Roth vs Traditional Retirement Accounts
Friday, October 3, 2008
| Traditional | Roth | |
|---|---|---|
| Contribution After Tax | $10,000 | $8,500 |
| Balance At Retirment | $452,592.56 | $384,703.67 |
| Amount Withdrawn after Tax | $384,703.67 | $384,703.67 |
In this example when the current tax bracket is that same as retirement, the accounts have the same benefit.
| Traditional | Roth | |
|---|---|---|
| Contribution After Tax | $10,000 | $8,500 |
| Balance At Retirment | $452,592.56 | $384,703.67 |
| Amount Withdrawn after Tax | $339,444.42 | $384,703.67 |
| Traditional | Roth | |
|---|---|---|
| Contribution After Tax | $10,000 | $7,500.00 |
| Balance At Retirment | $452,592.56 | $339,444.42 |
| Amount Withdrawn after Tax | $384,703.67 | $339,444.42 |
My Deceptive Financial Adviser: Why was I such an idiot?
Monday, September 29, 2008
By the end of the year I had learned quite a bit about the stock market and mutual funds in general. I have been reading many personal finance blogs (get rich slowly) religiously and started picking up on something called an expense ratio. An expense ratio is measuring the total costs of a fund investment as a percentage of your monetary contribution. For example, if you put $1,000 into a fund where the expense ratio is 1.5%, you can expect that $15 be spent on manging the fund for the year. This wont be subtracted from your account, but invisibly from the price of the fund. This is how you pay the people who are buying and selling stocks in the mutual fund. This expense ratio is composed of other various fees also such as 12b-1 fees.
Now an expense ratio of a fund can be good or bad depending on the fund(I will go into that in another post), but in general you want to avoid funds with high expense ratios(>1%) especially when investing for long periods of time (retirement).
Knowing how big of an effect expense ratios have on long term investments, I needed to know the expense ratio of the fund that I owned. The fund I currently own in my Roth IRA is the Oppenheimer Port Series Equity Inv C (OCAIX). At the time, it had an expense ratio of somewhere around 1.5% (Now 1.86%!). It also has a 1% deferred load if sold within a year of purchase.
When I found this out, I emailed my financial adviser asking him what was up with the high expense ratio. I gave him the idea of using the ETF fund QQQQ in place of the Oppenheimer fund because it has a very low expense ratio. (I realize now that the two funds aren't very similar at all in asset allocation, let alone one is an ETF and the other a mutual fund, but it is what I came up with at the time) He promptly replied, saying that he was glad that I was looking at expense ratios, and I was right to question it, but what I am paying for is the active management of the fund(which is true, and good as long as the managers can beat the market). He said he would attach a graph to show how the funds compared. Here is that image...
Now what he is telling me, and deceptively trying to show me is that the OCAIX fund has greatly outperformed the QQQQ ETF over the given period of time. And he is right, if I would have put $1,000 in QQQQ in the late 90s and then $1000 in OCAIX at its inception in 2005, I would have had made a better return on the OCAIX investment. This doesn't make any sense though. Why would I compare making two different investments about 6 years apart? The market as a whole was in two totally different situations in the late 1990's and mid-year 2005. It was working its way to the tip of a bubble in the late 1990s, while in the 2005 time frame when OCAIX came to birth, the market was beginning a bull run. What he should have showed me was the following image.
In this image, the return of an investment in the two funds over the same period of time is shown where both funds would have experienced the same market conditions. Looks a lot different, huh? The ETF actually out preformed the mutual fund by just under 10%. I can't believe I fell for it at the time, but I did. I realize the two funds have different asset allocations so the performance difference is expected, but the fact that he tried to deceive me is what really makes me mad.
The OCAIX fund pays high 12b-1 fees which is like commission for selling certain funds. These types of fees are what make most financial adviser's opinions and fund selection biased. Kind of wish I would have payed more attention so I could have sent this as an email right back to him along with the papers for him to transfer my accounts to Vanguard.
Current Holdings
Wednesday, September 24, 2008
So its been over a year since my last post...I seem to have forgotten about the blog, but I haven't stopped investing. I just wanted to post my current holdings as of this week. I'll go in depth about some of the things I have learned and experienced over the last year in my next few posts. Feel free to make any comments on my holdings you would like. I'll try to go into depth about why I am holding them later.
| Ticker | Company | Shares | Market Value |
|---|---|---|---|
| AAPL | Apple Inc. | 3 | $385.95 |
| AMZN | Amazon.com, Inc. | 1 | $70.05 |
| BAC | Bank of America Corporation | 15 | $501.00 |
| BND | Vanguard Total Bond Market ETF | 1 | $76.64 |
| CRM | Salesforce.com Inc | 2 | $101.98 |
| FRO | Frontline Ltd. | 7 | $356.85 |
| GE | General Electric Company | 3 | $73.80 |
| GOOG | Google Inc. Class A | 1 | $435.50 |
| JPM | J P Morgan Chase & Co | 4 | $162.20 |
| SIGM | Sigma Designs, Inc. | 5 | $80.60 |
| UVE | UNIVERSAL INSURANCE HOLDINGS I | 39 | $139.18 |
| VEA | Vanguard Europe Pacific ETF | 4 | $147.84 |
| VHT | Vanguard Health Care ETF | 1 | $54.07 |
| VNQ | Vanguard REIT ETF | 1 | $58.44 |
| VTI | Vanguard Total Stock Market ETF | 5 | $299.20 |
| VWO | Vanguard Emerging Markets ETF | 2 | $71.58 |
| Total Invested: | $3014.88 | ||
| Cash: | $478.37 | ||
| Total Equity: | $3,493.25 |
My first few trades
Sunday, September 16, 2007
The first stock I purchased was Frontline Ltd(FRO). It is heaven-sent to the dividend investor. It pays out around $5-6 a share in dividends a year which adds up to a yeild of over 10%.
