My First Steps

The best way for me to begin is to detail my first steps in beginning to invest, my decisions on why I am investing, and what I hope to accomplish (be forewarned that I will be mentioning many different websites, books, and blogs that I have encountered. At some later date I will be reviewing most if not all of them, I provide links to them merely as a reference and not has a recommendation).

In Oct/Nov of 05, after spending the last few years getting my house in order (finishing school, starting career, buying my first house, and getting married) I realized I needed to begin to plan for my future. The question therefore was “how to invest?” I quickly discovered that what I thought were investment advisors where actually simply stockbrokers who were actually just salesmen. Now that does not mean there is not value in what they are saying, but like everything in life, the more hands that touch what it is your buying the more it will cost and the less you will save.

So I thought that maybe I should research how to invest in the least expensive manner possible, i.e., reducing costs. At first, like most new persons, I turned toward mutual funds. I read about mutual funds and realized that not all funds were the same. I quickly discovered what a load/no-load fund was, what a management fee was, what a 12-b fee was, and collectively what an expense ratio is. Needles to say I discovered that some mutual funds could be quite expensive.

For my basic research of funds I relied on morningstar.com, moneycentral.msn.com, and finance.yahoo.com. I liked using the screener at Yahoo the best to screen for no load funds with low expense ratios. I found the best place for comparing a family of funds performance over time is at morningstar.com in the “funds” tab and select the “fund family data” drop down window. (For those of you who already own mutual funds a great site to visit, and one that I will review in good time, can be found at fundalarm.com).

I quickly narrowed down my choices of funds to two families, Vanguard and Dimensional Fund Advisors (DFA).

My research demonstrated that for me, the two funds represented the best ratio of cost to return benefit for a new investor as myself.

Of course as one of the largest funds vanguard.com is the best place to research vanguard funds, but most people do not really know about DFA.

DFA was started about 20-25 years ago by what I understand to be the “modern portfolio theory” (MPT) academics, i.e., the efficient market theory. Here is the homepage, dfaus.com, and the academics involved, dfaus.com/dimensional/academics. Please note that the academics involved include those who are considered the “fathers” of the MPT field of investing.

Now the thing about DFA is that they are marketed to large institutions and can only be bought by individuals through fee only financial planners certified by DFA to sell the funds. The least expensive way to invest in DFA I found was here, cardiffpark.com, the most comprehensive explanation of DFA I found here, ifa.com (not withstanding that they are selling their services this website did a pretty good job of explaining to me, someone who is very math deficient, the whole concept of the risk reward analysis. Another site that I may review in the future).

Now at this point in my story, about mid-December, I had made up my mind to go into mutual funds, but the thing that kept on nagging me and turning me of most of all about funds is that they make money no matter how good or bad the performance is.

Now I understand that there are fixed costs involved, rent supplies, administrative staff expenses, & c & c. But I did not like that the fund managers get paid not just when they do not beat the market (Dow, S&P but that they get paid even when they have negative return. Now in my business, if you don’t win you don’t get paid. I like it that way because it motivates me and I would rather have a bigger upside then a guaranteed salary, just my personality.

So it really bugs even when a fund losses money they get paid. But I just did not see, hiring a stockbroker, or spending a lot on another education. And then……

More later.