Investing

[Jonathon_Spaf]

So, I'm a couple years out of school and into my first full time job. I've bought precious metals here and there since I was a kid, but haven't done any real investing (I consider precious metals a safeguard for assets not a true investment... neither here nor there). My company offers a 401k plan, but they don't do any matching; occasionally they will make a "bonus" contribution to our 401k accounts, but I haven't seen that done since I've been there. Basically, I have no great incentive to start an account through my company. Part of my hesitancy to go the 401k route is that I've never been terribly fond of the idea of gambling on the politics/economics of 40+ years down the road; I know a Russian guy (who grew up in Soviet Russia) who doesn't do the 401k thing; his dad told him not to play government games and according to him its a government game. I'm not a conspiracy theorist, and I could be brought around to investing in a 401k, but sometimes I question why "everyone" (term used loosely) blindly dumps money into such a program even though the results can be so hit or miss. I want to make an intelligent decision before investing like that... I'm aware, however, that I'm potentially losing valuable years where compound interest can be working for me, so I don't want to be so contemplative that I miss the boat.

My question for those who don't mind sharing is: what is your take on the 401k route? are there better alternatives? It would great if I could at least be pointed in the direction of learning what is out there and the pros/cons.

[volman]

If your company doesn't do a match your first best place to start is with a Roth IRA if you qualify (if you don't exceed the income limitations). It will offer you a lot more investment options than a company 401k. You can also do a self-directed IRA which will open you up to limitless investments (flip real estate in your IRA, buy metals, options, etc.). This strategy can be gamed for faster and magnified returns far above what a 401k or traditional non self-directed IRA will allow. Get some investment advice from a QUALIFIED adviser that you TRUST and that knows you will pull steel on him if he tries to F*ck you. He or she can look at your full financial picture and help you come up with a game plan. Usually good advice isn't free, and free advice is usually worth what you pay for it when it comes to investment advice.

[JPourciau]

Given that your employer does not offer any matching, I agree with the above advice to use a Roth IRA. Some fairly quick research will point you in the correct direction for asset allocations. I will say that I do not favor the plans that are targeted to your retirement date for allocation. All of my retirement money is currently in mutual funds of my choosing, and I've done quite well with splitting my contributions into about five different areas. Look for index funds that don't charge a fee, and always look at the associated fees when choosing funds to invest in. Regarding financial planners, I've never found much use for their services. They are in the game to make money, just like everybody else.

[Atlanta_FOF]

I am assuming that your question is very specific, in that you are asking "If I am going to save $X should I put it in a regular investment account or in a 401K".

The 'official' reason to invest in a 401K is the tax deferral. You pay no taxes on the money that you put in a 401K and no taxes on the growth in the money, until you start withdrawing funds. So, if you are in the 15% tax rate, you could put $1,000 in a 401K or $850 in a regular account (less $150 in taxes). If you are getting 4% - you would earn $40 on your $1,000. One the regular account you would get $850 * 3.4% (4% less taxes). So, you save more money and earn more money on a 401K. The catch is that you will pay taxes on money when you take it out of the 401K.

401K is only a good deal, if you are planning to be in a lower tax rate after retirement than before plus government does not change rules, you live that long, and you are not filthy rich - i.e., paying more taxes in retirement. Additionally, 401K has some restrictions on how you can invest money and getting access to funds.

Most people put money in a 401K, because it is easy to put money in and difficult to get it out (enforces savings).

My suggestion, sit down and come up with a list of things for which you are saving money (e.g., emergency fund, house, college, retirement). Allocate your money to your various objectives.

For your retirement money, consider how much you would want to invest in a 401k vs. a traditional stock account. Like all investments by putting money in a 401k you are taking on more risk (govt changing the rules) to get a higher return (taxed deferred savings).

For me, I have contributed generously to my 401k and seen quite a return on the tax deferral. However, I have not started taking money out, and so do not know if it will turn out to be better than a traditional account.

Sent from my iPad using Tapatalk HD

[Mike OTDP]

For a young person, a Roth IRA is a far better deal. You pay taxes on what you put in...not what you take out. After 30 years, what you take out has grown quite a bit.

With any mutual fund, compare their long-term performance to the S&P 500 index. There are very few managed funds that reliably beat the index...especially after taking out fees.

[GorillaMedic]

I know OP doesn't have company matching but I would be curious how that changes things. Mine matches up to 7%, so I figure it's functionally a 7% raise and do the full 7% contributions. Is this a correct way of thinking about it?

[Sammy]

Roth is a great start like the others have said.

Also, your company sucks, go find a new one. Unless they pay far past normal market rates for your position.

[volman]

I know OP doesn't have company matching but I would be curious how that changes things. Mine matches up to 7%, so I figure it's functionally a 7% raise and do the full 7% contributions. Is this a correct way of thinking about it?

Yes, always max out the 401k up to the match. That's a 100% return on your investment.

[The rifleman next door]

I say do the minimum contribution to get the maximum employer match and open an after-tax life insurance policy with a guaranteed cash accumulation that is big enough to pay off your debts AND put your family on easy street if you check-out early. Buy gold and silver bullion on the dips and keep it in a bank vault. Once you've made some real money and your car(s), home and monthly upkeep are easily under control THEN start looking at more interesting investments.

