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401k and Roth IRAs - Page 5

post #61 of 99
You can take the sub-account paradigm further too.

Have a vacation sub-account, an auto-repairs sub-account, whatever. An automatic $50 a month into the vacation account does a couple of things...convinces you to take vacations when needed ("hmm, that account has really built up...probably means I need some time off"), and makes it so it is not really a financial hit when you do. You might have to top off the account to pay for everything, but instead of having to find hotel/airfare/activity money all at once, you've already got some of it set aside.
post #62 of 99
Quote:
Originally Posted by otc View Post


Do you have a house? I'm not very pro real estate (at least for unmarried people in their 20's buying condos and shit), but down payments are expensive and probably something you will want to save for. Ditto weddings.

You can track and allocate your savings manually (with excel or something) but it is much easier if you set up some sub-accounts (some banks let you do this...ING Direct is one)...move a little money each pay check into each category you are saving for. The nice thing about a system like this is that it is really easy to ramp it up.
If you set it right now to move $10 a paycheck into a down payment account, it will be much easier on your mind to adjust this in the future when you decide you are getting closer to wanting to buy something. Instead of having to start saving, all you have to do is go in and adjust your automatic savings (much easier psychologically)...change it from 10 to 50, add more again in another month or two...and you already have a little seed money in there which makes the decision even easier.

 

i don't own a house, but i live in one of my parent's properties so i really just pay the upkeep/taxes/etc on it. right now, i don't particularly have a ton of cash on me, but i probably will at some point next year. so basically, i'm going to need a better place to stick my money than a savings account next summer, and my tax-deferred options are maxed out

post #63 of 99
I Bonds, if they fit into your asset allocation. Inflation protected, yield more than short and intermediate TIPS, no interest rate risk, tax deferred, tax free if used on qualified education expenses.
post #64 of 99

otc, why aren't you pro-real estate btw? i was leaning slightly towards saving my money towards a down payment for some sort of property to be rented out, but, if i'm being honest with myself, i really only have this idea in my head because a lot of my other fiscally responsible 20-something year old friends are doing the same.

post #65 of 99
Quote:
Originally Posted by Spaceman Spliff View Post

otc, why aren't you pro-real estate btw? i was leaning slightly towards saving my money towards a down payment for some sort of property to be rented out, but, if i'm being honest with myself, i really only have this idea in my head because a lot of my other fiscally responsible 20-something year old friends are doing the same.

Rental property is a whole different thing (it is more like investing in a part time business).

A residence for your self though...it's not a good investment. You might get lucky, but the average returns on a house are significantly lower than average stock market returns. A lot of americans have the idea stuck in their head that houses are great investments, and that they are the thing to do...but they haven't run the numbers, and they aren't making a fair portrayal of the amount of completely diversified risk they are taking on. Houses are pretty illiquid and start to have great sentimental value...people don't buy and sell them based purely on investment value since it becomes strongly tied to their everyday life (how many people held onto their homes through the crash and lost a ton because they liked their neighbors and had grown accustomed to the house). If you like where you live but recognize it is time to sell, good luck cashing out of your house...sure you can sell it for more than you paid, but if you are trying to stay in the same area, everything else nearby will have appreciated by the same amount...so your gains only matter if you can move somewhere cheaper.

I'm not saying I am against ownership, but you have to recognize that you aren't making an investment...you are paying a premium to live where you want, in the kind of house you want (with the ability to do what you like to it), for the long term. For an unmarried 20 something, it doesn't make a lot of sense (unless you are so terrible with your money that "building equity" is the only way you will manage to save anything). Assuming reasonable appreciation, you've got to stay in a place for at least 7 years to even break even vs non-ownership. You factor in the taxes, the maintenance, the emergency repairs, the buying and selling commissions, and it doesn't look so great. You probably don't know where your life is going to be in 7 years. What if you get married and have a kid and your 2BR condo doesn't have enough space? What if one of you gets a great job or decides to go to grad school on the other side of town or in a completely different city? You can't sell because you will end up with less money than you have put in...so you rent it out. Now you are playing landlord and may have to modify your mortgage since banks don't really like it when you don't live in the property anymore.