As far as Zecco goes, it was kind of a hassle getting everything set-up but that was mostly because of me not realizing I already opened an account earlier this year and creating a new account. The second account you create on Zecco is not eligible for free trades. I don't really have anything to compare Zecco to as far as online trading platforms, but for what I am trying to do, it seems to be working great! The trades seem to be going through quick; I haven't experienced any problems.
Still here
Thursday, August 23, 2007
I am back again. This time I have an approved account at zecco.com. I needed to apply again but luckily there now is no need to sign and send in papers. It is all done digitally and it only takes a couple minutes. I was approved the next day. I am now waiting for my bank accounts to get approved so that I can fund my account. Since I last applied zecco has lowered their minimum deposit for free trades to $0. You could deposit a couple cents and buy a single share of a penny stock if you wanted. I am going to start off with a thousand and go from there.I am hoping to stick to stocks under $20 but if I find something I like I will jump on it no matter the price. Let me know if you have any suggestions. I have been reading a lot of threads in the zecco forums and picking up on a bunch of things. I'll post a little of what I learned later.
I know many other trading sites have tried the zero commission route and it didn't work out. Hopefully zecco can survive. It will be hard to start charging commission when your name in fact stands for zero commission!
Finally
Monday, January 29, 2007
I got the needed papers that require my signature and an attached photocopy of a government issued ID. If anyone else is planning on opening an account, MAKE SURE TO PRINT THE APPLICATION OR ATLEAST SAVE THE DRAFT SOMEWHERE. It is kind of confusing to me why they don't have the application freely available to print. Anyway, I am going to send this in tomorrow and hopefully my account is ready for deposits by the end of the week. I have been doing a little research and have a couple of different funds/stocks in mind. Any recommendations of funds that you may own or have interest in would be greatly appreciated. Right now I am open to many different possibilities.
Also, I am looking at starting an online savings account at HSBC. Does anyone know of any bonuses available for opening up an account. Are there referral bonuses? If so, leave a comment with your email and I will contact you.
Still no letter
Thursday, January 25, 2007
It is Thursday, a week later, and I still have yet to get a letter from zecco.com. meanwhile I am beginning to set up my Roth IRA. I currently have a 401k through work but I plan on being in a much higher tax bracket at retirement age, so I believe a Roth IRA is a good option for me right now.
Zecco.com email
Thursday, January 18, 2007
I got an email today and actually got a hold of a customer service representative that is sending me the required written application that requires a signature and a copy of a government id. Hopefully by next time I will be ready to start trading.
It has been a while but I am still here
Tuesday, January 16, 2007
I recently got back into the swing of things and started getting some more motivation to get this all started. I did a little research on some possible trading sites. I wanted a site that was cheap and supported the beginner and I think I may have found a winner.
I came upon zecco.com. The main thing that attracted me was the fact that they offer no fees (trading or commission) on stock and EFT trades. This is as long as your account keeps an overall value of $2,500. There are fees on certain mutual funds and bonds but still these fees are lower than most that I have seen.
The only problem is that zecco.com is only a couple of months old. It launched some time around October of 2006. I have read some reviews that went both ways recognizing some bugs in the interface which isn't surprising considering it just launched, but this is something that needs to be taken into account. Some other concerns of mine were customer service and it seems that zecco.com lacks here too. I tried calling today because I could not find an application that I needed to sign and fax in, and didn't get a hold of anyone. It also seems as they do not have an answering machine service, once I got the system to send me to the customer service personnel, the phone just kept ringing. After about 5-10 minutes I got fed up and just sent them an email. I hope to get one back sometime early tomorrow.
I have read that a lot of different online trading sites have tried the free trading strategy and it just didn't work out. It makes me wonder if this just isn't a stunt to gain customers.
I am still a little skeptical about the whole thing, but I mostly think that is just because I still have yet to do any trading online. It is kind of like your first eBay experience in a way. I was pretty paranoid about getting ripped off when I bought my iPod a while back. Now I make a majority of my large purchases on eBay and I am saving a lot of money doing it.
I will let you know how the email situation turns out and about anything I learn about zecco.com.
If any of you have actually used zecco.com or have heard anything comments would be greatly appreciated!!!
Intro
Sunday, October 29, 2006
Hi, I am a college junior majoring in Computer Science.
I have always been interested in the stock market, but have never found the time to learn much about it or gather the courage needed to actually make investments with my own money. I know there has to be other people out there in a similar situation.
I have decided that I am going to finally start trading online and try to gain some experience along the way that will hopefully pay off in the long-run. I am hoping this may help others along the way if they are interested in doing so also. I will keep you informed on any useful sites or readings I find along the way.
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