I prefer solid established companies who pay a dividend, and I just reinvest those dividends to buy more shares.
Investing to make my money work for me!
- Thread starter Cobra_Tim
- Start date
Real estate is another great option down the road. Rent them out and have someone else pay the mortgage.
This is what I want to do, but want to use my first time home buyers for my own home. I wouldn't get another mortgage until I have myself settled first.
And the stock market just doesn't make sense to me as it is too volatile. What Roth IRA companies do you recommend; Vanguard, Fidelity?
Tim,
Congratulations on being curious and understanding the importance of investing early in life.
Just some advise, take it how you choose, but this is from somebody that started investing at your age.
Others may disagree, but these points are from my perspective.
Establish an emergency fund.
Then, while establishing your emergency fund, the number one thing you can do is max out that 401k, regardless if your company matches or not. The max you can contribute this year is $17,500. Question for you... What does contributing the maximum allowable to your 401k do to your taxable earnings?
As someone else stated, choosing a life cycle fund based on your retirement age is a great way to go. Fidelity life cycle funds are called Fidelity Freedom Funds.
If you can max out your 401k, and you still have the funds available per month to invest, consider a Roth Ira, unless you make over the income limit for contributions, then a traditional Ira would be just as good.
Those are the 3 biggies to focus on.
1) Emergency fund
2) Maxing out your 401k
3) Roth or traditional Ira
Stay away from companies that charge a load factor or fee on their mutual funds. As an example, if the company charges a 5% load fee, and your initial investment goes up 6%, in reality you have only made 1% on your investment.
Stick only with no fee or low fee mutual funds.
Call the company that administers your company's 401k plan. They can help set up an investment strategy for you.
Read and educate yourself.
Invest in only what you understand. If you don't understand what the person is trying to get you to invest in, you're not ready to invest in that product.
Buy and read 'The only investment guide you'll ever need', by Andrew Tobias. It's not a hard read, and he is able to simplify terms and ideas.
Best of luck to you.
Keep it simple.
Invest early and invest often using dollar cost averaging.
Congratulations on being curious and understanding the importance of investing early in life.
Just some advise, take it how you choose, but this is from somebody that started investing at your age.
Others may disagree, but these points are from my perspective.
Establish an emergency fund.
Then, while establishing your emergency fund, the number one thing you can do is max out that 401k, regardless if your company matches or not. The max you can contribute this year is $17,500. Question for you... What does contributing the maximum allowable to your 401k do to your taxable earnings?
As someone else stated, choosing a life cycle fund based on your retirement age is a great way to go. Fidelity life cycle funds are called Fidelity Freedom Funds.
If you can max out your 401k, and you still have the funds available per month to invest, consider a Roth Ira, unless you make over the income limit for contributions, then a traditional Ira would be just as good.
Those are the 3 biggies to focus on.
1) Emergency fund
2) Maxing out your 401k
3) Roth or traditional Ira
Stay away from companies that charge a load factor or fee on their mutual funds. As an example, if the company charges a 5% load fee, and your initial investment goes up 6%, in reality you have only made 1% on your investment.
Stick only with no fee or low fee mutual funds.
Call the company that administers your company's 401k plan. They can help set up an investment strategy for you.
Read and educate yourself.
Invest in only what you understand. If you don't understand what the person is trying to get you to invest in, you're not ready to invest in that product.
Buy and read 'The only investment guide you'll ever need', by Andrew Tobias. It's not a hard read, and he is able to simplify terms and ideas.
Best of luck to you.
Keep it simple.
Invest early and invest often using dollar cost averaging.
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As someone in banking with their 6 and 63 as well, I can tell you this is exactly what you should be doing, at the very least its a GREAT start.
If you have a 401k, and your employer matches even a little, I'd recommend doing that instead of a traditional IRA. You can generally invest in similar performing mutual funds with your companies 401k vs. a traditional IRA, and you are getting the basically free money from your employer matching. Then when you leave, you simply roll that into your next employer's 401k or transfer it into a traditional IRA. An added bonus to doing this as well is that you may very well drop yourself down into a lower tax bracket, therefore paying less and saving more at the same time, which is always nice!
