Herpeto

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I have been getting more involved in investing for my future and am wondering if anyone invests while in medical school? Would it be wise to use loan money to invest in Roth IRA's throughout the four years in medical school? I look at it this way: as soon as I am out of residency I will no longer be able to put money into Roth IRA's because my salary will exceed the limit. Therefore the only opportunity I have left is to invest throughout school and residency. In addition, the loans will be at an interest rate of about 3% while I should be able to get a return of 8-12% during that time. Opinions?

Herp
 

bradm23

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You can't put loan money into a Roth - Roth is only for earned income. You can invest the money, but not with the tax advantage you get from a Roth.

Also, if you sell any stock, it can affect your eligibility for loans.
 

ek6

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I'd be interested to hear if there's any brilliant investment ideas for us poor folk medical students.

The way I look at it, the only investments I'm thinking are with any work study I do. Burning CD's, working at a library, or just doing something that requires a lot of sitting and waiting seems like the best way to study while making money at the same time. This is the money that I'd start putting into securities, etc. -let the money work for you through medical school and through 4 years of residency (if you make 5000 a year for four years, that's a hefty 20K saved up - not bad). After that, if you take it out, you'd be able to have some money liquid and ready for e.g. a down payment on a house. Student loans have low interest rates and half of the staffords are subsidized, so I'd just defer all those until after residency.
 
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Herpeto

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If I don't plan on selling any stocks then it should be fine. However, I would like to play around buying and selling while in school. If I could earn money that way it would be a great opportunity to pay for tuition. Besides, if I get a part-time job I can simply claim the money came from the job and not the loans, right.

Herp
 

oldtimer

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I heard that the tax law states that you can contribute to your Roth the lesser of either the amount you earned in a year or the max level which is currently $3,000. Therefore, if you earned $0 in 2003, you're not allowed to contribute to your Roth. I think you might be able to contribute if somebody gave you $3,000 as a "gift" that year. Check with your accountant.

When it comes to investing, remember that 8% is the market average over many decades. Don't take it for granted that you will earn that much return, especially on short-term investing.
After many years of losses (thank you, Mr. Bush), my 401(k) is finally breaking even.
 

bradm23

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Gifts don't count for Roths. Otherwise you could just ask someone to write you a check for $3000 and then write one right back. It's only taxable income that counts toward a Roth
 

bradm23

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If you get a part time job, then you can contribute as much as you earn in the part time job up to $3000 (I think it's $3000 this years - it's gone up recently).
 

Herpeto

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I believe next year we are able to put up to $5000 into a Roth. I am going to do what I can to earn the money necessary to invest in a Roth and stocks. I hope I'm able to pull $8-10K a year.

Herp
 

ek6

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Correct me if I'm wrong on this thinking, but is putting the $$ into a Roth the best way to use any money we make during med school? I always thought that it'd be better to keep that money available for a down payment on a house like I said before. Are all of you going the IRA route instead of the one I just stated?

Yes, I'm a novice when it comes to all this financial investing crap. Lets just say that studying for the MCAT didn't really enhance my basic understanding of financial investments:)
 

ixitixl

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You can set up your own corporation as a "consulting service," claiming that you are self-employed. Of course you would be the CEO/COO for your own company/organization. The incorporation is taking out a loan and paying your salary. On paper, it's earned even though someone may have given you the money. The money goes to the incorporation and the incorporation issues you a W-2, which is earned income. If your "salary" = the incorporation income, the incorporation has effectively 0 income and so you just have to pay tax on the loan money (your "salary") which kinda sucks.

On top of that, you can sometimes swing "in-state" status for some of those schools which require that you're gainfully employed for a year before they lower your tuition. Just make sure the name of your company is not so close to your own name that it raises suspicion.
 

ixitixl

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Originally posted by Mr Reddly
Hmm.... You're talking corporation. I'm assuming a DBA (doing business as) can do the same thing... minus the W-2. Is that doable? I'm asking because I have one of those.
Also, there is more than just regular 'taxes'. Don't forget the self-employment taxes (ugh) and the quarterly estimates (more ugh) you have to do.

... good topic me thinks. Lots to learn for me.
I wonder if there are any threads on it in the allo or residence forums?