Just remember that an IRA and a 401K tie YOUR money up for years in THEIR accounts and punish you with fees and penalties should you like to use it before your retirement. Also the purchasing power of that money is systematically outpaced by the cost of living, inflation and bank fees throughout your working life which undermine the money's performance; in addition there is no guarantee that once you're ready to crack that nest-egg at retirement that new tax laws won't take it all....or that it will even be able to sustain your desired lifestyle due to the eroding purchasing power of the USD.

Basically you have to hedge your bets. Get the free money from your employer's retirement match (get the max from them for the minimum from you.) Have a good life insurance policy to protect the people you love and accumulate after-tax cash that can eventually be used to settle your life's debt at retirement or to buy an annuity. Buy god and silver bullion (5000 years of upside performance can't be wrong) Once you're making good money and maintaining your monthly upkeep look into investments like stocks that might be worth the downside risk.

Remember this however. You only OWN what you OWN. Buy good stuff, pay it off, own your home, own your cars, use a business to write off your lifestyle and never ever trust an investment advice post from an anonymous icon on the internet.

[Sammy]

Also the purchasing power of that money is systematically outpaced by the cost of living, inflation and bank fees throughout your working life which undermine the money's performance; in addition there is no guarantee that once you're ready to crack that nest-egg at retirement that new tax laws won't take it all....or that it will even be able to sustain your desired lifestyle due to the eroding purchasing power of the USD.


That really depends upon your market performance imo. If you do better than average, it will far outpace current inflation levels. In the last five years, the lowest year to date return I've had is 15% with the highest being 38%. That snowballs quickly.

Totally agree about longterm tax concerns. Never know what the rat feeders will come up with. With reasonable to awesome market returns and a company that offers a decent match (mine puts in 9% for 1% for example and also offers a 6.5% pension), you can do very very well. Especially if you start early in life where you can benefit from compound interest.

[Boricua]

I only contributed to a 401K when I had an employer who would match it. Without that incentive I much prefer the foreign stock market and buying distressed assets for my investing.

[CB3]

Look closely at an after tax life insurance policy--not term life. It can be a major part of a wealth building strategy, although it will build more slowly in cash value initially than government sponsored tax deferred accounts, hopefully when you don't need to access it.

When you can borrow against the cash account after dumping some serious cash into it a whole world of additional financial opportunities open up. Plus, those you love are immediately protected financially with a tax free death benefit. Less screwing with the government and their greedy rule changes. It's your money, not the government's (through variable taxation and deferral schemes).

[Winchester67]

Property. Stop renting as quickly as you can. First thing all my friends did when we graduated college and got real jobs was buy a new car...not me. I saved my money and bought my first house when I was 22 years old. You control money you make with property. Having said that, yes, get a retirement plan going. But you will always need a roof over your head.

[WinstonSmith]

I think it's extremely wise to be thinking about the long term status of 401K, especially just starting out. I'm about a decade ahead of you, and have done up to the company matching on the 401K (agree with Sammy on this-- unless your salary far outweighs what competitors would pay, 401K matching is just a requirement of a decent employer these days), but I also am hedging the 401K bet.

All good advice in here. The best advice is: don't put all your eggs in one basket. Go with several "vehicles" for savings. Also, don't forget that businesses can be the best investment ever, if you can come up with the right idea and the capital needed to get it off the ground. Nothing is sure thing, except death (and maybe taxes, says Mr. Ben Franklin).

The idea of internal plays is a good one, too. If a concern is that the US GOV wants to grab more and more of your assets, it becomes very difficult for them to grab real estate and businesses in a foreign sovereign nation, short of an act of war. Diversity is your friend.

[Huntindoc]

Anything you can put away pre-tax is a good thing. Do I worry about Gov seizing the 401K? Yes. But as demonstrated in Crete, they can also seize bank accounts, mutual funds and just about anything else they want. Certainly there is a good point about are you paying higher taxes now or will you be in the future? Well, that also has to factor in the time value of money, inflation and value of the dollar now vs in the future. Hopefully, when you retire, you will be drawing your income from your 401k so your income will be lower but since you have hopefully also paid off your home, already put the kids through college, don't have many medical bills,etc, etc, your expenses should be lower. Therefore your net worth will be high even though you are taking out only a small sum which you pay taxes on. Also look into putting investments into trusts which you control. Unless you have a lot of time on your hands and enjoy working through this stuff on your own, find a good financial counselor that you trust and do what he or she says. Also read Dave Ramsey. I don't agree with or follow everything he writes but he has a lot of good advice particularly for those just starting out. Metals are a fine hedge bet but keep in mind that over the past 100yrs they have not kept up with the cost of inflation or value of the dollar. Also, so you have a 1oz or 5oz gold bar. Great, do you think you can by groceries with that during an emergency? What kind of change do you think you will get? If you are doing some metals, fine but buy 90-98% silver for every 2-10% of gold you buy.

[Winchester67]

http://www.dinkytown.net/


This site has a lot of helpful shortcuts for calculating investments, amounts, mortgages...starting young is a huge advantage.

[mike135]

To the original poster--you have a golden opportunity to figure this stuff out right from the beginning. Many of us envy you greatly for that!

