Donovan PuppyfuckerA dagger in the dark isworth a thousand swords in the morningRegistered Userregular
If you just lost your job and don't know when the next job is going to appear, why in the fuck would you max out your credit card? Can't make a repayment? Whoops, my credit rating just got set fire to. That's not going to take years to build back up, no sir.
6 months living expenses as savings in a different bank account to your regular transaction account, anything more than that you invest.
If you just lost your job and don't know when the next job is going to appear, why in the fuck would you max out your credit card? Can't make a repayment? Whoops, my credit rating just got set fire to. That's not going to take years to build back up, no sir.
6 months living expenses as savings in a different bank account to your regular transaction account, anything more than that you invest.
Why is this so difficult to grasp?
Because sitting on a large pile of cash is counter productive due to inflation. Especially given the triviality of liquidating most investments, and the ease of diversifying. I linked the betterment view of this on the previous page. Basically you would be better of investing 8 months of living expenses. As even in their worst drop-off observed scenario you would have still had 6 months of expenses remaining, and would in general be earning 5% on it.
Even if you just invest the 6 months figure, you will reach the 8 month figure in ~5 years with no further contributions, where 2% inflation will eat half of month+ of it away. Over a decade the difference between investing the 6 months vs sitting it in a bank is 5 months worth of expenses. At 12 years, its the 6 months of expenses. By not investing it, your 12 year sit on that pile of money has cost you the equivalent of that entire pile of money.
The reason to sit on the pile of money is to cover living expenses in case of an emergency. It isn't to combat inflation. And while there is inflation, it is still better to sit on it than try to fight the costs of getting it out. Six months to cover anything drastic.
The reason I pick six months is because not everything is a slow cost. If your car blew up tomorrow how easily would your emergency fund die? Would you fuck yourself over because you had to get a shitty car or get a shitty loan? It pays to have money on hand. While stocks give you a little leeway, your gains will get fucked, and you'll have to pay someone to get your money back. Does it work out for you? Maybe. But that's why I gave such a high number for investments. If you're dropping $1000 into some stocks, you are going to lose money in an emergency, not just losing imagined money because "lolinflation", you will lose more than your investment in fees.
If you were to ever listen to any of my advice ever, this would be the one to listen to.
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
Lots of misinformation here about brokerage accounts, especially as run by one of the bigger companies (ala, Fidelity, TD Waterhouse, etal).
Because it's trivial to take money out of a brokerage account these days: you can write checks or use a credit card, compatible with Visa/Mastercard machines. In addition, you are given a few days to "make your account whole", meaning that you could withdraw the money on Friday, and sell your stocks on Tuesday, after a long holiday weekend, to cover your withdrawal.
Obviously, there are certain limits on how much you withdraw, if you don't have cash-equivalents in your brokerage account, but generally speaking, you can withdraw anywhere from 10% to 20% of your account immediately, and worry about selling stocks to cover that next week. If you need more money than that immediately, you are being extorted or scammed, because any legit company gives you plenty of notice that they want their money. And it should go without saying, if you have a few days to come up with the money, you can always sell your stocks first, and all of the cash from that sale is available to be withdrawn by the next business day.
As for fees on stock purchases, you typically pay $8 to $12 per transaction (per buy order or per sell order). The fee is high enough that you should buy/sell in $1000+ increments, but it's not a harsh fee. But that's just standard investment advice: buy and sell in large enough chunks that the fee is under 1%. For a beginning investor, this really means sticking to index stocks, like SPX (S&P 500), which are the safest things to buy with small amounts of capital.
Alternately, a beginning investor could purchase mutual funds, ones without transaction fees (they make their money via an annual fee). An example is the Vanguard 500 Index, a mutual fund that mirrors the S&P 500. It has zero transaction fees, but charges you 0.17% of your investment as an annual fee (that's a $17/year fee for every $10,000 invested in the fund). This lets you buy and sell anytime you want without worrying about transaction costs.
Are there downsides to brokerage accounts as your emergency fund? Yes, but they all relate to taxes and record keeping. Making money? The IRS wants a cut. Losing money? You need to prove it to the IRS. But otherwise, a brokerage account could easily be your emergency account.
hsu on
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Donovan PuppyfuckerA dagger in the dark isworth a thousand swords in the morningRegistered Userregular
You guys all seem to be missing the point that Bowen, myself and others are making.
None of us has said that you shouldn't put spare money into investments.
In fact, we all think that's a great idea.
It's just that, for sheer simplicity, lack of stress, and ease of access while avoiding fees, keeping 6 months living expenses in a savings account is the easy and pain-free way to do it. Get fired on grocery day? Just take out some money from the ATM. No need to try and contact your broker at 7 p.m., no fees to pay, just your money in your hand instantly.
the OP has "no debt" and is still only just socking away a few bucks a month as far as I can tell
he is not the ideal customer for getting into stocks or funds or anything
A) because he would have to commit half his savings just to start an account because having a few grand in checking is a good thing and impulses to invest it to "avoid" inflation is ridiculous over-thinking, this is not 1979.
My advice to the OP is to keep saving until you can get into a high yield savings account (which is still a very very low yield), and just put it there. Typically you need 10k to get one of those. Or maybe a money market account or something
Whatever it is, do it with your bank or *a* bank. Do not get into stocks.
chrishallet83, you are also missing the point. Brokerage houses like Fidelity will issue you a credit card, send you a check book, all tied to your brokerage account, just like any other bank. Most things you think of that a bank can do, you can do with a brokerage account, including paying your bills online, and taking money out of an ATM.
hsu on
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Donovan PuppyfuckerA dagger in the dark isworth a thousand swords in the morningRegistered Userregular
chrishallet83, you are also missing the point. Brokerage houses like Fidelity will issue you a credit card, send you a check book, all tied to your brokerage account, just like any other bank. Most things you think of that a bank can do, you can do with a brokerage account, including paying your bills online, and taking money out of an ATM.
And will happily charge you much higher fees than a bank to do so.
chrishallet83, you are also missing the point. Brokerage houses like Fidelity will issue you a credit card, send you a check book, all tied to your brokerage account, just like any other bank. Most things you think of that a bank can do, you can do with a brokerage account, including paying your bills online, and taking money out of an ATM.
And will happily charge you much higher fees than a bank to do so.
And we are back to my "Needing $10,000" investment comment. All those fees add up quickly. The fees on normal banks are bad enough to eat into any high yield stocks themselves, let alone for people with less than $50k.
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
Holy cow you guys, do you guys not invest? Do you guys not have a brokerage account? Have you not looked at the services that your brokerage has offered for the past 10 years?
Let's take Fidelity as an example of a typical fee structure.
