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Help me invest my money
Marty81
Registered User regular
Registered User regular
I recently started a job that pays pretty well. Unfortunately they don't have anything set up for retirement, so I'm on my own for that. I'm still young, single, and childless, and at the moment I make significantly more than I need. I'd like to invest that surplus now. I need to set up both short-term (saving for a house) and long-term (retirement) investments. I should mention that my long-term investments don't have to go into accounts that I can't touch until retirement, but I'd be fine if they did.
What are my options?
As far as FDIC insured stuff, the best I'm seeing are some CD's at about 3.5% annual. That will pretty much just barely beat inflation. Big deal. I'd like to get more. What should I know about the market right now, what options do I have that carry higher rates of return, and what are their risks? Also, I'm not looking to play markets daily on my own or anything like that - I don't have time for that. I'm looking for low-maintenance investment options here. Can I get 7% annual on my long-term investments?
What are my options?
As far as FDIC insured stuff, the best I'm seeing are some CD's at about 3.5% annual. That will pretty much just barely beat inflation. Big deal. I'd like to get more. What should I know about the market right now, what options do I have that carry higher rates of return, and what are their risks? Also, I'm not looking to play markets daily on my own or anything like that - I don't have time for that. I'm looking for low-maintenance investment options here. Can I get 7% annual on my long-term investments?
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Look into whether or not your employer provides a 401k, and if so whether they do any matching at all. If yes, do that.
If no, I'd probably just set up a meeting for a financial planner. They will be much more likely to give you good advice related to your financial situation. It's free, they get kickbacks from the companies you use to do the actual investing.
I agree with this advice. Also, some financial planners get paid off of commissions on what investment products they sell and thus charge no fees, try to find one that just charges a flat fee. It will be harder to find one like that, but the advice is more likely to be unbiased and you'll avoid a lot of the fees.
First, I'd go with a Roth IRA for your retirement, and put the maximum in every month if you can.
Second, anything you don't spend goes into a bank account- you need to start building an emergency fund in case life throws you a problem. If you buy a house with no money in the bank, then you get into a car wreck and get so hurt you can't work, then you'll end up losing the house AND have some big-ass medical bills riding your back.
Third, NOW you start saving for a house. I will admit, it IS a buyer's market in housing right now. Go big, but don't go insane. Figure out what size house and what area you want, then start saving. It's a good idea to put 20% down on a house, and go with a fixed-rate mortgage. Loans ARE kind of tight right now with all the mortgage defaults, but if you plan to live in the house for a while (i.e., you won't end up fucking them over and abandoning the mortgage), you could end up with a nice loan.
I can has cheezburger, yes?
Nope.
They don't. I'm on my own for that, so I need advice :P
Good advice. I've got regular checking/savings accounts set up and I plan to keep $4-5k spread out between them after investments. Is that a good number?
True. That's the plan. I won't be buying for another couple of years though.
I can has cheezburger, yes?
A low-risk investment (like something from Vanguard) is one where you are basically hands-off and can expect 6-12% ROI annually.
I'm personally the type of guy that takes low-risk, hands-off investments. I went with a Vanguard stock market investment, with 60% of my investment divided into small, mid, and hi cap US stocks, and 40% into the world market (outside of US). It was my way of planning for the inevitable ups and downs - while one thing is down, another is up.
It isn't a get-rich-quick scheme, but it allows me to focus on other things while I'm still making money.
Regardless, you need to speak with a professional who can understand your wants and needs and translate them into a profitable plan. Going through more than one is usually a good idea, especially if this is something you don't know much about.
On the topic of houses: this is a buyer's market, but talking to most of the bankers I work with, it is not necessarily a market where you're going to get a great mortgage. You may have noticed a lot of banks and lenders are getting burned right now? The ones that are surviving are adjusting to some much more conservative lending practices. Many banks won't even talk to you right now if you have a payment in hand equal to 10% of the total value you're willing to spend on a home--in some markets, that means having $100k in the bank already.
General advice for savings vehicles:
1. Mutual funds are great because they're easier for you to manage as an individual while retaining the expertise of money managers who have a lot more time to follow various industries than you do. They also are a lot better at encouraging a "buy and hold" strategy over time, rather than the sort of daily dabbling that sometimes works but more often leads to people not making any significant gains. Only invest in the market if you're willing to leave your money alone for five years. I invest with Charles Schwab, as does everyone else in my family, and I can say to you truthfully: you get the same quality customer service if you're a smaller investor that you would get if you're a multi-millionaire.*
2. CDs are a great short-to-medium term investment vehicle for a fixed-rate of return that is usually FDIC insured. If you have some money that you don't need to keep liquid but that you might need to come back to in 9-12 months, put it in a CD.
3. Money markets are usually safe places to keep your money on a day to day basis because you get a decent rate of return on them but can withdraw at any time (allowing for one business day to complete a transaction). I saw "usually safe" because just today, one of the larger money markets managed to "break the buck," which occurs when a dollar on the market is worth less than one dollar (a crazy concept that's supposed to be next-to-impossible). The market in question had a lot of exposure with AIG, is why it got so cocked up.
*since I own shares here, I'm supposed to be ethically responsible and tell you that I'm an interested party in their affairs, which you should consider before taking my advice.
I would park everything you don't need right at this moment in a place where it's not collecting dust. Take a look at the ING Direct Orange Savings account for 3% APY, which has high liquidity. However, I would keep enough money in your checking account if any emergency pops up, because the ING Orange takes a couple days to deposit and withdraw (I think.) Also, make sure you mention someone (that already has an account) as a reference! Free money!
Once your money is parked for the moment, you can check out some higher interest ventures. ING just started an 18-month CD with 4.5% APY, but you might be able to find something that better suits your needs. I think the higher rate in CDs is not worth the loss of liquidity, especially if you're putting less in less than 10k for a few months.