That being said, and meaning no offense to anybody who answered you here, the Internet is a bad place to get good advice beyond some general guidelines and things to consider. The right way to do it is to work with a qualified professional (very very very hard to find one who is truly looking out for your interests and nothing else, probably would have to pay them hourly) and work out a comprehensive plan that's personalized to your specific situation and outlook. It's different for everybody.

I happen to know such a person very well. He worked very hard at becoming the best he can be inside the financial adviser/planner system (Northwestern Mutual in his case), and eventually got to the point that he couldn't stay in that system because it put too many restrictions on him, and left him dependent on selling products for income instead of selling advice. So he started a podcast--I highly highly highly recommend it to anybody and everybody in any situation. He has pretty much every certification and credential possible in his industry, and knows as much on the technical side as it's possible to know, and works hard to present that knowledge in a manner digestible for normal people. But he goes much much farther than that--hence the "radical" part... it's stuff you probably won't hear anywhere else and it's stuff everybody needs to hear. It's the full spectrum from how to live off the grid on pennies comfortably to how to make millions and retire at 30.

Have I made it clear yet I'm a pretty big fan? :smile: Check it out, scan the show subjects, take a listen, and you might soon find yourself looking at finances and money in a completely new way.

http://radicalpersonalfinance.com/

Edited to add--my personal industry is real estate, and I tend to disagree with the conventional wisdom that real estate always makes a good investment. Happy to elaborate if anybody cares, but I'll just say that the numbers are far more involved than the way most people look at it ("hey, cool--look how much higher my sales price was than my purchase price!")

Second edit to add--it just so happens today's show is an intro to self-directed IRAs, might be interesting.

[Knowledge]

My suggestion:



Own a company or be a shareholder in the company you work for. When I say be a shareholder, be one of the controlling partners. Invest in yourself. Make yourself so valuable that a company will give you a stake in the company to get you if you don’t start the company yourself. That way you share in the profits from your hard work. You’ll also be very happy when such company is sold if you so choose to sell.



Max out the 401k if you can as long as it is a legitimate 401k managed by a legitimate service provider.



Get your house paid for and get all consumer debt paid for. Debt has its place but to me a small place. Don’t overload your company or your personal balance sheet with it. If you do, you will suffer in a market down turn. If you don’t have debt and have cash you will have a great opportunity to profit in a downturn. Lots of good assets go on sale in a down turn.



I’d recommend splitting your remaining investments after these.



One would be a stock account investing in foreign equities that are blue chip stocks on foreign exchanges that throw off dividends in foreign currency. I’d leave the 401k as the domestic (US) investment. Personal preference here.



I’d hold cash also. That way you could be very opportunistic when opportunities come up.



I’d do PMs. 50% gold and 50% silver.



Finally, I’d do real estate. I wouldn’t view my house in this category. This would be investments other than your home.



I’d put 25% to each of these four classes. My suggestion only as I’m sure many will/would disagree.

[Knowledge]

At his age, due to his investment horizon, he basically can't go wrong IF he assumes a standard, boring investment strategy.
You have some worthy observations, but there is no friggin' way I'd invest 25% of any portfolio at any time in my life in PM's, but there is a strong propensity to do just that amongst gun owners who tend to be pessimistic about financial collapses.

Or among CFOs with private equity experience in both buying and selling with a MBA concentrating in finance and investments. Your mileage may vary. You are right, each will pick their own path and get the results they get.

[Sammy]

I would like to add read Where are the Customer's Yachts?

That helps to make you feel better about all the voodoo of investing. :)

[mike135]

My humble opinion on precious metals... if you are buying them as part of a comprehensive financial plan and they are part of your heavily diversified investment portfolio, there's nothing wrong with it. But your portfolio should be structured such that you can't lose, no matter what happens, no matter who's prediction turns out to be right and who's turns out to be wrong.

Otherwise, if you want to play commodities trader, that's also fine. Just make sure you acknowledge that's what you're doing, and treat it as a speculative play and not a long-term investment strategy.

If you are buying gold and/or silver because you think the Great Collapse (or whatever you want to call it) is happening any day now and the people who told you it was coming told you the way to prepare for it is to go out and buy gold and/or silver right now, STOP READING/LISTENING TO THOSE PEOPLE!!!!!

A family member has been confidently predicting to anybody and everybody who was within earshot for the last 3-4 years that a complete economic collapse is right around the corner, and we should all be putting any and all spare cash into silver IMMEDIATELY.

Weird thing is... silver was above $40 at the time he started saying that, and it has gone down ever since (it's below $20 today). But he still confidently proclaims that JP Morgan is about to lose their big short bet any day now, or whatever it is those newsletter writers continue to tell him as good reason to buy even more silver today!

[Gabriel]

You have time, which is a good thing. You don't want to squander it, but don't rush into anything. Invest in yourself first. Your knowledge and skill cannot be removed by the passing of a new law. Become a voracious reader. Understand the mindset of the wealthy. Here's a short list - get them online or at the library.

The millionaire next door
The richest man in babylon
Rich Dad, Poor Dad

Don't believe anyone that tells you the financial world will crash tomorrow. Don't believe anyone that tells you it won't crash. Put your investments in things that will do well if the economy stays up... or goes down.

