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Investing (Or "Am I Full Of Shit?")

YamiNoSenshiYamiNoSenshi Registered User regular
edited March 2009 in Help / Advice Forum
So, I've got a decent amount of money saved up. But now, as the ads put it, I'd like to put it to work.

Note: When I say "I", I mean my fiance and I. We pool all of our finances.

Currently, I have a BoA checking account with about $17,000 in it, and it's doing nothing for me. I've got a car loan at 4.9% that has $10,000 left on it and a student loan at 6% that has $15,000 on it. We've been making $1,000 payments a month on both. We have no other significant debt, and we come out saving more than we spend almost every month.

What I'd like to do is transfer a decent amount of that money into investments. I'm thinking putting about $5,000 into a good savings account like GMAC, with another couple thousand in staggered CDs (6,12,18 months). I was looking at various treasury bonds, but them seem pretty crappy right now. I'd rather have something lower risk right now, probably stemming from the fact I manage finances for two. Eventually, I'd like the BoA account to just become spending/bills/rent money and have the bulk in a savings account and various investments.

This is pretty much a sanity check. If anyone has alternate/better ideas, let me know. If Thanatos comes in and says my ideas (and my face) are stupid, I know I'm on the wrong track.

YamiNoSenshi on
Damn it, it's fucking noon. I demand to know if Yami shit on a desk yet.

Posts

  • OrogogusOrogogus San DiegoRegistered User regular
    edited March 2009
    I don't think it's possible to provide a good answer without knowing how soon you will need the money. Are you planning to buy a home, or have kids? If yes to the latter, would you be planning to pay for college? Also, do you already have an IRA or other retirement account?

  • DmanDman Registered User regular
    edited March 2009
    None of the savings you suggested are going to give 6% return, so you're better off paying down the student loan.

  • The Crowing OneThe Crowing One Registered User regular
    edited March 2009
    Paying off the loans should be a high priority, for the reason Dman gave.

    But beyond that, safe investments are key right now. CDs, some IRAs etc can give a bit of a return on the cash. Other people will be better off suggesting exactly where to put the money.

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  • SeptusSeptus Registered User regular
    edited March 2009
    Am I way off base here, or is there nothing that can possibly have lower risk than treasury bonds? Certainly, I agree that you don't want to put your money anywhere that won't earn better than your interest on those loans, or at least the car payment(student loan payments are tax deductible?).

    But I think it would be prudent to put some money into very long-term investments that will almost surely earn more than 6%. Open an IRA like Crowing said, and invest in an index fund or two.

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  • DjeetDjeet Registered User regular
    edited March 2009
    I don't think there are any better options for you without: increasing risk, decreasing liquidity, or both.

    Rates are low, but IMO they're likely to go lower before they go higher, FWIW.

    Whether or not you want to put all your savings into paying down the debt is a decision of personal preference, personally I'd value having a wad in the bank as if job gets lost you can usually get a forbearance on student loans for a few months and similarly whoever is financing your auto loan will likely give you a little space (it sounds like you've accelerated paying down that note maybe?). Assuming your employment is stable I might increase the student loan payments to $1500/month so both debts are paid w/in a year, but I'd try to pay that out of income.

  • YamiNoSenshiYamiNoSenshi Registered User regular
    edited March 2009
    Orogogus wrote: »
    I don't think it's possible to provide a good answer without knowing how soon you will need the money. Are you planning to buy a home, or have kids? If yes to the latter, would you be planning to pay for college? Also, do you already have an IRA or other retirement account?

    I don't need the money at all right now, really. We're not even getting married for two years, let alone buying a house or having kids (if ever). So it just comes down to taking money from my do-nothing checking account and having it earn more money.

    There's a limit to how much I'm willing to put towards loan in case my fiance and I suddenly find ourselves jobless. Seems far-fetched, but I've heard from credible sources of people both getting fired from different places on the same day. So I'd like to have my biggest chunk in savings where it will be making money, but still available if I suddenly need it.

    Damn it, it's fucking noon. I demand to know if Yami shit on a desk yet.
  • The Crowing OneThe Crowing One Registered User regular
    edited March 2009
    At a bare minimum, I'd take the majority of your cash assets and put them in a savings account. Worse case you can transfer the funds and have access immediately. Having 17k sitting in a non-interest checking account is a waste.

    That said, a savings account isn't going to net you the big bucks. There are IRAs out there without a withdrawal penalty, which seems best from where I'm standing. I've also been toying with putting a small amount into some stocks that I know won't go under (as if!) like Coke, Microsoft etc as even $500 could net you a nice profit in 5-10 years. This is much, much riskier and you'll see a decrease in value before they go up, which will probably be awhile.

