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Noob Question

JamesB said: "Hello all. This is my first post on this forum so forgive me for asking dumb/typical questions. Here is my question for everybody. About ten years ago when my grandfather passed he left me with some shares of intel. For the first few years it did well splitting a couple times but like i am sure you all know it hasnt done anything exciting recently. What I am wondering is that for somebody my age (21) would it be smart to cash out of this stock and invest in something else, or should I hang on to it and see where it goes? Any feedback would be great. I am sure there are a lot of people who sign up here just to get a hot lead or something like that so I am sorry if this is a typical noob post. Thanks"

thezster said: "A lot depends on how many shares and what they're worth. If you've a few hundred bucks worth - then cashing them in and spending comissions to reinvest just isn't worth the expense... If you've a few thousand dollars worth, it might be a different story..... (might)..."

newinvestor123 said: "Your question is not dumb at all, and no one here minds answering questions as long as they are valid - Decent grammar and spelling count for a lot too, which you thankfully have covered. I don't know how much you know about the processor market, but I'm going to assume you know nothing and start at square one. In the processor sector, two companies rule: Intel and AMD. Intel was started about ten years before AMD in the late 1970's, and had a huge head start on the PC market by the time AMD decided to get in the game. AMD, the younger, more agile competitor was able to best the larger, slower Intel again and again, and AMD systematically gained market share. This culminated in AMD's 25% market share and $40 stock price in early 2006, and many people were beginning to think that AMD might eventually overtake Intel. Then Intel came out with their Core Duo line, and things began changing. Intel's new processors operated more efficiently and consistently outperformed AMD's comparable X2 line in performance tests, and when Intel released Core2Duo, AMD had no answer. To add fuel to the fire, Intel initiated a price war by slashing their processor's prices, which forced AMD to do the same, but to an even greater extent in order to sell their inferior product. Both companies reported the last quarter's results last week, which gave us a glimpse into the margin carnage that resulted from the price war - And AMD was the clear loser. AMD swung to a large loss and will probably have to scale back production and cut costs to keep from being bought out or going bankrupt, and Intel emerged with thinner margins, but relatively unscathed. Going forward, I see nothing but good things for Intel. I have examined both company's processor roadmaps through 2008, and I believe that the tides have turned significantly in Intel's favor. I used to think that AMD still had a chance as long as Intel didn't integrate the memory controller onto the chip, but Intel recently announced that they are going to do just that with Nehalim, due out in 2008. I also thought that AMD might have a chance with their Fusion concept, which unifies the GPU with the CPU, but Intel recently announced that they are doing that too with Nehalem. Some people think that Barcelona, which is due out later this year, will save AMD, but I think that far too much hinges on that one processor. AMD has claimed that Barcelona will outperform Intel's competitive offerings by as much as 35%, but they have released no detailed performance figures to back that up (or have they? I haven't looked at this in depth in a few months). Barcelona is based on 65nm technology, while Intel's Penryn, Barcelona's competitor, is based on 45nm technology. This means that Penryn will probably run more efficiently, which makes it more attractive for the high end, high margin processor segment - Server farms. Penryn will also utilize Intel's metal gate technology, which is another boon for efficiency and performance. It's a really big advance for processor technology - Here's a rundown: [url]http://www.bit-tech.net/hardware/2007/01/27/intel_45nm_technology_overview/1.html[/url] I used to be an AMD fan - I used AMD processors in all of my homebuilt computers, and I love underdogs, but things are not looking very good for AMD nowadays. I don't think that AMD is going to kick the bucket, but I do think that they have some troubled times ahead of them. Intel has mobilized it's large R&D budget and is making major breakthroughs, vowing never to allow AMD to gain on them again due to their lack of foresight, and I believe them. I would definitely not sell those shares of Intel yet... Wait until Barcelona comes out, and scour the computer review sites, like anandtech.com and tomshardware.com for reviews and comparisons. Weigh performance versus power usage - Because they are almost equally important, and if Barcelona is much better than Intel, you might consider selling. Maybe. Honestly, I'd lock those shares up and hold onto em for another 5 years or so - Keep them for emergency funds or something. On a side note, I wouldn't be surprised to see AMD head north of $20 this year either... I think that many people are underestimating Barcelona, and while it's not going to single-handedly save AMD or topple Intel, it will probably get AMD back in the black."

cwms said: "Do you have any other investments? I agree that Intel probably has the edge these days and is a good stock to have, but you need to be diversified. Don't keep all your eggs in one basket. If your investment adds up to a fair amount of $$, I suggest selling some and buying other stocks and/or mutual funds. So, just how much money are we talking about?"

cwms said: "One other thing I suggest looking into. If you haven't opened one already, use some of that money to open a ROTH IRA. Let that money start to grow tax free. You know that you will be paying capital gains taxes if and when you sell that Intel. If it had been in a ROTH IRA, no capital gains taxes EVER!!"

