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IrregularPulse

IrregularPulse

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This whole financial crisis deal has got me deciding to grow up and think about my future. The fact that I now have an 8 week old is also playing a big part in the "coming-to-age responsibility", I guess you could call it.

I'm 26 years old as is my wife, We own our own house and have an 8 week old. I have a pretty secure (Knock on wood) job with 2 associates degrees in electronics and computers and my wife is a school teacher with her masters.

Anyhow, I don't know much about investing and retirement plans, but do contribute what I can to my 401K, which presently is matched by my company. Well, 2 more years before I get a 100% match. My question to those out there that know this stuff, how about a little advice? I don't have tons of free money to do a lot of aggressive investing nor do I know if this is the time to do so. I don't need to be a millionaire, I just want to be comfortable in the future and be able to maintain a lifestyle for my wife and kids. Do you recommend a financial adviser or are they just looking after their bank accounts and what yours can do for theirs? I know my Grandfather has done well through his, but are there trustworthy ones still out there?


What kind of options do you all suggest? Where should my money be going at this point in my life? How much do I put where?
 
IrregularPulse said:
I don't need to be a millionaire, I just want to be comfortable in the future and be able to maintain a lifestyle for my wife and kids.
Click to expand...

Then you need to be a millionaire...

If you make $50k/yr now. At retirement (35yrs), you will need to make earn $197,304.45/yr to live the same as you do on $50K today.

Assuming your retirement money is in Bank CD's earning 5%, you need $3,946,089.00 in the bank to pay out $197k/yr. Better get started today.

For financial advice; Only you truly have your best interest at heart. Hence, I recommend DIY investing. If you're a total beginner, I woudl suggest you start by reading The complete Idiots Guide to Getting Rich
 
Well the rule of thumb I was always told by people older than me is you do the maximum you can afford above what gets you max match from the company you work for.

IE company matches 3% up to 6% Invest bare minimum of 6%.

Most people say then as much as you can afford on top of that.

I do 10% and my company matches 3% for the 6% I put in additional 4% is just gravy on top.

Also if your young they say go as aggressive as you can you have a lot longer time investing so you don’t have to worry as much about being conservative.
 
If you do go to a financial adviser, find one that you pay a flat fee and not a percentage of your nest egg. Some will take 1% (or more) of what you invest through them each year (including any gains). Stick with one you pay a couple hundred bucks just for some advice and then do your own investing.

I personally wouldn't pay a financial adviser, I invest mostly in index funds with low overhead. They're not doing very well now, but they'll go up over time, and I don't plan on taking any of the money our for 30 years anyways.
 
pldoolittle said:
If you make $50k/yr now. At retirement (35yrs), you will need to make earn $197,304.45/yr to live the same as you do on $50K today.
Click to expand...


You shouldn't need the same level of income to maintain your present lifestyle at retirement since you will no longer have to maintain your current level of retirement fund contributions and hopefully your house will be payed off.
 
Couple of tips:

1. Invest as much as possible in your 401K ... certainly up to at least the matching percentage.

2. Look into either a 529 or a state-sponsored college education savings program. This will reduce your taxable income on both a state and federal level (though affects state income tax more)

3. Open a Roth IRA. Look for no load, no- or low-maintenance fee IRA. Often you'll need a minimum investment amt. but many companies will wave that if you schedule a direct withdraw every month.

4. Pay more on your house. Every bit more above your monthly payment typically goes directly towards the principal (check on this first) and will save you a ton of money over the length of the mortgage.

Really, most of this stuff isn't rocket surgery. It really boils down to make more, save more, spend less.
 
Look into retirement savings options through your wife. As a teacher (working for the state I assume?), she likely has access to some tax sheltered retirement vehicles that you do not.
 
pldoolittle said:
Then you need to be a millionaire...

If you make $50k/yr now. At retirement (35yrs), you will need to make earn $197,304.45/yr to live the same as you do on $50K today.

Assuming your retirement money is in Bank CD's earning 5%, you need $3,946,089.00 in the bank to pay out $197k/yr. Better get started today.

For financial advice; Only you truly have your best interest at heart. Hence, I recommend DIY investing. If you're a total beginner, I woudl suggest you start by reading The complete Idiots Guide to Getting Rich
Click to expand...