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  • ThanatosThanatos Registered User regular
    edited March 2009
    What tax bracket are you in?

  • YamiNoSenshiYamiNoSenshi Registered User regular
    edited March 2009
    Thanatos wrote: »
    What tax bracket are you in?

    Both my fiance and I are 25% for 2009.

    Damn it, it's fucking noon. I demand to know if Yami shit on a desk yet.
  • DiogeeDiogee Registered User
    edited March 2009
    I would recommend putting at least some of the money in a high-yield savings account.

    High-yield is somewhat relative right now though.. I have had an account at INGDirect for 5 years now and the rate went from 4.5% to 1.8% APR over that time.. but thats what interest rates in general have done. The account is 100% liquid and FDIC insured so there is really no risk, and the money is available at any time without any fees should you need it.

    If you're interested, PM me and I can send you a referral code that'll give you 25 bucks when you sign up!

  • ThanatosThanatos Registered User regular
    edited March 2009
    Thanatos wrote: »
    What tax bracket are you in?

    Both my fiance and I are 25% for 2009.
    In that case, paying down your car loan should be the priority over the student loan (since the actual interest rate of your student loan is 4.5%).

    What you should do depends upon what you think will happen in the next year or two. If you think interest rates are going to climb substantially, a short-term CD or savings account might be the way to go, so you can jump in on something longer-term once they go up. If you think they're going to hold steady or not go up very much (really, they can't get any lower at this point), you should pay off your car loan. If you want to start saving for retirement, though, that wouldn't be a bad idea versus paying off either loan, since with long-term investments, your expected interest rate would be considerably higher than the interest rate on your loans.

  • QuothQuoth the Raven Miami, FL FOR REALRegistered User regular
    edited March 2009
    One thing you can do is make a ladder of CDs of different lengths: say, $2,000 in a 1-year CD, $2,000 in a 2-year CD, and so on up to a 5-year CD. That gives you both long- and short-term investments at varying rates in a relatively safe place. Then, as each CD matures, you can either hold onto the money if you need it or stick it into a new 5-year CD.

    “Hic non defectus est, sed cattus minxit desuper nocte quadam. Confundatur pessimus cattus qui minxit super librum istum in nocte Daventrie, et consimiliter omnes alii propter illum. Et cavendum valde ne permittantur libri aperti per noctem ubi cattie venire possunt.”
    Site | The Miami Grindstone | Twitter | Dropbox | Picture by Galen Dara
  • YamiNoSenshiYamiNoSenshi Registered User regular
    edited March 2009
    Thanatos wrote: »
    Thanatos wrote: »
    What tax bracket are you in?

    Both my fiance and I are 25% for 2009.
    In that case, paying down your car loan should be the priority over the student loan (since the actual interest rate of your student loan is 4.5%).

    What you should do depends upon what you think will happen in the next year or two. If you think interest rates are going to climb substantially, a short-term CD or savings account might be the way to go, so you can jump in on something longer-term once they go up. If you think they're going to hold steady or not go up very much (really, they can't get any lower at this point), you should pay off your car loan. If you want to start saving for retirement, though, that wouldn't be a bad idea versus paying off either loan, since with long-term investments, your expected interest rate would be considerably higher than the interest rate on your loans.

    Sounds good. The car loan is actually less, so it'll be easier to pay off. Also, both my fiance and I have 401k's that we're putting in as much as our companies will match, since that a guaranteed 50% ROI at least. I'll probably combine some money in savings/CDs (to act as emergency funds as well) with paying off the car loan ASAP. Thanks.

    Damn it, it's fucking noon. I demand to know if Yami shit on a desk yet.
  • ThanatosThanatos Registered User regular
    edited March 2009
    Quoth wrote: »
    One thing you can do is make a ladder of CDs of different lengths: say, $2,000 in a 1-year CD, $2,000 in a 2-year CD, and so on up to a 5-year CD. That gives you both long- and short-term investments at varying rates in a relatively safe place. Then, as each CD matures, you can either hold onto the money if you need it or stick it into a new 5-year CD.
    You're an idiot to buy a five-year CD right now. You're probably an idiot to buy a two-year CD right now. Interest rates are literally at rock-bottom.

  • ThanatosThanatos Registered User regular
    edited March 2009
    Thanatos wrote: »
    Thanatos wrote: »
    What tax bracket are you in?

    Both my fiance and I are 25% for 2009.
    In that case, paying down your car loan should be the priority over the student loan (since the actual interest rate of your student loan is 4.5%).

