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What to do with my money pt. II
minirhyder
BerlinRegistered User regular
BerlinRegistered User regular
So I'm closing in on having 15K in my checking account. This is in addition to 10K that I have in a savings account at 0.85% APY serving as rainy day money.
I'm thinking once I hit the 15K, I should leave the 5K in my checking, and then do something productive with the 10K. Make the money work for me and all that.
But I know nothing of this world, so I need help.
I'd prefer something low risk because fuck losing 10K.
I'm thinking once I hit the 15K, I should leave the 5K in my checking, and then do something productive with the 10K. Make the money work for me and all that.
But I know nothing of this world, so I need help.
I'd prefer something low risk because fuck losing 10K.
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Also, I can't remember the previous thread, but you've taken care of all your expenses? School loans, credit card, car payment?
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If you need the liquidity more, avoid them.
You'll still need to decide how to invest if you go those routes, as 401k's and IRA's are just tax free accounts, not actual investments. Although I think alot of 401k's come with only 1 or 2 options for investing (some sort of mutual fund I think).
But hands down the best investment you can ever make is employer matching. Lots of employers will have programs where you can withdraw a portion of your paycheck straight into a retirement account (like a 401k), and they will kick in additional money. If you employer does this you should be withdrawing the maximum portion you can that results in additional money from the employer. If that cuts your paycheck below what you need you should still do it, but supplement your income with your savings until you are down to just your emergency fund. Then scale back.
None of that really has to do with investing though. As a completely uneducated investor I know of 3 ways of investing so far. All of them will pretty much require you to open a brokerage account somewhere, either with an actual person at a bank or brokerage firm or online at something like e-trade. With an actual person account you can often get personalized investment advice, but prices to do basically anything will be higher.
Anyways the 3 ways that I know of (and again I am a complete noob here) are basically buying stocks and or bonds, buying into a mutual find, or buying into an index or exchang traded fund. Buying the individual stocks/bonds is the most risk/reward. This is how people like warren buffet got alarmingly rich, by being able to decide which companies will outperform general expectations and buying stocks in those companies. But if you bet wrong it's a lot easier to just lose all of your money this way. Mutual/index/exchange funds are basically a way for you to put someone else in charge of buying the stocks/bonds. You buy in and then pay a yearly fee for someone else to do all of the work. In a mutual fund they fund manager buys whatever they feel like based on personal philosophies, typically called an actively managed fund. For index/exchange traded funds the fund manager is basically saying they will buy stocks based on a particular index. The difference seems to be that buy passively just buying stocks based on company size or whatever, they can charge you lower fees. It's highly debatable whether the actively managed higher fee funds will beat the passively managed lower fee funds.
For what it's worth, I personally have a brokerage account with a real person who oversees my investments, and as a youngin (mid 20's) they usually advise me to put some money in ITFs/ETFs but most of my money in individual stocks (I think I have stock in around 9 large companies at the moment). The idea I guess is that since I'm young I should take more risks because I have a long time to recover from bad bets, and the higher rewards will hopefully net me more money over the long term. That's what they tell me anyway.
Individual stocks scare me, frankly. You have to be confident that you can 1) pick individual stocks that will outperform the market, and 2) that they will do so by enough of a margin to outweigh whatever you're paying your broker. There are small investors that do this successfully so it isn't necessarily something you should avoid, but it seems difficult to make the investment of time/research worthwhile if you don't have the background or aren't already involved in the market.
It's actually not that hard to test it for yourself if you're interested; pick five or eight stocks that you think you'd invest in, note their current valuation, and track them for a year.
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There's really no reason to do individual stocks, as management fees for tracked diversified indexes have gone down to the point that they are (can/should be) essentially unnoticeable, and the benefits are worth it. Individual stocks do not increase the expected returns of your portfolio, just the variance. No matter how young you are, variance isn't a good thing, it's just less bad the younger you are as it generally gets smoothed out in the long run.
As you get older, start investing a bigger and bigger portion of your contributions into bonds, but for now, all equity is fine as long as you're committed to keeping it there until you retire, barring some kind of extreme event.
And I use Vanguard.
Fuckers keep sending me cheques though, and still have MRS as my pronoun.
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Yeah I just wanted to make sure he was putting all the money he can into those vehicles first (regardless of what type of investment he's using with them).
My savings account has a .9% interest rate.
All but the 5 year CDs, at 10k you're looking at $100 a year in a CD, might as well pop it into a savings account at the .9% instead unless you can know for a fact you can leave it untouched for 5 years and get the 1.5-2% return. Bonds might be worth it, though, I haven't really looked into those, but I think they're in the 3-5% territory right? Not bad, but I think to get 5% you need a 30 year maturity date?
