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Financial Advice?


attakid101

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Hey all, any of guys good with money? I could use some advice. 

I don’t make a ton of money but I live in Idaho so my cost of living is relatively low.

After our bills are paid we have some extra money at the end of every month that we put in the bank. Right now I have ~$18K in our savings account.

For a long time I’ve been content to just see that number get bigger and pat myself on the back.

But recently I’ve been thinking that I should be doing something with it. I want to grow it—but I don’t know how.

Is now a good time to invest in the stock market? Should I put it into some kind of mutual fund? Is there a high yield savings type account I should investigate? Bonds?

I’m too stupid to be a day trader so I’d like to just set the money somewhere and play the long game. 

What do you guys do to grow your money?

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Do you have a 401k at work, and/or a Roth IRA?

If not, you likely need to start there, with either target date funds (the super "easy button" option for balancing your portfolio) or a 3 or 4 fund portfolio (look up the concept and recommendations for funds and/or ETFs on Bogleheads)

Vanguard, Schwab, or Fidelity are all great discount brokerages, which each have their own brand of free-to-trade ETFs and low-fee funds, and each have their own interfaces (so you can pick what you prefer, from a UI standpoint).

But if you're not filling up your Roth IRA every year, for you AND your wife (whether she works or not, she is eligible based on your income), you should look into that. 

 

$18k is a decent emergency fund, if that is the extent of your cash on hand, but you should probably start by thinking of how many months that can cover you in the event of job losses, etc.

 

You have a ways to go before you should reasonably consider investing in anything other than ETFs or low-fee Mutual Funds, IMO.

 

 

EDIT:  a GREAT first place to start your reading on the topic is the sidebar of the personal finance subreddit.  There is at least one well-made flow chart, that is pretty solid advice for anyone starting out.

 

Edited by arch_8ngel
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Administrator · Posted

I use a robo investor. It's a set in and forget it kind of deal. Wealthsimple is the one I use and so far is been quite good at keeping my money growing in a TFSA. You tell it how high risk you're willing to take on compared to long term potential gain, and it handles the rest. 

Set aside a chunk into a regular savings account, enough to live for a year or so. That money won't gain much at all (maybe 1%), but it'll always be available for emergency. Put the rest into a TFSA and/or RRSP. 

For reference I have 10k sitting in savings, and the rest goes into my TFSA for the most part, which is currently sitting at 5.5% return, which is multiple thousands of dollars over the last 2 years. You can set up auto deposits as a hands off way of managing it. Benefit to TFSA is I can actually withdraw the money any time I need to basically without penalty, similar to savings accounts, just slower basically. 

If you want more info lemme know. 

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Just now, Gloves said:

I use a robo investor. It's a set in and forget it kind of deal. Wealthsimple is the one I use and so far is been quite good at keeping my money growing in a TFSA. You tell it how high risk you're willing to take on compared to long term potential gain, and it handles the rest. 

Set aside a chunk into a regular savings account, enough to live for a year or so. That money won't gain much at all (maybe 1%), but it'll always be available for emergency. Put the rest into a TFSA and/or RRSP. 

For reference I have 10k sitting in savings, and the rest goes into my TFSA for the most part, which is currently sitting at 5.5% return, which is multiple thousands of dollars over the last 2 years. You can set up auto deposits as a hands off way of managing it. 

If you want more info lemme know. 

For USA readers, if you are NOT currently filling up your Roth IRA every year, then building up your intial long-term e-fund in a Roth IRA is the best option, IMO. 

You can withdraw contributions with no penalty, if you really need them, while making sure you took advantage of the special tax-space on gains in the meantime (and if no emergency comes -- you made sure you filled the tax-free investment space).

 

 

Edited by arch_8ngel
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Administrator · Posted
1 minute ago, arch_8ngel said:

For USA readers, if you are NOT currently filling up your Roth IRA every year, then building up your intial long-term e-fund in a Roth IRA is the best option, IMO. 

You can withdraw contributions with no penalty, if you really need them, while making sure you took advantage of the special tax-space on gains in the meantime (and if no emergency comes -- you made sure you filled the tax-free investment space).

 

 

Yeah Disclaimer, I am Canadian. No such thing as a Realms of the Haunting IRA here. 

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Just now, Gloves said:

Yeah Disclaimer, I am Canadian. No such thing as a Realms of the Haunting IRA here. 

