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Author: Dullchisel One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Draw me a picture Date: 3/16/2006 4:52 PM
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The best way for me to learn something is by example. I found this fund using my Scottrade fund center.

The snapshot thru Scottrade showed Cumulative Distributions of .32 for dividend and 1.04 for Cap Gain. What is a cap gain distribution as opposed to dividend? I didn't see any reference to Cap Gain in the Morningstar snapshot below. Why?

If I had put $100k in this fund on Jan 1, 2005 (assume entry price of $10 share and ignore commission).... and did not re-invest the distributions ... how much $ would I have received and what would my fund balance be at the end of the year?

This fund seems to have been giving high returns for several years. I gather that it is risky but I reckon if it kept it up for a few more and I put a big chunk of change in it I could be set pretty good. I wouldn't put all my eggs in the basket but a substantial amount.

Talk me out of it.


http://quicktake.morningstar.com/Fund/Snapshot.asp?Country=USA&Symbol=PSPFX
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Author: theHedgehog Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50543 of 74759
Subject: Re: Draw me a picture Date: 3/16/2006 5:10 PM
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Talk me out of it.

OK. This chart says it all. EEM is an emerging markets ETF. Emerging markets are generally considered the highest risk asset. That risk has been rewarded well over the past two years, as this chart shows. You will also note that ICF, which is a REIT ETF, has also been rewarded well. Neither EEM nor ICF are managed funds. They are indexes, and follow the index of their sector.

http://finance.yahoo.com/q/bc?t=1y&s=EEM&l=on&z=m&q=l&c=pspfx%2Cicf

Don't get me wrong. I'm not saying that you should go out and buy $100K of EEM. That would be more or less the same as blindly buying $100K of PSPFX based merely on performance. I'm just trying to point out the problems with this method of investing. Chasing performance is generally going to get you into trouble. It is not a viable plan for investing. What you should be doing, IMO, is developing a plan to diversify your investments (PSPFX is not diversified, BTW) in such a way as to mitigate your risks while still expecting a reasonable return.

You might consider reading some of the many investing books that are recommended here on TMF. There is also a FAQ on the Investing Beginners board. One thing you should have as a priority is to get an understanding of the various asset classes, such as emerging markets, small caps, large caps, foreign stocks, real estate, oil and gas, bonds, treasuries, and on and on. Once you have a good understanding of asset classes, then start to work developing a plan for diversified investments into the asset classes that look attractive to you. The keys to long term investing are diversity and risk management.

Hedge

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Author: Dullchisel One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50544 of 74759
Subject: Re: Draw me a picture Date: 3/16/2006 5:43 PM
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Thanks Hedge and I absolutely agree with you.

However ... I'm getting a late start on this thing and long term may not be all that applicable in my case. I am willing to accept a lot more risk right now to try and pump up my portfolio so I can then lay back and do it right while living comfortably.

I reckon that's what it's all about ... say I put $100k in there and lost $50k of it. Losing the $50K won't affect me near as much as making $200-300K would. I'm not a Fool at heart yet. Guess I'm still a fool.

EEM and ICF sound interesting, being indexes. I am generally getting the impression that indexes are safer.

Keep talkin'.



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Author: jbking Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50545 of 74759
Subject: Re: Draw me a picture Date: 3/16/2006 5:47 PM
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Greetings,

What is a cap gain distribution as opposed to dividend?

Dividend distributions are taxed like dividends while capital gains distributions are taxed like capital gains. Basically it is a matter of what tax liability does the fund pass on to the shareholder. Don't forget that it used to be that dividends were taxed at a marginal rate and that long-term capital gains were taxed at a lower rate so that there is a reason why some would want to know which part of the distribution is which.

Notice the breakdown of the distribution on http://news.moneycentral.msn.com/ticker/article.asp?Symbol=US:GROW&Feed=BW&Date=20051229&ID=5383867

I didn't see any reference to Cap Gain in the Morningstar snapshot below. Why?

This could be due to the distribution consisting of capital gains along with dividends and there is a distribution alert on the page.

Talk me out of it.

Well, back a few years ago there were a few good funds that if you look at them afterward it was likely not the best time to buy them. I give you 2 exhibits:

1) The S & P 500 beaters of the late 1990s. http://boards.fool.com/Message.asp?mid=13213138&sort=whole#13214987 is a thread noting these funds and their return in 2000 though I imagine they may have had rough times after that.

2) In Search of Foolish Funds. http://www.fool.com/news/2000/foth000616.htm being a different set of funds that get highlighted here. White Oak Growth(WOGSX) being one of those mentioned had these for their total returns in 2001 and 2002: -39.1%, -40.0%. That is quite the wallop.

