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Finance/Savings Advice

Old 04-06-13, 08:41 PM
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Finance/Savings Advice

I recently freed myself of all remaining debt, so I don't have any loans, car payments, credit card debts, etc except for my day to day living expenses. With my pay checks now being primarily extra money and savings, I was curious what I should be doing with it and was hoping to see if anyone had some basic advice aside from what I'm currently doing.

My 401K is set as high as my employer matches. I just opened a Roth IRA account since my salary is just below the limit, and am trying to max out the $5K for 2012 since I have until April 15th to do so. I wasn't sure where to invest that money, so I just picked a target fund and mostly leave it alone. Am I doing the right thing there?

And once my Roth is maxed out, is there anything else I should be doing other then dumping money into a savings account with as high an interest rate as I can get? I think i'm more the conservative type, and don't want to do anything risky with my money. I'm 30 and single, but that will probably change... soon. Housing is ridiculously expensive here in Orange County, but something I'd want to target in the next 5 years. Other then that, I can't think of any other major goals or big purchases I have planned.

Is there something I should be doing that's glaringly obvious? Any basic financial advice would be great!
Old 04-06-13, 08:59 PM
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Re: Finance/Savings Advice

Here are some basic rules of investing.

The highest interest you'll get for a savings account right now is just above zero. That's less than inflation, so you will be effectively losing money.

The usual rule of thumb is that your age should be the percentage of bonds in your portfolio. Rebalance every quarter so you put money into stocks if they're down in relation to bonds, and take money out of stocks if they're up. That will tend to lock in your wins over time. Don't look very often, or you get agitated by the short term moves up and down.

Invest with the company with the lowest overhead. If they're sucking 1.5% off the top, and your stocks made 3% that year, they're taking half of your gains.

You're 30, so you want to be moderately risky with your money. You have 40 years to average your gains and losses. An unreasonable fear of loss will keep you from getting a piece of any of the big gains between now and 2050.

You can't pick stocks. Don't even try, unless you know something personally. When you try to pick individual stocks, you're competing with guys who do it 80 hours a week and get information from a Bloomberg feed.
Old 04-06-13, 09:11 PM
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Re: Finance/Savings Advice

I throw all my extra money in to high yielding dividend stocks, a number of my stocks pay dividends monthly and it is nice to get the extra cash every month. The stocks may go up and down but my dividends so far have stayed the same, so while I do try to purchase stocks at a low price I'm not overly concerned about it as I'm in it for the dividends.

Also watch Mad Money with Jim Cramer, yeah he is very annoying at first but I have seen him make a bunch of amazing stock picks over the years.
Old 04-06-13, 09:44 PM
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Re: Finance/Savings Advice

I use to try and play stocks, overall, including paying the tax man, I think I am slightly ahead or maybe even not worth all the stress and effort unless you have some free leads to follow (and I use to, I did some ongoing computer work for a big shot investor and got free tips, some paid off and some didn't)

The real money these days is in playing options, but it takes a ton of time to work out a plan here.

The old story about a monkey being able to pick stocks as well as a professional has some truth to it.

These days I stick to larger funds (mutual or ETF) that have low costs and are buying over a large spectrum of stocks. The risk is about as low as you can get in stocks, and the gains are average.

The above advice about dividends is wise, that is how the game is being played today in the current economy we live in. This is a no brainer, stocks that have paid dividends for 10-20 years will most likely continue to do so.
Old 04-06-13, 10:03 PM
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Re: Finance/Savings Advice

And here is where I get lost in all the investment talk Both my 401K and IRA are with Schwab, and looking through their site on bonds, funds, ETF's, etc make me dizzy not knowing what things like large cap equity and small cap equity mean. Which is sad, because i majored in Economics a decade ago. Hmph. Sounds like I need to spend a day reading up on what's what.
Old 04-06-13, 11:10 PM
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Re: Finance/Savings Advice