Transaction fee to pay bills online: $0
Transaction fee to buy a fee-less mutual fund (of which there are thousands): $0
Transaction fee to sell a fee-less mutual fund: $0
Annual fee for the brokerage account itself (not including any investments): $0
Initiation fee to open a brokerage account: $0
Transaction fee to write a check: $0
Transaction fee to use a Fidelity Visa card at an ATM to withdraw cash: $0
Transaction fee to use a Fidelity Visa card at a store: $0
Annual fee for their Visa card: $0
Don't believe me? Just go to Fidelity's website. It's all there. TD Waterhouse is the same. I'm sure other brokerages are the same, as it's a competitive industry. If the typical cost of your brokerage account, not including investments, is more than zero dollars per year, you need to switch companies.
ok but brokerages are still subject to risk, and we're talking about a guy who if he loses half his money, it would takes him like years to make it back through his salary
if he were putting away $500 a month I'd be right there with you
but from the sounds of it he's putting away more like $50 a month
The downside of investing your e-fund into something is then it becomes an investment and is no longer an e-fund. For example what do you do when you've rolled your whole e-fund into an S&P500 index and the market has moved 10-15% in a week? Do you take profits/losses? Do you sell cause you need that liquidity in case shit happens? Since it is in action you have potential decisions to make. When it's in cash there are no decisions to make.
It doesn't really matter if all your spending money, retirement money, emergency fund, and risk money are all in one account. If you roll your emergency fund into investment then that changes what it is. It is no longer a pile of cash to pay for your new transmission or furnace/A/C, or emergency medical bills, or rent/electricity/water if you lose your job. It's something that you could be long or short on and that affects the way you think about whether or not you can us (spend) it.
If you're talented and disciplined enough such that investing your e-fund gives you significant returns and you can manage your risks with respect to liquidity, go ahead. But you're probably not looking for advice on how to manage your money. Personally I'm not so hard up that I cannot have $10-20K in the bank not earning anything, and I appreciate the peace of mind of not having to manage it and it being completely available.
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Donovan PuppyfuckerA dagger in the dark isworth a thousand swords in the morningRegistered Userregular
Even if they did charge you fees, you are paying somewhere between -5% and up per year in opportunity cost fees, by not investing.
Wait, so you can guarantee that if I invest I will make 5% more interest than a long-term savings account? I can get 11.5% p/a for the first 4 months, and 8.25% p/a every month for eternity from then on as long as I deposit more than $200 in my investment account? http://www.ingdirect.com.au/interestrates.htm
You're starting to sound an awful lot like Bernie Madoff.
I don't know where on that site you are getting those numbers from.
Even if you lock 10k into 2 year PTD you are getting 4.1%, not locking it into CDs gets you 2.5% although you can gain 0.5% by making a $200 deposit each month. Also thats Australia, ing runs their US stuff through capitalone360, which is only offering .75%
e: cause seriously, I'd take out a 2nd mortgage on my house if you guaranteed me 8.25%. Hell I have credit cards that only charge 11.
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Donovan PuppyfuckerA dagger in the dark isworth a thousand swords in the morningRegistered Userregular
I'm getting those figures from a real bank, and claims you made. You said that by not investing, I was automatically losing a minimum of 5% growth per annum.
I linked a bank website that shows what kind of figures a person can expect from a long-term savings account, and extrapolated from that and your claims approximately what you think the average investor can expect to achieve from a managed investment fund.
I gotta be straight with you though, if I can easily and without more than a second's thought make 3.25% per annum on my reserve emergency funds and never have to worry about a damn thing because not only is it in about a secure a place as it possibly can be, it's also insured by my government to never go away, the stock market can suck it, long and hard.
If I have a spare $50k sitting around, then that's when I go see a hedge fund guy about makin' some paper.
Australia and its banking(and its rates) is not the US(where OP is from i think) and US's banking. The reserve rate for Zimbabwe is ~15% right now, doesn't mean he should put it into a high yield savings account there.
Even if he wanted to deposit into the AU branch of ING I'd assume that is in AUD. If you are worried about investment risk, keeping your safety net in an entire different currency is insane.
Yeah... in the US most banks give you 0.01% per year. The very best rates are around 0.9% per year.
Also, I don't think $50k is enough to meet the minimum investment of most, if any hedge funds. Especially not if it's $50kAUS :P
$50K AUD = ~$48K USD
OP, all of this hedges on your tolerance for risk. If you're more willing to take risks (aka, lose a significant amount of money due to random market fluctuation), do what hsu and tinwhiskers are saying. If you're not willing to take that risk (and lose a small amount of money [2-3%/year right now] due to inflation), then do what Bowen and Zagdrob are saying.
Don't go putting words in my mouth. I never said invest or not invest. I merely piped up because of all the misinformation that is flying around.
It is obvious to me that there are a ton of people posting, who do not have brokerage accounts, who do not invest, but still feel the need to talk about brokerage accounts and investing. Because their notions of how investing works are stuck in the 1970s, and they missed the changes that occurred in the 2000s, when brokerage firms waged a pricing war (which lowered all their fees, usually to $0, for all non-investment related activities) and expanded their service offerings (to the point where they offer nearly all services that banks offer).
In practice, if you were to put all your money into a brokerage account, closing out your bank account (closing both your checking and savings accounts), you would not notice the difference. Actually, let me take that back, you'd notice the difference for the better, because you now have more investing options available to you, but you would not notice any downside, because there really are none, in actual practice.
The thing, though, is that's no longer really an emergency fund. Emergency is "no matter what happens, I have ~6 months of money stashed away" - i.e., worst case scenario. If you put 10k at a brokerage account, even with no fees it's possible that the stock market takes a 30% dive, and then you get fired... and now your 10k is 7k and you have 4 months instead of 6*. Yes, it requires a decent amount of bad luck (no increase in value beforehand, get fired / need a new car / house catches fire at a market low point), but that's the point of an emergency fund - it's not an emergency fund if it keeps its value 90% of the time, it's "I don't want any chance of living on the street" money.
* which, coincidentally, is basically exactly the situation you'd be in if you started doing this in early 2002 and got fired when the market tanked, which is non-coincidentally when most people would get fired without having a lot of pre-warning (http://en.wikipedia.org/wiki/Stock_market_downturn_of_2002)
I completely agree that once you're past a few months, you're into the territory where investing is a good idea... but index funds are low risk, not zero risk.
I think some of you guys are getting a bit far afield from what the basics are for what the OP would want to know to make informed decisions about investing, and just telling him "do X" or "do Y" without clearly stating what X and Y really mean.
There are a few main categories of things you can do when you "invest", in a non-strict meaning of the word. One is lending money for interest or yield, another is buying parts of companies, a third is buying physical commodities, and then there derivatives, which are contracts that derive their value based on something else. The first two are the most important to understand for a beginner.
With lending money, there are plenty of different options with different levels of risk and different liquidity. Liquidity is how quickly and easily you can get out of an investment without taking a hit for doing so. One of the most basic suggestions here, put the money into a savings account, is just one way to do this, as you are lending money to the bank. In the US and many other nations this is treated as one of the safest things you can do with that money, since there is government backing for your deposit if the bank goes under (FDIC in the US), and it is relatively easy to get that money out to spend it quickly. The trade off is in the current economic environment you are going to get next to nothing in interest. Another alternative lend to the bank is to buy a CD (certificate of deposit), which you sacrifice liquidity for higher yield, as there are penalties for backing out of the CD before the maturity date. Or more in general, you can lend money to governments or companies with bonds, or get a money market account which lends to companies through something called corporate paper. Or you could open a pawn shop...
