Financial Advice, 401k's, IRA's, Hiding it under a mattress...

[Craig P.]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

Dang, that's a lot. I'd say 5 grand.

FWIW, Dave Ramsey says to have an emergency fund of 3 - 6 months of expenses. (And he also advises against raiding or borrowing from retirement funds for any reason, if I remember correctly.)

 

[Twitch Boy]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

I've been hanging in very well the past couple years, but I'm wondering what the next step is.

Single guy, 28, about $26K in the bank. Savings goal is $1000 a month, which I can hit pretty regularly right now if I don't overdo it on toys and don't have any major catastrophes. One CC that I pay in full, usually runs about $600 a month including some bill pays.

Owe about $24K in student loans. The payments are not really a killer (about $180 a month,) plus if I stay with the feds for 10 years I hear they get forgiven. However, I'd like to help my parents with theirs at some point.

Currently have 5% going into my TSP (fed's 401k style retirement plan) with a 5% match. Everything is in common stock (logic is I'm young so ups and downs don't really affect me yet.) My rate of return was a little disappointing last year, though. Maybe I could shuffle it elsewhere, but where? What really beats common stock for rate of return?

Bought a small 2BR condo last year because I wanted to live in a better neighborhood. Purchase price $125K, I owe about $120K on a 30-year note, 4.125% interest (First Time Home Buyer loan, so I didn't make a huge down payment.) Home market in Anchorage is a little stagnant, but it mostly dodged the subprime shenanigans and Anchorage is out of land to develop, so it should at least be stable. All said and done, I'm paying what you would to rent here anyway. Goal for the condo is hold it for 3 to 5 years, then look at a nicer house with a basement/garage. It's in good shape, but a little plain-Jane and dated so it could use about $10K in remodeling. Would be a great rental candidate, but I'm not interested in opening that particular can of worms.

Just ending year 2 of a 6-year loan on my 2010 Jeep Wrangler. It was my first major purchase out of college, so my interest rate sucks. This will probably be the first thing I pay off, I'll wait about another 2 years just so I'm not throwing money after depreciation. Actually, Jeeps hold their value like beasts, so I can get good salvage value for it if I ever decide I want something else.

I'm kind of in "and now we wait" mode. What should I throw money at next? Put it into the mortgage? Remodel the condo? Pay off student loans? Up my TSP? Keep it in the bank? More pinball machines? Hookers and blow? Zombie apocalypse bunker?

 

[FreshFish]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

I'm kind of in "and now we wait" mode. What should I throw money at next? Put it into the mortgage? Remodel the condo? Pay off student loans? Up my TSP? Keep it in the bank? More pinball machines? Hookers and blow? Zombie apocalypse bunker?

depends upon how disciplined you are, who your friends are, and how much "work" you want to do.

I have a pre-internet article from Jim Rogers who says, save your money assiduously, wait for a good opportunity, then pounce! quoting from memory, so it may be inexact: "you only need a few great opportunites to come along in a lifetime to make a lot of money, as long as you don't lose money in the meantime."

He says look for areas where you have superior information. It could be private, it could be public (e.g. you live down the street from a factory that is running gangbusters, trucks always going in and out all hours of day and night....probably a buying opportunity).

When I was in the retail end of financial products, there was a lot of opportunity in equipment leasing and oil and gas drilling, though the latter is probably no longer available to regular folk any more.


If you are good with your hands, buy used cars, renovate them, sell them. if you have creative friends, find a way to back them in a venture (I knew a guy once who had the idea for a superior valve. his boss wouldn't pay attention to him. so he found two friends with management savvy to advise him, they put down $15K each for 20% of the company, he put down $10K and sweat equity for 60% of the company and started working out of his garage. Last time we spoke his company was valued at $15 million and employed 40 people, fifteen years later). People sneer at Romney, Bain brought Staples to market and some sporting goods chain I can't remember the name of. They created value by finding a niche and exploiting it. You don't have to have ambitions anywhere near that grand to make five figures selling something innovative and simple over the internet (some woman sewed a carrying case for bleacher seats and started selling it and made a tidy sum).

This is contrary to the popular wisdom so most people here will tell you I'm crazy.

We wound up renting out a house by accident and it worked pretty well for us; the rental income covered our carrying costs and when the market eventually turned around we finally sold it for more than we originally offered it for when we couldn't sell it and resorted to renting it out from desperation.

We've done well buying houses that are structurally sound and cosmetically challenged, then renovating them ourselves while we lived in them (we hired a good structural engineer to go around with us when we looked at houses, before we made a bid. The extra up-front cost was well worth the investment).

I'm working with my son and a few friends to explore some potential ventures where he finds a simple product to assemble and sell over the internet on the side with a goal to clear $15K after expenses. It might be clever slogans on a T-shirt. Still evaluating ideas.

