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Congratulations!  By reading this, you are now part of the DailyKos Investment Club!  This is the first of what will hopefully be a series of posts by Kos denizens with a progressive perspective on investing.  All are welcome to make posts sharing their knowledge - just put "Investment Club" in the title and inside your post itself so the DailyKos search feature will bring it up.  If you do a search for other investment club entries before posting yours, you can add links to recent ones to make them easier to find.  To learn about economics and how it could affect your investing, I highly recommend bonddad's "Today's Economic News", which comes out weekdays around 5:30 PM Eastern time.  Other diarists to watch include Stirling Newberry and Jerome a Paris.  Continue below the fold for my first Investment Club entry.

Conventional wisdom has it that investing is associated with Republicans.  However, the track record suggests that all investors ought to be voting for Democrats.  Since 1900 the S&P 500 has had approximately 50% better performance under Democratic presidents than under Republicans.  We know that a strong middle class is the key to prosperity for all Americans.  We also benefit from being completely detached from Republican dogma.  With our knowledge, we can not only survive the fiscal and economic mismanagement of the Republican Party, but even profit from it.

So why would progressives be interested in accumulating wealth?  We're not in it just for the sport, or for the gambler's high.  We want to live comfortable lives, but we also want to use our money to make a positive influence in the world, whether for our children's college education, by donating to charities, or through our support of progressive politics.  As I see it, there are three prime directives to progressive investing:

A. Maximize the return on investment so you can use your money to improve the world
B. Reward those businesses with progressive policies toward their workers, their communities, and the environment
C. Support new technologies, such as alternative energy, which will make the world a better place in which to live.

OK, so now we have some goals, but now what?  You've got a pile of cash in savings earning infinitesimal interest, and you need to know what to do next.  The details are what the investment club is all about, but here are a couple of tips to help you get started and become at one with your money.

i. You don't know very much, but that's OK.  The key to competence in investing, as in anything, is not how much you know.  Competence means being aware of what you do not know, and acting accordingly.

ii. Investment professionals don't know very much either, and they aren't any smarter than you are.  A common gauge of investment performance is the Standard and Poor's (S&P) 500, which is the 500 largest stocks in the U.S. markets.  If you have a monkey throw darts at a listing of these companies and invest accordingly, half the monkeys will do better than average and half will do worse.  Professional mutual fund managers are smarter than the average monkey, but from 1993-2003, domestic stock funds averaged an annual return of 8.19%, but the S&P 500 returned 10.04%.  There are reasons why the pros are outperformed by monkeys throwing darts, and I'll have more on that in a later diary entry, but suffice it to say there is no reason you should be awed by people for whom investing is their job.  Naturally, you really don't want to give them any of your money when it would be much cheaper to rent a monkey.

iii. You win some, and you lose some.  Unlike in Las Vegas, however, if you have sound strategy, the longer you play it will average out in your favor so you will be richer than when you started.  You can choose your own risk level, which is pretty much like choosing between the roller coaster that looks like a choo-choo train or the one where you have to sign a waiver before boarding.  Just make sure you don't to the investing equivalent of putting your retirement on red and giving the wheel a spin.

Now that you've had the 5-minute Zen of Investing tour and you are fully aware you know absolutely nothing, what is a beginner to do?  The answer is easy - open a brokerage account.  That means taking some money from your nice FDIC insured savings account earning pitiful returns and putting it in a brokerage account.  You shouldn't really have to deal with an actual "broker", except perhaps to set up your account.  Your brokerage should have an easy way for you do transactions and view your account on-line.  By default, your money should probably be in a money market fund.  I have no idea what that truly means except that your money will now be earning a little more than the pitiful interest you had at the bank.  That's OK for now, as you learn more and get ready to dip your toe into the markets.  I use a perfectly adequate brokerage for myself, but I don't know enough about them to recommend any in particular.  Perhaps people can give their own recommendations in the comments, or someone can write up an Investment Club entry on the subject.

I wish to stress that the DailyKos Investment Club is not my project - it needs to be a collaborative effort since writing about 5 of these will pretty much exhaust my investment knowledge.  If you have any investment insight on progressive companies, exciting new technologies, and how to profit from Republican failure, write it up.  While any single diary (including this one) should be taken with a grain of salt, the collective wisdom at DailyKos can make us all better investors.