Kloewer said: "Intel has yielded a paltry 1.18% annually over the last 10 years (not including its dividend). If you'd have gotten out in 2000, it'd be a different story. But INTC is probably a safe place to keep the money parked. If you're interested in starting to invest more actively, maybe you should save up a little cash to buy a company of [I]your[/I] choice. Then, after you develop some investing acumen, you'll be better suited to decide what to do with that Intel stock. But I'd hold tight until I were more capable of making the decision for myself."

LongArm said: "I agree with CWMS that if you have no other investments, you should become diversified. And I agree with Kloewer that Intel probably won't give you a great return. Therefore, if you can afford the tax bill, I'd consider selling the Intel and buying a diversified index fund or ETF (or a combination of them, depending on how much money we're talking about). Something like a total stock market index fund or ETF will give you diversity--and IMO will probably outperform Intel over the long run too. And yes, if you don't already have one, a Roth is often a very good idea. You can put up to $4000 into one this year ($5000, if you're 50 or over) and $5000 next year ($6000, 50 or over). A Roth isn't an investment in and of itself--it's just a place for which to PUT your investments in order to receive favorable tax treatment. So you could still invest in index funds or ETFs inside of the Roth."

JamesB said: "Ok thanks for the quick reply's. I do have other stock through my work at Lowe's. As far as how much money is in intel i think it is somewhere around 13k right now. Basically I want to just be doing the smart thing with this money that has been given to me. I dont want to just blow it on a car or something that the average 21 year old would do. So a ROTH IRA is just somewhere to put money that can be taken out w/out capital gains? What kind of interest is built on one and are there any penalties for taking out after a certain amount of time? I would like to use both my intel and lowes stock within the next 2 years as a down payment on a house/condo."

LongArm said: "[QUOTE=JamesB]So a ROTH IRA is just somewhere to put money that can be taken out w/out capital gains? What kind of interest is built on one and are there any penalties for taking out after a certain amount of time?[/quote] As I said, a Roth is not an investment in and of itself, so whatever return you get depends on which investments you choose to place inside the Roth. If you were to go with a diversified index fund, you could expect an average return in the neighborhood of 10%/year over the long haul. However, from year to year, you could LOSE much more than 10% or gain much more than 10%. A Roth is a retirement account, and as such, there are penalties for early withdrawal. You can withdraw your PRINCIPAL at any time, but if you withdraw your GAINS before age 59 1/2, you'll pay full taxes and a 10% penalty. If you use that money for the first time purchase of a house, you can avoid paying the penalty, but you'll still pay the taxes. [quote]I would like to use both my intel and lowes stock within the next 2 years as a down payment on a house/condo.[/QUOTE] In that case, forget the Roth. Most financial planners would tell you that if you're going to need that money within 2 years, stocks are not the place to be. That's because with a short time frame, the stock market is a gamble: You could end up ahead or you could end up behind. The prudent thing to do would be to sell your stocks and put that money in a high-interest internet savings account or CD until you need it. Right now, they're paying over 5%. And they're safe--no chance of LOSING money."

newinvestor123 said: "A ROTH IRA is a tax advantaged investing investing account. It's just like any other investment account, except that you don't have to pay taxes on your earnings - Ever. You can withdraw the principal any time, penalty free, but you cannot withdraw the earnings until you are 59.5 years old (I'm pretty sure that's the age, not positive). You can also use the funds in a ROTH as a down payment on a home or business. I'm not sure what the rules are regaring the transfer of stocks from a taxable account into a non-taxable one (ROTH), but even if you would have to pay taxes on your earnings to date, it's still a good idea to go ahead and do it (especially so if the stock you are transferring is expected to rise in the near future). As for Intel, it's been stagnant for a while, but mark my words - INTC's long period of stagnation is coming to an end. AMD's ability to gain 25% of the market was a wake up call for them, and they are not likely to doze off again any time soon. I think that diversification is good, but like Kloewer said, INTC's a safe place to park your money - It's definitely not going anywhere any time soon. And it pays a 2% dividend, which has been increasing lately."