If you have found somewhere you would like to raise a family, somewhere you foresee yourself working and living for a while...then it can be great. 20 years in to your 30 year mortgage and your monthly payments are looking pretty good compared to renting (and in 10 more, you've got no payments). You can renovate the place to fit your life, and you will have it long enough that while it probably won't beat the stock market, it will beat inflation or a savings account.
post #66 of 99
Not to say there aren't times that it might make sense.

For instance:
Here in chicago, the rental market is pretty ridiculous. High rents combined with low interest rates mean that you might be able to pull that break even period down from 7 years to 3-4. I might be able to commit to living somewhere for 3-4 years. To do so, I'd have to pay a fair amount more than I pay in rent, but I would also be buying a place nicer than my current rental (which is a great deal, but anything I would buy would probably rent out for double what I pay now). I'm not going to be married with children in 3 years...or if I am, the kid won't be old enough that it matters that I bought a home in a trendy neighborhood without thinking about the fact that the neighborhood elementary school is terrible.

Of course, I'd have to make a down payment. The S&P is up 25% this year....If I had made a down payment on something, I might have traded a potential 25% return for a tiny bit of appreciation on a condo.

My primary thought would be to wait. Wait until I am buying the place *with* someone, wait until I am buying something more like a house rather than a box in a condo building (along with 500/mo association dues!) where there are all sorts of rules.
post #67 of 99
And if I do buy a condo, it will be because I know what I want and am willing to pay for it.

I'm picky (this is SF after all)...I've made a decent number of repairs/modifications to my apartment (even though I don't get to keep any of that work when I leave) because that is how I would like my living space to be. Buying something means I could buy the appliances I want, cut up the walls I don't want, put in the floor I want (instead of the cost-cutting version paid for by my landlord).

I'm under no illusions that this would cost me less than just renting a place....it would cost more--a lot more--but I've got a lot of disposable income right now, and I like appliances, and I enjoy doing home improvement projects.
post #68 of 99
Quote:
Originally Posted by otc View Post

Not to say there aren't times that it might make sense.

For instance:
Here in chicago, the rental market is pretty ridiculous. High rents combined with low interest rates mean that you might be able to pull that break even period down from 7 years to 3-4. I might be able to commit to living somewhere for 3-4 years. To do so, I'd have to pay a fair amount more than I pay in rent, but I would also be buying a place nicer than my current rental (which is a great deal, but anything I would buy would probably rent out for double what I pay now). I'm not going to be married with children in 3 years...or if I am, the kid won't be old enough that it matters that I bought a home in a trendy neighborhood without thinking about the fact that the neighborhood elementary school is terrible.

Of course, I'd have to make a down payment. The S&P is up 25% this year....If I had made a down payment on something, I might have traded a potential 25% return for a tiny bit of appreciation on a condo.

My primary thought would be to wait. Wait until I am buying the place *with* someone, wait until I am buying something more like a house rather than a box in a condo building (along with 500/mo association dues!) where there are all sorts of rules.

lol damn man these are such good points. do you work in finance/banking or some sort of money management industry? one of my recent short-term goals is to have a decent understanding of this stuff 

post #69 of 99
otc brings up good points.

and perhaps otc works in the finance industry, "OTC".
post #70 of 99
Quote:
Originally Posted by gettoasty View Post

otc brings up good points.

and perhaps otc works in the finance industry, "OTC".

Not directly*, and the username isn't tied to OTC stocks (or drugs)...just did a lot of reading and research as I was moving from college to working.


*I suppose I do a lot of consulting work that is finance related...but honestly, the people who spend time evaluating the fairness of a merger or the impact of certain statements on a stock price are hardly better prepared for personal finance than the english majors (and often are the worst offenders since they think they know everything and have big enough salaries to make big mistakes). Really, the only leg up that you get from working in finance is that you know the lingo and probably already have a head for math...the basics of personal finance are pretty different than the basics of big business, and its not like your econ classes ever took a break to talk about 401ks and budgeting.
post #71 of 99
Quote:
Originally Posted by otc View Post

Rental property is a whole different thing (it is more like investing in a part time business).