    What you should do depends upon what you think will happen in the next year or two. If you think interest rates are going to climb substantially, a short-term CD or savings account might be the way to go, so you can jump in on something longer-term once they go up. If you think they're going to hold steady or not go up very much (really, they can't get any lower at this point), you should pay off your car loan. If you want to start saving for retirement, though, that wouldn't be a bad idea versus paying off either loan, since with long-term investments, your expected interest rate would be considerably higher than the interest rate on your loans.
    Sounds good. The car loan is actually less, so it'll be easier to pay off. Also, both my fiance and I have 401k's that we're putting in as much as our companies will match, since that a guaranteed 50% ROI at least. I'll probably combine some money in savings/CDs (to act as emergency funds as well) with paying off the car loan ASAP. Thanks.
    You can always start up a Roth IRA for additional retirement savings. Or go over your matching funds limit for your 401(k) (since it's tax deductible, it's basically functionally the same as a traditional IRA). You should keep several thousand dollars in a savings account for emergencies, though.

  • JaysonFourJaysonFour Classy Monster Kitteh Registered User regular
    edited March 2009
    Also, both my fiance and I have 401k's that we're putting in as much as our companies will match, since that a guaranteed 50% ROI at least.

    Nothing in the stock market is guaranteed. Lots of people had thier 401k end up damn near worthless after stuff like Enron and the market going to hell in a basket made of bad mortgages. Your company's policy could change on a dime. If you're going to invest, make sure you aren't just blindly handing some guy in a suit your money to do what he will. Keep an eye on it.

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  • ThanatosThanatos Registered User regular
    edited March 2009
    JaysonFour wrote: »
    Also, both my fiance and I have 401k's that we're putting in as much as our companies will match, since that a guaranteed 50% ROI at least.
    Nothing in the stock market is guaranteed. Lots of people had thier 401k end up damn near worthless after stuff like Enron and the market going to hell in a basket made of bad mortgages. Your company's policy could change on a dime. If you're going to invest, make sure you aren't just blindly handing some guy in a suit your money to do what he will. Keep an eye on it.
    When they put their money in, the company puts in 50% of whatever they put in. It matches it. So, if they put in $100, the company puts in $50. That is, in fact, a guaranteed 50% ROI.

  • JaysonFourJaysonFour Classy Monster Kitteh Registered User regular
    edited March 2009
    Oh. I thought he was saying that someone had promised him a 50% return on his 401k.

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  • DogDog Registered User, Administrator, Vanilla Staff admin
    edited March 2009
    As long as your employer is matching you will never lose money in your 401k unless the market (somehow) manages to eat through all of the matching. It's like if you put a stack of 5 cookies on the table, and then your employer puts 5 more cookies on top. Assuming you eat top to bottom, you don't actually eat any of your cookies until half of the total amount of cookies have been eaten (the math obviously changes depending on what the matching is).

    The big question is, what are you saving for? Retirment? A house? Education for kids? Future travel?

    It might be a bit homerish of me but if you aren't looking specifically at future retirement (since you already have a 401k with your employer), I think you should look beyond the CD (which, as has already been said, has terrible returns right now). You have more than enough to cover the minimum balance for almost all mutual funds out there (which range from $1-5k), and would be able to start up some long term non-retirement investing much more than a step ahead of most people at that point in the game.

  • QuothQuoth the Raven Miami, FL FOR REALRegistered User regular
    edited March 2009
    Thanatos wrote: »
    Quoth wrote: »
    One thing you can do is make a ladder of CDs of different lengths: say, $2,000 in a 1-year CD, $2,000 in a 2-year CD, and so on up to a 5-year CD. That gives you both long- and short-term investments at varying rates in a relatively safe place. Then, as each CD matures, you can either hold onto the money if you need it or stick it into a new 5-year CD.
    You're an idiot to buy a five-year CD right now. You're probably an idiot to buy a two-year CD right now. Interest rates are literally at rock-bottom.

    So I should leave my money in my savings account instead, and earn even less interest? o_O

    “Hic non defectus est, sed cattus minxit desuper nocte quadam. Confundatur pessimus cattus qui minxit super librum istum in nocte Daventrie, et consimiliter omnes alii propter illum. Et cavendum valde ne permittantur libri aperti per noctem ubi cattie venire possunt.”
    Site | The Miami Grindstone | Twitter | Dropbox | Picture by Galen Dara
  • DogDog Registered User, Administrator, Vanilla Staff admin
    edited March 2009
    Quoth you should give your money to me, what with all the sexings, I mean investings. Investing I do.