To summarize: Could there be an oil bubble in stocks and if so what would the fall out be when it comes down? I remember when Fidelity Select Electronics was the hot fund and I doubt many would have wanted to hold it from 2000 till now all the way.

Last but not least there is the note that 2 out of the 3 managers are rather recent additions to the fund which may be a factor on future returns.

Regards,
JB

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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50548 of 74759
Subject: Re: Draw me a picture Date: 3/16/2006 6:15 PM
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Losing the $50K won't affect me near as much as making $200-300K would.

In economics theory this is called a "utility curve".

How much would you have to make in order to be positively affected as much as you'd be negatively affected by losing $50k?

Most people's utility curve is not symmetrical.

And if your utility curve is not symmetrical, what's "rational" for you may not be not exactly what is rational for someone with a purely symmetrical utility curve.

But you seem to be assuming that the possibility of a $50k loss is the same as the possibility of a $200K gain, which it's not.

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Author: theHedgehog Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50549 of 74759
Subject: Re: Draw me a picture Date: 3/16/2006 6:15 PM
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I reckon that's what it's all about ... say I put $100k in there and lost $50k of it. Losing the $50K won't affect me near as much as making $200-300K would.

Well, here's a very simple math concept. It's kind of scarey when you think about it. If your stock lost 2/3 of its value today, it would then have to triple to regain the value it had yesterday. It is far more likely that a stock will lose 2/3 of its value than it is that it will triple over the same timeframe. By the same token, it's far more likely that your fund would lose 50% of its value over some period of time than it is that it would gain 100% of its value(double). Losing $50K on a stock is easy to do. I can help you, if you like. :o) The harder thing to do is to make $200K-$300K with a $100K investment. I couldn't even start to show you how to do it, unless you know Mr. Peabody, and can persuade him to loan you his "wayback machine". LOL

EEM and ICF sound interesting, being indexes. I am generally getting the impression that indexes are safer.

Yes, indexes are safer, but that's because the risk is diversified over a large number of stocks that are related in some manner. Please don't think that I am trying to get you to buy EEM and/or ICF. These were just two that I happened to know had performed well in the past two years. But, don't forget: over the past few years, if you haven't made money, it's because you've been trying to lose it. But, that doesn't make you a successful investor. It just means that events have randomly conspired in your favor.

Hedge - hoping the conspiracy continues, as he knows he's no investor.

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Author: Dullchisel One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50555 of 74759
Subject: Re: Draw me a picture Date: 3/16/2006 10:37 PM
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"Hedge - hoping the conspiracy continues, as he knows he's no investor."

The American HeritageĀ® Dictionary of the English Language
investor
A person who purchases income-producing assets. An investor as opposed to a speculator usually considers safety of principal to be of primary importance. In addition, investors frequently purchase assets with the expectation of holding them for a longer period of time than speculators.

Am I an investor? Yes.
Am I a successful investor? No.
Do I need help losing money on stocks? Absolutely not! I've got that down pat and could advise anyone on two sure ways to do that. But I won't.

Thanks for the enlightenment. Now I gotta go figure out getting the 2nd mortgage on the house, hocking the jewelry, cashing in that insurance policy for the kids college and maxing out the cash advances on my credit cards to scrape up that $100k to put in those two index funds you recommended. ;)




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Author: theHedgehog Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50556 of 74759
Subject: Re: Draw me a picture Date: 3/16/2006 11:09 PM
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Now I gotta go figure out getting the 2nd mortgage on the house, hocking the jewelry, cashing in that insurance policy for the kids college and maxing out the cash advances on my credit cards to scrape up that $100k to put in those two index funds you recommended. ;)

Uh, no. Your best bet for the future is to pay off your mortgage and retire all your other debts: highest interest rate first.

Hedge

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Author: Dullchisel One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50571 of 74759
Subject: Re: Draw me a picture Date: 3/17/2006 2:25 PM
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"Now I gotta go figure out getting the 2nd mortgage on the house, hocking the jewelry, cashing in that insurance policy for the kids college and maxing out the cash advances on my credit cards to scrape up that $100k to put in those two index funds you recommended. ;)

Uh, no. Your best bet for the future is to pay off your mortgage and retire all your other debts: highest interest rate first.

Hedge"

IT WAS A JOKE!! JUST TRYING TO GET A RISE OUTTA YA!! LIGHTEN UP!!

Dull

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Author: theHedgehog Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50572 of 74759
Subject: Re: Draw me a picture Date: 3/17/2006 2:36 PM
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IT WAS A JOKE!! JUST TRYING TO GET A RISE OUTTA YA!! LIGHTEN UP!!

