The new forums will be named Coin Return (based on the most recent vote)! You can check on the status and timeline of the transition to the new forums here.
The Guiding Principles and New Rules document is now in effect.
stagnant money.
azith28
Registered User regular
Registered User regular
So, I've been working for almost 9 years at the same company now, and I dont have any debt to speak of, I rent.. but neither do i have a whole lot of savings (a few thousand dollars in the checking account that just sits there above and beyond my normal expenses ) that would let me do things like buy a car or a home. I'm putting into my 401k plan, so im not really worried in that respect, but I would like to do something with this money so that i feel like im getting some help saving up. Savings accounts are useless for these kinds of numbers, and I'm not looking to do high risk kinds of transactions, or anything that would make my yearly taxes a nightmare.
What kinds of options would i have at this low amount? Anyone in the same situation?
Stercus, Stercus, Stercus, Morituri Sum
0
Posts
Let 'em eat fucking pineapples!
Absolute minimum should be 3 months.
That means if your rent is $1000 a month, and electric is $150, and gas is $150, and food is $300, and car payment is $200, and insurance+renters is $100, and phone bill is $60 and $40 for etc, you should have $12,000-24,000 in a savings account in case you lose your job. Bare minimum of $6,000 to keep you from bankruptcy. Obviously if you have credit cards and school loans and whathaveyou you'd add them to the list too.
Okay? Good? Got that done? No? Keep doing it.
Once you've got that done, think about investing in mutual funds. More returns than a savings account, but no risk of playing stocks. I think Vanguard is still the one to invest in, but people better at this will correct me.
There isn't really an investment out there that is going to be safe and give a good return and also be highly liquid.
I doubt he was actually paying interest, just that's what his rate would be if he carried a balance.
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
I'll add that if you have enough savings and want to do something a little more active with the extra, you might play around with municipal bonds or T-bills a bit. You can find them on Yahoo Finance and they are basically the safest way to play around with your investment, but they're also something you have to put in a decent amount of time learning about.
tldr save more and sock the rest into Vanguard, honestly
no entirely true, in fact, borderline false. mutual funds have risks, and you can potentially lose more than your initial investment. the risk mitigated in buying mutual funds vs stocks, is (at a very basic level) is that you are buying a variety of stock, versus one or two, so that a significant loss in one is offset by a gain in another. but to say that there are no risks is patently false.
gamertag:Maguano71
Switch:SW-8428-8279-1687
You are correct that mutual funds have some risk and essentially hedge by having diversity but can you explain the bit there? I'm interested in how a mutual fund could end up having a negative value.
Maybe people are thinking of money market funds? Money market funds are usually pretty safe. See http://www.investopedia.com/articles/mutualfund/08/money-market.asp
You need cash reserves. To echo everyone else, try to have 6-12 months living expenses in cash. To make as much interest as possible on it, you can split it up between an ing savings account (the interest is pretty pitiful, but at least it's above 0.5%, last I checked), a system of laddered CD's, and money market funds.
Once you've got your reserves built up, then you can work on contributing to a Roth IRA and/or brokerage account and buy your mutual funds and whatever else that might fluctuate in value.
Nusquam Findi Factionis
My Digital Pin Lanyard
i changed my initial thought and forgot to edit out the words "more than"
gamertag:Maguano71
Switch:SW-8428-8279-1687
Don't buy anything for the next week or so really, it is just too volitile.
CDs? Not liquid.
Stocks? Not liquid.
Bonds? Not liquid.
Funds? Not liquid
I understand feeling like you're losing something by not investing your emergency fund, but, you're really not. Investing only really makes sense when you have a lot of money (10k+), and only if you aren't going to touch it for more than a few years. If you lost your job, what would happen to you in 3 weeks time? Would you need to remove the money? If the answer is yes, do not invest it.
Keep bankrolling extra money, so if and when you need it, you'll have it.
Get 6 months worth of emergency funds, then once you have another 6 months, invest that.
Investing a few grand doesn't get you beans. Maybe $100 if you're lucky after a year.
It does take a day or two to access though. Which is the more immediate concern. Though that time scale is better served by things like credit cards than any kind of banking instrument.
And a 3 month windfall is probably not a whole lot of extra to even bother. If this was 1995, no problems!
https://www.bankofamerica.com/deposits/bank-cds/standard-term-certificate-of-deposit.go
https://www.bankofamerica.com/deposits/savings/money-market-savings-account.go
There's 0 real reason to take a CD at all. Maybe you'll get a few pennies, but almost all of them have a fee for early withdrawal which will definitely eat into that interest rate.