Pork bellies.
Old 04-06-13, 11:13 PM
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Re: Finance/Savings Advice

you can get lost here for hours if you really want to read up

http://www.bogleheads.org/
Old 04-07-13, 12:08 AM
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Re: Finance/Savings Advice

Originally Posted by fumanstan View Post
Sounds like I need to spend a day reading up on what's what.
Yeah, spending a few days reading up on what means hundreds of thousands to millions of dollars to you might be your first best investment.
Old 04-07-13, 12:22 AM
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Re: Finance/Savings Advice

Looking at investment options was what I was hoping to avoid, and that there might be a simpler way to put money away for the future
Old 04-07-13, 12:42 AM
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Re: Finance/Savings Advice

I don't think there's a better way to handle your investments than to know a little about what you're doing.
Old 04-07-13, 12:58 AM
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Re: Finance/Savings Advice

Plastics.
Old 04-07-13, 01:07 AM
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Re: Finance/Savings Advice

Originally Posted by X View Post
I don't think there's a better way to handle your investments than to know a little about what you're doing.
Which is why i'm curious if there are decent options for putting away money that aren't of the investing/trading type, like savings accounts or CD's. Are those not even worth it if risk is a concern of mine, or is it dumb for people to not be looking at investments with their extra cash?
Old 04-07-13, 01:11 AM
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Re: Finance/Savings Advice

The lower the risk the lower the return. Generally very low risk investments don't keep up with inflation.
Old 04-07-13, 01:45 AM
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Re: Finance/Savings Advice

Originally Posted by fumanstan View Post
I'm 30 and single, but that will probably change... soon. Housing is ridiculously expensive here in Orange County, but something I'd want to target in the next 5 years. Other then that, I can't think of any other major goals or big purchases I have planned.
Your goals should dictate your investment strategy. It sounds like you're planning on buying a home in 5 years. If you don't currently have enough of a down payment, then your goal should be to save up for that amount. A 5 year investment horizon means you should invest conservatively.
Old 04-07-13, 02:37 AM
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Re: Finance/Savings Advice

Originally Posted by fumanstan View Post
Which is why i'm curious if there are decent options for putting away money that aren't of the investing/trading type, like savings accounts or CD's. Are those not even worth it if risk is a concern of mine, or is it dumb for people to not be looking at investments with their extra cash?
Rentals. Tenants rarely threaten to kill you.

Honestly, the best advice I ever got was, "Hurry up and get into a lot of debt....then get the hell out of it."

Just make sure it is smart debt. Seriously, consider some real estate of some type so that you are diversified a bit. There are just a ton of advantages to owning at least one. Just make sure the numbers work.
Old 04-07-13, 11:01 AM
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Re: Finance/Savings Advice

Originally Posted by kvrdave View Post
Seriously, consider some real estate of some type so that you are diversified a bit. There are just a ton of advantages to owning at least one. Just make sure the numbers work.


I doubt if he is willing to spend a couple hours reading about investments that he would be willing to put the time in to learn about real estate and then put the time in to actually do it


fumanstan - all the easy/secure investments earn very little (usually less than inflation). If that is what you want to do, then search out high yield online accounts (I think ally bank still has a higher rate than most) and jump in, no waiting or learning, and very little profits to be made.

If you want to do a little more research, google up dividend paying stocks, look at how much they pay, and then look at how many years they have been paying. You can find plenty of stocks that have been paying a consistent dividend for 10+ years. As long as you earn less than $400k total this year (have to ask since this is dvdtalk ) then you might only pay 15% tax on dividend earnings.

YES THERE IS RISK YOU LOSE EVERYTHING!!

