retirement and investing money

jeddy lee

They say investing money while you are young is the best plan, and I am looking at some numbers and I tend to agree. I was looking at IRA's and I see the 3 different ones available from my bank, and I'm having trouble seeing the non-obvious differences between a roth ira and a traditional ira, and why I'd want one over another.

We are also saving up for a house in about 5 years, and thought we might as well make some short term investments with that savings in a "Certificate"? I had not previously heard of this, but they have more APY than a savings account, and if we arn't planning on buying the house in 5 years any way, we might as well. The only downside that I can see is that in the event of emergency, that $ is not immediately available to me, right? I have a seperate savings for that stuff.

What other good investment options are there? We both have retirement and SBS through state employment (so we don't worry about social security drying up when we are old!) but I'd like to look at other options and don't even know where to start.

Jobastion

Roth Vs Traditional IRA's
Money you put into a Roth is taxed. Money you take out at retirement, earnings and all, is not taxed.
Money you put into a Traditional is not taxed. Money you take out at retirement, earnings and all, is taxed.
That's the only difference there. Usually the roth is better in the long run, because your earnings grow more over time than the total money you put in, but there's the risk that the law will change, and they'll tax you anyway, or the law will change, and they won't tax anybody roth or traditional (where traditional would then have been entirely tax free), but as it's neigh impossible to predict an outcome like that 30-40 years in advance... eh.

Certificates: They do sometimes have better apy's than savings accounts. But not by much. And they can be cashed out early, but at a signifigant penalty to earnings. If you want to cash them out without penalty, there's usually a window of just a few days at the end of each certificate cycle. They're nice though for very long term stuff (like saving for your house), as long as there's no change you'd need that money in between. Also, you can't exactly keep putting money into certificates, as they are bought individually, and all have a time frame on the redemption. So you have to have it managed so that when you go to put money in you're buying a 5 year, then a 4.5 year, then a 4 year, and so on. They're a pain.
The highest rate I've seen that is no more than 5 years, and doesn't require having a secured credit card with the same company is a 5 year, 3.91% CD. They go downhill from there as you reduce the lenght of the CD. (there's one that's 7%, but it's $1000 min... and max. and only available to new customers, and only 1.5 years, so after that first year on only 1000 bucks, who knows what rate it'll be, so I don't count it)

Savings accounts. Liquid, some have restrictions on taking money out (can't do it more than a few times a month, but you shouldn't be doing it many times a month anyway). Kinda low rates. Highest right now's 2.30%... and that's if you put in 250000 to start it. (The highest non-crazy cash one is 2.15%, and only requires $1)

Alternate thing - or what I use, up to a limit. REEEEAAAALLYY high APY reward banking accounts.
This requires two or three things.
First, you must be able to recognize your limits on spending, so that you do not eat your savings just because it's in the account. Because with these, there's no way to split your savings and your normal spending money.
Two, you must use the debit cards for these accounts 10-13 times a month, and usually accept either a direct deposit (which these days isn't to hard for most working individuals), or an auto debit (of which it turns out that sending money to yourself via paypal counts ).
Three since the best of these are not likely to be located anywhere nearby, you've got to deal with customer service via long distance, and you might need a local bank if you need to deposit checks (as opposed to ETF deposits).
But if you can deal with all that, you can get up to a 4.4 % return on your money... up to $25000. Which is pretty damn fantastic, if you can keep track of it all. And it's not really that hard to keep track of. Oh, and of course, no paper statements, and you have to check your statement online once a month. But hey, you should do that anyway, right?

This has many, many links. To many, many things. Many I would recommend ignoring altogether. However, the links for "Best Rates" and "Best Nationally Available" things are remarkably valuable, and you can eek the most out of certificates, your mortgage (If you need one on that house), bank accounts, and what have you.
http://www.fatwallet.com/forums/finance/

Hlubocky

Someone tell me where you can get 2.3% in an online savings? My ING is hovering around 1.4 and HSBC is around 1.5...

Jobastion

Hlubocky wrote: »

Someone tell me where you can get 2.3% in an online savings? My ING is hovering around 1.4 and HSBC is around 1.5...

http://www.fatwallet.com/forums/finance/783099/
Savings and Money Market accts.

jeddy lee

Damn son, thanks for the help. Anyone else got investment tips?

Namrok

I echo everything Jobastion said. I have a company 401(k), where I'm taxed coming out and not going in. But with the stock market how it is, its doing pretty shitty. Plus I guess I suck at managing it. If I were smart, I would have moved everything in there over to cash at the start of the economic plumet and moved it back to stocks at the bottom. I didn't. I suck. Thing lost half its value. But I've only been contributing to it for a year or two now, so its no major loss.