It's a guy's name, not an acronym. (William Roth, former DE senator) 😛

 

And Roth IRAs are the "best" account ever devised. You contribute after tax money (up to an annual limit), and gains and withdrawals are tax free when you get the age where those withdrawals are allowed.  At ANY age, with ANY account maturity, you can withdraw the contributions with no penalty (and no tax, of course, since you've already paid taxes on them).

Edited by arch_8ngel
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Thanks for the replies so far!

I have a 401K through my employer. They match up to 5% and right now I’m contributing 8%. I’ll be honest I don’t think I’m in a good spot as for as that goes. I’m 35 and have about $48K saved so far. I was really stupid and didn’t start contributing anything until my late 20’s. 

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19 minutes ago, attakid101 said:

Thanks for the replies so far!

I have a 401K through my employer. They match up to 5% and right now I’m contributing 8%. I’ll be honest I don’t think I’m in a good spot as for as that goes. I’m 35 and have about $48K saved so far. I was really stupid and didn’t start contributing anything until my late 20’s. 

You sound like you would really benefit from reading the Personal Finance flow chart stuff:

https://www.reddit.com/r/personalfinance/wiki/commontopics

 

From what you're saying, I'm going to hazard a guess that your marginal tax rate is low enough that it makes more sense to work on maxing out your Roth IRA's (you and your wife) each year, before you revisit ratcheting up your 401k savings rate.

But don't be down on where you're starting from. There are still plenty of people at 35 that are in debt and starting from less than zero.

Search for "average 401k balance by age" and you'll probably feel better about your starting point.

 

The old proverb about the "best time to plant a tree is 20 years ago, the 2nd best time is today" is absolutely true for personal finance decisions -- starting today is always better than putting it off even longer just because you neglected to do have done it in the past.

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Administrator · Posted
11 minutes ago, arch_8ngel said:

You sound like you would really benefit from reading the Personal Finance flow chart stuff:

https://www.reddit.com/r/personalfinance/wiki/commontopics

 

From what you're saying, I'm going to hazard a guess that your marginal tax rate is low enough that it makes more sense to work on maxing out your Roth IRA's (you and your wife) each year, before you revisit ratcheting up your 401k savings rate.

But don't be down on where you're starting from. There are still plenty of people at 35 that are in debt and starting from less than zero.

Search for "average 401k balance by age" and you'll probably feel better about your starting point.

 

The old proverb about the "best time to plant a tree is 20 years ago, the 2nd best time is today" is absolutely true for personal finance decisions -- starting today is always better than putting it off even longer just because you neglected to do have done it in the past.

There are plenty people in their 50s, 60s, and beyond, all in massive debt. Having any savings at all especially in your 30s puts you ahead of the curve, technically.

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I 100% agree that if you have a matching 401k, you should contribute to it, then an IRA.  At that point, most people won't have "more" to invest, and I assume you'd want to keep it liquid.  Regarding IRAs, keep in mind that though there are yearly maximums, if you are married, both spouses can have one, so it effectively doubles the amount you can invest each year.  So, after the 401k and the Roth IRA, I doubt you will have any left over... but if you do, I'm 100% in support of people investing in stocks, bonds, mutuals, etc., however (and this is a very important "however")  research, research, research how and why these investments work, how the smart investors made their money and I discourage "day trading".

There's good money to be made in small to mid-sized businesses that have prudent balance sheets and are paving the ways in new markets.  Don't follow "hot stock tips" but do your research.  I highly recommend, if you choose to go this path, to take 3 to 6 months of doing nothing but studying investment types and how to read balance sheets and performance reports.  Understand the market.  After you think you have a moderate understanding of the concepts, open a pretend stock trading portfolio.  I'm not sure if you can still do that at Investopedia (you use to be able too) but they would give you $100,000 virtual dollars and you could track your investments.  Even then, I'd play around with a portfolio for about one year, as if it was my actual real money.  After a year, analyze your performance versus the markets.  If you're not outperforming the market, then be cautious and maybe not even consider investing in the markets.  But, if you are doing a fair job at seeing modest growth, start small and slowly build up your investments.

Again, and just to be 100% clear, I suggest doing this after matching your 401k AND filling the IRA.  All extra investments should definitely be wisely made and I also recommend never investing more than you can lose.  You should be in that position after contributing fully to these retirement vehicles.  Regardless, there's no harm in starting small and researching and learning.  Be smart and take your time.  Anyone can become a good investor and do well, but it doesn't come without the price of learning how to be smart about it.  Don't follow hot-tips and blind intuition.  Look for smart companies that are doing really cool things (that interest you) that are also being super-smart with their money.  You may not hit the "jackpot" every time, but with a diverse portfolio and smart moves, you likely will find some companies that can grow your money rather well over 3-5+ years.