Let's say you invest $10,000, get a 4% return, make $400 after a year. Oh no you lost your job! No worries, you have your trusty 401k.
You decide to cash in $10,000 off the 401k, let's assume you get the standard 10% penalty. You owe $1000 in penalty fees, and then, safely taxwise, 25% of that in taxes as it's now income.
So the $10,000 you withdrew from a 401k to cover your living expenses you costing you $3500 (10 fee + 25 tax%).
You lost $3100 because you felt like you had to do something with your money.
The point of liquid assets is so you don't run into a situation like that.
I'm not trying to be a dick, but it's incredibly stupid to invest liquid assets if you don't have a emergency windfall. The opportunity cost of investing that money rather than keeping it liquid is costly, and in my opinion, not worth it.
Keep accumulating it, keep it in a savings account. Like I said, when you have 12 months worth, think about investing 6 months of it. This way you've got enough liquid to hold you over while you withdraw the rest as needed.
Bowen knows of what he speaks, and you would do well to follow his advice.
Having $100,000 in your 401k is great! Touching it should be your absolute last resort. Like, if it's a choice where the only options are living out of your car for a little while, or tapping into it, you should spend some time really thinking about you situation / alternatives / consequences. It's not a savings account, and tapping into it has major tax penalties you should avoid if at all possible.
You should also be aware that getting a disbursement from a 401k isn't always a simple / seamless process and it shouldn't be considered 'liquid'. Lots of employers / plans have different rules on what you can take out or what circumstances - simply because your 401k shouldn't be used as a piggy bank.
It's also noteworthy that you don't need to pay taxes on your 401k gains until you start taking disbursements at retirement age (when your income is likely to be much lower). With a regular investment, you may have to pay taxes on your returns before re-investing them, lowering the effective rate of return significantly.
Continuing to save your money is the best bet. If you've got three months saved, save another three months of expenses. Once you have six months saved, continue saving. Pay down / avoid debt, and begin saving for a down payment on your house. If you are saving for your house, you may want to periodically invest the money you are saving into something with a higher rate of return than your savings account, but in general don't expect to see much at all in returns.
Bascially, unless you are investing tens / hundreds of thousands of dollars, or for years - decades at a time, your rates of return will be piddly.
Another thing to strongly consider is a Roth IRA. If you can meet your full match amount for your 401k, max out your annual contribution limits for a Roth IRA, and still save significant amounts of money, you probably want to talk to an honest financial planner about what you want to do with your money and have them help you develop a plan. If you aren't to that point, then plunking it in a savings account is about the best bet possible.
EDIT - Also note that with 401k loans, you can sometimes get boned if you have a loan and lose your job. I know my past employer required any outstanding 401k loans to be repaid if your employment was terminated or you quit. Also, at my past employer the money you took out in a loan was frozen until you repaid it - so you no longer had investment gains on that portion of your 401k.
The other thing to consider is major purchases 1-2 years down the line. If you are thinking about getting a house/new car/new bedroom set/ect.. in the next few years you probably want to start saving for that as well, as it's likely you wont make more money by investing it then you will pay in transaction fees and so forth over that time period.
Meh, it's all about the personal level of comfort and risk.
This. So much this.
It's unbelievable how much interest you don't have to pay by making a large purchase in cash (as much as you reasonably can). Car payments and mortgage payments can be reduced to the point of paying 100% of the price instead of ~140% of the price.
Let 'em eat fucking pineapples!
At some point thought it must become more efficient to put the majority of it into stocks/bonds/whatever that are not retirement accounts. The idea behind the 3-6 month cash on hand is that over that short of a time period you need your funds to be very liquid. You don't want to constantly be selling stocks to pay for random expenses that are eating into your 3 month reserve as the transaction fees will be guaranteed to eat all of your profits and then some. Plus it almost never works out that when you need to sell immediately is anywhere near the ideal time to unload the stocks you have.
However, anything that's going to break the 6 month barrier is going to be way more rare such that the slightly decreased liquidity of things like stocks won't be an issue. Plus you have the 6 month reserve to buy time to assess which investments to sell off and when.
Of course none of this applies to retirement accounts which are great but should generally be viewed as untouchable until retirement.
This is not savings. It's a line of credit that isn't horrendously usurious. And why shouldn't it be since you're borrowing from yourself and paying ADP the fees and interest.
