earnings into savings when I go back to full time work.

Also, I'd very much like to buy into solar energy and 3D printing, if I can find mutual/index funds that invest heavily in these areas. Do these magical creatures exist, or are they just a figment of my mind?

matchewed

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Re: Mutually Funds - Mutually FUN?! Question
« Reply #1 on: December 26, 2015, 05:56:30 AM »
Those fees are AWFUL. Yikes run away run away run away.

I don't know NZ investing (at all) but maybe these past threads can point in a direction where you won't piss away quite so much of your money to other people.
http://forum.mrmoneymustache.com/investor-alley/new-zealand-investing/
http://forum.mrmoneymustache.com/ask-a-mustachian/buying-index-funds-from-new-zealand/
http://forum.mrmoneymustache.com/investor-alley/new-to-investing-%28nz%29/

A solar and/or 3D printing index would be kinda silly. If you want to invest in that sort of technology a direct company investment would make more sense as those are really really specific businesses. That being said probably don't do that. Narrowing is not more diversified but less diversified. Being not just sector but technologically specific puts you at a higher risk especially with something young like 3D printing and volatile-ish like solar. Companies may come and go in a blink which would cause a great deal of turnover which means the fees are higher for something that would fit what you're seeking.

Stick with the basics and learn. As you learn feel free to branch out. A broad index fund is a great foundation to a financial plan. Focus on establishing a foundation first.

JudaBaker

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Re: Mutually Funds - Mutually FUN?! Question
« Reply #2 on: December 26, 2015, 04:40:03 PM »
Ah that's great, thanks for the links, and the advice, Much Appreciated.

I see what you're saying about building a foundation before branching out into other investments, which makes sense. After reading through those threads I think I have a bit of research to do.
 

Also, my main thinking behind the solar and 3D printing is that personally I believe these technologies are the way forward, and I think that 3D printing is going to massively impact production methods in the future. In time there will be products on the shelf which would either be incredibly difficult, much more expensive, or simply impractical to produce were it not for 3D printing - but this is purely speculation on my part (although I'm pretty damn sure that's the way things are headed - the technology is still in baby stages and a lot of improvements are to come).

The cost of solar also has been decreasing exponentially since they first started producing panels around the 80s, while the number of installations has been increasing. With the current push from multiple governments towards cleaner energy and reduce global warming, combined with improvements in the technology (for example multi-junction cells are increasing the efficiency levels, while it's possible to store solar thermal energy underground or in salt nitrate [research Drake Landing Solar Community or Gemarsolar Power Plant) the technology gets more and more attractive. Hopefully a democrat wins the white house and pushes America towards higher levels of solar (in my opinion this would be a great thing), there's plenty of open space for large solar - and the technology can easily be installed privately as well.

These are my opinions, and the reasons why I would want to invest in these technologies - but as stated I'll be trying to build a large base before purchasing any specialized investments, I just like the thought of both making money AND helping move the world forward at the same time.

MustacheAndaHalf

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Re: Mutually Funds - Mutually FUN?! Question
« Reply #3 on: December 26, 2015, 06:32:13 PM »
The cost of solar also has been decreasing exponentially since they first started producing panels around the 80s, while the number of installations has been increasing. With the current push from multiple governments towards cleaner energy and reduce global warming, combined with improvements in the technology (for example multi-junction cells are increasing the efficiency levels, while it's possible to store solar thermal energy underground or in salt nitrate [research Drake Landing Solar Community or Gemarsolar Power Plant) the technology gets more and more attractive.
Market prices find a balance between buyers and sellers.  Most of those buyers and sellers are paid high salaries and study the market full time.  So when you trade, it's typically against someone working full time at estimating the stock's price.  Because of how many buyers and sellers are studying each stock, it's crowded.  It's very hard to find an insight worth money.  Anything you already saw on the news moved the price a long time ago... prices move in tiny fractions of a second.  You saw a news story, while a hedge fund has a full time solar energy expert reading every industry publication.  To make money, your insight has to be a surprise to the market - otherwise the market would already have included it.  Given all that, aren't you speculating rather than investing on surprise information?

You mentioned bad spending habits, and I suspect this desire to speculate "feels right" just like spending too much felt right.  In the markets, you need to go with the numbers rather than gut feel.  If you have to invest now, I'd recommend a broad index fund.  Can you buy Vanguard ETFs?  You might investigate "Vanguard Total World", symbol "VT".  That holds stocks from every country in proportion to that country's stock market.  It is not speculating, it's holding everything in a low cost (expense ratio 0.17%) index fund.

If you're not ready to stop speculating, you might read Larry Swedroe's "What Wall Street Doesn't Want You To Know" or "A Random Walk Down Wall Street".  Good luck on the path to better finances.
« Last Edit: December 27, 2015, 02:58:01 AM by MustacheAndaHalf »