Ok, I'm an idiot, I admit it. How did you figure that he would need $197k per year to live off of if he's making $50k per year now?
 
One thing our financial advisor tells us is if you are young you need to have divercified funds spread out all over the place. Not sure how great his advice is.. im doin like -6% YTD in my 401k account.
 
orfy said:
Take it or leave it and plenty will say I'm mad in the current climate.
Look at real estate as soon as you can.
Click to expand...

This isn't too far off ... though the housing bubble burst here in the states. Many of the homes that are being foreclosed on still have real value, and since those losses have been written off by the banks, the banks and mortgage companies are just trying to recover any of the cost. These homes are being sold for a fraction of the initial price. However, the credit crunch and housing bubble will return (perhaps not to the level it was). That will be significant value in two to three years from now.
 
srm775 said:
This isn't too far off ... though the housing bubble burst here in the states. Many of the homes that are being foreclosed on still have real value, and since those losses have been written off by the banks, the banks and mortgage companies are just trying to recover any of the cost. These homes are being sold for a fraction of the initial price. However, the credit crunch and housing bubble will return (perhaps not to the level it was). That will be significant value in two to three years from now.
Click to expand...

You really want to look at 10 - 30 years. Any shorter is a gamble rather than a dead cert.
It's the 2-3 year return (Or wish of) that got a lot of people in trouble this time round.
 
Mirilis said:
One thing our financial advisor tells us is if you are young you need to have divercified funds spread out all over the place. Not sure how great his advice is.. im doin like -6% YTD in my 401k account.
Click to expand...

That's pretty true, but at 26 you should definitely be very weighted towards real aggressive stocks/funds. Time has shown that the more aggressive funds have consistently out produced bonds and money markets over given time periods. At 35-40 you should be looking into a more diversified portfolio which would gradually give way to a very stable portfolio.
 
orfy said:
You really want to look at 10 - 30 years. Any shorter is a gamble rather than a dead cert.
It's the 2-3 year return (Or wish of) that got a lot of people in trouble this time round.
Click to expand...

No way ... 2-3, 5 max. the housing market will be back. Again, not to the same level, but housing prices will definitely have normalized.

The 2-3 year return got some people in trouble, but it made a lot more people rich in the case of flipping or as a short-term holding. Don't forget, the housing bubble has been growing, especially in some parts, for more than a decade.
 
I have a Nationwide Retirement Plan and they have different packages that you can do theres like the 2025, 2030, etc. Basically you just pick the yr you want to retire and they invest your money more aggressively early and then less so as it gets closer. Its pretty nice. I split my money though and put half in a JP Morgan European portfolio which is up a couple percent right now even while the US nose dives. Don't know what kind of options you have but you should see if they have anything like that first program where your money is.
 
wihophead said:
You shouldn't need the same level of income to maintain your present lifestyle at retirement since you will no longer have to maintain your current level of retirement fund contributions and hopefully your house will be payed off.
Click to expand...

Here, I used a static income to keep the example brief.

Decreased needs at retirement is common myth. Think about your own salary (or you parents) as the years have progressed. Are you earning more, less, or the same as you were 20 years ago. For 98% of us, your income (and hence lifestyle) increases as you age and progress in career. Yes, it then decreases somewhat at retirement but that's from your terminal position and not from today's standard. It also ignores new expenses associated with age/retirement, such as medical expenses, travel, and increased tax levels.

Mirilis said:
One thing our financial advisor tells us is if you are young you need to have divercified funds spread out all over the place. Not sure how great his advice is.. im doin like -6% YTD in my 401k account.
Click to expand...

Sounds like he's been giving decent advice to me considering the S&P500 was off about 18% last week before the big drop.

As for your 1yr performance: Market investing is a 5-7yr game. If you are making decisions on a 1yr basis, you are setting yourself up for failure.

Regarding the dip in general: Ever wished you could go back in time and invest? This is your chance!! S&P500 indexes are now what they were in 1985. For long term investors, a dip in the market is a wonderful opportunity to buy while stocks are on sale.
 
IrregularPulse said:
I don't need to be a millionaire, I just want to be comfortable in the future and be able to maintain a lifestyle for my wife and kids.
Click to expand...