Originally posted to CA Pol Junkie on Fri Apr 22, 2005 at 03:10 PM PDT.

Poll

What kind of investor are you?

7%4 votes
22%13 votes
14%8 votes
43%25 votes
12%7 votes

| 57 votes | Vote | Results

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Comment Preferences

  •  on the poll.. (none)
    I'm between "dangerous" & "know nothing", and I'm always willing to learn more ;)  

    Great start CA.

    Front-page posters needed at jScoop. Have your own DailyKos-like SoapBox for free!

    by pacified on Fri Apr 22, 2005 at 03:03:53 PM PDT

    •  next installments (4.00)
      I'll try to put a couple more out next week, maybe on index funds, socially conscious funds, the dollar, or about how to take advantage of the stock market crash coming next Tuesday... ;-)
      •  do it on monday, okay? (none)
        I hate those kinds of tuesdays.

        great posting, great hopes for your next diary!

      •  Maybe over the weekend (none)
        someone can post a guide to finding a halfway decent broker?

        My sister just signed off on Mom's house; the money from the buyer will be wire-transferred to an account on the 29th. So, once the lawyer gives the okay, each of us kids will be getting a large chunk of change, and I have to figure out where to park it. A moderate chunk will be going to pay off debts, do a much-needed computer upgrade (along with software to help me eventually do some volunteer work from home), and take a much-needed vacation (we're aiming for Disneyland in the fall). Another moderate chunk is going into basic 6-month CDs through the spouse's credit union, so we can access it relatively easily. That's still going to leave a very large sum that I have to invest to keep my sister off my back. And I have absolutely no idea where to start. I'm not used to actually having money!

        I'll probably start out small in the Investment Club -- maybe about $25K or $50K (about 10% to 20% of my share of the house proceeds); I can always go for more as I feel more confident....

        "It's an unnerving thought that we may be the living universe's supreme achievement and its worst nightmare simultaneously." -- Bill Bryson

        by Cali Scribe on Fri Apr 22, 2005 at 03:39:49 PM PDT

        [ Parent ]

        •  6 mo CD (none)
          You may want to compare the rates to on line money markets.  You may come out ahead with the MM depending on how decent your CU is on rates.  Our local banks are horrible.  MM rates of like 0.25%....and CD's just as bad.  I put a chunk in Emigrant at 3.25%.  No real experience on service etc. as so far I've only gotten statements and not tried to pull the cash.

          As for a broker.  The question is do you just want execution (brokerage function) or a financial advise (some brokers do both).  

          If you just want execution, open an online account.  There are various rating articles out there.  I happen to use TDWaterhouse who are OK.  Since I don't trade much, it's hard to overcome the inertia to move to someone cheaper/rated higher.  Their site works for me and I don't feel like learning a new one to save $5/trade.

          Investment advice -- that's where it gets hard.  You have to figure out how your broker gets paid.  The old model had him/her paid via trading commissions leading them to move you in and out of stocks to generate commissions.  Bad actors just churned accounts to get paid and to hell with your return.

          Some now work for a fixed fee per year, say 1-2% and trades are included.  Advice is what it is.  Some are good or have runs of luck.  Others are idiots that just dump on you with what the company is trying to unload.

          Check out the Motley Fools website for some basics.  I hate their shtick and they generally ignore their own basic advice (they're trying to get paid too) but the basics are there for the reading.

  •  More!More!more! (none)
    I'd really like to start investing...but where is a good starting point?

    Any investors, please make a suggestion so I don't get totally ripped off please.

    •  brokerage (none)
      I was hoping somebody out here had some wisdom regarding brokerages, especially on-line like e-Trade or Ameritrade.  In general, you probably want to find something with a low annual fee, as opposed to one that lets to do a zillion trades for a set rate.  Long-term investors don't trade very much, so you probably want to pay by the trade.

      Also, under no circumstances should you buy a loaded mutual fund.  That is a ripoff - you should never have to pay a commission to buy a mutual fund, especially since the loaded funds perform no better than no-load funds.  I'll have a post or two next week with some more simple investing tips.

