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Started By
Message
What to do with 25K (first time investor)
Posted on 2/23/11 at 8:13 pm
Posted on 2/23/11 at 8:13 pm
I'm 26 years old, single, debt free, and make about 70K a year. I put on average around 800 a month in a regular savings account and contribute 7% (up to employer match) to my 401k. I'm pretty close to having 25K in savings and trying to figure out what I should do. I've let this amount accumulate without investing because I've been tossing around the idea buying a place, and I wanted to have the cash available in case I needed it for a downpayment. I've come to the conclusion that I'll prob wait 2-3 years to buy a place and stockpile cash in the mean time. Then when the time comes I'll purchase a house that will better suit my lifestyle for the long term (3+ bedroom in a good school district) as opposed to buying a condo or cheap house now. I live in Atlanta by the way and refuse to live in the 'burbs, so whatever I buy now would be over 200K.
So now that I feel comfortable moving some money around, I wanted to see what y'all think would be the best use of my money. I'm thinking about dropping 5K in a roth IRA to max out last years contribution limit. Then put about 10K in a 12 -14 month CD to earn some sort of interest and treat it as my emergency fund. Which would leave me with 10k plus whatever I save per month which should be 18K (10K + 800 per month) in cash by December. Not sure what I would do with the remaining cash - maybe dabble in stocks.
So now that I feel comfortable moving some money around, I wanted to see what y'all think would be the best use of my money. I'm thinking about dropping 5K in a roth IRA to max out last years contribution limit. Then put about 10K in a 12 -14 month CD to earn some sort of interest and treat it as my emergency fund. Which would leave me with 10k plus whatever I save per month which should be 18K (10K + 800 per month) in cash by December. Not sure what I would do with the remaining cash - maybe dabble in stocks.
7
Posted on 2/23/11 at 8:19 pm to Kemosabie
Please tell me you signed up for this board just for the Money Talk.
Posted on 2/23/11 at 8:21 pm to Kemosabie
You don't need us, honestly. Your plan is well though out.
Posted on 2/23/11 at 8:44 pm to Kemosabie
Interest rates are pretty much worthless right now. I wouldn't lock into anything, even though I don't see it changing any time too soon.
Just put it in a money market account.
Just put it in a money market account.
Posted on 2/23/11 at 8:52 pm to Kemosabie
I am going to layout exactly what you should do with your cash IMO.
1. Continue to max out your matching funds in your 401k.
2. Since you already have 4 months salary in your savings account STOP contributing to it. This is your emergency savings. You are making peanuts in that account and with inflation you are losing purchasing power with that cash.
3. Max out your Roth for 2010, 2011, and every year you possibly can. Remember pay yourself first and DCA. The first thing you should do is set up an AIP with your brokerage service.
4. DO NOT put your money in a CD. CD's right now are yielding nothing. You already have an emergency fund in your savings account.
5. Now with all of your cash minus your emergency savings fund already allocated invest in VTSMX. This is the only fund you need and it is ideal as the core of your portfolio. Whatever you do, DO NOT invest in individual securities. You have a better chance going to a roulette wheel and calling black! This money is highly liquid so if you need the money fast you have access to it. Every month DCA and buy with the remaining cash you have on hand after liabilities.
Granted I don't know your family situation, but since you have zero debt you are looking good. You are 26 years old your best friend at this point is time and the power of compounding interest.
“The most powerful force in the universe is compound interest” -Albert Einstein
1. Continue to max out your matching funds in your 401k.
2. Since you already have 4 months salary in your savings account STOP contributing to it. This is your emergency savings. You are making peanuts in that account and with inflation you are losing purchasing power with that cash.
3. Max out your Roth for 2010, 2011, and every year you possibly can. Remember pay yourself first and DCA. The first thing you should do is set up an AIP with your brokerage service.
4. DO NOT put your money in a CD. CD's right now are yielding nothing. You already have an emergency fund in your savings account.
5. Now with all of your cash minus your emergency savings fund already allocated invest in VTSMX. This is the only fund you need and it is ideal as the core of your portfolio. Whatever you do, DO NOT invest in individual securities. You have a better chance going to a roulette wheel and calling black! This money is highly liquid so if you need the money fast you have access to it. Every month DCA and buy with the remaining cash you have on hand after liabilities.
Granted I don't know your family situation, but since you have zero debt you are looking good. You are 26 years old your best friend at this point is time and the power of compounding interest.
“The most powerful force in the universe is compound interest” -Albert Einstein
Posted on 2/23/11 at 9:37 pm to Kemosabie
I would look into the local banks which have Rewards Checking accounts that have 3-5% interest up to 20-25K. It is the best rate you can get and it is guaranteed. There are a few stipulations to qualify but if you keep an eye on it, it can do really well for you. Plus, it is always available in case of emergency, whereas locking into a CD can get costly to withdraw early.
I currently have accounts with UCB and Fidelity Homestead Bank in BR.
I currently have accounts with UCB and Fidelity Homestead Bank in BR.
Posted on 2/23/11 at 9:46 pm to slinger1317
AS everyone else said, stay away from the CDs and put it in some form of money market account. The tiny amount of interest you may gain is not worth it being locked up.
Besides that, keep doing what you are doing with the 401k and max out a Roth for 2010 and 2011. Sounds like you are doing damn well for a 26yo.
Besides that, keep doing what you are doing with the 401k and max out a Roth for 2010 and 2011. Sounds like you are doing damn well for a 26yo.