LongArm said: "[QUOTE=newinvestor123] You can also use the funds in a ROTH as a down payment on a home or business.[/quote] Not quite true, New. First-time home, yes. Business, no. [quote]I'm not sure what the rules are regaring the transfer of stocks from a taxable account into a non-taxable one (ROTH)...[/quote] There are no rules because it's not really a "transfer." You simply sell the stocks in your taxable account and move that money into a Roth account (assuming you qualify to contribute to a Roth). [quote]...but even if you would have to pay taxes on your earnings to date, it's still a good idea to go ahead and do it (especially so if the stock you are transferring is expected to rise in the near future).[/quote] I disagree. I don't see the point in opening a Roth--which is a RETIREMENT account--if you're just going to cash it out in two years and pay taxes on the gains, if there are any. In that situation, the Roth has no advantage over a taxable account. So what's the point? [quote]...INTC's a safe place to park your money - It's definitely not going anywhere any time soon.[/QUOTE] Well, it could go DOWN. If you had bought INTC two years ago, you'd be down today. OTOH, if you had invested in the S&P 500, you'd have a nice gain."

cwms said: "I still think opening a ROTH is a good idea. You don't have to put everything in it, just get it started with $1000 or so and add a little every month. Do that for 40 years and you will have a small fortune. Use the rest of that Intel stock for a home down payment. Just remember that it is a Retirement account and treat it as such...meaning, you leave it alone unless you have a real emergency and you can pull out principal if needed."

newinvestor123 said: "As do I. You can withdraw the principal from a ROTH at any time, for any reason, without penalty... If you are planning on trading your way to riches and withdrawing the EARNINGS before 59.5, then a ROTH isn't a good idea. If, however, you want to take advantage of the tax savings that a ROTH provides, while being able to access your original principal, then check into it. And I'd hang onto that Intel for a little while."

newinvestor123 said: "[url]http://chip.seekingalpha.com/article/33131[/url] [url]http://chip.seekingalpha.com/article/33411[/url] [url]http://chip.seekingalpha.com/article/32737[/url] [url]http://chip.seekingalpha.com/article/31037[/url] Hang onto it."

LongArm said: "INTC may be poised to do relatively well, but that's not the only factor here. What some of the members of this forum tend to overlook (in my opinion) when evaluating stocks/trades is the direction of the overall market. If the market decides to take a dump for a while--which is a very real possibility after 4 straight years of going up--it will likely take INTC down with it, regardless of how rosy Intel's picture is. So the question for JamesB is, are you willing to risk having less money to purchase that house in two years on the chance that you'll make more than 5% per year with INTC? Or would you rather GUARANTEE that you'll have more money for your house and a gain in the neighborhood of 5% per year? That's a question only he can answer."

newinvestor123 said: "Yeah, the market could take a dump tomorrow, next week, or next month, but then again, it could stay strong for the next two years and head right up to 15,000. Right now, I think that valuations are not quite high enough to warrant a severe correction, especially with the slew of positive earnings releases bolstering sentiment. I do recognize that we are in one of the longest bull markets in history, but I also think that to get out based on that alone is a mistake. I don't think that the bulls will persist for two more years, however - As increasing energy prices and a weakening dollar catch up to the market, earnings will begin to show weakness, but I think that we have another quarter or two of upside left before that happens. Intel makes chips for computers the world over, and even if we have a slowdown in the US, I think Intel will remain strong. We'll see next quarter. I still think that Intel's situation is outstanding, and I believe that there is a lot of upside in store for Intel shareholders, at least for the duration of this year. LongArm's right though - The longer a bull market runs, the higher the risk is of a correction. If you hang onto the Intel, just keep an eye on things, or set a trailing stop loss order of 6%. You don't have to become an analyst, just read the news for Intel once a week on yahoo, note how the stock did, check the broad market, and move on. The trailing stop loss will save you in the event of a catastrophic sell off. FYI: I went ahead and put my money where my mouth is today and bought some @ 21.98."

cwms said: "I'm with Longarm on this. If this guy plans on using his investment fairly soon as a home down payment, he needs to change his investment strategy. All his eggs are in one basket. He needs to diversify and lower his risks. While Intel is not considered a high risk investment, he needs to sell at least70% of it and invest in low risk investments."