On that note, as mentioned above to getting advice, I found my first company's (Washington Mutual... ah, memories
) investing firm to give great free advice and they happened to be the same company I was already building a Roth with (Fidelity). I love Fidelity and I would highly recommend them, but there are lots of reputable ones out there. Just be sure to do your research and do NOT get suckered into something without reading - I have heard tons of horror stories, mostly from very young or very old folks, who either didn't understand what they were getting into or were lied to, and ended up with some high risk hedge fund or the like, and lost money. Acceptable risk when it comes to investing for extra cash on the side, but NOT with retirement money.A great site to peruse to learn some of the basics and some basic tax stuff as it pertains to investing and retirement is the Motley Fool.
I don't take loans on cars because my investments make more money than the interest (sometimes they do and sometimes not) but rather its about liquidity and leverage, the necessity of a vehicle, and the want of nice cars.
I actually just sold my Cobra to fund my first investment property. But I still have a loan on our Focus because we like nice cars and if I pay it off, we won't have as much liquidity to use as leverage for expanding more properties.
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I actually just sold my Cobra to fund my first investment property. But I still have a loan on our Focus because we like nice cars and if I pay it off, we won't have as much liquidity to use as leverage for expanding more properties.
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That's a very smart decision. I'm buying a bad ass property now. 2.83 acres perked for 47k
Tim,
A couple things that you should know and study on.
If you want to be rich/wealthy start a business.
Salesman can make a lot of money/currency as well. From my experience these people generally spend a lot of money as well and their overall bottom line is not impressive.
The borrower is slave to the Lender. The Lender(banks) are the ones getting rich because people are impatient.
However everyone can do the following:
Cash is King.
Live on less than you make.
Do not borrow money. Yes people with normal incomes still buy houses with cash. If you are not that committed, 20% down and a 15 year fixed loan will save you hundreds of thousands of dollars on a medium priced home.
Save. Emergancy fund(3-6 months of expenses), Retirement(401k, Roth IRA, Mutual Funds, Diversification, etc), and Family(529 plan).
Investing/Retirement needs to be long term. There is simply too much unknown and fluctuation short term. I look for MF that have a 20+ year track record ave 8-12% growth every year.
Time and consistency wins in investing. As an example: Starting with $1k and 500 dollars(what many people put into a car payment) savings every month at 9% for 30 years will equal $900k in todays dollars. Breaking that down, $180k contributed and $720k interest earned.
Another example: $500 every month for 20 years will equal 120k in contributed. The value of this investment in 40 years(by the time your 63 years old) will be 1.9 million or 1.78 million in interest earned.
http://www.daveramsey.com/article/investing-calculator/lifeandmoney_investing/#/entry_form
Books to read.
The Millionaire Next Door.
The Little Black Book That Still Beats The Market.
Good post!
Don't bother trying to pick individual stocks. At your age I'd recommend Mutual funds with a 60/30/10 split between Stocks, bonds and cash. I use Vanguard for my passively managed funds, and American Funds (Capital Group) for my actively managed funds (just to further diversify strategy). The key thing is that you're starting young. Good job, let the power of compound growth and interest work for you.
On D Bit - You say to stick extra money in mutual funds and investments, but to take a 15 year mortgage. If you really believe such investments will grow 8-10% (and I do) you should do a 30 year mortgage. You stand to gain more on a 30 year at 4-5% interest and taking the difference in payments between a 15 year and putting them in a mutual fund.
To clarify. If you take a 30 year mortgage with 4%ish interest and invest a couple hundred a month into mutual fund, you'll be ahead by more money in 30 years than if you took a 15 year mortgage a couple hundred more a mobth, even if once the hhouse was paid off you put 15 years of payments into s MF.
Keep in mind, while cash is king in many instances, credit and leverage fuels capitalism. Unless companies can borrow money, they wouldn't be able to keep up with demands.
