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What should I do with my monies?
Qingu
Registered User regular
Registered User regular
I am lucky to be employed and to have saved up a moderately large sum of money. I've put a little bit in an IRA. I've hesitated to put more in for the following reason: I'm probably going to move to another city to be with my fiancée. This may mean I'd lose my job and, judging by the economic climate, I imagine it's going to be tough finding another one.
I don't spend much, so I could probably live comfortably for 2 or even 3 years just on the savings. However, I imagine now is probably a good time to invest.
Fiancée is in business school, so finances probably will not be a problem for her post-graduation (i.e. not as much pressure to use my savings).
Should I put more of my savings in an IRA? Or should I keep it close in case I need it in the near future, and wait until my life is more stable to put more in?
I don't spend much, so I could probably live comfortably for 2 or even 3 years just on the savings. However, I imagine now is probably a good time to invest.
Fiancée is in business school, so finances probably will not be a problem for her post-graduation (i.e. not as much pressure to use my savings).
Should I put more of my savings in an IRA? Or should I keep it close in case I need it in the near future, and wait until my life is more stable to put more in?
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Either you have a very low cash footprint, or you've got some very decent money saved up. I don't know how much - but I wouldn't lock it away in such a way that you couldn't get at a few months' worth in an emergency (without penalty - keep at least some of it liquid).
Still, a "high yield" account only yields about 1.3-1.8% these days. So you could keep enough money to live off in there, and put the rest into CDs. These days the best CDs are 1yr, with most banks I've looked at having this weird and unprecedented (or so I'm told) inverted yield curve. So keep enough money to live off of for a year in the savings account, and put the rest in a CD. Or if you are worried, put half in a 1 year CD, the other half in a 6 month CD, and then when either one matures, reinvest it into a 1 year so you are never more than 6 months away from some money.
Also, many banks will let you take money out of the CDs whenever you want, but you suffer an interest penalty. Often severe. Severe enough to render the use of a CD pointless.
A friend of mine, who works for a bank, was telling me at a party on Saturday that he could get me a savings account with 5% interest. I was dumbfounded. I don't even know how that's possible.
As far as investing it goes, there's a couple different ways you can go. Unfortunately, your best bet would have been to invest since March of this year so as to ride this stock market rally. My personal opinion that I will not debate further in here is that this runup to 10,000 points has been built on false hope and earnings reports that, while being "better-than-expected", were still bad compared to years prior. I don't think the market's settled down and I think that 10,000 is going to drop significantly again, so I'm not sure I'd recommend going heavily into stocks right this moment. Or if you do, head for traditionally conservative/defensive positions (gold did VERY well this year in the face of a weak dollar and inevitable inflation).
PSN: TheScrublet
That was possible 18 months ago, dunno about now.
Yeah, my thoughts exactly. But he was saying this two days ago, and I asked for clarification, and he said he was serious. My other friends were pretty baffled too. This guy is kind of a space case sometimes, but he does seem to usually know his stuff when it comes to banking and accounting.
Can you explain the mechanics of why a CD is a good idea? I am pretty financially ignorant.
And yeah, were I to invest, I'm definitely going to wait until (what looks like) the little financial bubble the stock market's got going right now pops. Though I'm planning to invest in SRI's with PAX, so I'm not sure how much those companies will be affected anyway. (Actually, does anyone have thoughts on the merits of socially-responsible investment funds, while we're at it?)
The credit union I work for does something like this (though it's only 4% right now), but you only get the high rate on the first $500 in your account, and the rest is at the regular rate. They do it on both savings and checking, so the max amount they have to pay the 4% interest on is $1000, so it's actually pretty feasable. I bet it's the same deal with your friends bank.
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
That's got to be what he was talking about. Because otherwise...well, I think my current savings gets .05% or something ridiculous like that.
CDs will give you a pretty much guaranteed return in a set amount of time, and are FDIC-backed. You won't get much higher than 4%, but I guarantee you people were treasuring their 4% CDs a year ago around this time.
PSN: TheScrublet
Do you have any debts? Do you have any plans for the money (down payment on home, bitching home entertainment system, getting a pet)? Is this "extra" money the result of saving (good discipline) or some windfall (inheritance, bonus, etc.)?
If it's a result of disciplined savings, and you don't have any debts, and you're not planning any major purchases soon, you're likely going to increase your longterm returns by fully funding your IRA and then investing the money in that IRA in some way.