Anyways, in general with lending the trade off is that the markets demand higher yield for more risk and less liquidity, and less yield for less risk and more liquidity. There is also a direct inverse relationship between the yield on a loan or bond and its current price to sell it in the open market (if you can), so if interest rates go up for a bond you are holding onto now, the present value of it will go down. This change in value due to change in interest rates is one form of risk called interest rate risk, and longer duration bonds will be more sensitive to the same change in yield than short duration bonds, which makes it so longer duration bonds are typically riskier and higher yield than short duration bonds of the same type. Another risk for bonds and loans is default risk, based on the risk that the borrower will not pay interest payments or principle on time or in full, or even at all. Just like an individual can stop paying their mortgage, so too can companies and governments not pay back their bonds. Until recently the US Treasuries were considered either the safest or close to the safest in the world in terms of default risk, but plenty of other countries, like Greece, have had to default and not pay back the bondholders in full. There are other assorted risks, like call risk (associated with some bonds being able to be called back for a set price by the borrower if they so choose) and currency risk (if you have a bonds in a foreign currency), but the previous risks are the main ones that you want to rap your head around and try to understand the math if you want to get into lending out your money to make more money.
Then there's equities like stocks, where you are buying a piece of a corporation. The main purpose of buying stocks for the basic investor is either on the hope that they will appreciate in price after you buy them, or to get dividends from the company. Price appreciation is fairly straightforward to understand on the basic level (buy low, sell high, cash in the difference), but actually doing it successfully and consistently is a completely different story, with probably more written about it than you could read in a lifetime. The other source of money, dividends, is when the company decides to issue a payment to each stockholder for each share they own from the company coffers. You need to be much more careful with dividends from stocks than interest or coupons from bonds or loans, because there is no guarantee that the company will continue to pay the same level of dividends in the future as they are currently, or for them to pay any more dividends at all, since there is nothing outside of market pressures that forces companies to issue dividends. Some stocks can even get into near ponzi scheme territory when it comes to dividends, where they issue a massive and unsustainable level of dividends trying to lure in unsuspecting investors to buy and drive the stock price up, and hope that the markets and regulatory agencies don't catch on.
In general, stocks are a riskier class of investments than bonds (though some bonds are total junk). In some part this is because there is pretty much no guarantee that the stockholders will get anything at all when a company goes under, and generally they'll get nothing as most of the other stakeholders like bondholders come in front of them in line when it comes to loot the company's corpse. The silver lining is that with stocks in corporations you can't lose more than what you put in upfront to buy the stock, as the stock price can't go below zero even though the assets of a failing corporation can be overwhelmed by the liabilities. There are other equities and investment types where you can go below zero, like being a partner in a partnership that doesn't have limited liability, so steer clear of those unless you know what you are doing and can handle being personally on the hook.
To finish up, when folks in these threads often jump on the suggestion "buy a mutual fund or ETF", what those actually are are a mixture of other investments pooled together, and you get a slice of the pie. You will also have to pay a periodic fee, hopefully small, to whoever is running the fund taken out of your investment in it. Since there are tons of different stocks and bonds and other things, there are tons of different mutual funds and ETFs that are collections of different combinations of those things, and some of the funds can even be actively managed and change that mixture over time based on the decisionmaking of whoever is running it. The main upside of such funds is that you dampen the specific risks of the individual parts, like say you'll be more exposed to the risk of BP's stock price tanking because of a big oil spill by holding just BP stock than the same amount of a fund that is a collection of different oil or energy company stocks. This doesn't do anything to mitigate systemic risks that are wider to the sectors being invested in or effects from the overall economy, nor does change the fact that if the fund is full of garbage then the fund will do poorly regardless. Still, if you want to do something dip your toes into stocks and are willing and able to handle the associated risks but don't really understand what you are doing, a major broad ETF or mutual fund isn't a bad choice.
I got a little long winded there, but anyways investment options are good things to try to learn about once you have enough money stored up to actually be able to utilize them. Try to figure out your own tolerance for risk and what sort of timeframe you are investing for, like education for children or buying a house or retirement, and try to make informed decisions the best you can based on those constraints.
People who loan their money when they're not a bank, buy commodity goods like silver/gold/copper (or their derivatives), or buy stocks straight up are the craziest people. Never do that unless you've got money to burn because there's a really good (more than 50% chance) that you will lose it all.
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
People who buy bonds are crazy? There doesn't seem to be any question that rates will only go up and it's just a matter of time, but the bond market is twice the size of the equity market. It's where orgs with shitpiles of money that have to buy quality put their money. I won't touch it since I'll still be working longer than I've been alive, but the few rich people I know have more in bonds than equities.
He's got 100K+ in a 401K. He has plenty of money to invest as it please him. He should keep that 3 months of non-retirement account emergency money liquid. I'm assuming the 401K is fully invested. If not then do that before touching the emergency fund. That money is not available and is tax sheltered and you have time so you can recover from a hit to it. Who has all his money in play at once? That's crazy.
If you're long everything and fully committed and need money for more action, then I would try to read something into that.
in a lot of places you cannot take money out of your 401k unless you get fired or quit
i know my 401k is untouchable unless I don't work for my employer anymore, or i take a loan from it, which would be dumb
if he's young he's already in a high risk mutual fund through his 401k as it is, and yeah it may not outperform the S&P 500 as a whole, but it's pretty fucking good for not having to do anything at all
Who's counselling taking money out of a 401K? I related my experience of borrowing from my 401K cause I was reading some misinformation in the thread. A 401K is not an IRA and is not punitive (other than admin fees and having to pay back on interest) with respect to borrowing from it. While major medical expenses, downpayment on a house, educational expenses, or a "hardship" are usually the reasons why someone chooses to borrow, they are not restrictions imposed by the 401K . I'm not suggesting anyone do it unless they have to, but yes those funds are available for borrowing if you're vested, subject to restrictions like half of the value of it up to $50K. And irritatingly they will likely partially liquidate positions in proportionate amounts to fund the loan even if you have enough in your MM reserves.
Point is if he needs to invest money, he can invest the funds he has in his 401K. He doesn't need to touch his savings.
I'm certainly not counselling to borrow from a tax advantaged account, paying interest and fees to pay back that loan in after tax payroll deductions, to fund a taxable account which he then buys investments with. That doesn't make any sense at all when he can just directly invest the funds in his 401K.
People who loan their money when they're not a bank, buy commodity goods like silver/gold/copper (or their derivatives), or buy stocks straight up are the craziest people. Never do that unless you've got money to burn because there's a really good (more than 50% chance) that you will lose it all.
