Buy and Hold Strategy Using an IRA or 401K

Have you ever wondered how Warren Buffett got to be listed on the Forbes 2012 World’s Billionaire list? At an early age, he invested using a "Buy and Hold Strategy."  He looked at companies on the cutting edge of the economy, invested money in them over decades and sold their company stocks when the companies showed signs of maturing.

 

If I was just starting out, I would open a Roth IRA at an online brokerage firm and put $25.00 or more a mouth in the account. Next, I would go to Wal-mart, Best Buy, or look at Technical Media Shows that explorer new types of consumer products that are the current fads in society.

 

If you want to learn about investing, click on the link below.

 

http://www.mybanktracker.com/investing/basics/Understanding-Buy-and-Hold-as-an-Investment-Strategy/102389

Understanding "Buy" and "Hold" as an Investment Strategy

Alibaba and its IPO

Alibaba headquarters in Hangzhou

One of my friends called me up last month and ask me how many shares of Alibaba Group Holding Ltd. ADS was I going to buy? She just assumed that because I know something about the stock market and Alibaba is on the news 24/7 that I was going to buy some of it and make a lot of money. 

 

She was very disappointed when I told her that I do not buy IPOs and I don't think that I would buy Alibaba anyway.  Boy, did she tell me off! She claimed that the stock was going to go through the roof and that I was going to miss out on the greatest IPO of a life time.

I told her that this IPO craze that the media is leading on behalf of the large investment bankers is not my part of the market. I follow my own nitch. But let's see how things have gone in the Alibaba market since the IPO first went out on the market.  Just looking at the name tell you that this stock has plenty of risk.

 The Chinese e-commerce company benefited from an explosion of hype around its initial public offering, which raised a world record of $25 billion.  Despite that fanfare, investors who hit the "buy" button on Alibaba (BABA, Tech30) are likely staring at red ink. While insiders and VIP investors could buy Alibaba at its IPO price of $68, many average investors hit the stock exchange at $92.70 due to heavy demand. Today, it's trading about 7% lower as global markets have stumbled in recent days.

The bull market hit some turbulence in September, but that didn't stop Alibaba Stock (Stock Symbol: BABA)  from generating lots of interest from investors.  My friend thought she was going to buy it at $68.00. But that is not how the market works. Your market makers and  Institutions such as banks, insurance companies, pension funds, endowments get their orders in first. That pushes the stock price up. Then the public buys the stock. My friend bought her shares at $90.00 per share. That is better than many of the "hype followers."  

So far this October, the market has been very volatile and so has the stock. The stock hit a high the first day of trading at $99.70 and a low Friday Oct. 10, 2014 of $85.24. The stock closed that day with $85.88. If I wanted to take the risk and buy this stock, I would wait until the stock hit $80.00 per share or I would by at the end of October.     

 

Part 3: Retirement Support

Do not pay high fees

 Here is why if you do not use a 401K, use a self directed IRA at an online brokerage firm.  The fees are lower.  Here is why I stay away from mutual funds. I invest in stocks and bonds. The fees are lower.  The less you pay in fees, the more you have for retirement. 


All funds in a 401K charge an annual fee called the "Expense Ratio." The average annual expense ratio for 401K funds is 0.58%. You should be able to find the average expense for every fund in your 401K by logging onto your online account.

 

A free service at Future Advisor (futureadvisor.com) provide ratings on thousands of 401Ks. If your fund charges high fees, check to see if the fund has at least one index fund offered. About 70% to 80% of plans offer an index fund.  Index Funds are not actively managed, so the fees are lower.    

 

A Smart Rollover

 

If you have an old 401K at your past job, check the fees on those accounts. You can move that money to a retirement  account at a discount online brokerage firm.  Here you can invest in low-cost funds and exchange traded funds(ETFs). You can also invest in individual stocks and Bonds.

 

This move is called a "IRA Rollover." The company that you are moving your account to will help you with the "Rollover Paper Work." I suggest you do this because it is important that you are authorizing a "Direct Rollover." You do not want to trigger any tax bill at the time you move the money .    

 

Never take a loan from your 401K

 

Many 401K plans allow participants to take a loan from their accounts.  Taking out a loan from your account is mortgaging your future.  Going back to part 1 of this series. What if;

•  The company that you are working for will close its doors, throwing you out of work.

• The company that you are working for is bought out moving the company to another state throwing you out of work.

• Your job is replaced by technology meaning that your services is no longer needed.

• The company is downsizing and you are the one being downsized.

The money that you borrowed may come due at that time. That is the time when you can't pay it back. That means that you will generate a large tax bill.

http://newpittsburghcourieronline.com/2014/09/22/beyond-the-rhetoric-beware-of-retirement-pitfalls/?omcamp=es-npco-nl&utm_source=Sailthru&utm_medium=email&utm_term=Pittsburgh%20Subscribers&utm_campaign=Lifestyle

More retirement information. This is an article of the pitfalls of retirement

 

The End

Part 2: Retirement Support

Employer Matching Funds

 I don't like 401K programs unless they come with matching funds. If your fund puts in $1.00 for every $1.00 then I am all for joining the company 401K. If the fund gives no dollars for every dollar that you contribute then I say go with a self directed IRA.  In the case of matching funds for your 401K program, make sure that you are putting enough money into the 401K to maximize the company matching in your account.  

This is very important if you changed jobs in the past few years and you have been automatically enrolled in your new employers 401K program.  

 

Increase Your Savings Rate

 
Make it your goal to increase your savings rate every year. Consider increasing your savings rate at least 1% per year. When you get a raise, consider earmarking half of your raise to your 401K or IRA.

Here is another idea! The above link explains how and why the IUL works better for retirement income than IRA/ 401K/ Pension Plans.

Personally, I rather be in a Roth IRA in Junk Corporate Bonds!