CD's are FDIC-insured (or they should be, check the fine print), and they guarantee the rate of return advertised. You will get the 2.0% or whatever when the CD matures. The tradeoff is you cannot get to the money until the CD matures without monetary penalty (unless you buy a lower rate CD that permits early withdrawal, which may garner no better return then a high-yield savings account). CD income is also interest income which is taxed at a lower rate then short-term capital gains (I'm pretty sure at least). CD's are for the risk-averse and for those whose highest concern is preservation of capital, but can tolerate the illiquidity of the CD during its marurity period. If your time horizon is longer then a few years, then you can likely get a higher rate of return from investing in different securities (though it's not guaranteed).
Another potential complication is that my fiancée won't be able to find a job, so my savings will have to support us both. Though I think she'll have an easier time finding one than I will.
No debts, just saving over time. The only major plan I have would be moving, and possibly supporting myself and/or my fiancée. Eventually I'd like to pay for a wedding but that can wait until we're both financially secure.
So about these CD's ... 2% is only a bit higher than my money market's giving me. But it doesn't sound like the maturity time will be an issue if I keep enough in savings to get through it if need be. Any tips on where/what kind of CD's to purchase?
6 Months worth of actual expenses should still work even now, as if you become involuntarily unemployed (and didn't get fired for cause), you'll also be able to collect unemployment, which would supplement the savings you have tucked away, enabling it to last much longer than 6 months.
Backlog Wars - Sonic Generations | Steam!
Viewing the forums through rose colored glasses... or Suriko's Ye Old Style and The PostCount/TimeStamp Restoral Device
Tax free money for retirement is a good thing.
They're usually on-line only. People like to have a physical location they can go to deal with issues that may arise.
"high yield savings" could mean a lot of things. It could be a savings that gets more than the regular savings, but if its under a certian balance there's a fee. It could be where if its under a certian balance it doesn't earn anything at all. For some (like the first $500 gets a better rate ones we were talking about before) they want you to have direct deposit and online statements or somethin like that. Or, like Septus said it could be with an online-only kind of place. I think that's what ING is.
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
The reason you'd want CDs over a savings account is because it offers a better rate of return. My savings account gets 1.35% and my CD gets 0.5% more. 0.5% might not seem like much. But if you have a good chunk of money, every little bit counts. If you have 100,000 saved that comes out to an extra $500 a year. Ok, sure, it's penny pinching, but it's basically free money for being smarter with your money. Savings accounts and CDs are both equally secure. It's not like the stock market. The only thing you lose out on with CDs is immediate access to your cash. Which is why I'd only do it with the money you know you won't need, and keep the rest in the savings account. It's also why I suggested staggering a pair of cds by 6 months, to give you quicker access to it in the event of job loss and the emergency fund being eaten.
I have the HSBC online account and it seems to vary by who the teller is. They all answered my questions, but of the three that I had dealt with, only one would deposit my checks. The others just said use the ATM.
Yeah, I never tried. There aren't any branches near me.
Actually that number comes from an article I had read citing BLS estimating average time unemployed being about 6 months. Cannot find it now; it's a moving target anyways. There are other considerations to factor in (e.g. local labor market, having to support your fiance and her student loan payments [if any]). It couldn't hurt to have more in emergency savings, though you could offset reduction of return by splitting a years worth of expenses between savings and a 6-month CD.
If you can get an equivalent rate in savings/checking then you can find for a CD then I'd stick to savings/checking, cause I'd value the instant liquidity to another 25 basis points*. The shortterm CD's I've been looking at don't really offer a much better rate then a high-balance ($25K) savings account.
And I was wrong about interest money being taxed at a lower rate, I thought it would be taxed like a qualified dividend, but I believe it's actually taxed at your marginal income tax rate.
For CD's I'd check bankrate, and look into whether or not you can become a USAA customer. FYI, I've seen advertised very attractive 6-15 month CD rates (4.75% APR) in the newspaper. My understanding is that the investment groups offering these are basically paying banks to underwrite these CD's to get you in the door, then they try to hardsell you their own investment vehicles (most likely shitty annuities). I haven't opted into these CD's, but so long as they're FDIC-insured and you can put up with their BS it may be worth looking into.
*Edit: Specifically because I'm tracking several things that I'd likely purchase on a major dip.
I thought you could contribute money toward the 2009 yearly limit until April 15th, 2010. Am I incorrect?
Let 'em eat fucking pineapples!