I know, but money is never a joke, Dull. :o)

Hedge

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Author: Dullchisel One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50573 of 74759
Subject: Re: Draw me a picture Date: 3/17/2006 3:06 PM
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as they say ... Sometimes ya gotta laugh to keep from crying ... Fool On my good man! I'm gettin there.

When I take off my hat there's this big thing hanging over my head like in the Arby's commercial cept mine says "Index Funds".

14 days and a wake-up and I'm outta there. Gotta git'r done.

I'm thinking one fund to start such as a Vanguard total market fund for 80% ... the rest in securities. Then after I get a better handle on being an "investor" maybe break it up into several index funds for different market niches. And then after that .... start going for the individual stocks ... start buying on margin ... find another Microsoft or Walmart or Berkshire Hathaway ... I'll make millions or billions even ... I .. I ..

Sorry ... Lost my mind there for a second.

Dull

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Author: theHedgehog Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50574 of 74759
Subject: Re: Draw me a picture Date: 3/17/2006 3:11 PM
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And then after that .... start going for the individual stocks ... start buying on margin ... find another Microsoft or Walmart or Berkshire Hathaway ... I'll make millions or billions even ... I .. I ..

Sorry ... Lost my mind there for a second.

Dull


Stay Dull, my friend. It's the only way to be sharp in the market.

Hedge

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Author: Dullchisel One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50575 of 74759
Subject: Re: Draw me a picture Date: 3/17/2006 3:32 PM
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No comment on my plan, as meager as it is?

"I'm thinking one fund to start such as a Vanguard total market fund for 80% ... the rest in securities. Then after I get a better handle on being an "investor" maybe break it up into several index funds for different market niches."

I'm not gonna blindly follow anybody's advice. I'm too ornery for that. Wouldn't hold anybody's feet to the fire if their advice turned out wrong ... after all I will decide if you are full of it or not ... but ... the more info I get from knowledgable successful people, the better equipped I'll be to make good decisions.

I been to Fool's School, signed up for Rule Your Retirement and I am trying to dig out as much info from the site as possible.

I'll be getting a sizeable chunk of my future financial well-being in the next month or so and I want to do something with it other than put it in a mason jar under the bed.

Let's hear it folks! This is the Investment Strategies for Retirement board. Run some ideas past me ... and be specific. I got a handle on the high level thoughts ... I think.

Dull

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Author: theHedgehog Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50577 of 74759
Subject: Re: Draw me a picture Date: 3/17/2006 3:42 PM
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No comment on my plan, as meager as it is?

"I'm thinking one fund to start such as a Vanguard total market fund for 80% ... the rest in securities. Then after I get a better handle on being an "investor" maybe break it up into several index funds for different market niches."


Let me know when you get this investor thing figured out, OK? I don't expect I ever will. I am already retired. My portfolio consists of EEM, ICF, IDU, and IJR. That's is. I don't own any equities. I don't own any bonds. I have been burned a couple of times in the past year and a half by selling out due to fear. By burned, I don't mean that I lost money on the deal. I actually made maybe a buck a share each time. However, the taxes ate up 30% of my gains. You make the big bucks by long-term compounding, not by taking big profits when the market fluctuates.

Edmunds suggests that you life off your capital, rather than living off of interest. What this means is that you make withdrawals by selling stocks. This way you are only taxed on the capital gains as you take them. With interest bearing securities (including dividends) you pay the tax as the interest is paid to you.

I'll be getting a sizeable chunk of my future financial well-being in the next month or so and I want to do something with it other than put it in a mason jar under the bed.

The best thing you could do, IMO, is to continue to leave it in that mason jar for awhile (Money Market Fund) until the euphoria of "sudden money" has a good chance to dissipate. Once you can start thinking of it as your sustenance for the next many decades, rather than a big pile of loot, then it's time to start making purchases. The market will still be there, no matter how long you have to wait to reach this point.

Let's hear it folks! This is the Investment Strategies for Retirement board. Run some ideas past me ... and be specific. I got a handle on the high level thoughts ... I think.

High level thoughts are all I have. I invested at the high level, and I'm trying to keep my mitts off it. It's very difficult to do.

Hedge

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Author: theHedgehog Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50578 of 74759
Subject: Re: Draw me a picture Date: 3/17/2006 3:53 PM
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Edmunds suggests that you life off your capital, rather than living off of interest.

Oops, that should have read:

Edmunds suggests that you live off your principal, rather than living off of interest.