** I am not a tax expert
*** I am not an investment expert

Tax Rates on Dividend Income
Dividends are classified either as ordinary dividends or as qualified dividends. Ordinary dividends are taxed at ordinary tax rates for whatever tax bracket you are in. Qualified dividends are taxed at the long-term capital gains tax rates of zero percent or 15% percent rate. To be eligible as a qualified dividend, the dividends must be from a domestic corporation or a qualifying foreign corporation and you must hold the stock "for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date." (Publication 550.)
Old 04-07-13, 12:06 PM
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Re: Finance/Savings Advice

Also whether you get into individual stocks or your employer's 401k don't over diversify. 6-7 fund groups and you should be set. I have about that many and have been beating the market for almost 10 years. Even when the recession hit and everyone lost their shirt, I still had an undershirt. And I never stopped investing or lowering my amount, because one of the best kept secrets that surprisingly many people opt out of when trouble hits is dollar cost averaging. If a stock or fund goes down and you continue to invest whatever amount you've been investing your money automatically (assuming you have it automatically set) buys more of the stocks/funds at the lower price, so that when it finally goes back up you would have made a killing.
Old 04-07-13, 12:07 PM
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Re: Finance/Savings Advice

Originally Posted by fumanstan View Post
Which is why i'm curious if there are decent options for putting away money that aren't of the investing/trading type, like savings accounts or CD's. Are those not even worth it if risk is a concern of mine, or is it dumb for people to not be looking at investments with their extra cash?
At the very least, tout should put it into a high yield savings account. Although, these days high yield is around 0.85% or less, I think Amex is one of the highest at that rate now. You can deposit or withdraw money at any time. If you get a CD, make sure to read the terms, there may be a penalty for withdrawing early. Savings and Cd are really zero risk as they can't go down in value and are fdic insured to $250k. If you have more than $250k,you can put it into multiple banks and or account ownership category.

X is right, with inflation, you are losing money though if you go this route. There are some low risk options mentioned in this thread. Anything investing in stocks, even low risk, can potentially crash. If you aren't willing to take that risk, no matter how small it may be, then don't go that route.
Old 04-07-13, 12:21 PM
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Re: Finance/Savings Advice

Originally Posted by 4KRG View Post
fumanstan - all the easy/secure investments earn very little (usually less than inflation). If that is what you want to do, then search out high yield online accounts (I think ally bank still has a higher rate than most) and jump in, no waiting or learning, and very little profits to be made.

If you want to do a little more research, google up dividend paying stocks, look at how much they pay, and then look at how many years they have been paying. You can find plenty of stocks that have been paying a consistent dividend for 10+ years. As long as you earn less than $400k total this year (have to ask since this is dvdtalk ) then you might only pay 15% tax on dividend earnings.
Thanks, this is where i'm leaning and I think i'll take a look at dividend stocks like you mentioned as well. Sounds like something that isn't too crazy and I can read up on easily. I don't think I'm looking to trade risk for profit, more so put my money somewhere safe but at the very least not let it go to waste.

And yeah, I don't think I'm anywhere near going the real estate route right now. Maybe in the future though. I'd like to keep it simple for now, since i'm just figuring all of this out after years of negligence. Stupid growing up!

I'll also look into high yield savings accounts. Will check out American Express and Ally. Thanks for those recommendations!

Last edited by fumanstan; 04-07-13 at 12:37 PM.
Old 04-07-13, 12:36 PM
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Re: Finance/Savings Advice

Originally Posted by Why So Blu? View Post
Also whether you get into individual stocks or your employer's 401k don't over diversify. 6-7 fund groups and you should be set. I have about that many and have been beating the market for almost 10 years. Even when the recession hit and everyone lost their shirt, I still had an undershirt. And I never stopped investing or lowering my amount, because one of the best kept secrets that surprisingly many people opt out of when trouble hits is dollar cost averaging. If a stock or fund goes down and you continue to invest whatever amount you've been investing your money automatically (assuming you have it automatically set) buys more of the stocks/funds at the lower price, so that when it finally goes back up you would have made a killing.
Thanks, my 401k is split until 6 different groups currently, but honestly when I originally picked them years ago I had no idea what I was doing. And still don't. Something to go back and research with help from the comments here. Are the target retirement funds good or bad ideas? For the most part I had figured I could just put a large chunk of money into a 2045 or 2050 fund and forget about it.