Posted on 2/23/11 at 10:31 pm to Chris Farley
Call Monex, invest it in Silver, watch it grow to 6 figures by the end of 2011...gotta stay on top of it, made 2x that much in 2 months on silver alone...
Posted on 2/23/11 at 10:32 pm to Tim
quote:
Call Monex, invest it in Silver, watch it grow to 6 figures by the end of 2011...gotta stay on top of it, made 2x that much in 2 months on silver alone...
Worst advice ever.
Posted on 2/23/11 at 10:34 pm to AviatorTiger
quote:
Worst advice ever.
it will hit $50 an ounce this year, look me up later when you realize you were wrong
Posted on 2/23/11 at 10:39 pm to Tim
Posted on 2/24/11 at 12:01 am to AviatorTiger
Did you even read his post, are did you just go Dave Ramsey for no reason. This guy had a very sensible plan and yours paid no attention to his situation.
Posted on 2/24/11 at 7:25 am to Kemosabie
See the thread about Iraqi dinars?
Don't do it.....
Don't do it.....
Posted on 2/24/11 at 7:54 am to Kemosabie
quote:
I would look into the local banks which have Rewards Checking accounts that have 3-5% interest up to 20-25K
This. CD and savings rates are about 1% on average right now. Another option for you is a variable annuity. The average rate is about 3% right now, but you can choose the amount you want in the fixed rate, and the amount you want to play with. It's a good option for long-term investing. Do what you're doing with the Roth. Do $5,000 every year and dump as much money as you can into your IRA. You can't pass on free money. Other than that, you're in real good shape man.
Posted on 2/24/11 at 10:34 am to AviatorTiger
Thanks for the insight guys. This is really helpful.
I’m liking what Aviator is saying. With a little help from google, I want to make sure I understand correctly.
1. Set up a Roth IRA and drop in 5,000 for 2010. Also set up auto contributions each month to reach the max for 2011.
2. Invest any remaining cash (minus emergency fund and IRA) in VTSMX index fund. Also continue to drop in any leftover cash each month.
So how much and where should I put my emergency fund. I was thinking a flat 10,000 which is about six months worth of expenses – my monthly expenses are really low. But four months net salary would be around 14,000. What do you think? It sounds like I should just go with a high yield savings account.
I’m liking what Aviator is saying. With a little help from google, I want to make sure I understand correctly.
1. Set up a Roth IRA and drop in 5,000 for 2010. Also set up auto contributions each month to reach the max for 2011.
2. Invest any remaining cash (minus emergency fund and IRA) in VTSMX index fund. Also continue to drop in any leftover cash each month.
So how much and where should I put my emergency fund. I was thinking a flat 10,000 which is about six months worth of expenses – my monthly expenses are really low. But four months net salary would be around 14,000. What do you think? It sounds like I should just go with a high yield savings account.
Posted on 2/24/11 at 11:11 am to Kemosabie
Go to Vanguard.com and open a Roth brokerage account and connect your checking account to it. Transfer $5k for 2010 and $5k for 2011 into a money market account (VMMXX)in the Roth acct. If you want to dollar cost average the money into equity funds do that, otherwise exchange the entire amount into the funds.
Aviator Tiger believes total domestic stock market index is all you need. Everyone else on this board disagrees. If it were me at minimum I would add Total international equity index which also includes emerging and international small cap, in addition to developed international. I also would buy with the minimum investment and wait for bad days or down weeks to exchange funds from the money market to the equity funds and keep at least 30% cash as dry powder for significant future opportunities. Good luck.
Aviator Tiger believes total domestic stock market index is all you need. Everyone else on this board disagrees. If it were me at minimum I would add Total international equity index which also includes emerging and international small cap, in addition to developed international. I also would buy with the minimum investment and wait for bad days or down weeks to exchange funds from the money market to the equity funds and keep at least 30% cash as dry powder for significant future opportunities. Good luck.
This post was edited on 2/24/11 at 11:12 am
Posted on 2/24/11 at 11:19 am to Kemosabie
quote:
2. Invest any remaining cash (minus emergency fund and IRA) in VTSMX index fund. Also continue to drop in any leftover cash each month.
Investing in equities with money that you will need in the short term is highly unadvisable.
IF you are planning on pulling the money out in 18 months like you said, the end point sensitivity of the market could make you a lot of money or kill you.
Posted on 2/24/11 at 11:28 am to TheHiddenFlask
quote:
IF you are planning on pulling the money out in 18 months like you said, the end point sensitivity of the market could make you a lot of money or kill you.
Join Costco, open a CapOne Costco online savings account, 1.35% or check local CU's for HY checking offers for the excess cash. Dabbling in stocks is risky, I assumed the Roth was for long term.
Do not buy bonds/bond funds as you will lose money in the short run if/when rates go up.
Posted on 2/24/11 at 11:31 am to tirebiter
Vanguard Roth IRA
Vanguard Mutual Fund Investing in remaining monies. Will be fairly liquid and not locked up, will do lot better than CD which is locked up.
Vanguard Mutual Fund Investing in remaining monies. Will be fairly liquid and not locked up, will do lot better than CD which is locked up.
Posted on 2/24/11 at 11:34 am to Tim
quote:
it will hit $50 an ounce this year, look me up later when you realize you were wrong
What's your exposure to it? Anything less than 100% would be ludicrous at that guaranteed rate of return.
What are the major macoeconomic drivers of the price of silver that you see causing this? I assume it's only inflation/devaluation of the USD. If so, why only silver?
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