Hedge

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Author: jbking Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50579 of 74759
Subject: Re: Draw me a picture Date: 3/17/2006 5:03 PM
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Greetings Dull,

Run some ideas past me ... and be specific.

Have you seen the Coffeehouse portfolio? http://www.coffeehouseinvestor.com/ is a link to the site and they have one idea.

Another would be to do just the total so you'd put some in the Total Stock Market(VTSMX), Total International Stock(VGTSX), and Total Bond(VBMFX) using Vanguard funds under some asset allocation scheme.

You could subscribe to one of those Fool newsletters that pick stocks or funds and just blindly follow those for another idea.

Or you could just get into managing rental real estate for another idea. Owning property and renting it out to folks may not be a bad idea for some.

Or you could follow the timing cube like joelxwil over at his site: http://www.actwin.com/kalostrader

Then there are the mechanical investing strategies talked about over on http://boards.fool.com/Messages.asp?bid=100093

Or you could pick mutual funds using a strategy described at http://boards.fool.com/Message.asp?mid=14586649 for another idea.

Then there is the "Index Plus a Few" strategy at http://www.fool.com/news/2000/foth000425.htm

Then there is that failed strategy known as the Foolish Four at http://www.fool.com/ddow/2000/ddow001211.htm if you want another idea.

Then you could combine these to get all kinds of other portfolios.

Regards,
JB

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Author: vickifool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50580 of 74759
Subject: Re: Draw me a picture Date: 3/17/2006 5:58 PM
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I'm thinking one fund to start such as a Vanguard total market fund for 80% ... the rest in securities. Then after I get a better handle on being an "investor" maybe break it up into several index funds for different market niches.

Sounds ok to me, Dull. Except that I'm not sure what you mean by "securities." Did you mean "treasuries?"

Vickifool

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Author: TurkeyBreath Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50582 of 74759
Subject: Re: Draw me a picture Date: 3/17/2006 9:01 PM
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"Now I gotta go figure out getting the 2nd mortgage on the house, hocking the jewelry, cashing in that insurance policy for the kids college and maxing out the cash advances on my credit cards to scrape up that $100k to put in those two index funds you recommended. ;)

IT WAS A JOKE!! JUST TRYING TO GET A RISE OUTTA YA!! LIGHTEN UP!!

I know, but money is never a joke, Dull. :o)


I've seen serious discussions and elaborate theories of the advantages of taking 2nd mortgages out to invest in the money trees of Wall Street. The logic goes, pay only 6% on the mortgage to earn a minimum of 10.5% by *"playing" the market, etc., etc.

*You know trouble is brewing when the word "playing" is refering to money.

TB




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Author: DrTarr Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50583 of 74759
Subject: Re: Draw me a picture Date: 3/17/2006 9:51 PM
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Well, as far a playing the market it is really a gamble, but for some, who have a lot of equity in the home and are already claiming deductions so any additional mortgage is fully deductible in a fairly high tax bracket - borrow borrow borrow.

Second at 7%, after taxes, really about <5%, invest the money - stay short term and diversified with good corporate paper and how much are you really "playing?"

Government may even be a shot - Fed Home Loan is AA, YTM mid 6%'s and even if called in would provide 5.6%

IF you do not mind going longer BAC has some in the ~6.8% range.

Sometimes this works out. But if you take out a second and throw it into GOOG, you'll either have a ticket to easy street or be living on the street.......

DrTarr

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Author: Dullchisel One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50586 of 74759
Subject: Re: Draw me a picture Date: 3/18/2006 12:15 AM
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"I'm thinking one fund to start such as a Vanguard total market fund for 80% ... the rest in securities. Then after I get a better handle on being an "investor" maybe break it up into several index funds for different market niches.

Sounds ok to me, Dull. Except that I'm not sure what you mean by "securities." Did you mean "treasuries?"

Vickifool

I reckon I misspoke ... I was thinking of stocks and funds as "equities" and money market, bonds and CDs as "securities". Per dictionary .... "A document indicating ownership or creditorship; a stock certificate or bond."

As far as borrowing to invest, it is something I have considered. That's pretty much the same thing as investing with a margin account isn't it? Except you're not gonna get a margin call if you got the money from your home equity line of credit. I have no aversion to debt. It's just a matter of cash flow to me. I really don't care how much money I owe as long as I can pay the bills and have what I need left over. I do like to keep my net worth a positive number.

I have a couple of credit cards with zero balances and they keep sending me checks ... just write a check to yourself and put it in the bank they say ... 0% interest for 6 or 8 months. Hmmmmm ... free money for 6 months. It's tempting.

Dull


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