Buying bonds, or getting bank or money market accounts or CDs are forms of lending money for the purpose of getting interest or yield. This is like, basic finance knowledge. I wasn't recommending that he offer personal loans, but to recommend learning about the category of "lending money for interest" when it comes to investment. There's a wide variety of riskiness and variation of liquidity there, including the safest option being talked about repeatedly so far (a demand account in a bank for a rainy day funds).
That category also tends to be safer than equities on the whole, with the trade off that you are limited in your upside potential. Stocks are not limited in their upside potential. Like I mentioned, long term bonds also tend to be a lot riskier than short term bonds, because a decently likely rise in interest rates will significantly reduce their present value. That is not the same thing as "don't invest in long term bonds", because for certain people in certain situations it still may make sense to do so, such as they want the money in a longer term timeframe and don't need to cash out sooner than their maturity (so interest rate fluctuations won't provide more than an opportunity cost), and are willing to sacrifice the upside potential of equities for a stronger protection against the downside. That's where the whole notion of understanding your own timeframes for when you need money and your personal tolerance for risk is key when deciding a strategy for investment.
Commodities, yes a beginner should stay away from in large part for personal investment. Having a very small amount (<1%) of precious metals isn't absolutely terrible, though probably not recommended for a novice, since they jump around a whole lot in price. Don't listen to the folks who say to shove tons and tons money into gold, etc. But losing it all is a pretty hefty overstatement.
I also left out real estate, one of the biggies in terms of investment, but that is probably something not to worry about now. There's stock in companies that deal with real estate if you are inclined for some reason to get exposure to that beyond just personal habitation.
But my wider beef is, the relatively terse advice to get into mutual funds or ETFs may be a decent idea, but there seems to be little attempt to really get across the notion what the hell those things actually are. What do you think is in them? Typically stocks or bonds, maybe with some extra cash floating around, and maybe even with some derivatives in the mix if the fund manager is trying to get fancy. What do people think they are getting when they are stashing money in the 401K, or the IRA?
Putting money into something that you don't understand is a really good way to lose that money.
Putting money into something that you don't understand is a really good way to lose that money.
With respect, this kernel of wisdom comes off as homespun and a little condescending
401k mutual funds are safe investments and you don't have to fully understand them to make a relatively safe investment
It's harder to understand and properly trade in the stock market as an individual than it is to understand funds available in a 401k account
They have risks to them, just like most everything else. If you don't understand the risks, you won't understand the limits of how poorly or well they can do, or even why they do poorly or well. For the safest stuff it probably doesn't matter that much, but how will a novice know how to determine what is safe and what is not outside of the tiny walled garden they are being put into? Even the safest of stuff being talked about, bank accounts, has a risk that can make you lose principal: the financial system or government backing them falls apart. That may not be likely enough where you are living to make it something worth worrying about, but for quite a few places in the world and for quite a lot of history of banking that was a very major concern. If you had your money in Cyprus banks not too long ago, you could have lost a decent chunk of it, even just as a depositor.
A bunch of the advice being given out here is just heuristics and homespun wisdom. Frankly, I really don't think it is appropriate to tell the OP to "invest in this" or "invest in that" beyond the basic level of having a rainy day fund and buffers against emergency, for the simple reason we don't have enough information about their financial goals and timeframes, risk tolerance, and overall situation to make an assessment for them. That's even if we were capable of giving a rational assessment when provided that information. I'd say it is far better to give pointers on what choices there are out there, and what sort of things to consider, so they can try to form a better understanding and make more educated decisions for themselves. Having that understanding is useful even if you do seek out professional help, because you'll want to know how to be able to assess your own financial goals, whether the professional is really helping you meet those goals or not, or even if that professional is really worth their salt.
I'm just really rubbed the wrong way by the attitude of "do this" that is strictly opposing "try to understand what these things are" that has been coming across some so far. I'm not a certified financial advisor, but if I was I'd probably be doing an awful job of it, and maybe even breaching ethical standards, if I just told someone I was advising to just "do this" without trying to educate them what that recommendation really meant and what the potential consequences of it were. Random folks on a gaming message board probably don't rise to that standard, but that does mean that there are no guarantees at all to the quality of our advice on what to do.
Edit: as an aside about the particular thing about "not understanding something", it has been the case that some financial stuff is designed not to be well understood by the people dealing in it, through obfuscation and excessively complicated math. It has reached borderline scam levels, and some places the point of being an outright scam, in quite a few places the financial sector, which is a factor that helped contribute to the financial meltdown that ticked off our current economic downturn. If nothing else, you need to be careful and try to understand what you put your money into in general, because there are con men out there who make their living separating fools from their money. Relying on someone's reputation is not necessarily good enough, and wasn't good enough for the people who had their money with Bernie Madoff.
People who loan their money when they're not a bank, buy commodity goods like silver/gold/copper (or their derivatives), or buy stocks straight up are the craziest people. Never do that unless you've got money to burn because there's a really good (more than 50% chance) that you will lose it all.
Buying bonds, or getting bank or money market accounts or CDs are forms of lending money for the purpose of getting interest or yield. This is like, basic finance knowledge. I wasn't recommending that he offer personal loans, but to recommend learning about the category of "lending money for interest" when it comes to investment. There's a wide variety of riskiness and variation of liquidity there, including the safest option being talked about repeatedly so far (a demand account in a bank for a rainy day funds).
That category also tends to be safer than equities on the whole, with the trade off that you are limited in your upside potential. Stocks are not limited in their upside potential. Like I mentioned, long term bonds also tend to be a lot riskier than short term bonds, because a decently likely rise in interest rates will significantly reduce their present value. That is not the same thing as "don't invest in long term bonds", because for certain people in certain situations it still may make sense to do so, such as they want the money in a longer term timeframe and don't need to cash out sooner than their maturity (so interest rate fluctuations won't provide more than an opportunity cost), and are willing to sacrifice the upside potential of equities for a stronger protection against the downside. That's where the whole notion of understanding your own timeframes for when you need money and your personal tolerance for risk is key when deciding a strategy for investment.
Commodities, yes a beginner should stay away from in large part for personal investment. Having a very small amount (<1%) of precious metals isn't absolutely terrible, though probably not recommended for a novice, since they jump around a whole lot in price. Don't listen to the folks who say to shove tons and tons money into gold, etc. But losing it all is a pretty hefty overstatement.
I also left out real estate, one of the biggies in terms of investment, but that is probably something not to worry about now. There's stock in companies that deal with real estate if you are inclined for some reason to get exposure to that beyond just personal habitation.
But my wider beef is, the relatively terse advice to get into mutual funds or ETFs may be a decent idea, but there seems to be little attempt to really get across the notion what the hell those things actually are. What do you think is in them? Typically stocks or bonds, maybe with some extra cash floating around, and maybe even with some derivatives in the mix if the fund manager is trying to get fancy. What do people think they are getting when they are stashing money in the 401K, or the IRA?
Putting money into something that you don't understand is a really good way to lose that money.
