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Investing for a moron.
QuantumTurk
Registered User regular
Registered User regular
So, I have a real job now, and with that comes benefits, and investment plans! Yay! Now I'm 22, making a little over 30k a year, and my expenses are pretty minimal. I think I'm going with the tax free 403b plan, because doing the roth and paying taxes on it now rather than later does not seem to make much sense. (Am I wrong about this? Tell me!) Now my employer is going to match my contributions, but this really won't matter as I am not "vested" in those at all untill 3 years of employment, and I seriously hope/believe I will have left for grad school by then. However, all of my contributions are 100% vested from day one, so I should be able to take this with me.
The second half is, I am to choose from Fidelity, Vanguard and TIAA-CREF. This I have not the foggiest how to do. I know they will be managing my money, and investing it for me, but I seriously don't even know where to start with how to choose one, or if it will even make a significant difference right now. Come on PA, school me on money.
The second half is, I am to choose from Fidelity, Vanguard and TIAA-CREF. This I have not the foggiest how to do. I know they will be managing my money, and investing it for me, but I seriously don't even know where to start with how to choose one, or if it will even make a significant difference right now. Come on PA, school me on money.
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> I will have left for grad school by then.
Well, I will put this out there. Right now you are earning $30K. Your earnings after grad school should be much higher. In fact, your earnings 30-40 years from now will probably be even higher on top of that. Most likely taxes will follow your earnings.
Second point my accountant always makes the argument that government likes to raise taxes for the middle class, historically. He has nice graphs and all, but sure google will also give you info. He includes all taxes (state, social security, etc). He makes the argument that the probability that taxes will raise in the future is the most likely outcome. So the argument there, is you think realistically the government will be slashing taxes in your life time?
So; you put $5K into your IRA now which you are taxed at what, ~15% now, give or take a few points? After your doctoral and 30-40 years of experience/career development and 30-40 years of government governing, you think you'll be in a much lower bracket than 15%?
> The second half is, I am to choose from Fidelity, Vanguard and TIAA-CREF
As the broker or the funds?
For both funds/broker, I like vanguard. I'm sure Fidelity is probably the same, but something worth researching.
For the funds, read "Random Walk Down Wall Street". Generally, the advice there is to pick a index fund that tracks the "market" and get the lowest load and lowest fee one you can find. The argument is that it's doubtful that you can "beat" the market, so join it and try not to get raped on fees.
2. Funds - monitor performance/fees, and go with simple index funds that have minimal fee load. There's a lot to pay attention to, and index funds let you not have to do that very often.
3. If you have money left over, put it in a Roth.
Fidelity, Vanguard and TIAA-CREFF are all good companies. Look for an index fund that has the lowest expense ratio and go for it. Don't worry about picking a bunch of funds right now, you don't have enough cash for it to be meaningful. You could also pick a lifecycle fund. These are basically funds of funds that are designed to track your retirement goals. They reallocate regularly to become more conservative over time. So, they are already internally diversified. Again, go for the company with the lowest expense ratio. The date you want is the year closest to your expected retirement so... something like 2055.
Also, be aware that the market is a long term investment, and it is not unusual for it to go down. We are in a period of great turbulence, you are playing a game of compounding, and time is on your side.
You are wrong on this. Basically right now you are in the second lowest tax bracket(15%), and paying 13.25% in federal on your income, say 3% state and 15% for FICA., for a cumulative 31.25% tax load.(And this is before income credits/etc which help you more as a % here than at a higher income)
Say in 10 years from now, you are making $50k in today's dollars. You are paying 17.25% on those, and say it bumbs your state to 4%. so you'r now at 36.25%
So ignoring all the magic of extra compounding 10 years gives you. $1 pre-tax now.
.6975 dollars invested.
In 10 years: 1 dollar pre-tax gives you
.6375. So you have to invest $1.10 pre-tax just to invest the same dollar. And you've lost 10 years of compounding interest.
With that said, if you have extra money, I'd definitely put some in a Roth IRA as well. Those things are the bee's knees.
Your income will presumably rise over the course of your life, and then fall substantially at retirement, and it seems like the key factor is whether you think you'd still be working and making income when you take the money out of the Roth.
sure, but:
1) There really isn't much down space for his tax rate to go. 15% is already the second lowest bracket. With the cut off for the lowest bracket at only 8,500. Even with SS, 8,500 a year is poverty level living with the crazy medical expenses of being old. He should be taking all the free money he can get, through the 403(b), but it doesn't really get any better than a 15% top marginal tax rate.
2) 30k a year(pre-tax) is kinda a sad retirement. To be honest I doubt it will be doable in 40+ years(adjusted for inflation), with how medical costs keep rising and SS/medicare are 1 bad election away from getting gutted. The goal should be to retire and be able to do stuff, not retire and then sit home cause you're broke.
When I had a sit down chat with a friend of a friend who was an adviser, he explained how they split retirement into 3 phases based on their data accrued from their customers. In the first phase you are going to spend basically as much money if not more than you did while working, in phase 2 you'll spend like 75%, and in phase 3 what they call "the coffee and newspaper phase", you are spending like 50% of that. Basically say you retire at 65, If you are in good health you will spend those first 5-10 years trying to get all the shit done you never had time to do while working. You start to slow down as you round the 75-80 mark, and then by the time you're crossing 90 there just isn't much left in the tank for 2 week cruises and trips all across the country.
Roth is also definitely to your benefit. Low taxes now > high taxes later. Just be aware that employer contributions to the plan are *not* tax-free in the future, so you'll essentially have a split. But that's not something you really need to worry about right now.