I'm not sure about DBA. I was thinking more in terms of an LLC (limited liability company) or and INC (incorporated business). Either of these methods would have your company name registered with the secretary of whatever state you happen to be in, thereby making it "bona-fide." Just make sure that you list a service that you can legally provide. A proofreading service, like essayedge.com might not raise too many red flags. After you've registered the trade name with the state, file off for your EIN (Employer Identification Number) and then you can issue W-2 forms to yourself.
 

Herpeto

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These are all great ideas. As far the home down payment goes, if you don't have a home, it may be wise to save for that first as well as an emergency fund of say $5K depending on where you live. In my case my wife is a professional and I am in the process of saving for a down payment so we will have a house while in medical school. My goal is to have the option of retiring about ten years post residency at maximum. There are other things I would like to do in life.


Herp
 

g3pro

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Roth IRA? :laugh:


come on, guys. mutual and index funds are the way to go. :cool:

it's all about the ROI. :D
 
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summervacation

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For anyone who might be a novice at investing or personal finance, there's a great website by Motley Fool with tons of information:

www.fool.com

They're quite into picking your own stocks though, so take their advice with a grain of salt.

Best investment for a time-strapped med school student is probably an index fund. I also just started a Roth IRA, which will be a nice nestegg for retirement (particularly because the returns are tax-free).
 

FinallyOnMyWay

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There are probably lots of good ideas on how to invest "spare change" if you're lucky enough to have it...

It seems to me that putting money in a Roth IRA *now* is probably smart if you can do it. Roth IRAs have income limits - so when we do eventually start receiving decent incomes (hopefully!) - we might not be able to contribute to a Roth. Might as well invest the money now, and let it grow... :idea:

The problem with a Roth is this: If you're investing $ in the hopes of using the growth to pay off school loans after school is over, a Roth is probably a really BAD idea. You get penalized for taking money out before you reach a certain age. So you're basically locking up those funds for the next 30 or more years. :scared:

Just my 2 cents.
 

ixitixl

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Originally posted by g3pro
Roth IRA? :laugh:


come on, guys. mutual and index funds are the way to go. :cool:

it's all about the ROI. :D


Ew. Not a fan of index funds. Mutual funds definitely. There are mutual funds out there that have at least a 5 year track of consistently beating the index funds, not to mention have a lot stabler growth pattern than say, a NASDAQ index fund. I agree though. Roth IRA is a bit lame. I had the option a while back and I chose a mutual fund. I never regretted it. If you're going to "cost average" mutual funds are definitely the way to go. Since we're all probably going to be alive for at least another 5 years, you can probably even go for a risker growth oriented fund rather some a lower interest, more conservative income fund.
 

bradm23

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I think people are confused about what a Roth IRA is. You can buy any mutual fund you want for your Roth IRA. It's not like using a Roth means you can't buy some flashy mutual fund.

The reason to do it is that you only pay taxes initially, not when you withdraw the money, so you're paying very little in taxes since at this point, your income is probably as low as it will ever be.

It is true that you are penalized for withdrawing your money before a certain age. However, I believe the penalty is waived for certain expenses such as education and buying a home. It makes the most sense though to keep the money in the Roth unless you really need it.
 

oldtimer

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Originally posted by ixitixl
Ew. Not a fan of index funds. Mutual funds definitely.

Uh, index funds are mutual funds that track a particular market index like the S&P 500, Dow, Russell 2000, etc. Roth IRA are good because your investment can grow tax-free (you pay taxes upfront) unlike tax-deferred accounts like 401(k), traditional IRA's, etc. You can buy mutual funds and stocks and other financial instruments in a Roth account.

Seriously, after reading these posts, I can see that many of you are new to investing. I don't claim to be a financial wizard, but I've been involved with investing for many years including being burned a few times. I would advise you to learn as much as you can about investing before you start. I've seen one too many people lose their shirts because they entered into something they did not fully understand. If you have money, suddenly everyone is your new best friend. Don't be fooled; they just want to take it from you, including professionals like brokers, etc. I hope that some of you will heed my warning.

Besides, this topic should be discussed in the Financial Aid forum, not here.
 

ixitixl

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Originally posted by oldtimer
Uh, index funds are mutual funds that track a particular market index like the S&P 500, Dow, Russell 2000, etc. Roth IRA are good because your investment can grow tax-free (you pay taxes upfront) unlike tax-deferred accounts like 401(k), traditional IRA's, etc. You can buy mutual funds and stocks and other financial instruments in a Roth account.