  • ThanatosThanatos Registered User regular
    edited March 2009
    Quoth wrote: »
    Thanatos wrote: »
    Quoth wrote: »
    One thing you can do is make a ladder of CDs of different lengths: say, $2,000 in a 1-year CD, $2,000 in a 2-year CD, and so on up to a 5-year CD. That gives you both long- and short-term investments at varying rates in a relatively safe place. Then, as each CD matures, you can either hold onto the money if you need it or stick it into a new 5-year CD.
    You're an idiot to buy a five-year CD right now. You're probably an idiot to buy a two-year CD right now. Interest rates are literally at rock-bottom.
    So I should leave my money in my savings account instead, and earn even less interest? o_O
    An Orange Savings Account at ING Direct is paying out at 1.5% interest. A five-year CD from ING Direct is paying at 1.75%. So, if you put your savings into the savings account, and interest rates go up even .25% (the lowest amount they can go up), you'll be at the same interest rate you had for the CD, only you'll be able to withdraw it at any time. If interest rates go up more than .25%, you'll have made money by going with the Orange Savings Account. The only way you're better off with the CD is if interest rates either hold steady, or go down. Given that interest rates are pretty much literally at rock-bottom right now, they're not going down. They're unlikely to hold steady. Which means they'll be going up, which means that by buying a five-year CD, you're locking yourself into a ridiculously shitty interest rate for the next five years, all at the cost of .25% interest. If the OP does this with $10,000, he'd make an extra $130 if he kept it in the CD and interest rates held steady for the next five years, in addition to tying up $10,000 for five years that he wouldn't have access to, or be able to invest anywhere else.

    Therefore, you should leave your money in a savings account and earn more interest, over the long term. Also, he could instead of putting the money in the CD, use it to pay down either of his loans (at 4.5% and 4.9%, respectively) and end up making way more money than he would with the CD. Way, way more money. Putting that money in a five-year CD is pretty much literally the dumbest thing he could do, in that he has other options which have returns that are guaranteed to outweigh that by substantially more than double.

  • SimpsoniaSimpsonia Registered User regular
    edited March 2009
    Just doing a little math, depending on the length of your student loans. I assumed 5 years at the 6.0% interest rate. You're paying $17,400 over the life of the loan. Either you pay it off now and save that extra $2400 completely. To make a similar amount of money you would need something like a 5 year CD at 3.5% to approach that savings. Now if you can find anything safe enough with a a guaranteed 3.5% return that's fantastic but that doesn't seem likely anywhere in the near future.

    *Disclaimer* My math may be way way off, I just used standard online loan calculators and compound interest calculators.

  • ThanatosThanatos Registered User regular
    edited March 2009
    Simpsonia wrote: »
    Just doing a little math, depending on the length of your student loans. I assumed 5 years at the 6.0% interest rate. You're paying $17,400 over the life of the loan. Either you pay it off now and save that extra $2400 completely. To make a similar amount of money you would need something like a 5 year CD at 3.5% to approach that savings. Now if you can find anything safe enough with a a guaranteed 3.5% return that's fantastic but that doesn't seem likely anywhere in the near future.

    *Disclaimer* My math may be way way off, I just used standard online loan calculators and compound interest calculators.
    He's in a 25% tax bracket, and student loan interest is tax deductible. So, his actual interest rate on the student loan is 4.5% (though, that can change if his tax bracket changes).

  • QuothQuoth the Raven Miami, FL FOR REALRegistered User regular
    edited March 2009
    Ok, so apparently USAA rates are way above the norm, because right now they're offering a 1-year CD at 2.25%. Their 5-year is at 3.30%, which is arguably not enough to warrant investing at the moment, but still way over the savings accounts. That's what I was thinking of with regards to CDs, so I didn't understand why you were saying it was a bad idea. The numbers you present certainly paint a different picture.

    And I wasn't going to repeat the obvious advice that others had already mentioned about paying off loans first. I figured that was clear enough already.

    “Hic non defectus est, sed cattus minxit desuper nocte quadam. Confundatur pessimus cattus qui minxit super librum istum in nocte Daventrie, et consimiliter omnes alii propter illum. Et cavendum valde ne permittantur libri aperti per noctem ubi cattie venire possunt.”
    Site | The Miami Grindstone | Twitter | Dropbox | Picture by Galen Dara
  • SeptusSeptus Registered User regular
    edited March 2009
    I'd kill for USAA eligibility.

    rodq.jpg
  • YamiNoSenshiYamiNoSenshi Registered User regular
    edited March 2009
    USAA is awesomest. I had their car insurance, and it was the greatest insurance ever.

    Thanks for the student loan thing, Thanatos. I didn't know that and it impacts my future decisions.

    Damn it, it's fucking noon. I demand to know if Yami shit on a desk yet.
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