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Investing (Or "Am I Full Of Shit?")
YamiNoSenshi
A point called ZIn the complex planeRegistered User regular
A point called ZIn the complex planeRegistered User regular
So, I've got a decent amount of money saved up. But now, as the ads put it, I'd like to put it to work.
Note: When I say "I", I mean my fiance and I. We pool all of our finances.
Currently, I have a BoA checking account with about $17,000 in it, and it's doing nothing for me. I've got a car loan at 4.9% that has $10,000 left on it and a student loan at 6% that has $15,000 on it. We've been making $1,000 payments a month on both. We have no other significant debt, and we come out saving more than we spend almost every month.
What I'd like to do is transfer a decent amount of that money into investments. I'm thinking putting about $5,000 into a good savings account like GMAC, with another couple thousand in staggered CDs (6,12,18 months). I was looking at various treasury bonds, but them seem pretty crappy right now. I'd rather have something lower risk right now, probably stemming from the fact I manage finances for two. Eventually, I'd like the BoA account to just become spending/bills/rent money and have the bulk in a savings account and various investments.
This is pretty much a sanity check. If anyone has alternate/better ideas, let me know. If Thanatos comes in and says my ideas (and my face) are stupid, I know I'm on the wrong track.
Note: When I say "I", I mean my fiance and I. We pool all of our finances.
Currently, I have a BoA checking account with about $17,000 in it, and it's doing nothing for me. I've got a car loan at 4.9% that has $10,000 left on it and a student loan at 6% that has $15,000 on it. We've been making $1,000 payments a month on both. We have no other significant debt, and we come out saving more than we spend almost every month.
What I'd like to do is transfer a decent amount of that money into investments. I'm thinking putting about $5,000 into a good savings account like GMAC, with another couple thousand in staggered CDs (6,12,18 months). I was looking at various treasury bonds, but them seem pretty crappy right now. I'd rather have something lower risk right now, probably stemming from the fact I manage finances for two. Eventually, I'd like the BoA account to just become spending/bills/rent money and have the bulk in a savings account and various investments.
This is pretty much a sanity check. If anyone has alternate/better ideas, let me know. If Thanatos comes in and says my ideas (and my face) are stupid, I know I'm on the wrong track.
YamiNoSenshi on
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But beyond that, safe investments are key right now. CDs, some IRAs etc can give a bit of a return on the cash. Other people will be better off suggesting exactly where to put the money.
But I think it would be prudent to put some money into very long-term investments that will almost surely earn more than 6%. Open an IRA like Crowing said, and invest in an index fund or two.
Rates are low, but IMO they're likely to go lower before they go higher, FWIW.
Whether or not you want to put all your savings into paying down the debt is a decision of personal preference, personally I'd value having a wad in the bank as if job gets lost you can usually get a forbearance on student loans for a few months and similarly whoever is financing your auto loan will likely give you a little space (it sounds like you've accelerated paying down that note maybe?). Assuming your employment is stable I might increase the student loan payments to $1500/month so both debts are paid w/in a year, but I'd try to pay that out of income.
I don't need the money at all right now, really. We're not even getting married for two years, let alone buying a house or having kids (if ever). So it just comes down to taking money from my do-nothing checking account and having it earn more money.
There's a limit to how much I'm willing to put towards loan in case my fiance and I suddenly find ourselves jobless. Seems far-fetched, but I've heard from credible sources of people both getting fired from different places on the same day. So I'd like to have my biggest chunk in savings where it will be making money, but still available if I suddenly need it.
That said, a savings account isn't going to net you the big bucks. There are IRAs out there without a withdrawal penalty, which seems best from where I'm standing. I've also been toying with putting a small amount into some stocks that I know won't go under (as if!) like Coke, Microsoft etc as even $500 could net you a nice profit in 5-10 years. This is much, much riskier and you'll see a decrease in value before they go up, which will probably be awhile.
Both my fiance and I are 25% for 2009.
High-yield is somewhat relative right now though.. I have had an account at INGDirect for 5 years now and the rate went from 4.5% to 1.8% APR over that time.. but thats what interest rates in general have done. The account is 100% liquid and FDIC insured so there is really no risk, and the money is available at any time without any fees should you need it.
If you're interested, PM me and I can send you a referral code that'll give you 25 bucks when you sign up!
What you should do depends upon what you think will happen in the next year or two. If you think interest rates are going to climb substantially, a short-term CD or savings account might be the way to go, so you can jump in on something longer-term once they go up. If you think they're going to hold steady or not go up very much (really, they can't get any lower at this point), you should pay off your car loan. If you want to start saving for retirement, though, that wouldn't be a bad idea versus paying off either loan, since with long-term investments, your expected interest rate would be considerably higher than the interest rate on your loans.
Sounds good. The car loan is actually less, so it'll be easier to pay off. Also, both my fiance and I have 401k's that we're putting in as much as our companies will match, since that a guaranteed 50% ROI at least. I'll probably combine some money in savings/CDs (to act as emergency funds as well) with paying off the car loan ASAP. Thanks.
Nothing in the stock market is guaranteed. Lots of people had thier 401k end up damn near worthless after stuff like Enron and the market going to hell in a basket made of bad mortgages. Your company's policy could change on a dime. If you're going to invest, make sure you aren't just blindly handing some guy in a suit your money to do what he will. Keep an eye on it.
I can has cheezburger, yes?
I can has cheezburger, yes?
The big question is, what are you saving for? Retirment? A house? Education for kids? Future travel?
It might be a bit homerish of me but if you aren't looking specifically at future retirement (since you already have a 401k with your employer), I think you should look beyond the CD (which, as has already been said, has terrible returns right now). You have more than enough to cover the minimum balance for almost all mutual funds out there (which range from $1-5k), and would be able to start up some long term non-retirement investing much more than a step ahead of most people at that point in the game.
So I should leave my money in my savings account instead, and earn even less interest? o_O
Therefore, you should leave your money in a savings account and earn more interest, over the long term. Also, he could instead of putting the money in the CD, use it to pay down either of his loans (at 4.5% and 4.9%, respectively) and end up making way more money than he would with the CD. Way, way more money. Putting that money in a five-year CD is pretty much literally the dumbest thing he could do, in that he has other options which have returns that are guaranteed to outweigh that by substantially more than double.
*Disclaimer* My math may be way way off, I just used standard online loan calculators and compound interest calculators.
And I wasn't going to repeat the obvious advice that others had already mentioned about paying off loans first. I figured that was clear enough already.
Thanks for the student loan thing, Thanatos. I didn't know that and it impacts my future decisions.