Seriously, after reading these posts, I can see that many of you are new to investing. I don't claim to be a financial wizard, but I've been involved with investing for many years including been burned a few times. I would advise you to learn as much as you can about investing before you start. I've seen one too many people lose their shirts because they entered into something they did not fully understand. If you have money, suddenly everyone is your new best friend. Don't be fooled; they just want to take it from you, including professionals like brokers, etc. I hope that some of you will heed my warning.

Besides, this topic should be discussed in the Financial Aid forum, not here.

Okay. I know that index funds are mutual funds. I meant that I don't particularly like mutual funds that mirror for instance, the DOW, NASDAQ, S&P etc. And you're right. This probably should be discussed in the financial aid forum.
 

lyragrl

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I work as an investment analyst with a specialization in mutual funds. There is a lot of misinformation on this thread right now. Oldtimer's advice is very good, btw.

I can't post a long response now, but I will try to formulate a longer answer later tonight.
 

Kashue

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Lyra or oldtimer, do you guys have any good book recommendations when it comes to investing?
 

lyragrl

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The Only Investment Guide You'll Ever Need by Tobias.

Commonsense on Mutual Funds by Jack Bogle.

The Wealthy Barber (don't know the author, but it's a good guide for investing when you don't have tons of income).

Also, I'd recommend the Investing Classroom on www.morningstar.com. You don't need to pay to use it (although the site also has good pay services). It's under the "Personal Finance" section.
 
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oldtimer

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My investment idol: Warren Buffet. He is the second richest man in the world ($40+ billion) because of his investment acumen. Read about him and learn his investment philosophies, one of which is never get into something you don't understand. Damn, I wish I would have heeded that advice much earlier.

Moreover, the investment field is ever changing. You can't read one or two books and think that's all. I suggest subscribing to a financial mag like Fortune, SmartMoney, Money, Forbes, etc. After reading them for a while, I think that your investment IQ will increase greatly.

Unfortunately, keeping up with investments is a consuming process, time-wise and psychologically. When I go to medical school, I know that I won't have the time to manage my portfolio as I can do now. Therefore, I plan to put my money on auto-pilot in solid stocks, index funds, money markets, etc. When I have more time after my medical education, then I can more actively manage my investments.
 

dsblaha

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Let's say you already have a few stocks (>$20K). Does having this level of assets affect your financial aid eligability? If so, is it better to liquidate those stocks and pay tuition and borrow less? This is a debate I keep having with myself and have not come to a conclusion.
 

g3pro

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index funds are not necessarily mutual funds. index funds are great for trading on the margin for the whole stock market.

they're called SPDRs. a great time to liquidate some of your assets and invest in the index fund for the DOW would have been when it was at around 7500.


and most people treat mutual funds as savings accounts, constantly withdrawing. that's why most people don't combine the Roth with the mutual fund.
 

bradm23

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If you sell stocks, you have to fill out the long tax form to show realized gains and losses, so there is not likely to be an advantage to liquidating your assets
 

g3pro

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i should have specified which assets to liquidate. i would have liquidated some of my real estate.
 

Herpeto

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I recommend http://www.investors.com/ and the book published by the site owner caller How to Make Money in Stocks by William O?Neil. It details all the essentials about what to look for in potentially good stock and if you have a subscription to the investors daily paper it will provide insight into many of the best companies to invest in. It definitely takes quite a bit of time to research companies before investing and I am hoping I have enough time and money while in school to invest in Roth's and do some stock trading on-line. I don't plan on using any of the money for school, simply for retirement.

Hs anyone thought of working for 10 years post-residency and then retiring or at least changing careers? My plan is to work 13 years maximum and then begin another career.
I hope to have the financial stability to do whatever I would like in life by then.


Herp
 

Kashue

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Originally posted by Herpeto


Hs anyone thought of working for 10 years post-residency and then retiring or at least changing careers? My plan is to work 13 years maximum and then begin another career.
I hope to have the financial stability to do whatever I would like in life by then.


Herp

I'm working as a doctor till I die! I would like to go into teaching later in life tho.
 

lyragrl

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Okay, here's the skinny on some of the issues talked about here.

An IRA (Individual Retirement Account) is a tax-deferred investment vehicle. Lower income individuals (below $110,000/year for a single person) may invest earned income in a Traditional or Roth IRA. Higher income individuals may invest in a Traditional IRA only.