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Just now, RH said:

Again, and just to be 100% clear, I suggest doing this after matching your 401k AND filling the IRA.  All extra investments should definitely be wisely made and I also recommend never investing more than you can lose.  You should be in that position after contributing fully to these retirement vehicles.  Regardless, there's no harm in starting small and researching and learning.  Be smart and take your time.  Anyone can become a good investor and do well, but it doesn't come without the price of learning how to be smart about it.  Don't follow hot-tips and blind intuition.  Look for smart companies that are doing really cool things (that interest you) that are also being super-smart with their money.  You may not hit the "jackpot" every time, but with a diverse portfolio and smart moves, you likely will find some companies that can grow your money rather well over 3-5+ years.

There are a lot of people trading individual stocks right now with no business trading individual stocks, and are riding a situation similar to the saying "everybody looks like a genius investor in a bull market". 

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2 minutes ago, arch_8ngel said:

There are a lot of people trading individual stocks right now with no business trading individual stocks, and are riding a situation similar to the saying "everybody looks like a genius investor in a bull market". 

I don't disagree.  This is exactly why I strongly push first learning about markets, how to read company data, giving a whole year "testing" your abilities and then (only then) investing real money that doesn't equate to much of your net worth.  This is purposefully raising your own barrier to entry, but that also doesn't mean that only trained professionals (or institutions more realistically) should reap the rewards of small public companies that are working hard to make a dang great product/service and company.  But investing in any company just because they look like a "rock star" is a bad move.  Sure, newish companies might look like they have nothing but a bright future and could even be "the next Amazon, Apple or Google! Oh, my!!!" but if they are not being smart with their money, it really is a gamble.  In fact, it all is a "gamble" because even smart companies can be outplayed, but IMHO, if a company is leveraging a lot of debt, hoping to be bought by a bigger organization, or if they are rolling debt with their growth year-over-year (like Amazon did) the chances of their success are extremely slim.  Some of the best companies to invest in are never the "sexy" ones.  If you are smart, and do your research, you can find the ones that most likely fit that category and with time profit better than IRAs and 401k.

But, at this point it should be something between a hobby and profession.  To do market trading properly, you really need to stay up on your data.  If you can't invest the proper time into making wise decisions then your gonna have a bad time you need to stay out of the markets.

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If you've waited this long my recommendation would be to wait until after the election and winter time COVID panic has set back in.  I see more downside risk than upside risk in the market at the moment personally.

Otherwise, I recommend the same advice as arch generally.  You want to max out the 401k match which you're already doing.  Then put $6k a year into a ROTH, either through Vanguard or Fidelity would be my recommendation.  Only after doing that should you even think about playing individual stocks.  And in your case it sounds like a blended mutual fund set it and forget it would be better for you.

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7 minutes ago, jonebone said:

If you've waited this long my recommendation would be to wait until after the election and winter time COVID panic has set back in.  I see more downside risk than upside risk in the market at the moment personally.

Otherwise, I recommend the same advice as arch generally.  You want to max out the 401k match which you're already doing.  Then put $6k a year into a ROTH, either through Vanguard or Fidelity would be my recommendation.  Only after doing that should you even think about playing individual stocks.  And in your case it sounds like a blended mutual fund set it and forget it would be better for you.

Just to piggyback and rephrase why my advice further up might have sounded like -- you can go ahead and open and fund the Roth IRA WITHOUT it being "in the market".  Attakid - Roth IRA is just an account designation with special tax treatment -- it doesn't require you be invested in anything in particular, and you could just as easily park it in money market funds for the short term while you figure out your plan.  (and the $6k that Jonas mentions is $6k for you plus another $6k for your wife in her account -- "individual" retirement accounts are just that -- separate limits for you and the wife).