If it were me, I'd go after either a savings or index fund because CDs and Bonds just don't seem worth it. The vanguad S&P 500, even though moderately high risk, has something like a 10-15% return so, there's also that.
It's all about risk tolerance and liquidity need, as he indicated he didn't want anything high risk and this is checking account money, so theoretically available for use on a regular basis.
As for what I want the money to do? I'm not sure? I just know that it's not beneficial to just have it laying around a checking account. I'd like it to accrue some interest, but still have it be somewhat accessible.
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You can't beat that with the market, ever, which is why they tell you 401ks first.
IRAs are typically next because of the tax deferral/deduction. You eschew paying taxes now for paying taxes when you're retired, which should be noticeably less than what you're paying now.
Once you've maxed out those, then that's, typically, when you want to invest in index funds/stocks/bonds whathaveyou with paying capital gains.
Edit:
You can pull from retirement accounts, but their may be stipulations about them in regards to what you can and can't do, and if you're in a hardship that require it. You may have to pay taxes on it.
Do you need it to be liquid? If not, 401k/IRA is the way to go.
Some day you will retire. That means stop making any money. For decades, if you're lucky. Gonna take a bunch of money to a accomplish that. It's not fun now, but retiring is supposedly pretty fun.
If you sent already contributing let's say at least 10% of your income to a 401k (hopefully with employer match), and you're saving enough to have that nice account, you ought to get to the 401k saving.
That is money you will need some day.
Contributions
Can someone translate the above for me?
Vesting
I've been with the employer for almost 1.5 years. According to the above, they do no matching until I get 2 years in. So would it still make sense for me to enroll in it, or should I wait until I hit my 2 year mark? Or, given that they don't even match 100% until the 5 year mark, should I just do another thing entirely?
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i echo everyones sentiment that you need to be in stocks in same way shape form or fashion, be it funds, 401k, whatever
get dat shit in the S&P 500, sit back, and watch the number get bigger
I feel like we're missing some information.
The 1-80% looks like how much of your own salary you're allowed to put into the account. (Usually this doesn't go up above like 50% or 25% but almost no one takes advantage of that much anyway)
The other percentages look like the vesting schedule only.
There should be some other number describing how much they will match.
Usually it's like, "100% match up to 5% of salary" (for every dollar you put in, they put in one, up until they amount they've put in is 5% of your salary) and then if you have vesting those matched funds aren't available do you until you've worked the required time.
For example my last job that had matching was a 75% match on up to 8% of my salary. So I put in 8% and they put in 6%. I could in theory have added more than 8% (I don't remember what the limit was) but would have gotten no extra benefit from that.
The way you've got it written there's no limit to the amount they'll match... which, if they're doing 100% matches on as much as 80% of people's salary that's insane.
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http://www.irs.gov/uac/IRS-Announces-2014-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$17,500-to-their-401(k)-plans-in-2014
The 2015 maximums aren't yet known for sure, but the 401(k) contribution limit increasing to $18000 a pretty safe bet.
Actually that looks like a vesting schedule. That shows how many years you need to work at your employer to receive X% of the employer match. So if you work there at least 2 years and then leave, you can get 25% of whatever your employer puts in (everything you put in is yours). When you work there at least 5 years if you leave you can take it all. That stuff doesn't seem to show your actual match formula though.
401ks are often restrictive about when you can take out funds so you should consider it non-liquid. There can be provisions for early withdrawals, hardships, and sometimes loans (it varies from place to place, wildly) but they are a mess and a pain and a lot of work and withdrawals have taxation and penalties. Better to just have liquid savings set aside for an emergency fund than to try to get a hardship withdrawal because your car broke down (and then find out Safe Harbor Hardship rules do not allow hardships for vehicle repairs though if you have unpaid funeral expenses those can get covered or whatever the heck).
How long were you planning on staying at your current job?
My company runs a SEP IRA through Charles Schwab, and I can definitely recommend it; I even opened up my own personal Roth IRA account there. It gives you recommended breakdowns for investment types, to keep you from putting all of your eggs in one basket, and gives you pretty much all the info you might need.
I don't really research them much at all, though, just picking the ones that sounded good to me, and it's gained about 12k value in less than 5 years. At a rough guess I've spent maybe $650 in that time in transaction fees (at $9 each), so it really doesn't take long to make up for it. After all, that's $9 to buy some stocks once, and then they're earning value for me for the next forty years.
You just have to remember that with retirement accounts, you're in for the long haul. If you're in there every other day trying to move stocks for the best value, you'll almost certainly lose value. The transaction fee is flat, so you might make that up if you were trading an assload of money for a 0.1% gain, not so much for $400 in a couple Amazon stocks or whatever.