What's the difference?
When you invest in a Roth IRA, you invest income after taxes. Any gains (be they dividend, bond income, or capital) are sheltered from taxes during the lifetime of the account. Withdrawals may be made at retirement (age 59.5 years) tax free.

If you invest in a traditional IRA, you can take a deduction on your income taxes (Although how much you can deduct is affected by your income. The IRS document on IRAs provides a table.) You pay federal income taxes on withdrawals but gains in the interim are sheltered from taxes.


Investing in an IRA with your student loan money doesn't make any sense and is probably prohibited by tax laws. It's not earned income. Moreover, they are RETIREMENT accounts. Withdrawals before retirement are penalized heavily. There are a couple of exceptions to this, one of which is the purchase of a house. BUT, the point of a retirement account is to save for retirement. (Bradm was right on this one.)


Investing your loan money in the market in order to "outrun" your loan interest rate is downright dangerous, especially if you invest in stocks or stock mutual funds. The equity (aka stock) markets are intensely volatile. Many equity funds lost upwards of 40% of their value during the recent bear market. If you invest in stocks or stock funds, it is good to have a long term time horizon. (e.g. in your retirement accounts) Although the stock market does return about 10% per year, this is an average amount. There have been long stretches during which the U.S. stock market has declined or returned 0-1% per annum.


Okay, challenging a few other misconceptions posted on this thread:
Lots and lots of people have mutual fund investments in their IRA accounts. If you own a brokerage IRA you can usually invest in other types of securities in addition to mutual funds: the SPDRs that g3pro was talking about, bonds, bond funds, individual stocks, etc. But the idea that most people don't invest their IRA funds in mutual funds is just plain wrong.

Also, oldtimer was right about everything he (she) wrote about. You do need to invest with caution. Warren Buffett is an amazing investor. And index funds are mutual funds.

Finally, index funds are also known as passively managed funds. Non-index funds are known as actively managed funds. The person who said that actively managed funds are able to easily beat passively managed funds was partially incorrect. It depends on the index. The S&P 500 (the index of the 500 largest stocks in the U.S. equity market) is a VERY difficult index for active managers to beat year in and year out. Smaller-cap indexes have proven easier to beat.

Although I won't go into the sticky details of the index v. non-index fund debate, I want to mention one thing that is a very important lesson from the issue: COSTS MATTER--BUT PROBABLY NOT IN THE WAY THAT YOU THINK. More expensive mutual funds, on average, UNDERperform their cheaper rivals. This is because costs come out of your returns. Some of the best mutual fund shops around are the ones that charge their shareholders less. Examples include Vanguard, T. Rowe Price, and the American Funds. (American Funds do charge sales load, the others I mentioned don't.)

The main point of this entire message is: Don't take investing advice from college students on a message board. Become educated investors. It actually isn't that hard to do. Use indendent services like Morningstar or the Motley Fool to learn about investing or read some good, straightforward books on the subject.
 

ixitixl

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I'm relatively new to investing but it seems like there are at least some people on this thread who know what they are talking about. So for those of you investing savvy people, does anyone know if it it is possible to take out a mortgage based on the financial aid given to you by a medical schoo? I'm thinking that this way it will eventually be easier to pay back loans since you're building equity. When you rent, the money just kinda gets flushed down the toilet. Any thoughts?
 

Herpeto

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I would like to clarify a few things. First, if I was to invest through out medical school I would certainly have a job providing the $5000 income necessary to invest in an IRA. Using loan money for investment is illegal and the IRS certainly wouldn?t take kindly to that. Second, although individual years may have either positive or negative returns, by investing through schooling and residency one is more likely to reap positive outcomes as opposed to investing after all education is done. Finally, if I want to invest in Roth IRA's, I must do so prior to finishing residency as my income will be too high once I am thru. Consequently, the only opportunity to invest with tax-free dividends is during the poorest years.

Herp
 
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I'm not sure what the rules are, but I would think you would need to have a bit of money already saved to even consider it. You loan amounts are based on the budget set by the school, which assumes renting. A mortgage payment is likely to be much more than a rent payment so the money from your loans alone is not likely enough to cover mortgage payments. That being said, it seems unlikely that you would be approved for a mortgage unless there is some other source of income, like from a spouse.