I hate to say it - but being 26 and inflation what it is... you WILL need to be a millionaire to retire. In fact, you will probably need to have at least 2 million in your account if you hope to retire at like 62.

Please... BE aggressive in your investments. You have 10-12 years before you need to start throttling back your aggressiveness. One of the worst things you can do is to not be aggressive when you are young.
 
pldoolittle said:
As for your 1yr performance: Market investing is a 5-7yr game. If you are making decisions on a 1yr basis, you are setting yourself up for failure.
QUOTE]

I was just looking at my YTD on my last statment. Im 26 as well and have my funds well diversified. It just sucks that the market is crap right now but Im hoping in about 10 years they are going to pay off.
Click to expand...
 
Step zero, since you did not really detail, and it's too commonly the wrong answer:
0a: Do you have any credit card debt?

0b: Any other loans? Car, student, etc?

0c: Do you actually own your house, or does the bank / (some group of investors the bank shopped it to seconds after they claimed they wouldn't do that to your loan)?

Get rid of those in that order, unless you actually have a student loan that costs less than your mortgage (%-wise). Don't ever use a credit card to buy anything you cannot pay off in one lump sum the next month. Don't ever not pay the bill in full when it comes. Chop up your credit cards and don't replace them if you can't do that. Pay extra on your mortgage payments. For anything other than a house, if you can't afford it from cash on hand, don't buy it.

Then work on actual looking-forward retirement savings. If you are both diversified and steady, you win in the long run - a fixed payment in buys less when the market is high, more when the market is low, and you come out ahead in the long term. Diversification means that if (for example) you lose money on mortgage backed securities - the record profits in oil prop you up. And don't try to gamble the market - remember the in gambling, the house wins - in this case, the trading fees on the one hand and the people who either have better tips than you do, or who get to play games with trades that you can't.

Consider a Roth IRA as well as your 401k. Which makes more sense depends somewhat on your tax bracket, but both is probably better than either alone.

Don't do things "because they give you a tax deduction" without really understanding the impact and break-points. Many deductible things have rather high non-deductible parts, and the standard deduction is actually a better deal for most non-rich people, most of the time. If you are getting a big deduction for mortgage interest, you are paying the bank a heck of a lot in interest...
 
Mirilis said:
It just sucks that the market is crap right now but Im hoping in about 10 years they are going to pay off.
Click to expand...

Unless you are 62, this does NOT suck. Buy, Buy, Buy. Young guys like you should be having a party every time the market falls. It's a low as it has been since 1985... Every dollar invested now is like you invested it when you were THREE YEARS OLD.
 
When the market goes down I increase my input by 10%
If/when it rallies I decrease by 10%
I spend my money on travelling the there is a buoyant market.
 
pldoolittle said:
Unless you are 62, this does NOT suck. Buy, Buy, Buy. Young guys like you should be having a party every time the market falls. It's a low as it has been since 1985... Every dollar invested now is like you invested it when you were THREE YEARS OLD.
Click to expand...

+1 to this!! Also, most real estate is on sale right now too and if I were in a financial position to buy a house I would be all over it. :rockin:

I personally would invest into your 401k up to the match (if applicable) then a Roth IRA up to the amount that you are comfortable investing.
 
nealf said:
I personally would invest into your 401k up to the match (if applicable) then a Roth IRA up to the amount that you are comfortable investing.
Click to expand...

Why wouldn't you just do as much as possible (including what you would spend in a Roth) into your 401(k)? That money going into your 401k is pre-tax money and lowers your tax liability now, while you make the most money, whereas your Roth investment is post-tax dollars. You'll draw from it tax-free (not entirely) but you'll be in a lower tax bracket then anyways.

It makes the most sense to max out (max investment - 15%) your 401(k), then move onto a Roth.
 
nealf said:
Also, most real estate is on sale right now too and if I were in a financial position to buy a house I would be all over it. :rockin:

I personally would invest into your 401k up to the match (if applicable) then a Roth IRA up to the amount that you are comfortable investing.
Click to expand...

Yeah real estate is good and bad right now. Im trying to sell my current house (Bad since Ill be lukcy to get what I paid for it 2 years ago) and good in that were are building near where work is relocating me to, and the houses there are more expensive ie less expensive right now!