A residence for your self though...it's not a good investment. You might get lucky, but the average returns on a house are significantly lower than average stock market returns. A lot of americans have the idea stuck in their head that houses are great investments, and that they are the thing to do...but they haven't run the numbers, and they aren't making a fair portrayal of the amount of completely diversified risk they are taking on. Houses are pretty illiquid and start to have great sentimental value...people don't buy and sell them based purely on investment value since it becomes strongly tied to their everyday life (how many people held onto their homes through the crash and lost a ton because they liked their neighbors and had grown accustomed to the house). If you like where you live but recognize it is time to sell, good luck cashing out of your house...sure you can sell it for more than you paid, but if you are trying to stay in the same area, everything else nearby will have appreciated by the same amount...so your gains only matter if you can move somewhere cheaper.

I'm not saying I am against ownership, but you have to recognize that you aren't making an investment...you are paying a premium to live where you want, in the kind of house you want (with the ability to do what you like to it), for the long term. For an unmarried 20 something, it doesn't make a lot of sense (unless you are so terrible with your money that "building equity" is the only way you will manage to save anything). Assuming reasonable appreciation, you've got to stay in a place for at least 7 years to even break even vs non-ownership. You factor in the taxes, the maintenance, the emergency repairs, the buying and selling commissions, and it doesn't look so great. You probably don't know where your life is going to be in 7 years. What if you get married and have a kid and your 2BR condo doesn't have enough space? What if one of you gets a great job or decides to go to grad school on the other side of town or in a completely different city? You can't sell because you will end up with less money than you have put in...so you rent it out. Now you are playing landlord and may have to modify your mortgage since banks don't really like it when you don't live in the property anymore.

This goes against the grain but I agree with this. In most cases, home ownership is not a financially savvy investment
post #72 of 99

accruing 2.3% interest every year may make more sense than dropping $10K to pay them off. $10K into the right fund could earn returns of 10% which would make a better investment.

CHEEFv

post #73 of 99

so i've decided that i'm going to set a short-term goal of dealing with my stagnant 401k from an old job. i've read in tons of places that you should decide whether to keep your money in an old 401k based on whether the fees/earnings are good, but i have no idea how to judge this. what is considered a high amount of fees? and what's considered a good rate of return?

 

the plan that i have with my old job has about $10k in it (so not a huge amount of money) and it's just been sitting there for about 5 years now. it's with john hancock. how do i figure out whether i should roll it over?

post #74 of 99
Quote:
Originally Posted by Spaceman Spliff View Post
 

so i've decided that i'm going to set a short-term goal of dealing with my stagnant 401k from an old job. i've read in tons of places that you should decide whether to keep your money in an old 401k based on whether the fees/earnings are good, but i have no idea how to judge this. what is considered a high amount of fees? and what's considered a good rate of return?

 

the plan that i have with my old job has about $10k in it (so not a huge amount of money) and it's just been sitting there for about 5 years now. it's with john hancock. how do i figure out whether i should roll it over?

It sounds like you have some learning to do. Here is a good place to start reading: http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit

 

If it's with John Hancock, you almost certainly want to roll it over to an IRA or your current 401k. The fees and expense ratio are probably exorbitant.

post #75 of 99
Hypothetically if I can earn 5 to 6% on my company retirement account, would it be smart to continue my salary deferral for 2014 or pay off a loan in 1 year that has an interest rate peaking near 6%. I have been maxing out my IRS contribution limit this year while making payments to my student loan.

However, I realized that in a years time of contributing to the savings plan, I could have easily paid off my student loan.

I sort of want to take the burden off my shoulders if I can pay it off soon rather than later. The only upside to keeping the loan is a small tax deduction at year end, and hoping that my portfolio will perform well.

My plan is to pay off the student loan in 2014, open up a IRA in lieu of deferring to the company retirement plan, and start contributing again in 2015. I have not done the full math but I think this would also allow me a bit more flexibility in terms of disposable income. FWIW I claim "0" on my W-4.

Thoughts?
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