The only thing you could do is have the mortgage in your parents' names, assuming that they qualify.
 

lowbudget

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I wouldn't put my loan money in a Roth IRA or any retirement account for that matter, at least not right now.

Remember, depending on what kind of loans you have, they may be deferred until the end of residency, may make you pay interest along the way (or else add it to principal), or they can make you start paying right away.

1) Risk - When you leverage (i.e. borrow money to purchase equity) you are taking on added risk that you wouldn't have than if you were to just use your own money to buy equity. That's because if you're equity goes down, you still have to pay off that borrowed money. Therefore you need to pick an equity that will compensate you for the risk of equity AND enough to compensate you for borrowing the money. And that assumes you know how to pick them. People who do this professionally usually have a good cash reserve ready to meet their debt obligations in the event their equity return is negative. (Those who don't... go to jail or disappear.) So make sure you can take on the risk.

2) Timing of cash flows and liquidity - student loan money typically is given only enough for you to meet your short term cash-flow needs. If you're able to spend under budget, great. Save that money (somewhere). If you over spend (like during 3rd and 4th year), you're gonna need that money. So basically there are "short term" cash needs that are provided for by your loans. The benefits of investing in a retirement account don't come into fruition until much much later (retirement). So even if you're able to pick an instrument that will return the risk of equity plus debt (less tax advantage), that instrument is ILLIQUID. You're gonna have to use your salary to pay off that debt (meaning your investment strategy doesn't pay itself off, and need to externally finance your own money making scheme). During the time you need to pay off your debt obligation (student loans), you'll be outside the tax advantage of paying student interest (i.e. earning at least $120k after residency)... So why bother?

If you really ready to take on the risk by leveraging your student loan debt (that is extra after you've spent some of it on living), why not just invest it in straight equity, either in the form of a single stock, a mutual fund, or index? That way, you preserve liquidity, where if your investment goes up, you can readily sell it, pay back the principal plus accrued interest, and keep the left over. And I wouldn't worry too much about short term/long term capital gains at this point, because you're in med school! You have no income, so the taxes due on capital gains is really small if ANY. If your investment goes down, oh well, you lose but you would've lost anyways if you had put it in a Roth. Remember, liquidity is a major issue when you're not earning a salary. You never know when you need that money that just put away, so find an instrument that will let you access your capital easily. Once you start earning a salary, you can become less worried about liquidity because your monthly cash needs are covered by your paycheck and you can afford to give up liquidity for a higher return.

3) Stock vs. Mutuals/Index - While you're in med school, I would invest in mutuals/index unless you plan on NOT studying and just watching numbers go up and down all day. As a med student, your time is going to be used studying medicine, not stocks, so it's going to be hard for you to beat your alternatives. Let people who have nothing to do all day BUT study stocks do their jobs. Otherwise, just put some money into your favorite stock just for giggles, but leave market timing/trading/monitoring up to the professionals.

Just my opinion... may not be the optimal, but it's conservative for the time being, especially when you don't have any money.
 

lyragrl

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Originally posted by Herpeto
I have been getting more involved in investing for my future and am wondering if anyone invests while in medical school? Would it be wise to use loan money to invest in Roth IRA's throughout the four years in medical school? I look at it this way: as soon as I am out of residency I will no longer be able to put money into Roth IRA's because my salary will exceed the limit. Therefore the only opportunity I have left is to invest throughout school and residency. In addition, the loans will be at an interest rate of about 3% while I should be able to get a return of 8-12% during that time. Opinions?

Herp
Originally posted by Herpeto
I would like to clarify a few things. First, if I was to invest through out medical school I would certainly have a job providing the $5000 income necessary to invest in an IRA. Using loan money for investment is illegal and the IRS certainly wouldn?t take kindly to that. Second, although individual years may have either positive or negative returns, by investing through schooling and residency one is more likely to reap positive outcomes as opposed to investing after all education is done. Finally, if I want to invest in Roth IRA's, I must do so prior to finishing residency as my income will be too high once I am thru. Consequently, the only opportunity to invest with tax-free dividends is during the poorest years.

Herp

Okay, well, your post seemed to indicate something pretty different the first time. In general, you should always invest for the longest period of time possible since time + compounding are your friends in investing.