Definitely check out the Roth IRA if your employer does not offer a 401(k) or pension, which are becoming rarer recently. Then you can take the time and hunt for the best investment ventures, after you get the banking out of the way first.
Let 'em eat fucking pineapples!
One thing I would recommend after it using it successfully this past week would be to have at least $500 in cash somewhere in your house. When things like hurricanes hit you don't have access to ATMs and having that much on hand for goods is comforting.
Other than what others have said, municipal bonds are a good investment. Especially if you're in an area that has done recent school bond referendums.
Index funds are passive investments that track the market. They are pretty hands-off which you mentioned is what you're looking for. Vanguard also has Target Retirement Funds which are a basket of index funds that automatically change the ratio as you get closer to retirement. You'll pretty much have to invest some money in stocks to get at least a 7% return per year. Don't let all the current financial bad news scare you away from the stock market.
Shogun Streams Vidya
"A penny saved isn't a penny earned--it's closer to two pennies."
When it comes to medium-to-long term investment goals (saving up money for a house or retirement), if the amount of money you're currently saving is not going to meet the expectations for that goal, you always have two options, broadly:
1. Make more money.
2. Spend less money.
Always try and spend less first--the reason is that if you make more money annually, it exposes you to a larger income tax liability, and not just on the extra money you're earning but on every dollar you earned previously. Reducing spending to achieve your investment objectives is always a more efficient option in terms of letting you keep more of your income.
Of course, the goal is to spend less and make more, which is basically the textbook definition of financial security (and is, once again, where that Roth IRA comes in handy). But in the meantime, don't stop trying to live on a budget just because you're making more money than you used to. Millionaires shop at Walmart, too.
I agree on the Vanguard stuff. Go there.
A good forum for this sort of information is http://bogleheads.org. Basically, it's for people who follow the Vanguard/Random Walk Down Wall Street school of investment, which is basically just buy-and-hold, though don't buy-and-hold blindly. You can make a post there and ask for specific advice; they'll recommend exact funds to buy and so forth. They're also really helpful to young people lookng for help starting out (like me!).
1 - Is the interest gained by funds in a Roth IRA taxed? If so, how is it taxed? Wikipedia is unclear on this. I'm trying to figure out why anyone would want a Roth IRA over non-IRA investment portfolio.
2 - Pretend I'm retired with both a traditional IRA and a Roth IRA. Let's say I take out $20k from each of them this year and have no other income. Will I only be taxed on $20k income? I suspect this is the case, which means it's going to be really interesting figuring out how to balance contributions between a Roth and a traditional IRA to minimize overall tax burden.
3 - Has anyone seen a long-term FDIC-insured CD at 6% APY or higher? I can't find any.
2. If you took 20k out of each you would pay tax on the 20k you removed from the traditional ira. That is if you are pulling this money out after you've reached 59.5. Otherwise there would be penalties.
3. I will be damn surprised if there's a CD out there paying 6% even if it is long term.
Shogun Streams Vidya
Roth IRA - taxed in contributions - not when you withdrawl
Traiditional IRA - Can deduct contributions on your income taxes, but pay taxes on any withdrawls
by taxed in contributions I mean, that the money you contribute to the IRA is counted as taxable income, not exempt, as in the case of traditional IRAs
Still, I suspect the right solution is some combination of a Roth and traditional to spread out the taxation. I'll try to work it out.
Then get a IRA set up (I suggest ROTH, but speak with someone about it) - make the max contributions you can to it
If you have anything left over I 3rdly suggest Vanguard Index Funds*, but be sure to READ THE PROSPECTUS AND UNDERSTAND ALL FEES, LIABILITIES, AND RISKS YOU FACE!
I can't stress that last part hard enough - READ IT! Trust me.
*Also in an attempt to be ethically responsible, I must confess that I am a related party in regards to Vanguard.
Absolutely. That's my plan, in that order. The oh shit money will be in a FDIC-backed savings account making ~3% annually (ING orange account if I can't find anything better in the next few days).
I'll set up a Roth IRA for now because I'm just starting out. Regardless of what the right split between Roth and individual IRAs is, I'm sure it's best to put everything into a Roth at this point in my career. I'm not sure where I should open my Roth yet, but I'll look into it.
Shorter term (house) investments will be split between CD's and a mutual fund (Vanguard, Schwab, or something along those lines).
I believe that you're actually allowed to withdraw money frmo a Roth IRA provided its been 5 years since you started it and you're withdrawing money to purchase your first home.
You would be taxed on the amount you pulled out of the traditional IRA. You would not be taxed on the portion from the Roth IRA.
Where the fuck are you finding CDs at five percent, let alone six?
When you're young, your payout for hitting a home run is fantastic, because you've got 40-50 years to get the compound interest for hitting that home run. Your loss for striking out isn't that bad, given that it's just your initial principle, and you've got plenty of time to make up for it.
Up to $10k in earnings interest, yes. However you have to be careful making that withdrawl (or any withdrawl on the principal) from the Roth because you can't put it back *into* the account easily later on - yearly contributions are capped regardless of past activity. That's a good point, though - If I'm not already making the maximum yearly IRA contribution, I'll put the house and other shorter-term savings into the Roth first, before I put them into their own account(s).
http://discoverbank.com/ is offering 5.44% APY on a 10-year.
(I just googled it - there might be fees and this may or may not be a reliable site)
Good point.
This isn't just, like, my personal philosophy, either: high-risk investments pay off better over the long-term than low-risk investments. This is a financial fact, and has been true since the founding of the stock market. At no time has any well-diversified investment paid off better than a small-capital stock portfolio over a twenty-year term. So, take any twenty-year period in the stock market, and your best well-diversified investment is your riskiest one.