B.net: Kusanku
According to this page, you are correct.
http://www.fivecentnickel.com/2008/11/07/2009-traditional-and-roth-ira-contribution-limits/
And confirmed by http://www.irs.gov/publications/p590/ch01.html#en_US_publink10006076 for Traditional IRAs.
The rules for Roth IRAs http://www.irs.gov/publications/p590/ch02.html#en_US_publink10006488 are the same, although worded differently.
While his choice to reveal his personal finances to peers/friends and while online is his own... you could probably guess a ballpark on his personal finance.
2-3 years of living expenses.
No property payments assuming they are relocating without much hassle.
Engaged significant other going to school so probably living in an acceptable suburb/city and not the boonies.
I'm generally aiming at larger sums, and I'm guessing per month:
$1000 for rent. ~$400 for food. Maybe $350 more for random expenses or entertainment.
I'd guess at $35k - $55k. But I have no idea how cheaply the op might actually live. Living in a tiny 1br, with few luxuries, mostly eating beans/rice/noodles for meals, no car, no pets, few outings, etc. would make monthly costs easily 1/2 or less of what I guessed at.
Note to the op: If you'd rather I didn't post this guesstimate, pm me, i'll remove it. Some people are understandably sensitive about their financial information.
So first things first; does your current employer have a 401k? Are you putting in whatever % up to what they will match every paycheck? If you aren't, start doing that now. I'm also going to second starting up a Roth IRA and putting in your maximum contribution, which should be 5,000$. You should be able to still contribute to both your 2009 limit and your 2010 limit.
After that, it really depends on how much money you have left, and how much you feel comfortable keeping in savings. If you are sure you can get another job in 6 months if you get laid off/quit/move, keep the 6 months available. If you think it might be longer, keep that much. Anything over that can go directly into an investment vehicle of your choice (which is where you would need to research or talk to a financial advisor), you have more than enough money to meet the minimums of all the major mutual funds out there, so finding one that suits what you need shouldn't be an issue.
I meant that since he has so much saved up, he might as well do this year's and have the money ready for next year's contributions since the end of the year is coming up.
I 'spose ya'll can close this thread.
Diversification > playing it safe. Plus international growth and sector funds.
Also, if you start looking into bonds (which are often a tier below of stocks in terms of riskiness), you should educate yourself about them a bit before jumping in, or at very least research a mutual fund for them. The Federal Government finances its debt through issuing bonds, with names like Treasury notes or bills. The risk of the Federal Government not being able to make a payment and go outright bankrupt is more or less nonexistent right now, as they can monetize the debt, or in other words, "run the printing press". The big problem right now with T-bills is that interest rates on them are extremely low, particularly for short term ones, as they are the safe haven with everything else falling apart left and right.
For long term bonds the risk of rising interest rates means you can actually lose money if you don't intend to hold them to maturity. For bonds the market interest rate and the price on the bond are inversely related. In particular, a zero coupon bond like T-Bills the bond is sold at a discount value and pays the face value at maturity, where the interest rate is determined by how much interest would be required for the current discount price to reach the par value at the maturity date. So with less time until maturity, the price will tend to be much closer to the par value and have a lot less room to fluctuate based on interest rate volatility, and can simply be held to maturity without much risk. This means that in normal times the yield on short term bonds are lower than those on long term bonds due to the reduced risk and volatility.
Also, be careful about bonds from other sources, like companies or state and local governments, as they can go bankrupt and refuse to pay. For example, buying up debt from the California state government right now should not be undertaken by the faint of heart.
I started learning about investing about 2 months ago and it's one of the smartest things I've ever done, while I've only been trading for about a month myself it's something I would suggest if you want to learn something new and make money while you're doing it.
That said, if you don't want to do it yourself you can set some guidelines for what you want from a broker and they will do most of the work for you. It's not something you can learn in a day, a month, or even a year.
How do you think those funds are doing these days? Most people are taking it square in the ass but they avoided it somehow, right? In our current economic climate you are much better served by finding a safe harbor until the storm passes. If you're a savvy investor with experience and balls, sure, be aggressive and look for good deals while everything is in the toilet. That type of person probably wouldn't be posting here looking for advice though.
In our economic climate you are much better served by finding a safe harbor if you are getting ready to retire. Young investors, aka accumulators, shouldn't be worried about preservation and maintenance of wealth, they should be looking for growth.
Hell, take a look at the front page of Investopedia (which I also have linked in my sig, if you're going to be serious about starting to invest for retirement you should probably just read the entire site.). Today's front page article has what I have been saying as one of it's major talking points, diversification and international exposure.