Newb who has just read through the stickies - addtl help requested

[danswer5]

Hello all. I am going to give a bit of background about myself so that you guys have an idea of where i am coming from. I am 21 years old and I will be graduating from Ohio State this spring with a Finance major. Soon i'll be interviewing and doing all that jazz, and hopefully (but not in an exciting way) I will have a job lined up by graduation. I do understand the importance of investing from a very early age, and to that end I was very curious to hear some input from the more experienced members of this forum.

Right now, my asset portfolio is quite thin. I have approximately $8500 in the American Century Gift Trust (TWPTX) mutual fund, about $1500 in a Scottrade account that I am experimenting with that only has about $1000 invested in a mixture of mutual funds and stocks. (I understand that this amount is so trivial that it's almost pointless to be investing it, esp. with trading fees eating up almost all of the profits that i may make anyhow, but I see it as a learning experience and an opportunity to become familiar with the market more than anything else). Finally, I have about $2000 in a savings account that will be growing at ~5% annually. The rest of the money is in my checking account and I will probably leave that there for now.

Now, I have been doing reasonalby well at poker, making enough to put aside some of this $, but i've only become serious about investing over the past month. I am very interested in trying to invest more money into an index fund of some sort or the ETF's that i've been hearing so much about. Also, emergin markets, esp. international markets in Brazil, China, and the rest of Asia sound VERY appealing to me. I am very willing to take on a good amount of risk, as I see this as a long-term investment in which I will not be withdrawing money unless it is an ABSOLUTE emergency. I also suspect that I may not have enough capital at my disposal to effectively enter this area, but I certainly would like to hear the opinions of others to support or nullify this assumption. I currently have an additional $4-5000 that I can invest, but this knowledge will also be beneficial for me in the future even if I cannot implement it today.

So, here are some of the questions that I have for the distinguished ladies and gentlemen of this forum:

1) What index funds and ETF's would you recommend?
2) Are the emerging markets a good choice right now? I know that they have been doing well lately, but i understand that they are quite volatile. In your opinion, do the rewards outweight the risks?
3) I've just recently bought my first investing book, some insight into the investing habits of Warren Buffet and George Soros, and I have also picked up The Intelligent Investor by Benjamin Graham. I was wondering if there was a consensus as far as books that MUST be read in order to succeed in the investing arena (a Small Stakes Holdem, Theory of Poker, or Super System if you will).
4) Finally, any further recommendations that you have would be greatly appreciated and considered. I consider myself very new to this particular field (even with a major in finance) and I would like all the help that I can get.

Look forward to hearing some replies. For those that took the time to read, I do appreciate it. Happy holidays to everyone and good luck in 2007!

[gull]

If you are willing to take a very high amount of risk for high return, then I'd recommend concentrating your asset allocation into the highest performing asset classes: emerging markets, US small value, foreign small value.

1) Because it's impossible to get access to DFA funds without a boatload of money, your best option for emerging markets will be Vanguard's VWO. For small value, there are a few more options. RZV is a super small, super valuey ETF. It's rather new, though, and it's not heavily traded so it has a high bid-ask spread and may have an uncertain future. Other options include VBR (Vanguard's small value which isn't very small or valuey, but it's very cheap with a .12% ER). Without DFA funds, there aren't any real foreign small value choices. Even so, you can probably replicate it with a mixture of foreign small (like DLS) and foreign value (like EFV). All of the funds I've listed are ETFs, and will be rather tax-efficient and best suited for taxable accounts. Additionally, buying ETFs will allow you harvest tax losses.

2) I can't predict the future. Historically, emerging markets have beat other indices. I don't know if emerging markets will continue to overperform in the next 20 years as they have in the past 20 years, but I don't see any reason for them to inherently underperform.

3) ifa.com has a good explanation of investing. If you want to read more advanced articles, altruistfa.com/readingroom.htm has a nice, organized collection. If you want even more technical writing, look at some financial journals.

Good job for getting started and educating yourself. I sort of glossed over the details above, so just ask if you want me to explain something I mentioned. Also, I don't think $1,000 is too trivial to be investing with. However, it is especially prudent to minimize commissions with a small amount.

[pig4bill]

[ QUOTE ]
3) I've just recently bought my first investing book, some insight into the investing habits of Warren Buffet and George Soros, and I have also picked up The Intelligent Investor by Benjamin Graham. I was wondering if there was a consensus as far as books that MUST be read in order to succeed in the investing arena (a Small Stakes Holdem, Theory of Poker, or Super System if you will).


[/ QUOTE ]

You ask a very general question but want a very specific answer. There are many different ways to invest or trade. The equivalent would be if someone wanted to know how to gamble, and you recommended SSHE. That presupposes the guy wants to not only play poker, but play hold 'em poker, and further, wants to play low limit hold 'em poker.

[danswer5]

fair response. in reality, i have a lot of different topics that i would like to learn more about. i guess i am most interested in learning about the different index funds and ETF's, and also some things about options as well. even just a general book about stocks and the correct way to analyze and value htem would be helpful as well. (excluding technical analysis, which is not something i feel very strongly about)

[danswer5]

gull,

I appreciate your response. I've actualy been to the IFA website and I took that long questionnaire that they have. Unfortuantley, I felt as though all the questinos were slanted to make their offerings look more favorable to the unassuming eye. I may be wronga bout this, but it was the impressino that I got. I looked up DFA's very briefly, so I agree that they are probably not an option for me. I also don't like the high bid-ask spread, so I may avoid the RZV. However, I will definitely look into Vanguard's VWO and some of the foreign small value ETF's that you've suggested.

One other question that I have, can you explain the impact of tax losses or tax gains by investing in mutual funds? I see you talking about tax-efficiency, but how so? I know that with Roth IRA's the gains are not taxed until you withdraw, but what is the positive impact in this case? If anyone has an answer for this, i'd be all ears. Thanks!

[gull]

In tax-deferred retirement accounts taxes don't matter.

ETFs are better than funds taxwise for two reasons.

1) They are more tax efficient. This means they distribute capital gains less. With a fund, if a bunch of people pull their money out, the fund has to sell stock. The sales incur capital gains, and you'll have to pay taxes even though you didn't sell anything. With ETFs you basically only have to pay capital gains taxes if you sell your own shares. Note: Vanguard ETFs are structured differently and will be as tax-efficient or inefficient as the underlying fund.

2) Tax-loss harvesting can save thousands of dollars. Here are some explanations: http://etf.seekingalpha.com/article/15259

Essentially if you your ETFs lose value, you can sell them (and immedietely buy a similar but not the same ETF) and deduct the loss from your income taxes.