  •  Money markets (none)
    By default, your money should probably be in a money market fund.  I have no idea what that truly means except that your money will now be earning a little more than the pitiful interest you had at the bank.

    Don't know a whole lot yet, but I do know this one....

    Money market funds invest in a very diverse pool of short-term debts, usually business, sometimes government, e.g. short term U.S. Treasury bills.  Since the pool is (a) diverse (only a small fraction can be associated with a single debtor) and (b) investing in short-term debts (which are normally repaid with interest promptly), the risk is very low.  It's essentially nil for U. S. Treasuries, and only very, very slight for other types of money markets.  

    This makes money markets a good place to park extra cash.   Interest rates are similar to short-term CDs but the funds are much more liquid.  I use one as a savings account -- it has a much better interest rate overall than most savings accounts, and unlike a regular savings account, I can write checks with it if I want to.

    "You will see light in the darkness. You will make some sense of this."

    by ColoRambler on Fri Apr 22, 2005 at 03:26:08 PM PDT

    •  EmirgrantDirect has a 3.25% MMA (none)
      but you can't write checks... all transfers are done by the Auomated Clearing House.  I like that better anyway.  

      http://www.emigrant-direct.com

      And it's FDIC insured!

      Front-page posters needed at jScoop. Have your own DailyKos-like SoapBox for free!

      by pacified on Fri Apr 22, 2005 at 03:31:20 PM PDT

      [ Parent ]

    •  Money Market funds (none)
      Aren't they taxed up the wazzoo?  I was looking to put money in a Money Market fund and my dad told me that it is subject to Federal and State tax, so the return on investment is low.

      I'm looking at putting my money in a Municipal fund, which has a decent rate of return and only subject to State tax.  

      I donated to ePluribus Media. Support citizen journalism!

      by mlk on Fri Apr 22, 2005 at 03:32:38 PM PDT

      [ Parent ]

      •  tax efficiency (none)
        Index funds are very good when it comes to taxes.  You pay capital gains whenever something is sold.  Actively managed (= not index) funds have high turnover.  Index funds do not, which means the money you would pay in taxes gets rolled over into the next year's investing instead.  My favorite is the original index fund, the Vanguard Index 500 (VFINX), which happens to have very low expenses as well as tax efficiency.
        •  Index Fund (none)
          The problem with the Index fund is that it doesn't allow one easy access to their money (ie make withdrawls).  The Index fund is great if you are investing for the long haul and don't need to take the money out for a while.

          I'm looking for a short term investment that will give me better return than a savings account, but will let me take out money as needed.

          I donated to ePluribus Media. Support citizen journalism!

          by mlk on Fri Apr 22, 2005 at 03:45:42 PM PDT

          [ Parent ]

        •  I've Heard of Funds (none)
          That are based upon renewable energy based companies....the ROR was quite good and the management cut wasn't that large....but then again they are Canadian funds, so I'm just using my RRSP's
      •  Actually . . . (none)
        most muni funds are exempt from both fed and state taxes!  They are a very good, safe choice for people in higher tax brackets that are investing in non-tax sheltered ways (IRAS, 401ks, etc.) and want to stay liquid.

        When a whole nation is roaring Patriotism at the top of its voice, I am fain to explore the cleanness of its hands and the purity of its heart. - Emerson

        by foolrex on Fri Apr 22, 2005 at 03:42:42 PM PDT

        [ Parent ]

    •  Fine, but . . . (none)
      the return on money market funds, while pretty safe is also abyssmally low, barely keeping pace with inflation.

      As noted in the diary, professional stock fund managers have done worse than the S&P for most of the last decade.  Therefore, if you want to get into equities (which means stocks), a good "next step" (once you have enough capital to risk) is an "index fund."  These funds typically try to "mirror" an index, whether the Dow, the S&P or one of the small cap indexes.  This means they generally track an index, but you don't pay big management fees associated with the more traditional managed funds.  Several of these are "no-load," another thing to look for if using mutual funds.

      I have also done well with a few selected stocks, but that's another story.