Also, while my 401k is currently set to as high as my employer matches, should I increase that so I max out for the year?
Old 04-07-13, 01:30 PM
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Re: Finance/Savings Advice

This thread is proof positive that the average person shouldn't be investing. But man, 401Ks sure are better than pensions!
Old 04-07-13, 01:33 PM
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Originally Posted by Tracer Bullet View Post
This thread is proof positive that the average person shouldn't be investing. But man, 401Ks sure are better than pensions!
Old 04-07-13, 01:40 PM
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Re: Finance/Savings Advice

If you are sure that you won't touch it for 5 years, you can put it in a 5 year cd, ally bank has 1.53%. The interest rate tend has been going down the past few years. Even if by some miracle interest rates sky rocket, you can always withdraw and pay penalty.


http://www.ally.com/bank/high-yield-cd/#tabs=rates
Old 04-07-13, 02:11 PM
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Re: Finance/Savings Advice

Originally Posted by fumanstan View Post
Thanks, my 401k is split until 6 different groups currently, but honestly when I originally picked them years ago I had no idea what I was doing. And still don't. Something to go back and research with help from the comments here. Are the target retirement funds good or bad ideas? For the most part I had figured I could just put a large chunk of money into a 2045 or 2050 fund and forget about it.

Also, while my 401k is currently set to as high as my employer matches, should I increase that so I max out for the year?

Each situation is unique. Personally, I have one of those target 2040 funds, but right now, for my age and all, they're allocated a certain amount each. When I get older, maybe the next 5 years, I will adjust my holdings altogether. I currently lean from moderate to aggressive, because I'm young enough and can afford the risk and ride it.

You should meet with your deferred comp administrator for more detailed info. They usually have charts and that give you what the return on investment is for each group. They should have stats that detail 1yr, 3yr, 5yr, 7yr, 10yr, and so on (or something similar). Since I go for the long term I usually look at the groups from the 10yr point on up. 2 groups that I can tell you what I do have, but just a very small percentage of money in, is cash and bonds. I think I have 10% in cash and 10% in bonds. the other 80% of my holdings vary, but they're only in 5-6 other groups.

Also someone mentioned to have your account under an automatic reallocation program every 3 months. I agree, I have my plan under that every 3 months where everything gets rebalanced out.

What you DON'T want to do is have 100% of your money in a cash fund. I have friends who have this and they might as well keep their money under the bed. Their money will never grow and defeats the purpose of a retirement account.

If you can afford to max out every year go for it. Another thing that people also don't realize is that when you contribute to a retirement it's pre taxed and therefore you will fall under a lower tax bracket while 100% of that money that you are contributing to gets moved over to the account untouched. You only ever pay taxes on that money when you retire or borrow on it. Hopefully by then you will have a ton in there.
Old 04-07-13, 03:13 PM
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Re: Finance/Savings Advice

Originally Posted by Tracer Bullet View Post
This thread is proof positive that the average person shouldn't be investing. But man, 401Ks sure are better than pensions!
So there is a guarantee that there are enough pension paying jobs in America that everyone gets one?

I must have missed that somewhere in the Bill of Rights.

We make do with what we have.

My company does offer a ton of FREE seminars, web'inars, and other materials to help those that are ignorant with 401k investing. The company 401k lists a specific set of 'investments' that are available. They do prevent people from putting money into complete failure investments.

fumanstan - how much you put in your 401k is up to you.

There is an argument that states all taxes in general will be higher when you retire.

Then there is the argument that you will be in a lower tax bracket when you retire.

Since you can't predict the future, you don't know if you really will be in a lower tax bracket when you retire or not.

I max mine to federal limits (I am gambling I will be in a lower tax bracket when I retire)

http://www.irs.gov/uac/2013-Pension-Plan-Limitations


The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $17,000 to $17,500.
The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $5,500.
The limit on annual contributions to an Individual Retirement Arrangement (IRA) rises to $5,500, up from $5,000 in prior years.

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