Most IRA accounts require a $1000 to $2500 minimum initial investment, although there are some firms that allow for a smaller minimum initial investment. Also, it makes sense to pay attention to the fine print: Some firms (cough... Schwab) levy large fees on smaller accounts. I have a Roth IRA with Vanguard which I'm very happy with. Dodge & Cox is another well-run fund shop. And you probably couldn't go to wrong with T. Rowe Price since their funds are generally low cost and well managed.
 

lyragrl

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By the way, the maximum investment you can make in an IRA if you are under the age of 50 is $3000 this year. In 2005, it will go up to $4,000.
 

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Originally posted by oldtimer
Check with your accountant.

LOL, I'll get my accountant on that ASAP. Should I conult my public relations guy too? How would investing effect my public image?
 

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Originally posted by oldtimer
Moreover, the investment field is ever changing. You can't read one or two books and think that's all. I suggest subscribing to a financial mag like Fortune, SmartMoney, Money, Forbes, etc. After reading them for a while, I think that your investment IQ will increase greatly.

I just noticed this statement. In one sense, the investment world is ever changing. However, there are some important basic tenents: diversification, attention to costs, risk control, etc., that are the bedrock of any solid portfolio. So, the books I mentioned are good starting points. And can go a long way to help keep you from being robbed blind or screwed over.
 

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Some of you should go to MBA school. anyway, put all your money in sports betting and playing craps and your local casino.....this is a fine investment.

But on an honest note, one investment I was planning was to buy a house/condo rather than rent one, hopefully saving 4-500 per month from rent.
 

oldtimer

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Lyragrl is right on with what she's saying. For those of you who are serious about investing, I would read carefully what she has written. Unfortunately, she can't possibly answer every one of your questions.

If you remember a few common sensical points, it'll go a long way:

1) Don't believe in the "hype". Whenever there is a new product offering or a huge run-up in a stock because of momentum buying, people lose their heads and begin to think it's the next best thing since sliced bread. If something is a great thing, make sure that it is backed up with hard data or sound intuition because if it is not then you're being played for a fool. While individual stocks and the entire stock market constantly gyrates, keep in mind that the market is self-correcting and will eventually settle on the true value. That is what happened with the Nasdaq and every other big market correction.

2) "If it sounds too good to be true, then it probably is". When somebody is trying to sell you securities, they may exaggerate the reality just to get the commission or worse your entire principal. Always try to fathom if they have your best interest at heart and what their conflicts of interest are.

Originally posted by lyragrl
I just noticed this statement. In one sense, the investment world is ever changing. However, there are some important basic tenents: diversification, attention to costs, risk control, etc., that are the bedrock of any solid portfolio. So, the books I mentioned are good starting points. And can go a long way to help keep you from being robbed blind or screwed over.

I agree with your points about the basic tenets of investing never go out of style. If you are a passive investor who is happy with owning a few types of securities, then you don't need to keep abreast of the investment changes. However, if you want to be more active and try to take advantage of new offerings and tax laws, then you have to keep up-to-date. For example, Roth IRA, exchange traded funds (which are what SPDR's, Diamonds, iShares, etc are btw), medical savings accounts, etc all came out relatively recently. Computer technology companies have matured a lot and are now somewhat passe; biotech or nanotech may be the next big thing. The tax laws have changed for long-term dividends, making owning dividend-paying stocks more attractive. Even if you like to be on the cutting edge of investing, don't neglect the basics like diversification, costs, etc.
 

oldtimer

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Originally posted by lyragrl
Finally, index funds are also known as passively managed funds. Non-index funds are known as actively managed funds. The person who said that actively managed funds are able to easily beat passively managed funds was partially incorrect. It depends on the index. The S&P 500 (the index of the 500 largest stocks in the U.S. equity market) is a VERY difficult index for active managers to beat year in and year out. Smaller-cap indexes have proven easier to beat.

Lyragrl, you're being too generous to the actively managed funds. If you look at the historical performance, something like 4 out of 5 actively managed funds UNDERPERFORM their respective indices. Plus, these actively managed funds charge higher maintenance fee, front or backend loads, 12B-1 fees, etc. There are a few outstanding actively managed funds, but who wants to constantly monitor for the best funds? In addition, past performance is no guarantee of future performance. I've concluded that investing in index funds from Vanguard is the way to go, especially when I'm a medical student.

Originally posted by lyragrl
The main point of this entire message is: Don't take investing advice from college students on a message board. Become educated investors.