I understand someone who took economics in college and is probably minoring in it or uses it as their hobby, knows a lot about investing.
But all of the advice of commodities, precious metals, and personal stock trading are really terrible advice in general, bro.
It is pretty much tantamount to gambling unless it's your full time job. I'm really sorry you disagree, but that is straight up how that shit works for people who "Need to invest stagnant money." Also, real estate, yeah, great investment!
All of those need you to know what you're doing, and know it well.
You know what doesn't need quite so much? Funds. That's why it's often "terse" and the most given advice in investing. Anyone who starts looking into commodity goods or stocks personally is looking at losing the bulk of their investment overnight.
bowen on
not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
I think it's time for another personal finance thread in D&D. I'd love to argue about asset allocation and learn about different classes of investments, but this thread isn't really the place for it.
For the OP: the question of where to put your emergency fund dollars is a pretty minor one. A few grand--however carefully invested--is not going to grow into the down payment on a house in a timeframe that's relevant to you. If you want to eventually buy a house or an airplane or whatever it is, you need to look into saving more. You have to find a way to make your expenses less than your income.
People who loan their money when they're not a bank, buy commodity goods like silver/gold/copper (or their derivatives), or buy stocks straight up are the craziest people. Never do that unless you've got money to burn because there's a really good (more than 50% chance) that you will lose it all.
Buying bonds, or getting bank or money market accounts or CDs are forms of lending money for the purpose of getting interest or yield. This is like, basic finance knowledge. I wasn't recommending that he offer personal loans, but to recommend learning about the category of "lending money for interest" when it comes to investment. There's a wide variety of riskiness and variation of liquidity there, including the safest option being talked about repeatedly so far (a demand account in a bank for a rainy day funds).
That category also tends to be safer than equities on the whole, with the trade off that you are limited in your upside potential. Stocks are not limited in their upside potential. Like I mentioned, long term bonds also tend to be a lot riskier than short term bonds, because a decently likely rise in interest rates will significantly reduce their present value. That is not the same thing as "don't invest in long term bonds", because for certain people in certain situations it still may make sense to do so, such as they want the money in a longer term timeframe and don't need to cash out sooner than their maturity (so interest rate fluctuations won't provide more than an opportunity cost), and are willing to sacrifice the upside potential of equities for a stronger protection against the downside. That's where the whole notion of understanding your own timeframes for when you need money and your personal tolerance for risk is key when deciding a strategy for investment.
Commodities, yes a beginner should stay away from in large part for personal investment. Having a very small amount (<1%) of precious metals isn't absolutely terrible, though probably not recommended for a novice, since they jump around a whole lot in price. Don't listen to the folks who say to shove tons and tons money into gold, etc. But losing it all is a pretty hefty overstatement.
I also left out real estate, one of the biggies in terms of investment, but that is probably something not to worry about now. There's stock in companies that deal with real estate if you are inclined for some reason to get exposure to that beyond just personal habitation.
But my wider beef is, the relatively terse advice to get into mutual funds or ETFs may be a decent idea, but there seems to be little attempt to really get across the notion what the hell those things actually are. What do you think is in them? Typically stocks or bonds, maybe with some extra cash floating around, and maybe even with some derivatives in the mix if the fund manager is trying to get fancy. What do people think they are getting when they are stashing money in the 401K, or the IRA?
Putting money into something that you don't understand is a really good way to lose that money.
I understand someone who took economics in college and is probably minoring in it or uses it as their hobby, knows a lot about investing.
But all of the advice of commodities, precious metals, and personal stock trading are really terrible advice in general, bro.
It is pretty much tantamount to gambling unless it's your full time job. I'm really sorry you disagree, but that is straight up how that shit works for people who "Need to invest stagnant money." Also, real estate, yeah, great investment!
All of those need you to know what you're doing, and know it well.
You know what doesn't need quite so much? Funds. That's why it's often "terse" and the most given advice in investing. Anyone who starts looking into commodity goods or stocks personally is looking at losing the bulk of their investment overnight.
Alright, I'm going to be frank, you don't seem to know what you are talking about, because you don't seem to be either willing or able to understand what I'm saying. I'm not recommending loading up on individual stocks, or putting all your money into gold, I'm just mentioning that they are there, and trying to give a better background for what they are to understand investment options in general. Because when you buy funds, what you are buying is a collection of other things, often stocks or bonds.
So if you want to have a clue what you are doing buying funds, you need to have at least an inkling of the constituent parts of funds, as there are tons and tons of different funds out there and you'll have to decide which ones to pick. It also pays to understand why you want a collection of different things, like you get in a fund, as opposed to just putting a bunch of your money into individual equities or whatnot. You have picked up on the fact that is probably a good idea to diversify and have a mixture, like you get through funds, but do you really know why, mathematically? Your response and your misuse of other financial terms like liquidity suggests otherwise. It is to reduce, but not eliminate, the unsystemic or idiosyncratic risks from the individual investments, but does not and cannot eliminate wider systemic risks to the overall markets or sectors or whatnot that affect those investments. If you do something basic like buying an index ETF to track one of the major indicies, you are still exposed to all the systemic risks that will cause that selection of stocks fluctuate upwards and downwards. I already gave the example of this with BP stock.
There is a lot of really poorly informed advice in this thread. I mean, when I give advice like "educate yourself on the topic" and it is somehow construed as "plug a ton of money into precious metals and individual stocks", things have really started to go off the rails. I'm not sure if it is "getting legal advice from non-lawyers" bad, but it is starting to seem like that to me.
My wife and I also noted that we had a lot of cash sitting in a savings account and only a mortgage in terms of carry-over debt, so I was very interested in what contributors to this thread had to say. After reading through it all I've decided to schedule some time with a financial adviser. This stuff is feels too personal in terms of expectations and goals.
Posts
6 months living expenses as savings in a different bank account to your regular transaction account, anything more than that you invest.
Why is this so difficult to grasp?
Because sitting on a large pile of cash is counter productive due to inflation. Especially given the triviality of liquidating most investments, and the ease of diversifying. I linked the betterment view of this on the previous page. Basically you would be better of investing 8 months of living expenses. As even in their worst drop-off observed scenario you would have still had 6 months of expenses remaining, and would in general be earning 5% on it.
Even if you just invest the 6 months figure, you will reach the 8 month figure in ~5 years with no further contributions, where 2% inflation will eat half of month+ of it away. Over a decade the difference between investing the 6 months vs sitting it in a bank is 5 months worth of expenses. At 12 years, its the 6 months of expenses. By not investing it, your 12 year sit on that pile of money has cost you the equivalent of that entire pile of money.
The reason I pick six months is because not everything is a slow cost. If your car blew up tomorrow how easily would your emergency fund die? Would you fuck yourself over because you had to get a shitty car or get a shitty loan? It pays to have money on hand. While stocks give you a little leeway, your gains will get fucked, and you'll have to pay someone to get your money back. Does it work out for you? Maybe. But that's why I gave such a high number for investments. If you're dropping $1000 into some stocks, you are going to lose money in an emergency, not just losing imagined money because "lolinflation", you will lose more than your investment in fees.