[Jonathon_Spaf]

Here's a short list - get them online or at the library.

The millionaire next door
The richest man in babylon
Rich Dad, Poor Dad



Bought The Millionaire Next Door and read through most of it... really good read. I'll have to check out the other books.

[Jonathon_Spaf]

Thanks, all... A lot of good advice/resources here! It is going to take a while to digest it all.

[pangloss]

I started a Roth IRA while I was in grad school (year 2000) and have fully funded it every year since. Starting in 2005, I was able to participate in employer-sponsored retirement accounts. As I've changed employers, I've rolled those retirement accounts over into my IRAs (Roth and traditional). If you don't get a match, I would not worry with the employer account unless you can fully fund your IRA. Fully funding your Roth and then contributing to the employer account will give you more tax-favored assets, and you can move the money in the employer account to your IRA when you change jobs.

You've received good advice about opening a Roth. I would do exactly the same thing over again if I had the opportunity. However, choosing a good fund/fund company is crucial to your success. If you invest in mutual funds, be extra aware of the fees associated with the account. I have >95% of my money at Vanguard, and the expense ratio for my portfolio is 0.11%. I have my money split into 4 stock funds and 2 bond funds. But if I were just starting out, I would invest in Vanguard's Target Retirement fund. Those funds didn't exist when I started investing. The expense ratios are quite low and the funds contain broad market index funds. Many fund companies have similar products, but I think Vanguard has the lowest expense ratios. (Fidelity also has some very low cost funds too.)

I've read lots of investing books, and 80% of what you need to know can be found in The Random Walk Guide to Investing (http://www.amazon.com/The-Random-Walk-Guide-Investing/dp/039332639X) by Burton Malkiel. I've loaned my copy to many people, and everyone who has read it thought it was very beneficial. It's a short book and definitely worth the time.

[Winchester67]

I think some of the best advice is "don't trust the advice you get on the interweb". What worked for me may not work for you. I got out of college with my degree in 1987. Times and markets change...property was very good to me. I retired when I was 29 living off rentals. Not sure a fella could do that today.

[Jons999]

My current employer matches 25% of our contributions up to a max of $2000 per year, which is pretty bad compared to my previous employer. However my account has made 17% over the past 2 years. Im pretty happy with that but i'm considering just putting the money into cd's and savings accounts until i have money to pay cash for land that can be logged, or rented as farmland, and eventually sold off when i reach retirement age.

[bog]

Dude use both a 401 AND a Roth, priority depends on the investments available to you in the 401 but just on the chance you might get an employer bonus in the 401 I would open that at work and at least put in the minimum, dollar cost average in to the tax sheltered investments as much as you can afford every month, start learning, when you quit your job roll the 401 in to your Roth, definitely don't leave it with your former employer, certain events will allow you to pull money out with no penalty like your first time buying a house you can pull from a Roth, also you can borrow against them, essentially taking a loan from yourself, be sure you understand that before you try it but it is an option.

Stay the heck away from precious metals, very few people have a portfolio with an appropriate allocation for pm's. Also stay the heck away from whole life insurance, if you don't have a wife or kids you don't need life insurance, unless you want about a $20k policy to pay for your funeral should you heroically die young taking out multiple active shooters. Whole life is one of the highest paying commissions out there for the advisor and the only advisor who will tell you you need it is the one selling it, I have had multiple financial advisors tell me to get a term policy and invest the payment difference in to my 401 or Roth.

If you want to trade some non-tax sheltered stocks set up a little account where you can play around and not lose the nest egg, it will teach you a lot and start your life long beneficial hobby of studying economics, eventually you will be pretty savvy, the listening to podcasting idea is great, I listen to Jon Sanchez at 780 KOH, Google it and download. I've been investing about 15 years and still studying myself......

[smaw]

I've tried a lot of different investments and so far the best investment I've done is put my wife through school. Now she makes a little more than I do and she pays 1/2 of everything. Think of it as doubling your income right now. Then you realize your going to have that double income until you both retire. That opens up a lot of opportunities.

401K. I hate it. My wife and I have alot of money tied up in that thing and we cant touch it until retirement. We want to pull it out and invest in other less risky things but we cant. Its as if its not even ours any more. And once we retire we will only be able to withdraw a little each year to keep our taxable income low. So our plan is to spread out our withdrawals over 15 years from age 60 to 75.

The problem with this plan is that we are still young and have alot of years to go before we can collect. Thats also alot of years available to the government to screw it up. The government has between now and the time were 75 to screw us. Thats 35 years for us. They screwed up social security so its just a matter time before they screw up 401K also. Do you really think were going to get any of our 401k back from this $18 trillion bankrupt government? 35 years is a long time to cross your fingers. I am already calling it a loss.

Also 401K is totally dependent on the stockmarket. If it happens to tank right around retirement then your screwed. I know 2 people who lost 1/2 their value right before retirement age. They were old and couldn't retire. They were screwed. But then you argue the point about moving your stuff from high risk to low risk just before retirement. Thats a hard move to make considering your drastically reducing your rate of return and you think you will be able to ride out any bumps since you still have alot of years left until your 75 or 80. I wonder how many people actually make this move. Its really tempting to stay in high risk. So I would avoid the 401K or only allocate a very small percentage to it.

