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Investing!
DBReed
Registered User regular
Registered User regular
I've got a nice tax refund heading my way this year, and I'd like to invest a large portion of it. Problem is, I don't really know the first thing about investing. Could someone point me to some resources or give me some general advice?
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http://en.wikipedia.org/wiki/Certificate_of_deposit
'What should I invest in' is a very, very big question. To narrow this down, we need to know
a) What is your timeframe
b) What are you goals
Risk is another factor that can help define exactly what you'll buy, but those two factors are the biggest issues.
It also helps if you can tell us which country you are in. In Canada there are RRSP and TIFFs, both are pretty good long term investment tool and also good Tax shelter.
It'll also help if you can give us an amount... I don't think a Tax return can be that huge anyways but your investment decision can be different if say you received 1000 dollars from tax return vs 100,000 dollars.
You do not know more than everybody else. Fund managers also don't know much more than everybody else, but they know enough to charge lots of money.
Therefore:
If you need the money in the short term (< 10 years), put it in a high interest bank account.
If you need the money in the long term, put it in an indexed fund. Even better, put your money in an indexed fund that gets tax breaks (superannuation, 401k, etc, depending on where you are).
If you don't need the money at all, then maybe personal investing is right for you.
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Whoah, whoah. Did I just read this right? Cuz what I'm reading is that you think that if you're too risk-averse to gamble with your own free cash, that you should instead take out a loan and gamble with that. Borrowing money to go gamble with is not in anyway a safer bet than gambling with money you can afford to lose.
No, you didn't read that right. A CD is basically money locked up in a bank with guaranteed interest.
Sorry, OP, I have no advice. I'm in the same boat myself.
The stock market isn't all that scary if your money is going to be sitting a long time. If you get into day trading or something though I imagine shit can get crazy.
I have the option of opening a 401k with the company I work with now. Would it be a good idea to just do that?
If your employer does any kind of match on your 401K contributions you'll want to max that first, since your employers is bascially giving you money as an incentive to fund the 401K.
$1K isn't a lot to start with, many mutual/index funds have minimum investments that are $3-5K, however funds available to IRA/401K account plans often have different minimum investments, especially if you're accumulating shares through regular payroll deduction.
Conventional advice is to pay off debt first, then accumulate an emergency fund, and once you have a comfortable cushion save up for investing and/or elect for payroll deduction to fund 401K/IRA.
CDs are for the risk averse, or those who seek income from their investment (as opposed to appreciation), or for those who cannot tolerate capital loss, or perhaps those who will need the principal in the near term (a couple years) but want a return. They should be FDIC insured, whereas stocks/funds are not.
There is no such thing as a "high-interest savings account." And if it's an emergency fund, I don't think the very slight additional interest on a CD outweighs the reduced liquidity.
Taking out a loan to deposit in a CD will almost certainly result in you losing money, as the spread you pay on the loan will almost certainly be (much) greater than the return on the CD.
Keep in mind that interest on student loans is tax-deductible, so the actual interest rate is reduced by whatever your highest tax bracket is.
people tell me to put stuff in etfs
but i have no idea! i shouldn't have procrastinated, the markets been going up, huh
I never advised the OP to take a loan, I just said that investing your personal funds is a risk, a Deposit Certificate is the simplest, risk free form of investment, your money is there earning interests.
WHAT?
NO.
Borrow money to put into a CD? Borrowing to invest when you hold all liability?
I did day trading for a few months and blew out. Definitely not for the vast majority of the world.
1) 401(k) until you max out your employer match.
2) Pay down any credit card debt.
3) Pay down your highest-interest loan/invest in your retirement.
The only thing to consider would be if you think you can get a higher interest rate on your retirement investments than the actual interest on your student loans.
You can figure out the actual interest rate by multiplying your highest current tax rate by the interest rate and subtracting it (since the interest is tax deductible).
To clarify: say your highest tax rate is 25%, and your highest current interest rate on your loans is 8%. So, every dollar you spend paying down your student loan interest (not principal) costs you $0.75 (because if you didn't spend that money on student loan interest, you'd have to pay $0.25 in taxes on it). Effectively, your student loan interest rate would be 6% (8% * 25% = 2% discount, 8% - 2% = 6%). So, if you could bring in more than 6% in interest on your retirement fund, you're better off investing in your retirement fund (keep in mind that a 401(k) is also tax-deductible, so a $1.00 investment in that in the above scenario would also only cost you $0.75, which would mean you'd only have to beat a 4.5% interest rate on your retirement to make that worthwhile).
In general, paying down student loans (unless they're relatively high-interest) is a poor investment because of that, especially if you think you're going to be making more money later. Say you got bumped up into a 40% tax bracket; that would mean the interest on your student loan would go from a 6% rate to a 4.8% rate, and every $1.00 you invested in your 401(k) would only cost you $.60. So, saving student loans until last is frequently a best option, but it really depends on a few factors: how good you think your retirement will do, what tax bracket you're in, and what tax bracket you think you'll be in in the future.