Also, I always hear this "borrower is slave to lender", but if I'm the borrower and don't care about my credit score (per Dave Ramsey), how am I really the slave? The lender assumes all the risk and doesn't force anything upon a borrower. Yes, I pay a lender per our agreement but I'm hardly a slave - I made a choice and if I don't pay, its the lender that takes the beating. Say I don't pay my unsecured debt - I get turned to collections, credit score gets hit, but the lender takes the real loss. Furthermore, if I can borrow money to make money without using my own money (except as collateral)- the lender is working for the borrower.
DavevRamsey loves to preach about going from laborer to capitalist, but capitalism is fueled by debt - the problem is that debt is no longer used responsibly.
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To clarify. If you take a 30 year mortgage with 4%ish interest and invest a couple hundred a month into mutual fund, you'll be ahead by more money in 30 years than if you took a 15 year mortgage a couple hundred more a mobth, even if once the hhouse was paid off you put 15 years of payments into s MF.
Keep in mind, while cash is king in many instances, credit and leverage fuels capitalism. Unless companies can borrow money, they wouldn't be able to keep up with demands.
Also, I always hear this "borrower is slave to lender", but if I'm the borrower and don't care about my credit score (per Dave Ramsey), how am I really the slave? The lender assumes all the risk and doesn't force anything upon a borrower. Yes, I pay a lender per our agreement but I'm hardly a slave - I made a choice and if I don't pay, its the lender that takes the beating. Say I don't pay my unsecured debt - I get turned to collections, credit score gets hit, but the lender takes the real loss. Furthermore, if I can borrow money to make money without using my own money (except as collateral)- the lender is working for the borrower.
DavevRamsey loves to preach about going from laborer to capitalist, but capitalism is fueled by debt - the problem is that debt is no longer used responsibly.
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Wow guys, thank you for such great responses!
For being an accountant, i am very bad at investing money. I can however, tell you how well you did with yours! haha.
I can't afford to max out my 401k right now because my rent in manhattan is so high, and my student loan payments are 1100$ a month at 9.5% interest!!! Yes i am trying to pay them off as quickly as possible! I am very far off from maxing out the Roth IRA salary caps, so that isn't an issue
I will take all of your advice and read the books/sites recommended. I appreciate it very much!
Thank you,
Tim
For being an accountant, i am very bad at investing money. I can however, tell you how well you did with yours! haha.
I can't afford to max out my 401k right now because my rent in manhattan is so high, and my student loan payments are 1100$ a month at 9.5% interest!!! Yes i am trying to pay them off as quickly as possible! I am very far off from maxing out the Roth IRA salary caps, so that isn't an issue
I will take all of your advice and read the books/sites recommended. I appreciate it very much!
Thank you,
Tim
I ran the numbers.
160k loan(4% on 30 and 3% on 15, 15yr is lower interest rate), the 30yr note plus 500 more for investment returned 200k more money at a 10% interest for investment.
Same note at 8% interest on investment returned 40k more money for the 30yr loan.
You are correct if you do indeed make 8% or more on your other investments.
As for the slave part of things, it refers to the working man. When you have debt you are indeed a slave as you have to work to pay off your loan. As you so eloquently put things even if you decide to stop working and not pay, you will still have no income/no money. You need to work to make money hence you are a slave.
As the lender who already has money, they are making more money on the backs of the workers, not on their backs.
Who are the wealthy? Are they the ones who work, take out loans and then pay back more than they received? Or are they the ones who loan cash out then get more back than they gave in the first place?
Ill give you a hint look at the tallest buildings in each metropolitan city you enter. BofA, Wells Fargo, Chase, CitiBank and the list goes on. They make their wealth on those peons who continually borrow money.
A friend who built million dollar homes and made a great living at it built his fortune on loans. He would borrow a million for two years while he built a home and then sell it at 1.5m. Creating a nice little nest egg. His last big project was a 5m house which ran long and over budget. To make up for it he listed it for 10m. Bank foreclosed and it sold for 3. He lasted another two years before bankruptcy and has not worked since to my knowledge 5 years ago. The banks are still making money as the borrower is now simply one who hits the bottle.