 

[FlagDUDE08]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

I've been hanging in very well the past couple years, but I'm wondering what the next step is.

Single guy, 28, about $26K in the bank. Savings goal is $1000 a month, which I can hit pretty regularly right now if I don't overdo it on toys and don't have any major catastrophes. One CC that I pay in full, usually runs about $600 a month including some bill pays.

Owe about $24K in student loans. The payments are not really a killer (about $180 a month,) plus if I stay with the feds for 10 years I hear they get forgiven. However, I'd like to help my parents with theirs at some point.

Currently have 5% going into my TSP (fed's 401k style retirement plan) with a 5% match. Everything is in common stock (logic is I'm young so ups and downs don't really affect me yet.) My rate of return was a little disappointing last year, though. Maybe I could shuffle it elsewhere, but where? What really beats common stock for rate of return?

Bought a small 2BR condo last year because I wanted to live in a better neighborhood. Purchase price $125K, I owe about $120K on a 30-year note, 4.125% interest (First Time Home Buyer loan, so I didn't make a huge down payment.) Home market in Anchorage is a little stagnant, but it mostly dodged the subprime shenanigans and Anchorage is out of land to develop, so it should at least be stable. All said and done, I'm paying what you would to rent here anyway. Goal for the condo is hold it for 3 to 5 years, then look at a nicer house with a basement/garage. It's in good shape, but a little plain-Jane and dated so it could use about $10K in remodeling. Would be a great rental candidate, but I'm not interested in opening that particular can of worms.

Just ending year 2 of a 6-year loan on my 2010 Jeep Wrangler. It was my first major purchase out of college, so my interest rate sucks. This will probably be the first thing I pay off, I'll wait about another 2 years just so I'm not throwing money after depreciation. Actually, Jeeps hold their value like beasts, so I can get good salvage value for it if I ever decide I want something else.

I'm kind of in "and now we wait" mode. What should I throw money at next? Put it into the mortgage? Remodel the condo? Pay off student loans? Up my TSP? Keep it in the bank? More pinball machines? Hookers and blow? Zombie apocalypse bunker?

Unless you get really free choice on what to invest in or you have more company match to take advantage of, I wouldn't put more in the TSP.

Personally, I paid off my loans (highest interest to lowest interest) first by means of accelerated payments on one, and on-time payments on the rest (or in the case where I had an accelerated payment schedule before getting a higher interest loan on a vehicle, pay the interest plus maybe a couple bucks of the principal because the loan was set up so accelerated payments were tacked onto your next payment instead of at the end as is with one of the student loan companies). However, assuming your life is more exciting than mine, leave a little bit to spend on yourself. You sound like you've done your homework on your finances, so no need to give you the televangelist "cut up the credit cards" speech. Whatever percentage between loans and personal pleasure would make you happy, but just remember that the faster you make the payments, the less you'll have to pay in the long run.

 

[Craig P.]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

My rate of return was a little disappointing last year, though. Maybe I could shuffle it elsewhere, but where? What really beats common stock for rate of return?

There are ups and downs, and one of the reasons for investing more aggressively when you're young is that you're able to ride out the temporary downs like, say, last year.

I'm not sure what the "preferred" asset mix is at your age. I have a small percentage of my 401k in cash and a less-small percentage in bond funds, but I'm a bit older than you are so my risk tolerance is a little lower.

I'm kind of in "and now we wait" mode. What should I throw money at next? Put it into the mortgage? Pay off student loans? Keep it in the bank?

For certain, you should prioritize higher-interest loans over lower-interest loans.

Depending on your financial discipline, over the long term, you can get more return by investing your money than you can get by paying down your mortgage, assuming it was taken out in the last ~five years. If the rate is higher, there's more value in paying it down, but there remains the downside that the returns are locked up in the house and can only be realized by selling or by taking out a loan. (Essentially, paying down your mortgage functions like an illiquid investment with a guaranteed rate of return equal to your interest rate.) There might be some value to getting your L/V low enough to get out of PMI, I'm not sure and haven't ever tried running numbers on it.

Make sure that your current rate of retirement savings is "right" for you. If you haven't maxed out your 401k equivalent or IRA/Roth contributions, you may want to do so.

Make sure you have an emergency fund that is "right" for you.

Make sure you have non-emergency savings that are "right" for you, e.g. so that you'll be ready to buy a car (new or used) when your current one needs to be replaced.

At that point, there isn't necessarily anything that you "should" do. It becomes about your longer-term goals and things that interest you right now. If there's something that would cost a lot of money that you have a longer-term interest in, maybe you save your money for that. If there's something that you've always wanted to do that fits your budget now, maybe you go ahead and do it. "What should I throw my money at next" is, I think, the sort of financial situation that we all strive for, unless I'm mistaking the sense in which you're asking "what should I throw my money at next".