I suggest poker. Omaha for when you get bored of Hold'em. Though I'm fond of this new version of Stud that's been the occasional dealer call at my regular game.
keep it there
you want some liquidity. two months worth of liquid cash is utterly ideal, so just keep working toward that
we also talk about other random shit and clown upon each other
Can't speak for America, but here in the UK there seem to be lots of 'premium savings accounts' that offer a marginally higher interest rate on the condition that you meet certain deposit criteria and don't make any withdrawals. If such a thing exists for you then this is a good place for your emergency liquid fund as it is at no risk of losing value, you can still get hold of it instantly in an emergency, and if you do have to withdraw it early the only penalty is to the bonus interest rate.
It is, 6 months is fine, with the rest in stocks and funds. Gives you enough leeway. Anything less than 6 and you risk taking a hit.
Also, again on the topic of 401ks:
Borrowing from a 401k is suboptimal. All of my conjecture around it was based on the "lost my job" so you'd not qualify for the 401k loan too. You can get hardship disbursements, in case you are going to get evicted or something. They're still taxed. Some will still let you do a partial cash out too.
On the whole cash vs stock things I read this the other day and kind of agree with their rational
https://www.betterment.com/blog/2013/08/06/safety-net-funds-why-traditional-advice-is-wrong/
The TLDR is:
Invest 130% of your SafetyNet Funds(So instead of $10k you need 13k), in a ~40% stock investment vehicle. These means that even if you are forced to cash out at the worst point in market history(you hit your 130% goal, right before the market dropped in 08, and had to cash out in Feb 09) you would have still had 100% of your safety fund goal.
The trade off being that an account like that will get you ~5% a year in returns, vs it sitting in the bank and getting you -1% to -2% depending on inflation. Whenever the fund goes over ~150%, recalculate your new safetynet number, keep the 130% in there, and move the rest to some other investment.
Stocks & Bond ETFs etc are nearly as liquid as cash at this point. Worst case maybe a day or two slower to get to. The point of this savings isn't Ohh shit I need 10 grand tomorrow. It's ohh shit I need 10 grand over the next few months.
The other key with these sorts of things is that you can schedule it to come out automatically every 2-weeks/month w/e. I know personally I keep my 'checking cash reserve' at pretty much the same level out of habit. If it dips low, I don't buy something or skip going out to eat a couple times or w/e. So it's not the difference of putting the extra $200/month in a savings/investment account vs a checking account, it's putting it in a savings/investment account vs spending it on some random shit I probably don't need.
It's amazing how much money you can save away if you don't let yourself see it happen. You look at the end of year statement and see a couple grand sitting there and go 'what would I have wasted that on, if I had seen it sitting in the bank?'
But man, does it make me feel better
I was waiting for someone to do this sort of analysis for a long time.
I absolutely love these historical models. They are based on data, they are visually powerful, and they sum up their point succinctly.
@tinwhiskers, that article rocks, and thank you for bringing it to my attention.
Let 'em eat fucking pineapples!
How are these not liquid? You can convert them to cash pretty easily.
This is pretty much wrong. Why does investing only make sense if you have more than 10k? Why that number? There are plenty of investments that you can buy into with only a few grand.
Personally, I've started using an IRA as my short term savings. You can remove the principle when you need it, and if you wait until retirement to remove the earnings, you're not taxed on them.
IRA's have an early withdrawal penalty of like 10% unless it's for an exempted expense like buying a house. Given that most things you'll probably need cash for in the short term are not exempted this seems like a terrible way to use an IRA. If you've been withdrawing from your IRA and not paying that 10% penalty in your taxes you should look into that.
As for stocks and bonds being liquid they are very easy now a days to convert into cash, but there are fees associated with selling and buying them. If you're constantly selling stocks to pay off short term needs and then re-buying when you earn the money back you are basically throwing away money in fees. Money that you will never overcome in terms of gained income from the stocks/bonds themselves.
The 10K number is about the impact of your investments. Sure you can take 1K and invest all you want, but for all of your time and effort you're not likely to make more than like $10 dollars a year. That's $10 you didn't have before but unless you spent almost 0 time thinking about how to invest (which is highly unlikely) you're much better off not spending any time on investing and just skip eating out 1 time a year that you normally would have. Basically your returns aren't worth your time until you get a decent amount to invest.
If it's a Roth IRA, the early withdrawal penalty only applies to earnings I believe. So it makes a lot of sense unless you think you'll need the earnings too.
There are mutual funds you can buy into for a $1,000 minimum. If you bought into a T.Rowe Price growth fund in January, for example, your $1000 investment would be worth around $1200 now. Sure this was a good year, but in general you'll do better than letting it sit in a bank until you have more to invest.
Sure, if you need it in 90 days you might have to pay an early redemption fee. Also there'd be like a $10 brokers fee for buying into or selling it, depending on your broker.