      When a whole nation is roaring Patriotism at the top of its voice, I am fain to explore the cleanness of its hands and the purity of its heart. - Emerson

      by foolrex on Fri Apr 22, 2005 at 03:35:55 PM PDT

      [ Parent ]

      •  That's certainly true (none)
        and I'm not saying that they're the end-all of investment, of course, just they're a better way of handling larger amounts of "safe" (low-risk) funds than savings or checking accounts.  A lot of folks don't think about them when thinking about general-purpose "cash management".

        I have set up a stock index fund in an IRA, as well as a vanilla brokerage account (this is mostly vested in the index-fund-like SPDRs, but my wife and I add individual stocks for companies we like).  In the last couple of years, though, we have incurred some extra debts that we want to get rid of, so we're putting most of our "investment" money into the investment known as "clobbering debt".

        "You will see light in the darkness. You will make some sense of this."

        by ColoRambler on Fri Apr 22, 2005 at 03:48:38 PM PDT

        [ Parent ]

        •  I am probably overdiversified (none)
          I won't make a huge killing on anything, but I am probably doing okay.  Besides index funds, stocks (my best success is Genentech, where I have made well over 300%) and money markets for my "regular" investing, I have quite a bit in 401ks, including foreign market funds, leveraged stock funds, commodities funds (small) and some tech funds.  Of course, my only real debt is a mortgage, which here in the Bay Area can be crushing and it has curtailed new investing money (except for regular the 401k chunk) for the most part.

          When a whole nation is roaring Patriotism at the top of its voice, I am fain to explore the cleanness of its hands and the purity of its heart. - Emerson

          by foolrex on Fri Apr 22, 2005 at 05:37:57 PM PDT

          [ Parent ]

    •  First things first: Fry debt. (none)
      You've got a pile of cash in savings earning infinitesimal interest, and you need to know what to do next.

      There's another form of investing most of us can do even without a brokerage account:  Clobbering debt.

      I've already mentioned the money market fund I use as a savings account.  It still doesn't earn as much as, say, a home equity line of credit costs -- 7-8% for the HELOC vs. about 2%-3% for the fund these days.   So I actually used most of my "savings" to pay down a huge chunk of a home equity line of credit I have.  I can get to the money in an emergency just as easily, but in the meantime I'm saving much more on HELOC interest than I was earning in money-market fund interest.

      This works so long as you have any revolving debt that's both easy to borrow from and to pay back.  Once you've clobbered that debt, start investing in something else.

      "You will see light in the darkness. You will make some sense of this."

      by ColoRambler on Fri Apr 22, 2005 at 03:42:29 PM PDT

      [ Parent ]

      •  AGREED!!!! (none)
        I was once advising a doctor friend, who wanted to know where he should invest.  I asked if he had credit card debt.  He said yes . . . I pointed out that it was not likely he would earn 18% on anything and by paying off his debt, he would be earning approximately that.  (Then I had him pay off his car loan next.)  In today's low interest, low return environment, retiring debt should always be NUMERO UNO!

        When a whole nation is roaring Patriotism at the top of its voice, I am fain to explore the cleanness of its hands and the purity of its heart. - Emerson

        by foolrex on Fri Apr 22, 2005 at 03:46:04 PM PDT

        [ Parent ]

  •  Does anybody choose not to invest (none)
    out of discomfort with the idea of playing the markets/expliting money to make more money? I don't have money so it's moot for me but I feel very conflicted over the idea of investing.
    •  that's what Savings accounts, and (none)
      money markets are for.  You don't have to be invested in anything, just leave it in the bank, and you get some money back.  Heck, if we didn't have banks, we wouldn't have this glorious world we do have.  

      Banks allow fake money to exist and raise the standard of living for all.

      Front-page posters needed at jScoop. Have your own DailyKos-like SoapBox for free!

      by pacified on Fri Apr 22, 2005 at 03:34:42 PM PDT

      [ Parent ]

      •  sure (none)
        I'm just wondering if anyone else has similar reservations about investing, or philosophies about why they do or don't. I don't have an ideology about it, just some vague uneasiness.
        •  I've thought about it (none)
          The thing is that earning money and then feeling uncomfortable investing it is sort of an odd place to draw the line, when you think of it.  I think that it's probably just the reality of "money mattering" that is uncomfortable.  I agree with that.

