Thought this post of mine on the investing forum would be interesting to keep around in my blog. Sorry if you've been following the thread and this is a repeat.

I'm a mutual fund gal, buy and hold (to a fault), very long-term (>10 years) focused. (I say "to a fault" because when I first started working, I bought about $6k of AT&T stock through an ESPP, and held on to it while it divested into Lucent, Comcast, and a few other stocks. At one time my Lucent stock was worth over $40k, and I held it all the way up and all the way down and finally sold at a loss a few years later. If that's not buy and hold to a fault, I don't know what is! I concluded that until I'm willing to pay more attention, I should not own individual stocks!)


My DH feels I've been holding him back from investing in individual stocks. At times he has mentioned he wants to put $10k or $50k into a single stock, and by the time I've gotten over the shock of the dollar amount he says the buying opportunity has passed. The argument we have is entirely predictable -- he says $10k, I ask how about $2k, I ask if he's timing the market, he tells me how he lost money by holding a certain stock too long because I kept talking about buy and hold. He doesn't end up buying the stock (even though I would've been ok with investing a smaller amount) and we're both frustrated.

The answer, I think, is to have an account that is dedicated to stock trading, and to agree that he can invest it any way he wants. Would $20k be a reasonable starting amount for such an account? Our overall picture is $395k in retirement accounts, $375 in taxable mutual funds, $9k in ESPP stock, $17k in money market, and $20k in checking/savings. We're 37 years old. I estimate the emergency fund needs to be in the range of $13k to $26k, and we contribute 12% to 401k. We've agreed in principal to each manage our own retirement funds, although we're trying to consult each other before making any major moves.

This is so frustrating. I'm an engineer. I've always been good at math. For my degree, I had to take two semesters of calculus, differential equations, and a real bear of a class called Engineering Mathematics (Bessel polynomials, anyone?). I got A's in the first three and a B+ in the last one. So I am not math-phobic by any means.

But I just can't get my head around the process of analyzing the numbers associated with mutual funds. This is not math, folks, it's business, and I hate it. I sit there and look at total returns and expense ratio and loads and my attention just seems to slide off the screen.

DH and I sat down today to look at mutual funds. Both our IRA's have some cash that needs to be invested -- about $70k in his (from rollovers), and about $15k in mine. We've had a lot of difficulty in the past whenever we talk about investing, so it was real progress just to be sitting side by side, not really talking, but each looking at mutual funds on our separate laptops.

So I pull up the Etrade Mutual Fund Screener and start entering criteria. I decide to try to look for a no-load domestic mid-cap fund with an expense ratio under 1%. (Why do I choose this? Because a year ago my full-service broker mentioned that I don't really have much mid-cap in my portfolio, and that would be one area I could consider adding.) This narrows the field down to 25 funds. But how do I know that this selection will give me the best quality? Maybe it would be better to limit the search by capitalization instead? I see some companies I've heard of, like Fidelity, and other I haven't, like FPA.

I click on the Performace tab. Look at Fidelity Value (FDVLX), just to pick one. The manager's been there 12 years, which I like and the name isn't as specialized as something like Fidelity Select Chemicals. Etrade has tagged it "all-star", but Morningstar only gives it 3 stars.

Returns are:
1yr 3yr 5yr 10yr inception
-6.41% +8.80% +16.41% +9.51% +13.75%

So if I believe Bogle that funds generally "return to the mean", is this fund on its way up or down? Beats me. The 3yr is under 10%, the 5yr is over, and the 10yr is close. The negative 1yr return doesn't bother me -- stocks have been down lately, maybe it's bargain time?

Expense ratio is 0.70% for both gross and net. Some on the page are as low as 0.50%, others as high as 0.90%. Is this significant, or is anything under 1.00% good? Is 1.00% the magic number, or is it 1.50% or 2.00%? I don't know.

I click on the risk tab. 4 more columns of numbers. I can't remember the difference between the different risk measures, and whether higher or lower numbers are better. I don't feel like looking it up again. Even if I knew what the numbers meant, I don't know the range of numbers for a given parameter that would be acceptable to me.