If you were to ever listen to any of my advice ever, this would be the one to listen to.
Because it's trivial to take money out of a brokerage account these days: you can write checks or use a credit card, compatible with Visa/Mastercard machines. In addition, you are given a few days to "make your account whole", meaning that you could withdraw the money on Friday, and sell your stocks on Tuesday, after a long holiday weekend, to cover your withdrawal.
Obviously, there are certain limits on how much you withdraw, if you don't have cash-equivalents in your brokerage account, but generally speaking, you can withdraw anywhere from 10% to 20% of your account immediately, and worry about selling stocks to cover that next week. If you need more money than that immediately, you are being extorted or scammed, because any legit company gives you plenty of notice that they want their money. And it should go without saying, if you have a few days to come up with the money, you can always sell your stocks first, and all of the cash from that sale is available to be withdrawn by the next business day.
As for fees on stock purchases, you typically pay $8 to $12 per transaction (per buy order or per sell order). The fee is high enough that you should buy/sell in $1000+ increments, but it's not a harsh fee. But that's just standard investment advice: buy and sell in large enough chunks that the fee is under 1%. For a beginning investor, this really means sticking to index stocks, like SPX (S&P 500), which are the safest things to buy with small amounts of capital.
Alternately, a beginning investor could purchase mutual funds, ones without transaction fees (they make their money via an annual fee). An example is the Vanguard 500 Index, a mutual fund that mirrors the S&P 500. It has zero transaction fees, but charges you 0.17% of your investment as an annual fee (that's a $17/year fee for every $10,000 invested in the fund). This lets you buy and sell anytime you want without worrying about transaction costs.
Are there downsides to brokerage accounts as your emergency fund? Yes, but they all relate to taxes and record keeping. Making money? The IRS wants a cut. Losing money? You need to prove it to the IRS. But otherwise, a brokerage account could easily be your emergency account.
None of us has said that you shouldn't put spare money into investments.
In fact, we all think that's a great idea.
It's just that, for sheer simplicity, lack of stress, and ease of access while avoiding fees, keeping 6 months living expenses in a savings account is the easy and pain-free way to do it. Get fired on grocery day? Just take out some money from the ATM. No need to try and contact your broker at 7 p.m., no fees to pay, just your money in your hand instantly.
he is not the ideal customer for getting into stocks or funds or anything
A) because he would have to commit half his savings just to start an account
My advice to the OP is to keep saving until you can get into a high yield savings account (which is still a very very low yield), and just put it there. Typically you need 10k to get one of those. Or maybe a money market account or something
Whatever it is, do it with your bank or *a* bank. Do not get into stocks.
And will happily charge you much higher fees than a bank to do so.
And we are back to my "Needing $10,000" investment comment. All those fees add up quickly. The fees on normal banks are bad enough to eat into any high yield stocks themselves, let alone for people with less than $50k.
Let's take Fidelity as an example of a typical fee structure.
Transaction fee to pay bills online: $0
Transaction fee to buy a fee-less mutual fund (of which there are thousands): $0
Transaction fee to sell a fee-less mutual fund: $0
Annual fee for the brokerage account itself (not including any investments): $0
Initiation fee to open a brokerage account: $0
Transaction fee to write a check: $0
Transaction fee to use a Fidelity Visa card at an ATM to withdraw cash: $0
Transaction fee to use a Fidelity Visa card at a store: $0
Annual fee for their Visa card: $0
Don't believe me? Just go to Fidelity's website. It's all there. TD Waterhouse is the same. I'm sure other brokerages are the same, as it's a competitive industry. If the typical cost of your brokerage account, not including investments, is more than zero dollars per year, you need to switch companies.
if he were putting away $500 a month I'd be right there with you
but from the sounds of it he's putting away more like $50 a month
It doesn't really matter if all your spending money, retirement money, emergency fund, and risk money are all in one account. If you roll your emergency fund into investment then that changes what it is. It is no longer a pile of cash to pay for your new transmission or furnace/A/C, or emergency medical bills, or rent/electricity/water if you lose your job. It's something that you could be long or short on and that affects the way you think about whether or not you can us (spend) it.
If you're talented and disciplined enough such that investing your e-fund gives you significant returns and you can manage your risks with respect to liquidity, go ahead. But you're probably not looking for advice on how to manage your money. Personally I'm not so hard up that I cannot have $10-20K in the bank not earning anything, and I appreciate the peace of mind of not having to manage it and it being completely available.
Wait, so you can guarantee that if I invest I will make 5% more interest than a long-term savings account? I can get 11.5% p/a for the first 4 months, and 8.25% p/a every month for eternity from then on as long as I deposit more than $200 in my investment account? http://www.ingdirect.com.au/interestrates.htm
You're starting to sound an awful lot like Bernie Madoff.
Even if you lock 10k into 2 year PTD you are getting 4.1%, not locking it into CDs gets you 2.5% although you can gain 0.5% by making a $200 deposit each month. Also thats Australia, ing runs their US stuff through capitalone360, which is only offering .75%
e: cause seriously, I'd take out a 2nd mortgage on my house if you guaranteed me 8.25%. Hell I have credit cards that only charge 11.
I linked a bank website that shows what kind of figures a person can expect from a long-term savings account, and extrapolated from that and your claims approximately what you think the average investor can expect to achieve from a managed investment fund.
I gotta be straight with you though, if I can easily and without more than a second's thought make 3.25% per annum on my reserve emergency funds and never have to worry about a damn thing because not only is it in about a secure a place as it possibly can be, it's also insured by my government to never go away, the stock market can suck it, long and hard.
If I have a spare $50k sitting around, then that's when I go see a hedge fund guy about makin' some paper.
Even if he wanted to deposit into the AU branch of ING I'd assume that is in AUD. If you are worried about investment risk, keeping your safety net in an entire different currency is insane.
Also, I don't think $50k is enough to meet the minimum investment of most, if any hedge funds. Especially not if it's $50kAUS :P
$50K AUD = ~$48K USD
OP, all of this hedges on your tolerance for risk. If you're more willing to take risks (aka, lose a significant amount of money due to random market fluctuation), do what hsu and tinwhiskers are saying. If you're not willing to take that risk (and lose a small amount of money [2-3%/year right now] due to inflation), then do what Bowen and Zagdrob are saying.
It is obvious to me that there are a ton of people posting, who do not have brokerage accounts, who do not invest, but still feel the need to talk about brokerage accounts and investing. Because their notions of how investing works are stuck in the 1970s, and they missed the changes that occurred in the 2000s, when brokerage firms waged a pricing war (which lowered all their fees, usually to $0, for all non-investment related activities) and expanded their service offerings (to the point where they offer nearly all services that banks offer).
In practice, if you were to put all your money into a brokerage account, closing out your bank account (closing both your checking and savings accounts), you would not notice the difference. Actually, let me take that back, you'd notice the difference for the better, because you now have more investing options available to you, but you would not notice any downside, because there really are none, in actual practice.