I invest 6% into my 401k right now, and compnay matches 3%. When I move and get settled in I want to go up to 10% but that may be a little excessive for my budget.
 
srm775 said:
Why wouldn't you just do as much as possible (including what you would spend in a Roth) into your 401(k)? That money going into your 401k is pre-tax money and lowers your tax liability now, while you make the most money, whereas your Roth investment is post-tax dollars. You'll draw from it tax-free (not entirely) but you'll be in a lower tax bracket then anyways.

It makes the most sense to max out (max investment - 15%) your 401(k), then move onto a Roth.
Click to expand...

I'm sorry, I got totally confused because i've been researching Roth 401K. You're right max out 401k first then move to Roth IRA.

I have been thinking of roth 401k a lot at work lately and the benefits of it over the traditional 401k which if you have a choice of which type of 401k you can get you can use this calculator to decide which is better for you:

Roth 401(k) or Traditional 401(k) - financial calculators
 
Ecnerwal said:
Step zero, since you did not really detail, and it's too commonly the wrong answer:
0a: Do you have any credit card debt?

0b: Any other loans? Car, student, etc?

0c: Do you actually own your house, or does the bank / (some group of investors the bank shopped it to seconds after they claimed they wouldn't do that to your loan)?
Click to expand...

This is truth and we're working on mass paying one bill at a time, getting that gone, then taking the previous amount from that payment and adding it with the current payment of the next lowest to eliminate it quicker. Some people say to pay off the highest balance or the highest interest rate first, but I find paying the lowest balance first gives a sense of accomplishment and motivation that you're making progress.

Once this is taken care of, 1 credit card, car, and student loans, then serious investing can begin.
 
Pay off the highest interest first. Make yourself a chart or spreadsheet for the refrigerator door to indicate progress and motivate. Include amount of interest paid as a separate part of that chart.

Higher interest actively costs you more money the longer you have it. Getting "all paid off" on lower interest items while continuing to pay on higher interest (and larger) items is hurting your bottom line.
 
Mirilis said:
When I move and get settled in I want to go up to 10% but that may be a little excessive for my budget.
Click to expand...

I hate to be the bearer of bad news, but...

You only have two choices here. Cut your budget now (and save), or cut your budget at retirement. Now, your income is increasing and prices are low. At retirement, your income will be fixed and prices will be much higher. Thus, by not saving now you are ensuring yourself a really crappy retirement...

The bottom line is that if you are living on more than 85% of your pay, you are living beyond what you can afford and borrowing from your retirement fund to cover the shortfall.

Ecnerwal said:
Pay off the highest interest first. {...} Higher interest actively costs you more money the longer you have it. Getting "all paid off" on lower interest items while continuing to pay on higher interest (and larger) items is hurting your bottom line.
Click to expand...

All very true, but it ignores the human factor. One of the key determining factors in whether we will continue "painful" behavior is rewards. Particularly the ability to visualize some results from your efforts early into the process. By paying off your debts smallest to largest, the person gets to see and own a few "wins" early on. That significantly boosts their ability to visualize success, improves motivation to continue, and reduces the number of people hounding them for money. All in all, it increases their probability of continued success as they progress on to the larger (and more difficult) debts.
 
Interview some investment advisors in your area and go with the best one. I'm not saying that there is not good advice in this thread(there is), but you need to sit down with a professional and get a plan together.
 
pldoolittle said:
All very true, but it ignores the human factor. One of the key determining factors in whether we will continue "painful" behavior is rewards. Particularly the ability to visualize some results from your efforts early into the process. By paying off your debts smallest to largest, the person gets to see and own a few "wins" early on. That significantly boosts their ability to visualize success, improves motivation to continue, and reduces the number of people hounding them for money. All in all, it increases their probability of continued success as they progress on to the larger (and more difficult) debts.
Click to expand...

Exactly. Like I stated, I know it makes more economic sense to pay the higher interest rates off first, but it's more practical and realistic, for me at least, to pay the small bills for that sense of accomplishment and motivation.

Once I get my CC paid off I'll discuss meeting with an adviser with the wife.
 

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