I click on the link to look at the fund's page. Top 5 holdings are Owen's-Illinois, Xerox, Avon, Agilent, and Eastman Kodak. I know Agilent was spun off from HP, or was it Motorola, and Kodak isn't a player in the digital camera realm, but are they good companies to invest in? Who knows? I'm buying mutual funds because I don't want to analyze stocks!

Let's look at the chart comparing it to a benchmark. From 1998 to 2005 it essentially tracked "Mid-Cap Value" (I need to look up what that is again to confirm that it is a mid-cap benchmark as the name implies), and then in the last 3 years it's been maybe $2k higher. I vaguely try to remember whether it's Fidelity or Vanguard that is the king of index funds. The arguements I've heard (was it from sweeps?) for managed funds have swayed me toward them over index funds, although I couldn't for the life of me tell you what they were.

It's paralysis by analysis. I know enough to know that I don't have an intuitive feel for what I'm looking at. If I were to pick this fund, so far the real reason for my choice seems to be that I recognize the company (Fidelity), they chose a simple name (Value), the manager has been there 12 years, and the returns since inception are good. Is this rational?

By this time my eyes are glazing over, and I've only looked at one fund!

I think this is why so many people default to picking index funds or ones Etrade or Morningstar has tagged as "all-star". It's certainly why I've stuck with a full service broker so far. Maybe I could've gotten a better return picking my own no-load funds, but maybe my paralysis would've made me too conservative, who knows?

DH wants to use Etrade and pick his own funds in his retirement accounts. I'd like to understand enough to have an intelligent conversation with him about the funds he picks. And I'd like to be able to have an intelligent conversation with my full-service broker about the funds he recommends.

I'd like to feel confident enough to make a decision about how to invest my money.

After over a year of having this list in my summary, I've finally checked off one item!

Financial To Do
[ ] update wills
[ ] invest IRA rollover money
[x] stock basis into Quicken
[ ] annual review with broker
[ ] review life and disability insurance
[ ] earthquake/disaster box
[ ] move $40k to 529 plan

I finally bought the latest Quicken, downloaded all our investment info, and manually plugged in the basis for my mutual funds. Not sure why the basis didn't download as I was setting it up, but no matter. Now at least going forward I can try and use Quicken's analysis tools to look at the portfolio. (I tried using the Morningstar x-ray tools, but couldn't get it to save properly.) My goal is to review it quarterly, using the estimated tax deadline as a prompt.

Currently we have 10 different mutual funds, all American Funds, in 3 accounts with a full-service broker (taxable, my IRA, and my ROTH), and then 3 more accounds with a lot of cash in Etrade (taxable, DH's IRA, DH's ROTH), DH's current 401k, and I'll soon open a SEP-IRA.

Then we have 5 bank accounts -- checking, savings, and business with Wells Fargo, and checking and savings with Etrade. It's too much, really. I moved most of our checking/savings money to Etrade last summer, but haven't finished the process of cleaning up the old accounts.

I've decided to manage our budget and checking/savings accounts exclusively with YNAB, and only keep investment info in Quicken. I've been using YNAB for about 6 months now and am very pleased with it.

DH did a bunch of 401k rollovers into his IRA, but hasn't invested the money yet. Hopefully we can find the time to make some decisions on that money soon! It would be nice if that were the next box to get checked off...

Good news after our first pass through TurboTax. I had feared we were in big trouble after under-withholding CA state tax, and did what I could by sending in a big check for estimated state taxes on Jan 17. Right now it looks like we will owe about $1000 in federal taxes, and will get a rebate from the state for about $1200. The penality was only $36.

I've got some stock basis to figure out, and also need to open a SEP-IRA, so the news may get better yet.

It was kind of interesting to do a what-if to see what would've happened if I hadn't started consulting. We would've had very large refunds -- $6,600 federal and $3,300 state.