 

(also -- Jonebone leaves out Schwab, but they are cost-competitive with Fidelity, and both Fidelity and Schwab have a much better website and trading platform than Vanguard, though aside from the ancient UI, there is nothing wrong with Vanguard)

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Ditto everything that has already been said. But would add the question - do you have any debt? From the $18k I’d keep 6 months of living expenses plus a small additional cushion in an online savings account with a rate better than your typical bank (e.g., Discover online savings) and just let it sit. Whatever is left, I’d first consider if there was debt that was costing me money before investing anything. Depending on the interest rate on any debt I’d first consider paying that down. Also, is there any way to leverage the cash to decrease monthly cost? Do you pay PMI on a mortgage but are close to 20% equity and could tilt the scales to 20% with the remaining cash and get out of the monthly PMI? Lastly, if you have a mortgage, have you taken advantage of the crazy historically low rates right now? You can do a no cost refi where the lender credit is enough to cover your closing costs, and walk away with a lower monthly at no cost to you while freeing up more cash for investment. So those are some additional thoughts to consider, otherwise there’s very solid advice in the other posts. 

Edited by Xjwebb1982
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Events Helper · Posted

Just seen this, I have been debating things lately too.  I setup a high yield savings account with American Express.  It has dropped percentage wise since the pandemic, but there are others out there with a higher %.  I just happened to pick this when it was at 2.x% interest.  Not making a whole lot, but still making a little and it is growing.  I just xfered my savings from my normal bank into it to up it a little, and hopefully the %rate will go back up.  it is at 1% right now so it isnt making a whole lot, but better than my $.30 every 3 months in my normal savings.  im makin a whopping $5 a month 🤣.  I can also xfer it out if i need it at anytime, which is something I would want for emergencies and such.

You could make 3x's what I am a month if u had one setup.  But I am sure there are better options out there.  Just the safer of all routes that I decided to go.  I have no time for stocks and I would personally trust my money with very few people so at least I'm growing my money a little.  

Edit:  I am in no way a financial advisor, but another thing you might wanna do is pay down any high % debt you have, that is something I take pride in is keeping a low revolving credit debt.  Just carry a little so i can up my credit score long term.

Edit 2:  Also, if u can afford it, up your 401k amount u put in.  My employer matches 7% of my pay but i put 13% in.  I plan on bumping it up to 15% next year.  Have been doing this for the most of my 13 years of employment and have 160k in there, so I could easily have 300-400 by the time im ready to retire, hopefully more.  Of course that all depends on the market, but that is the risk i guess.

Edit 3:  For reference, I am almost 37 so we are near the same age.  My company also starts you out matching the 401k investment so they really got me started into it and a couple years in I began to up the % i put in.

Edited by Jeevan
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12 hours ago, Jeevan said:

Edit 2:  Also, if u can afford it, up your 401k amount u put in.  My employer matches 7% of my pay but i put 13% in.  I plan on bumping it up to 15% next year.  Have been doing this for the most of my 13 years of employment and have 160k in there, so I could easily have 300-400 by the time im ready to retire, hopefully more.  Of course that all depends on the market, but that is the risk i guess.

Edit 3:  For reference, I am almost 37 so we are near the same age.  My company also starts you out matching the 401k investment so they really got me started into it and a couple years in I began to up the % i put in.

Before you exceed 10% contribution (or their match level, whichever is higher) to an employer-provided 401k , you should seriously consider taking advantage of your Roth IRA contribution space every year, up to the $6,000-per-individual maximum. (so $12k, right now between you and a spouse)

There is an enormous amount of flexibility that Roth-type acounts provide that you don't get with traditional-pre-tax plans (not to mention the flexibility of choice you get with IRAs versus employer plans in the first place where some employer plans have relatively high fees and relatively few investment choices).

 

Always get your employer match, because that is part of your salary that you're otherwise passing up.

But, personally, I think maxing out the Roth IRA space every year is the single most valuable long-term contribution you can make, due to the tax-free growth and the fact that the accounts don't have RMDs, making them the single best vehicle for future inheritances for kids/grandkids.

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There’s many ways to invest depending on you experience level and risk tolerance. 
 

Here is a safe thing to do.
1. Get a Fidelity account

2. Don’t get excited and dump all your money into any one thing all at once.

3. Cost average some mutual funds that have 15+ years of history with at least 10% annualized return. Cost averaging means putting in a little each month to get exposure to  average cost over a period of months, instead of your entire portfolio cost being the cost at any one point in time.

4. Don’t be tempted to buy individual stocks.

5. Don’t be tempted to alter you portfolio by short term market changes.

There is of course other ways to make money more aggressively, but if you want to take all of the skill out of the game and are content with guaranteed returns of 10% per year, then this is the way. 10% beats what the bank pays in a savings account

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