Couldn't have said it better.
 

lyragrl

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Originally posted by oldtimer
Lyragrl, you're being too generous to the actively managed funds. If you look at the historical performance, something like 4 out of 5 actively managed funds UNDERPERFORM their respective indices. Plus, these actively managed funds charge higher maintenance fee, front or backend loads, 12B-1 fees, etc. There are a few outstanding actively managed funds, but who wants to constantly monitor for the best funds? In addition, past performance is no guarantee of future performance. I've concluded that investing in index funds from Vanguard is the way to go, especially when I'm a medical student.

Vanguard is an amazing shop, no question. And in the large-cap arena, indexes are incredibly difficult to beat. In small-cap land, however, indexes aren't quite so high a hurdle. The market is less efficient in small-cap territory, so it can pay off to have an actively managed offering. Internationally, the indexes have also been easier to beat. MSCI EAFE and MSCI World haven't proved to be terribly tough hurdles.

Also, not all actively managed funds have loads or 12b-1 fees. T. Rowe Price, Dodge & Cox, and Fidelity have no 12b-1 fees and no loads. (Well, Fidelity has advisor shareclasses, but who buys those?) So, I think there's something to be said for active management in certain investing arenas.

I do agree with you, though, that for no-nonsense, low-cost investing, index funds are a great way to go.
 

hamhamfan

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I'm also new to investing.

1) So, can anyone tell me whether I should invest in an EFT through an online brokerage or should I invest in some index run by some company like Vanguard? I have some free money and I'm thinking about putting it way for retirement.

2) Should I find a job now (I'm still in undergrad), how much should I try to save and put into funds/whatever? Should I put it into the ETF/mutual fund or in this thing people call IRA.

Sorry if these questions seem really silly. I've only recently begun to seriously look into my options (like 4 days ago) and it's on and off.
 

lyragrl

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An IRA is a tax shelter. Within it, you can invest in mutual funds, ETFs, stocks, bonds, whatever. So a mutual fund and an IRA are not mutually exclusive.

Whether you should invest in an IRA depends on a couple of things: 1) Whether you have earned income 2) What your goals are. If you're saving to buy a house, an IRA isn't really the best idea.

If you're only in college, an IRA probably isn't wildly necessary (just b/c you've got an awful lot of years until retirement). There's nothing wrong with investing in an IRA in college if you have the earned income, but I wouldn't feel like you're under the gun or anything.
 
B

Blade28

If you're making any kind of decent money working part-time during med school, won't that mean you'd get less money from financial aid?
 

lyragrl

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Someone else is going to have to answer that one, b/c I don't know jack about how fin. aid works. The only thing with an IRA is that it's not a very large sum of money at first. The max you can put in is $3000 in 2004.

I'm actually worried about this, though, because I have a decent chunk of money in my 401(k), my IRA, and my husband's IRA. I wouldn't sell the stuff if you put a gun to my head. That money is for retirement. That money shouldn't even be counted in financial aid (tho' they ask about it on the forms). Boo...
 

oldtimer

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Blade28: If you're earning reportable income, you will have to list it on your FAFSA. Consequently, it probably will reduce your financial aid. How much depends on the amount earned and the total cost of attendance. Talk to the financial aid office for more details.

lyragrl: Money in retirement accoutns like 401(k) and IRA's are not considered in your financial aid determination. Earned income and assets (except the home that you live in) are considered.

One last point: I think that it is smart to start thinking about investing. I say this because our culture is changing so that the average worker is expected to shoulder more of the responsibility for his/her own financial future. Don't count on pensions, social security, etc for your golden years. Government and employers are beginning to expect you to learn and know how to invest wisely so that you will have enough to live on during retirement. Sadly, most people do not know how to invest. Topics like diversification, costs, etc are too often not stressed enough and people consequently make stupid mistakes. Let me relate a story. Two years ago, I was on project for a large energy company. I shared a room with a guy who had been working for the company for more than 12 years. At this point, Enron had collapsed and many of those workers lost nearly all of their 401(k) money because they kept most of it in Enron stock. Therefore, I was curious to see if this guy had learned anything after Enron's fall. Amazingly, this guy was unfazed and still kept 50% of his 401(k) money in his company stock. 2 years ago, his company's stock was above $40 a share. Today, it's around $5 and at one point it was at 50 cents. Again, I warn those of you who are interested to not enter into investing blindly.
 
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