          I don't see right now how we can get away from the credit/debit mindset, though.  By that I mean, there will be times where we will need to consume (in American economy terms) more than we produce (in terms of services we get paid for).  It's just life.  So in order to survive during those times, we need to have times where we are earning more than we spend.  We need to save as long as we all share these rules.

          Beyond that, I don't see how to avoid inflation.  That means that sticking your money in the mattress will make the money shrink over time.  So in some sense, to protect our savings, we should least make sure that our money grows as much as inflation does.

          And really, past that point, I think I get motivated by self-protection.  I basically look at how much you'd need to live on, how far away I am from that right now, and what sort of return I'm at.  And since I believe there will at some point be a pretty dramatic shift in our how societal economics work, then I want to maximize my buffer.  But plenty of people aren't driven by the same motivations.  I think as long as you are looking out for your old age and your health, and have enough savings to keep your own desired quality of life from seriously degrading, then there isn't need to take extra risk in order to squeeze out a few extra percentage points.

          Politology.US - Politics and Technology in the United States

          by tunesmith on Fri May 06, 2005 at 05:24:31 PM PDT

          [ Parent ]

      •  Banks create money (none)
        by lending money they don't have. This additional money can either become inflation or economic growth. Since inflation leads to recession, banks force countries to have growth-driven policies instead of ecologically sustainable, happiness-friendly policies. This is the service banks provide to people. They make money by having money. Countries clean up the mess made by the banks.

        If banks could only loan say 5% in excess of what they have in the vault, inflation would'nt be such a danger, and new ways of living and producing could be devised.

        Happiness is not the reward of virtue but virtue itself, Ethics V,prop XLII

        by Mr Bula on Fri Apr 22, 2005 at 04:10:49 PM PDT

        [ Parent ]

        •  Just about the silliest thing I've read (none)
          If the bank is just going to shove the money in a vault, you might as well shove it in your own mattress.

          Banks can only offer you interest if they can lend out the cash and make a profit.  Unless you prefer to stuff your cash in a bank at 0% interest.

          They lend out depositors money up to whatever percentage their regulator will allow (balance being reserves).  They don't loan money they don't have, except for the Fed Reserve which happens to own a printing press or two.

    •  positive investing (none)
      That's where progressive investing comes in.  Some companies do positive things, and your investment helps them grow.  For example, you could invest in a progressive company like Costco, to help them outcompete an obnoxious company like Walmart.  You could invest in solar or wind energy so we won't have to use so much coal.  There are lots of possibilities.
      •  I'm not sure that would do it for me (none)
        I mean, even if Costco supports Democrats and has decent labor practices, they are still a huge corporate retailer that sells mass-produced "stuff." Is their net impact really positive (on the environment, society, etc)? It's a judgment call, and I'm sure most people would say I'm being way too picky, but those are my thoughts.
        •  you're such the liberal! (none)
          Consider this - in a way, you can't win.  If you have your money in the bank, they will loan your money out to other people and businesses, whose impact on the world is entirely unknown to you.  When you invest, you can direct your money toward companies which represent your values.  Even for someone as picky as you, I'm sure there are companies worthy of your money.  If not companies, you could invest in something like Ginnie Maes, which are government backed bonds which support people getting mortgages to buy their own home.  There are lots of possibilities.
          •  Yeah I know, (none)
            I'm hyper-picky about moral hygiene. Ew, a dirty corporation, don't get your sins on me! I really feel like I ought to just give to charity. But, I also ought to take care of my own basic needs and have healthy attitudes about money. That's an interesting idea about Ginnie Maes.
        •  Helping Costco is attacking Walmart (none)
          and what is bad for Walmart is good for the world. As corporations acquire more power, money is the only vote we have left.

          Happiness is not the reward of virtue but virtue itself, Ethics V,prop XLII

          by Mr Bula on Fri Apr 22, 2005 at 04:04:58 PM PDT

          [ Parent ]

          •  ehh (none)
            I refuse to believe that even if it's true. One way or another, for the sake of humanity, they need to be held accountable to something other than money, and I think there needs to be true alternatives to the corporate way.
            •  Corporations don't have a human face (none)
              they answer to shareholders, and shareholders want earnings. Unethical earnings can be hurt either by some form of boycott (including helping the competition) or by legislation.