* which, coincidentally, is basically exactly the situation you'd be in if you started doing this in early 2002 and got fired when the market tanked, which is non-coincidentally when most people would get fired without having a lot of pre-warning (http://en.wikipedia.org/wiki/Stock_market_downturn_of_2002)
I completely agree that once you're past a few months, you're into the territory where investing is a good idea... but index funds are low risk, not zero risk.
There are a few main categories of things you can do when you "invest", in a non-strict meaning of the word. One is lending money for interest or yield, another is buying parts of companies, a third is buying physical commodities, and then there derivatives, which are contracts that derive their value based on something else. The first two are the most important to understand for a beginner.
With lending money, there are plenty of different options with different levels of risk and different liquidity. Liquidity is how quickly and easily you can get out of an investment without taking a hit for doing so. One of the most basic suggestions here, put the money into a savings account, is just one way to do this, as you are lending money to the bank. In the US and many other nations this is treated as one of the safest things you can do with that money, since there is government backing for your deposit if the bank goes under (FDIC in the US), and it is relatively easy to get that money out to spend it quickly. The trade off is in the current economic environment you are going to get next to nothing in interest. Another alternative lend to the bank is to buy a CD (certificate of deposit), which you sacrifice liquidity for higher yield, as there are penalties for backing out of the CD before the maturity date. Or more in general, you can lend money to governments or companies with bonds, or get a money market account which lends to companies through something called corporate paper. Or you could open a pawn shop...
Anyways, in general with lending the trade off is that the markets demand higher yield for more risk and less liquidity, and less yield for less risk and more liquidity. There is also a direct inverse relationship between the yield on a loan or bond and its current price to sell it in the open market (if you can), so if interest rates go up for a bond you are holding onto now, the present value of it will go down. This change in value due to change in interest rates is one form of risk called interest rate risk, and longer duration bonds will be more sensitive to the same change in yield than short duration bonds, which makes it so longer duration bonds are typically riskier and higher yield than short duration bonds of the same type. Another risk for bonds and loans is default risk, based on the risk that the borrower will not pay interest payments or principle on time or in full, or even at all. Just like an individual can stop paying their mortgage, so too can companies and governments not pay back their bonds. Until recently the US Treasuries were considered either the safest or close to the safest in the world in terms of default risk, but plenty of other countries, like Greece, have had to default and not pay back the bondholders in full. There are other assorted risks, like call risk (associated with some bonds being able to be called back for a set price by the borrower if they so choose) and currency risk (if you have a bonds in a foreign currency), but the previous risks are the main ones that you want to rap your head around and try to understand the math if you want to get into lending out your money to make more money.
Then there's equities like stocks, where you are buying a piece of a corporation. The main purpose of buying stocks for the basic investor is either on the hope that they will appreciate in price after you buy them, or to get dividends from the company. Price appreciation is fairly straightforward to understand on the basic level (buy low, sell high, cash in the difference), but actually doing it successfully and consistently is a completely different story, with probably more written about it than you could read in a lifetime. The other source of money, dividends, is when the company decides to issue a payment to each stockholder for each share they own from the company coffers. You need to be much more careful with dividends from stocks than interest or coupons from bonds or loans, because there is no guarantee that the company will continue to pay the same level of dividends in the future as they are currently, or for them to pay any more dividends at all, since there is nothing outside of market pressures that forces companies to issue dividends. Some stocks can even get into near ponzi scheme territory when it comes to dividends, where they issue a massive and unsustainable level of dividends trying to lure in unsuspecting investors to buy and drive the stock price up, and hope that the markets and regulatory agencies don't catch on.
In general, stocks are a riskier class of investments than bonds (though some bonds are total junk). In some part this is because there is pretty much no guarantee that the stockholders will get anything at all when a company goes under, and generally they'll get nothing as most of the other stakeholders like bondholders come in front of them in line when it comes to loot the company's corpse. The silver lining is that with stocks in corporations you can't lose more than what you put in upfront to buy the stock, as the stock price can't go below zero even though the assets of a failing corporation can be overwhelmed by the liabilities. There are other equities and investment types where you can go below zero, like being a partner in a partnership that doesn't have limited liability, so steer clear of those unless you know what you are doing and can handle being personally on the hook.
To finish up, when folks in these threads often jump on the suggestion "buy a mutual fund or ETF", what those actually are are a mixture of other investments pooled together, and you get a slice of the pie. You will also have to pay a periodic fee, hopefully small, to whoever is running the fund taken out of your investment in it. Since there are tons of different stocks and bonds and other things, there are tons of different mutual funds and ETFs that are collections of different combinations of those things, and some of the funds can even be actively managed and change that mixture over time based on the decisionmaking of whoever is running it. The main upside of such funds is that you dampen the specific risks of the individual parts, like say you'll be more exposed to the risk of BP's stock price tanking because of a big oil spill by holding just BP stock than the same amount of a fund that is a collection of different oil or energy company stocks. This doesn't do anything to mitigate systemic risks that are wider to the sectors being invested in or effects from the overall economy, nor does change the fact that if the fund is full of garbage then the fund will do poorly regardless. Still, if you want to do something dip your toes into stocks and are willing and able to handle the associated risks but don't really understand what you are doing, a major broad ETF or mutual fund isn't a bad choice.
I got a little long winded there, but anyways investment options are good things to try to learn about once you have enough money stored up to actually be able to utilize them. Try to figure out your own tolerance for risk and what sort of timeframe you are investing for, like education for children or buying a house or retirement, and try to make informed decisions the best you can based on those constraints.
He's got 100K+ in a 401K. He has plenty of money to invest as it please him. He should keep that 3 months of non-retirement account emergency money liquid. I'm assuming the 401K is fully invested. If not then do that before touching the emergency fund. That money is not available and is tax sheltered and you have time so you can recover from a hit to it. Who has all his money in play at once? That's crazy.
If you're long everything and fully committed and need money for more action, then I would try to read something into that.
unless his life is wildly stable
it sounds like he's one flat tire and an ER trip away from not even needing this thread anymore
he does not have "plenty of money to invest"
he has a couple of months worth of rent in the bank
o_O
i know my 401k is untouchable unless I don't work for my employer anymore, or i take a loan from it, which would be dumb
if he's young he's already in a high risk mutual fund through his 401k as it is, and yeah it may not outperform the S&P 500 as a whole, but it's pretty fucking good for not having to do anything at all
Point is if he needs to invest money, he can invest the funds he has in his 401K. He doesn't need to touch his savings.
I'm certainly not counselling to borrow from a tax advantaged account, paying interest and fees to pay back that loan in after tax payroll deductions, to fund a taxable account which he then buys investments with. That doesn't make any sense at all when he can just directly invest the funds in his 401K.