I love my HSBC online savings account. The interest rate has dropped like a rock since I first got it, but its a piece of cake to get money in and out of it. Hopefully as the economy gets better or the fed adjust its interest rate or whatever goes on, the rate on HSBC will go back up as well. Either way, 1.5% on money you can get at whenever you want is pretty good. Most banks offer practically nothing on their savings accounts.

I'm going to be experimenting with Prosper Lending soon. Its a microloan website, and it claims you can earn 5-12% on average depending on the risks you take in who you lend to. They have portfolio plans to choose from if you don't feel like reading all the damn microloan listings yourself. I'm certainly not going to go whole hog in there, but its something I'm curious about. It may or may not be available to you depending on the state you live in. They just got done jumping through a bunch of new hoops that the gov't set up for them, presumably to make it safer for the lenders, and well as the lendees.

Hlubocky

Put money away. $16,500 a year, or whatever the current maximum is for 401k. Who knows if that will be enough when you need to retire, but better to have too much than too little.

jack eddy wrote: »

Damn son, thanks for the help. Anyone else got investment tips?

YamiNoSenshi

If your company has a 401k they do matching on, do it. Even if you're worried about the tax on the way out, put in as much as they'll match. Because the matched part is free money. For example, mine is .5% plus half up to 6%. That means I put in 6% of my pay pretax, and I get 9.5% with zero risk. That's more than a 50% return.

Entriech

If you're socking money away for a long period of time, and are willing to tolerate the ups and downs of the market, I'm a huge fan of Passive Investing / Index Funds. There's more details through the link (and Get Rich Slowly is a great site to read in general for finance info), but the gist is you're investing in a fund which buys shares of most/all of the companies listed on a particular index. Thus the performance of your money shifts with the shifts in the index. Because your money's spread across hundreds of companies, you're well diversified enough that one of them failing won't impact you severely. Because it's an automatically managed fund, the fees you pay are lower than actively managed portfolios. And while occasionally an actively managed fund can temporarily outperform the index, on a long enough time line no one will consistently beat the stock indexes.

Speaking of diversification, make sure you do that shit with your investments. Never put all your money into one pot. For instance, my family's retirement fund is actually spread across three different index funds, one is Canadian based, one is US based, and one is International based. This makes my finances a lot more tolerant of a fumbled economy in bad times. Sure, the US fund is doing shitty right now, but that's why I have money in the other two. At some future point Canada might screw up, and the value of that fund will fall, and I'll be glad I have some of my money safe in the US market. Every year, re-balance your portfolio back to an equal allotment between the funds, and you're all set.

---

A fun trick for any other Canucks out there. We have something up here called an RRSP, which acts much like a traditional IRA down there. Money put in is not taxed until its taken out. The advantage to this is that, when retired, I won't have a yearly salary income on par with what I have now, so money I take out in my elderly years will be taxed lower than it would be if I had it right now.

The fun part is, spouses can contribute to each other's RRSPs. My wife isn't working right now, and impending child-rearing will likely delay that longer. And money invested in an RRSP can be taken back out (taxed of course) after three years, and is applied to that person's taxes. Because my wife has no income, her tax rate is much lower than mine, so she'll be able to pull money out with far less of a financial penalty. Even if we didn't want to do that, our respective career paths mean that I'll likely have a higher pension than she will when we're retired. So it only makes sense that more of the taxed money from the RRSP come through her, once again to avoid more income taxes. So Canadian couples, balance your RRSPs between the two of you, it will make the income taxes far less painful come retirement.

Dog

I wouldn't just go out and say that Roth is better than traditional just because you aren't being taxed on it. The benefit is also there in that traditional IRA contributions are tax deductible which is considered an immediate savings, and there are a whole plethora of rules that come into play when you actually start making deductions on it. Also, your eligibility/amount you can contribute is restricted by your income level.

Both of them have their benefits depending on your overall goals, which is something you should check with a financial advisor about, especially as an accumulator/"young investor."


Also I recommend the last link in my sig.

jeddy lee

You guys are swell, because I don't want to be the dumbfuck working until I'm 75 because I mis-managed my money. I want to be the dumbfuck going around doing crazy shit at 75 because I have a plethora of money to do it with.

Killgrimage

So one thing I've been doing is the matching thing in the 401k at my job (they match 6% I think). BUT I realized that you aren't taxed when you put that money in, right? So I'm not so good at saving money (something always comes up and I end up having to spend my savings) but I know that I'm going to want to retire one day, so I've been slowly uping my contribution (right now, it's at 7%, soon it will be at 8%). Even though my comp doesn't match it so it's not free money, it's still getting put away where I can't touch it, and since I'm still young it should have plenty of time to grow, especially if I get it up to 10% of my salary. Anway, this is my stratagy so far, and soon I'm going to try putting some money into stocks/mutual funds from my bank. Thoughts?