              The other prong in the fork is corporate influence in politics. Politicians elected by corporations won't change legislation on this account (duh), but, in the US, it is possible to run independent campaigns (without corporate funding), at least at the local level.

              Of course, this is like swabbing the deck of a sinking ship. Consumerism, earnings-driven life are the real problem.  But viewed as such it is a huge problem, and I think baby steps are needed before some bolder choice of action can be discerned.

              Happiness is not the reward of virtue but virtue itself, Ethics V,prop XLII

              by Mr Bula on Fri Apr 22, 2005 at 04:19:41 PM PDT

              [ Parent ]

    •  I'm nervous, (none)
      but only because I don't want to lose my shirt.

      A certain amount of investing is important in a capitalist society. Stock sales enable companies to raise the money to buy equipment, expand operations, etc. -- if there were no investors, only the very wealthy would be able to start companies, or businesses would have to be extremely indebted to the banks.

      I think it also depends on what types of companies you invest in, and what you plan to do with the money you do make. For me and the spouse, we'd possibly like to get a condo someday, but the main incentive is to have a comfortable enough life between my investment earnings and the spouse's salary that I do not have to work for pay and can donate my time to organizations that need me, whether as a newsletter editor/layout specialist, Web designer (though I need a lot more classes!), or general computer goddess.

      "It's an unnerving thought that we may be the living universe's supreme achievement and its worst nightmare simultaneously." -- Bill Bryson

      by Cali Scribe on Fri Apr 22, 2005 at 03:49:22 PM PDT

      [ Parent ]

  •  "The One Rule About Investment Club" (none)
    "Don't talk about Investment Club?"
  •  Woah! (none)
    I've been keeping an eye on Kos for this exact posting. Glad to see it here!
  •  A dream of mine (none)
    is to set up an ethical investment firm. It would be a combination of corporate watchdog and investment firm dedicated to helping people invest in ethical companies. Why I think this would work is because investing in ethical companies is safe: some people might have earned money off Enron stock at some point in time, but corporations with shoddy accounting practices are bound to go down. Say Coca-Cola is dumping crap on some river, it is feasible that in the future this will hurt stocks. Ethical companies should'nt have this kind of nasty surprises. Also, treating employees like dirt may help WalMart earnings temporarily, but my belief is this will eventually cost them. The underlying belief is that virtue pays off.

    This may be a pipe dream. But when votes count less and less, political activism has to move to the market.

    Happiness is not the reward of virtue but virtue itself, Ethics V,prop XLII

    by Mr Bula on Fri Apr 22, 2005 at 04:01:33 PM PDT

    •  you're not the first (none)
      There are fund families devoted to socially conscious investing, but the devil is in the details.  Do you reward a company like McDonald's, which is an environmental leader in its field, while it makes our kids obese?  DuPont puts alot of effort into sustainable resource use, but it's still a chemical company.  There are lots of tradeoffs.
      •  Not to mention that (none)
        companies with great ethics can still have terrible products and/or bad business models and make your capital evaporate.....

        Amy Domini's fund was a huge dog for us.

  •  a nitpick from your average monkey (none)
    Thanks for the post, but if we're talking money then we're talking numbers, and if we're talking numbers let's do it right:

    If you have a monkey throw darts at a listing of these companies and invest accordingly, half the monkeys will do better than average and half will do worse.

    Assuming Gaussian monkeys you're probably right, but to be safer you would want to say that half will do better than the median monkey (not the average).

    Sorry for the nerdy obsessive nitpick.  Let me make up for it by suggesting to novice investors the book "Get a Financial Life" that explains practical investing in simple practical terms (much like this diary's author has). Amazon link

  •  Love this idea! (none)
    Subscribed to your diaries, so I don't miss a 'meeting' of the investment club.

    I don't watch my stocks all that carefully right now.  I'm so dependent on my parents to take care of that stuff, and I need to learn more about it all before I graduate.

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