Buying bonds, or getting bank or money market accounts or CDs are forms of lending money for the purpose of getting interest or yield. This is like, basic finance knowledge. I wasn't recommending that he offer personal loans, but to recommend learning about the category of "lending money for interest" when it comes to investment. There's a wide variety of riskiness and variation of liquidity there, including the safest option being talked about repeatedly so far (a demand account in a bank for a rainy day funds).
That category also tends to be safer than equities on the whole, with the trade off that you are limited in your upside potential. Stocks are not limited in their upside potential. Like I mentioned, long term bonds also tend to be a lot riskier than short term bonds, because a decently likely rise in interest rates will significantly reduce their present value. That is not the same thing as "don't invest in long term bonds", because for certain people in certain situations it still may make sense to do so, such as they want the money in a longer term timeframe and don't need to cash out sooner than their maturity (so interest rate fluctuations won't provide more than an opportunity cost), and are willing to sacrifice the upside potential of equities for a stronger protection against the downside. That's where the whole notion of understanding your own timeframes for when you need money and your personal tolerance for risk is key when deciding a strategy for investment.
Commodities, yes a beginner should stay away from in large part for personal investment. Having a very small amount (<1%) of precious metals isn't absolutely terrible, though probably not recommended for a novice, since they jump around a whole lot in price. Don't listen to the folks who say to shove tons and tons money into gold, etc. But losing it all is a pretty hefty overstatement.
I also left out real estate, one of the biggies in terms of investment, but that is probably something not to worry about now. There's stock in companies that deal with real estate if you are inclined for some reason to get exposure to that beyond just personal habitation.
But my wider beef is, the relatively terse advice to get into mutual funds or ETFs may be a decent idea, but there seems to be little attempt to really get across the notion what the hell those things actually are. What do you think is in them? Typically stocks or bonds, maybe with some extra cash floating around, and maybe even with some derivatives in the mix if the fund manager is trying to get fancy. What do people think they are getting when they are stashing money in the 401K, or the IRA?
Putting money into something that you don't understand is a really good way to lose that money.
With respect, this kernel of wisdom comes off as homespun and a little condescending
401k mutual funds are safe investments and you don't have to fully understand them to make a relatively safe investment
It's harder to understand and properly trade in the stock market as an individual than it is to understand funds available in a 401k account
They have risks to them, just like most everything else. If you don't understand the risks, you won't understand the limits of how poorly or well they can do, or even why they do poorly or well. For the safest stuff it probably doesn't matter that much, but how will a novice know how to determine what is safe and what is not outside of the tiny walled garden they are being put into? Even the safest of stuff being talked about, bank accounts, has a risk that can make you lose principal: the financial system or government backing them falls apart. That may not be likely enough where you are living to make it something worth worrying about, but for quite a few places in the world and for quite a lot of history of banking that was a very major concern. If you had your money in Cyprus banks not too long ago, you could have lost a decent chunk of it, even just as a depositor.
A bunch of the advice being given out here is just heuristics and homespun wisdom. Frankly, I really don't think it is appropriate to tell the OP to "invest in this" or "invest in that" beyond the basic level of having a rainy day fund and buffers against emergency, for the simple reason we don't have enough information about their financial goals and timeframes, risk tolerance, and overall situation to make an assessment for them. That's even if we were capable of giving a rational assessment when provided that information. I'd say it is far better to give pointers on what choices there are out there, and what sort of things to consider, so they can try to form a better understanding and make more educated decisions for themselves. Having that understanding is useful even if you do seek out professional help, because you'll want to know how to be able to assess your own financial goals, whether the professional is really helping you meet those goals or not, or even if that professional is really worth their salt.
I'm just really rubbed the wrong way by the attitude of "do this" that is strictly opposing "try to understand what these things are" that has been coming across some so far. I'm not a certified financial advisor, but if I was I'd probably be doing an awful job of it, and maybe even breaching ethical standards, if I just told someone I was advising to just "do this" without trying to educate them what that recommendation really meant and what the potential consequences of it were. Random folks on a gaming message board probably don't rise to that standard, but that does mean that there are no guarantees at all to the quality of our advice on what to do.
Edit: as an aside about the particular thing about "not understanding something", it has been the case that some financial stuff is designed not to be well understood by the people dealing in it, through obfuscation and excessively complicated math. It has reached borderline scam levels, and some places the point of being an outright scam, in quite a few places the financial sector, which is a factor that helped contribute to the financial meltdown that ticked off our current economic downturn. If nothing else, you need to be careful and try to understand what you put your money into in general, because there are con men out there who make their living separating fools from their money. Relying on someone's reputation is not necessarily good enough, and wasn't good enough for the people who had their money with Bernie Madoff.
I understand someone who took economics in college and is probably minoring in it or uses it as their hobby, knows a lot about investing.
But all of the advice of commodities, precious metals, and personal stock trading are really terrible advice in general, bro.
It is pretty much tantamount to gambling unless it's your full time job. I'm really sorry you disagree, but that is straight up how that shit works for people who "Need to invest stagnant money." Also, real estate, yeah, great investment!
All of those need you to know what you're doing, and know it well.
You know what doesn't need quite so much? Funds. That's why it's often "terse" and the most given advice in investing. Anyone who starts looking into commodity goods or stocks personally is looking at losing the bulk of their investment overnight.
For the OP: the question of where to put your emergency fund dollars is a pretty minor one. A few grand--however carefully invested--is not going to grow into the down payment on a house in a timeframe that's relevant to you. If you want to eventually buy a house or an airplane or whatever it is, you need to look into saving more. You have to find a way to make your expenses less than your income.
Alright, I'm going to be frank, you don't seem to know what you are talking about, because you don't seem to be either willing or able to understand what I'm saying. I'm not recommending loading up on individual stocks, or putting all your money into gold, I'm just mentioning that they are there, and trying to give a better background for what they are to understand investment options in general. Because when you buy funds, what you are buying is a collection of other things, often stocks or bonds.
So if you want to have a clue what you are doing buying funds, you need to have at least an inkling of the constituent parts of funds, as there are tons and tons of different funds out there and you'll have to decide which ones to pick. It also pays to understand why you want a collection of different things, like you get in a fund, as opposed to just putting a bunch of your money into individual equities or whatnot. You have picked up on the fact that is probably a good idea to diversify and have a mixture, like you get through funds, but do you really know why, mathematically? Your response and your misuse of other financial terms like liquidity suggests otherwise. It is to reduce, but not eliminate, the unsystemic or idiosyncratic risks from the individual investments, but does not and cannot eliminate wider systemic risks to the overall markets or sectors or whatnot that affect those investments. If you do something basic like buying an index ETF to track one of the major indicies, you are still exposed to all the systemic risks that will cause that selection of stocks fluctuate upwards and downwards. I already gave the example of this with BP stock.
There is a lot of really poorly informed advice in this thread. I mean, when I give advice like "educate yourself on the topic" and it is somehow construed as "plug a ton of money into precious metals and individual stocks", things have really started to go off the rails. I'm not sure if it is "getting legal advice from non-lawyers" bad, but it is starting to seem like that to me.