Dave Ramsey who you brought up has made a fortune twice in his lifetime. Once by borrowing money and once by not borrowing any money. He had $400k in the mid 80's about 1m today in which he earned flipping real estate on borrowed money. The market shifted and he could not pay his loans and lost everything.
Is that Dave Ramsey thing a scam?
he also fails to mention that your tax liability without a mortgage will be tens of thousands higher over the years since you wont be able to take the mortgage interest and property tax deduction. :bash:
I've never been a big fan of Dave Ramsey. Its not that all of his principles are bad, because some of his methods - such as never using credit cards - are probably necessary for people who have large debt problems are have taken on more than they can handle. Its just that many of his followers take his preachings as a blanket statement everyone should live by and I don't think that's necessarily correct.
I think living by Dave Ramsey teachings can allow a person to live perfectly fine, but I also think some of his teachings never allow people to meet their full financial potential. I also think his calculations about investing in MF are a bit miscalculated by many. Just because a MF has average increase of 10% over 40 years doesn't mean you'll have a few years of huge losses which affect the bottom line.
Credit cards are a financial tool, just like a table saw, and just because those tools may be dangerous doesn't mean we should never use them. CC for instance do typically have high interest, and that can be dangerous, but many of them present some great benefits via cash back incentives and purchase protection.
I think the principle idea of his "envelope method" is pretty sound, in that you budget money aside each month, but I know a lot of people from our local church that started stashing cash in envelopes on their counter each month which doesn't seem very well protected. Further more, if you can set money aside in advance for groceries, you can set it aside in advance to pay off the grocery bill on the credit card. It just takes discipline not to put more on the card than what was in the envelope.
The other thing I'm not a fan of is that he often takes this approach of being led by God to help others financially, but yet our local church was charging $120 for his seminar package. For a family on the edge of financial ruin, that cost isn't helping them and if Dave Ramsey is all about just helping people and has already made his riches, why not develop of a seminar that's produced more cost effectively.
Lastly, a guy I know that just loves DR says that credit scores don't matter...well my little bit of interest I paid over the years developing an excellent credit score is tiny compared to the money I've saved in mortgage interest and insurance rates. Also, that guy said he plans to rent until he can buy a house with cash because Dave Ramsey said cash is king and doesn't want to be a slave to the lender. So instead, he's a slave to a landlord, still has to come up with money each month for a rent payment that's higher than a mortgage, and has no tax incentives...good luck!
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Not at all. There is plenty that people like he and Suze Orman advise that I disagree with. That said, he, Suze, and others have helped MILLIONS to make good changes in their financial lives.
If you are looking to make changes, read their stuff. Meet with a local advisor, do your homework. Then figure out what will work for you. If you have specific questions, shoot me a PM. Don't worry, I won't try to sell you anything!
Not in the least. He says talk to rich people and see what they do. Do not talk to those guys that have 10 million in real estate and 8 million in real estate loans. Instead talk to those who actually have a high net worth even after all there debt comes due including interest, if they have debt. The book The Millionaire Next Door is a great place to start.
He actually mentions it. He asks would you rather pay that interest then get a deduction for less than the interest itself or not pay interest? In other words the deduction savings never equals the amount spent on interest in the first place. Its like agreeing spend another 4k on your mustang and Ill give you another 25% on that added 4k you have just spent. You are correct you are not paying the 4k extra on the mustang you simply have agreed to pay another 3k bucks on your new mustang.
double
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wrong.....
That might have been true for a high interest rate or APR mortgage but not at todays rates. For instance my 2bdroom apt (1000sq ft) was going up to $930/mo. I bought a house with a mortgage at only 4.75%. The prinicpal and interest payment is only $850/mo. At the end of the next year i got $5,000 back in federal taxes since i was now able to take itemized deductions. Also since my apt had no garage i was spending an additional $85 per month for a storage unit.
2400sq ft house + 2 car garage + .45acre lot = $600 (after taxes)
1100sq ft apt + 10' x 10' storage unit = $1015
Why would anyone purposely decrease their total cash flow for less space, less freedom and more taxes just to use the term "debt free?" :nonono:
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