[jesselp]

Look into Dimensional Funds Advisors. Read everything on their website.

[Bluemonday]

I agree on the Roth versus 401K advice as there's no company match, which leads me to the first point: do you understand your company's total compensation package?

I'm a 20 year employee at a Fortune 500 and am still amazed at how 95% of my peers don't understand their whole package. A matching 401K contribution is part of your compensation, or lack thereof. What is your contribution versus the company's for health benefits, etc.? I don't care how they pay you, but just make sure you understand and are satisfied.

Regarding investing, I believe the only person you can trust is you. Besides, the more you understand what is going on the more empowered and in control you will be. I also avoid retirement target date funds.

Whether in a Roth, 401K, or just doing retail investing, today's brokerage houses (I use T. Rowe Price) have a million different funds you can choose from on line and all their performance, risk, management, fees, etc. are disclosed.

As long as you are willing to do the research and periodically tweak things you will really grow your portfolio. Folks who have lost their retirement just couldn't be bothered to manage their own money or were too greedy.

[Shooter Ready]

401K. I hate it. My wife and I have alot of money tied up in that thing and we cant touch it until retirement. We want to pull it out and invest in other less risky things but we cant.

Also 401K is totally dependent on the stockmarket.

Have you heard of bond funds? They are a choice in virtually every 401k plan. Your plan fiduciary is required to have options for participants who are risk averse or close to retirement. The reason retirement plans limit your withdrawal options have more to do with the tendency for participants to spend their money unwisely. Buying a house, reducing credit card or medical bills, going on a vacation, or paying for a weddings/funerals are usually not good reasons to draw from a 401k (or Roth for that matter). No one will lend you money for your retirement.

Here's a good thought exercise: when the market drops 20%, are you buying or selling?

Anyone who is working needs to understand the markets and how they work. Most people should get some professional advice, especially if you feel uneasy when markets drop like a rock. Even if you get advice, don't forget how advisors get paid. Sammy referenced clients and their yachts. If the advisor has one but the client doesn't, then there is a problem here. A lot of smart people are in financial services, and they are particularly good at transferring money from the client to their own pockets.

********
Diversification is your friend, but not just stocks/bonds/cash/alternative investments/RE/etc. You ought to have pre and post tax investments and remember to consider your career choice as either a stock or bond.

Compounding is crucial, but most people don't save enough when they are younger. When they get older, family considerations including kids, education, care for parents, etc, get in the way and they are unable to save enough.

I'd recommend this small book:
http://www.amazon.com/Little-Book-Main-Street-Money/dp/0470473231/ref=sr_1_3?s=books&ie=UTF8&qid=1422986822&sr=1-3&keywords=jonathan+clements

[Winchester67]

And think about down the line...when you are older, and you are forced to take an income from your investments, that Roth might be your best friend.

[BillyOblivion]

My question for those who don't mind sharing is: what is your take on the 401k route? are there better alternatives? It would great if I could at least be pointed in the direction of learning what is out there and the pros/cons.

This is going to be a bit long and require some effort to follow my convoluted thinking, sorry.

The future is completely uncertain. Jihad Joe might bust some nukes in major world financial centers and render things chaotic, or they could just hit D.C. and make the world a better place.

There's a few certainties though--one is that interest rates will rise at some point. They are incredibly unlikely to go down, because they're about rock bottom. Inflation is probably running higher than stated up through about last june, and now with oil and gas down we've getting a little back. And chaos is coming. The USG has a 16T debt and both parties are unwilling *and unable* to face it.

However, no matter *how* you invest, whether it's pre or post tax the USG can *always* change the rules on you, and for every argument you make for one over the other I can counter in some fashion. One certainty is the voracious appetite of the USG for MOAR MONEY, and their idiocy when it comes to economics.

So no matter how you invest you're gambling on political and economic conditions in the short, medium and long term.

So f*k them. Don't even *think* about what the government may or may not do when it comes to investing. Think about it at the ballot box, and on the soap box, but not in the money box. Some Russian guy is just some Russian Guy, so he grew up under totalitarian communism, does he only deal in cash and use payphones? Buy gold and bury it in his back yard?

When looking at investments ROI is the only thing that matters. It can be tricky to figure out (for example a stock mutual fund that has averaged 10% over the last decade might be a worse deal than one that only did 8% if the latter has a significant load and the former is a no-load).

A 401k saves you tax money *NOW* and lets you put it to work earning interest.

What is more important is what options your company allows in your plan. Do they have a truly wide range of investments? Does the plan give you access to an advisor?

I'm assuming you're 25 (based on the 40+ comment), at this point in time you've got room to make mistakes and recover. Go long. Look for high yield funds that seem to make sense despite being a little risky--the more money you can pile up in the short term, the better you'll be.

Diversify, don't pick one "Hot" fund and put everything in it. If your company's plan allows it get Large, Mid and Small cap stocks as well as overseas funds. Then DO NOT LOOK AT IT. Rebalance your funds once a year.

When you leave this company (and you likely will) contact Fidelity about a rollover IRA/401k, they seem to have a nice plan with low or no fees depending on how much you invest.

That said, a ROTH is not a *bad* option, it's just that you've given up some investment/living money on putting it in there post-tax.

The most important thing is to find a place to invest that allows you options and doesn't charge high fees.

Oh, and have a non-retirement savings as well. Stuffing 6 months of living expenses into a money market fund, or savings account can save a lot of stress when the manager you really like gets fired and your new boss lets you go to bring in his own peeps.

[BillyOblivion]

For a young person, a Roth IRA is a far better deal. You pay taxes on what you put in...not what you take out. After 30 years, what you take out has grown quite a bit.

This is simply not true for most people.

If you factor in "opportunity cost" of the taxes you paid along the way you lose out on the interest on that money you paid in taxes.

Do the math, or find a place that can show you the math. Assume 400 a month savings, 5% interest compounded monthly and $400 to start with for 40 years.

Then change that to 440 a month, to assume you're saving *some* of the taxes you would have paid.

I get (after 40 years) $615,895 for saving 400 a month, and $677,484. And yes, the government may tax the crap out of it, they may not. But they can *also* change the rules for IRAs at the drop of a hat too, so don't worry about it.

Oh, and with the 400 and the same rules *except* getting 8% interest? $1,415,423. For 440 it's $1,556,964.

F*k the politics and tinfoil hat games. ROI.

You don't have to take all of your 401k out at once when you retire, you can pull out as much or as little as you want each year, and only pay taxes on what you make that year.

For *most* people they make significantly less money once they retire, and fall out of the top tax brackets--again, unless the OP is on a career path (Finance/Banking, Medical Specialist etc.) that usually leads to enormous (by "regular Joe" standards) fortunes. And at that point the 401k is more of an "oh well" thing.

Me, I'm investing $3 in a lottery ticket for Wednesdays drawing. If I win (yeah, not very likely) I'll *happily* pay the 100+ million in taxes.

Then I'm going to buy a 82A1 in 416 Barrett and dedicated my life to putting holes in things I can't see with magnification. Well, that and a few charities that need starting.

[BillyOblivion]

Edited to add--my personal industry is real estate, and I tend to disagree with the conventional wisdom that real estate always makes a good investment. Happy to elaborate if anybody cares, but I'll just say that the numbers are far more involved than the way most people look at it ("hey, cool--look how much higher my sales price was than my purchase price!")

It's *generally* a good investment because you have to live somewhere, and that's going to cost you, so you might as well be saving a little bit of that cost. Other than that what you are saying is true--that once you have a roof over your head there are vehicles to get a pretty decent ROI in a MUCH more liquid way.

Of course I say that because I'm hoping to buy my first house soon. Either that or move back out of the country, we'll see which.

[mike135]

It's *generally* a good investment because you have to live somewhere, and that's going to cost you, so you might as well be saving a little bit of that cost. Other than that what you are saying is true--that once you have a roof over your head there are vehicles to get a pretty decent ROI in a MUCH more liquid way.

Of course I say that because I'm hoping to buy my first house soon. Either that or move back out of the country, we'll see which.

I'll elaborate a little bit, and try not to turn this into a debate but just offer some food for thought...

Conventional wisdom generally says "why throw your money down the toilet every month in rent when you can invest it and get a great return by owning an appreciating asset?", or "buying a home makes a great investment", or "real estate always goes up, why wouldn't you buy?", or some variation thereof...

The problem is that most people don't look beyond the difference in the purchase price and the sales price. If they bought a home at $200,000 and sell it 10 years later at $250,000, they think they "made" $50,000. They don't do the math and realize that:

1. your mortgage payoff only goes down as principle goes down--have you ever looked at amortization tables? The amount of the payment going toward interest vs principle is ridiculous at the beginning, and takes a long time to improve

2. your taxes and insurance payments don't go toward principle, and those two generally only go up

3. how much cash did you bring to closing, whether in fees, downpayment, or prepayments, that must be recovered before you "make" anything?

4. how much cash did you spend on maintenance, repairs, and improvements that were either necessary or beneficial for the purposes of selling at a higher price than you paid? Was the house brand-new so you paid top dollar, or did you buy something more affordable that will cost you more money keeping it in good shape the longer you own it? If you do the work yourself, what's the opportunity cost of those hours spent on the weekend working on the house instead of doing something with your family, or whatever else you could be doing?

5. what was the risk along the way if your income/financial situation changed, you couldn't keep up with the payments, etc. and oh oops--the market dipped at the wrong time and you can't even sell at a break-even price? (I know the stigma of foreclosure isn't what it used to be, but it's still never a good thing if it can be avoided)

Long term, nation-wide house prices only track inflation. Long term, local housing prices are controlled by incomes. Sure, you can play investor/speculator and try to ride the market ups and downs and predict them accurately, but is that what you want to do with your personal residence? How many people wished they had sold in 2005 but didn't because they had nowhere better to go at the time?

I suspect that if you run the numbers, don't assume any appreciation beyond inflation, factor in the big chunk of cash out of pocket up front (what's the opportunity cost of that?), consider all the cash toward interest and taxes and insurance as potentially unrecoverable, realistically estimate capital improvements properly, etc. you would find that renting vs owning doesn't look anywhere near as bad is initially appears.

Sure, if you tried to rent that same house you would buy, the numbers don't look so good right now, as rents are rather high (at least in my market). But the advantage of getting this right when you're young is you can rent the minimal that you need, be smart with the extra cash that frees up, and be in a very different situation when you decide to settle down and do the family with the white picket fence thing, than if you just followed conventional wisdom and bought a house as soon as possible because that's what some guy who has carried a mortgage, car payments, and credit card payments his whole life told you to do.

Here's some easy math--find out just how much cash you would have to take out of your pocket to buy a certain house, add what you think you would have to spend on it after you buy over whatever term you want to choose, figure out how much higher the rent payment would be than the mortgage payment, and then figure out how long it would take for you to break even on your cash from the monthly savings if you paid the mortgage payment instead of renting. For me, it's something like 10 years. A lot can happen in 10 years. Look back 10 years and see if you would have predicted today's reality for yourself.

(yes, I know sometimes you can finance a lot of the closing costs into the mortgage, otherwise known as "seller contribution", but I'm keeping it simple for sake of discussion)

Personally, I'm a real estate professional and I expect to rent indefinitely. If I buy, it'll be investment properties first. That's a completely different game, and often is a great idea for the hands-on investor (where else can you invest in a hard asset that's fully insured and generally appreciates over time while giving you monthly cash flow?) Check out John Schaub's writings, or listen to his interview here (http://radicalpersonalfinance.com/building-wealth-one-house-at-a-time-interview-with-john-schaub-rpf0119/) for a little bit different perspective on this stuff. The guy is very wealthy today and rented his whole life.

For some people, it may be about freedom (or lack thereof). For some, it's about lowering the monthly payment. For others, it's just because they WANT to own a home for whatever reason. As always, every situation is individual. Just make sure you're fully accounting for all factors, and don't miss the many lessons to be learned from the 2000-2007 fiasco.

[DogDoc]

I have seen excellent ROI from lead and firearms. I have a friend that purchased about 30 dpms AR-15s the day Sandy hook occurred. He then sold them all for about $2500 each to the morons. Ammo yields similar returns. This is an excellent time to invest with prices so low. Stripped lowers are a particularly good deal right now as are the parts kits to assemble them. I know they're aluminum, but they're sure to perform better than gold if the politicians continue to be stupid. And, frankly, if you can't count on that, what can you count on?


doc

[TyGuy04]

Ok, first off, to keep the lawyer's happy, nothing I say should be considered as legal or financial advice, please contact someone willing to act in a professional capacity...and if you make investments based solely on the advice of guys on a gun blog you kinda dumb anyway. Now that being said. A sound long term financial strategy should consist of five broad stages: Protection, Retirement Planning, Wealth Accumulation, Income Distribution, and Estate planning. If you or your planner don't look at all five categories, you run the risk of short term gain, but long term loss. Additionally, it's necessary to take a complete look at your goals, not just the individual product; it would be equivalent to asking what is the best rifle without quantifying what the mission is that you are using it for.
Within those five planning categories, it is necessary to diversify your assets, not just between the general aggressive, moderate, and safe categories, but also with a consideration to pre- and post-tax investments with a plan to shift them annually or semi-annually based on market growth.
Clear as mud?

[chad newton]

Spend it all, you only live once. Save enough for down payments and have nice shit. You never know how long you will live you might as well enjoy it....

[chad newton]

I want to add, you know how many people I have know to try and work their a$$ off to lose it all in a devorce or to wake up and find all their overtime money swindled by bernaky. Fuck that shit.

[MRick]

Avoid Women, Aquire Currency. :smile:

Roth only allows a Max of 5500 per year and has income limits (see backdoor Roth for workaround). Max out 401k to match, then max Roth, then max 401k and or personal investment after tax accounts. Watch your fees! I prefer Vanguard Admiral funds as they have a super low expense ratio (Admiral needs above 10k to purchase).

[Gabriel]

One quick note about those who are saying "my mutual funds did great over the last few years" - sure they did, the Fed is pumping money like crazy. A 3-4 year time span measurement of return doesn't impress me. There's a time to be in any given market, and a time to be out. Understand the market and recognize there are cycles... use them to your advantage.

[Sammy]

The second part of that argument is that I was able to buy tons more mutual funds in 2008 when the market was terrible, letting me make way more money in the last couple of years when the market has been great. I guess you can argue the Fed is causing tons of ghost inflation, but meh really.

There has never been a 10 year period that wasn't profitable on the market in the US. If you are close to retirement sure, but the OP ain't. Now is a great time for him to start buying.

[pangloss]

One excellent investment book I read said that if you are early in the accumulation phase of the investing life cycle that you should get down on your knees and pray for a crash. That prayer has been answered for me twice, and I'm young enough that I could handle it yet again.

[Jons999]

I watched a Mark Cuban video on Youtube a while back where he basically said to be as liquid as possible. Keep cash at the ready to jump on opportunities. When the market crashes buy, buy, buy.

[BillyOblivion]

I'll elaborate a little bit, and try not to turn this into a debate but just offer some food for thought...

Conventional wisdom generally says "why throw your money down the toilet every month in rent when you can invest it and get a great return by owning an appreciating asset?", or "buying a home makes a great investment", or "real estate always goes up, why wouldn't you buy?", or some variation thereof...

So you'll notice that I didn't say anything about an appreciating asset, because I don't think housing prices will go up by much (relative to inflation) over the next 10 - 20 years (I think interest rates will rise, and since people buy houses based on monthly payments not cost, that will keep housing prices down.

However, you *have* to live somewhere, and if you get a fixed interest loan you are pretty much fixing your rent for the next 15 to 30 years. If inflation *does* come back like it did in the 1970s, that's a HUGE win. If it only stays like now, it's a minor win.


2. your taxes and insurance payments don't go toward principle, and those two generally only go up

Your landlord has to pay taxes on the property, so that's baked in to your rent. I guarantee you they also have some insurance on the house, and if you've got any decent stuff IN the house you probably should to, so that's a separate issue.


4. how much cash did you spend on maintenance, repairs, and improvements that were either necessary or beneficial for the purposes of selling at a higher price than you paid? Was the house brand-new so you paid top dollar, or did you buy something more affordable that will cost you more money keeping it in good shape the longer you own it? If you do the work yourself, what's the opportunity cost of those hours spent on the weekend working on the house instead of doing something with your family, or whatever else you could be doing?

If you're doing improvements (other than basic maintenance) to increase the selling price, then yes, that's foolish, but *any* repairs would be baked into the rental price as well.


Sure, if you tried to rent that same house you would buy, the numbers don't look so good right now, as rents are rather high (at least in my market). But the advantage of getting this right when you're young is you can rent the minimal that you need, be smart with the extra cash that frees up, and be in a very different situation when you decide to settle down and do the family with the white picket fence thing, than if you just followed conventional wisdom and bought a house as soon as possible because that's what some guy who has carried a mortgage, car payments, and credit card payments his whole life told you to do.

This I agree with. I'm in my 40s and have been moving around a lot. Buying a house 20 years would have been in Chicago. Since then I've lived in other 3 states and 2 countries. There's a lot of cool stuff you can do when you're young (or not so young) if you're not tied down.

But in the long run owning a house doesn't make you rich, but if you get one paid off before you retire it can be a cheaper place to live.


Personally, I'm a real estate professional and I expect to rent indefinitely.

So basically you're a dealer who doesn't use :)

[BillyOblivion]

401K. I hate it. My wife and I have alot of money tied up in that thing and we cant touch it until retirement. We want to pull it out and invest in other less risky things but we cant. Its as if its not even ours any more. And once we retire we will only be able to withdraw a little each year to keep our taxable income low. So our plan is to spread out our withdrawals over 15 years from age 60 to 75.


You really, really need to spend some time researching 401ks. If your current plan *only* allows stocks you need to have a discussion with your employer about who they've hired to administer the plan, and what sort of investments that plan offers. I have moved my investments out of previous employers into a rollover 401k plan (basically a IRA of some sort), and I've got easily 100 different funds I can split my money between including "cash", "money market", precious metals and bond funds.

And the *point* is that once you put the money in there you can't touch it until you retire, because if you could most people would f*king spend it.


The problem with this plan is that we are still young and have alot of years to go before we can collect. Thats also alot of years available to the government to screw it up. The government has between now and the time were 75 to screw us. Thats 35 years for us. They screwed up social security so its just a matter time before they screw up 401K also. Do you really think were going to get any of our 401k back from this $18 trillion bankrupt government? 35 years is a long time to cross your fingers. I am already calling it a loss.

And where do you think you can put that money so that the government *can't* touch it? Gonna put it in a box in your back yard?

Gold? You think *that* is a safe investment? SRSLY, stop listing to talk radio and Glenn Beck.


Also 401K is totally dependent on the stockmarket. If it happens to tank right around retirement then your screwed. I know 2 people who lost 1/2 their value right before retirement age. They were old and couldn't retire. They were screwed. But then you argue the point about moving your stuff from high risk to low risk just before retirement. Thats a hard move to make considering your drastically reducing your rate of return and you think you will be able to ride out any bumps since you still have alot of years left until your 75 or 80. I wonder how many people actually make this move. Its really tempting to stay in high risk. So I would avoid the 401K or only allocate a very small percentage to it.

A 401k is just a vehicle to contain taxes on investments until after retirement. Every thing else you've whined about has everything to do with investment strategy or the organization servicing the 401k plan, and nothing to do with 401ks as a concept.

Now, I'll grant that there are some 401k providers out there that suck. Everyone needs to do their research and if you find your provider sucks, go to your company with the evidence. Since the people in your company also likely invest there, they may do something about it. If not, I'd look for another place to work that has better management.

Risk and return are intrinsically linked. There are NO high return low risk investments. If you don't have the discipline to migrate to lower risk investments as your age, then you should thank your lucky stars your money was IN a place you couldn't take it out to buy a gold mine or an alpaca farm.

From 1970 to 2010 a S&P 500 fund ADJUSTED FOR INFLATION would return over 5 percent (CAGR). Or over 7 percent as most advertisers would tell you. 5% OVER inflation. If you're young now, that money in your 401k will *probably* be just fine.

Oh, an you won't be withdrawling at 60, you'll want to wait until you're in your late 60s and take it out more like 70 to 85.