 

[Tundra]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

I'm kind of in "and now we wait" mode. What should I throw money at next? Put it into the mortgage? Remodel the condo? Pay off student loans? Up my TSP? Keep it in the bank? More pinball machines? Hookers and blow? Zombie apocalypse bunker?

I'll concur with freshfish (Jim Rogers)wait for opportunity and keep raising cash. I would definitely open an stock brokerage account, Roth IRA if you qualify and get comfortable with stocks. Maybe check out some CD (FDIC insured) 1,2 year out with higher interest rate to park your cash.

I would definitely not pay the 4% mortgage early, nor spend on remodeling the condo. I would consider paying off the car loan early so you can lower your insurance from full to liability. and maybe the student loan if it has high interest rate. but I like the cash.

So where is the opportunity to invest.
1 Business (very risky but ...that's how you get super rich)
2.Real estate (leverage, leverage, leverage, which makes it somewhat risky and can make you rich)
3.Stocks (choppy market, need to buy more when it's doing badly)
4.Bonds (I think the rates will have to go up, which means bonds will go no where or killed)

 

[Almington]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

I've been hanging in very well the past couple years, but I'm wondering what the next step is.

Single guy, 28, about $26K in the bank. Savings goal is $1000 a month, which I can hit pretty regularly right now if I don't overdo it on toys and don't have any major catastrophes. One CC that I pay in full, usually runs about $600 a month including some bill pays.

Owe about $24K in student loans. The payments are not really a killer (about $180 a month,) plus if I stay with the feds for 10 years I hear they get forgiven. However, I'd like to help my parents with theirs at some point.

Currently have 5% going into my TSP (fed's 401k style retirement plan) with a 5% match. Everything is in common stock (logic is I'm young so ups and downs don't really affect me yet.) My rate of return was a little disappointing last year, though. Maybe I could shuffle it elsewhere, but where? What really beats common stock for rate of return?

Bought a small 2BR condo last year because I wanted to live in a better neighborhood. Purchase price $125K, I owe about $120K on a 30-year note, 4.125% interest (First Time Home Buyer loan, so I didn't make a huge down payment.) Home market in Anchorage is a little stagnant, but it mostly dodged the subprime shenanigans and Anchorage is out of land to develop, so it should at least be stable. All said and done, I'm paying what you would to rent here anyway. Goal for the condo is hold it for 3 to 5 years, then look at a nicer house with a basement/garage. It's in good shape, but a little plain-Jane and dated so it could use about $10K in remodeling. Would be a great rental candidate, but I'm not interested in opening that particular can of worms.

Just ending year 2 of a 6-year loan on my 2010 Jeep Wrangler. It was my first major purchase out of college, so my interest rate sucks. This will probably be the first thing I pay off, I'll wait about another 2 years just so I'm not throwing money after depreciation. Actually, Jeeps hold their value like beasts, so I can get good salvage value for it if I ever decide I want something else.

I'm kind of in "and now we wait" mode. What should I throw money at next? Put it into the mortgage? Remodel the condo? Pay off student loans? Up my TSP? Keep it in the bank? More pinball machines? Hookers and blow? Zombie apocalypse bunker?

If it was me in your place, I would do some combination of three things with my free cash flow:
1.) Accelerate my payments on the Jeep, regardless of how long you intend to keep it, because the sooner you pay it off the less total interest you pay. If you student loans have an interest rate above 6.5% I would also consider accelerating payments on those.
2.) Open a Roth IRA and set up automatic payments to fully fund it (5k) for the year.
3.) Open a targeted savings account for updates to the condo (this can also be used as part of a future down payment if you end up not updating the condo)

Honestly, stockpiling cash is never a bad thins, but it is easy to squander any excess if you don't have a specific plan or goal for it (in my experience).

 

[streaker]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

I've been hanging in very well the past couple years, but I'm wondering what the next step is.

Single guy, 28, about $26K in the bank. Savings goal is $1000 a month, which I can hit pretty regularly right now if I don't overdo it on toys and don't have any major catastrophes. One CC that I pay in full, usually runs about $600 a month including some bill pays.

Owe about $24K in student loans. The payments are not really a killer (about $180 a month,) plus if I stay with the feds for 10 years I hear they get forgiven. However, I'd like to help my parents with theirs at some point.

Currently have 5% going into my TSP (fed's 401k style retirement plan) with a 5% match. Everything is in common stock (logic is I'm young so ups and downs don't really affect me yet.) My rate of return was a little disappointing last year, though. Maybe I could shuffle it elsewhere, but where? What really beats common stock for rate of return?

Bought a small 2BR condo last year because I wanted to live in a better neighborhood. Purchase price $125K, I owe about $120K on a 30-year note, 4.125% interest (First Time Home Buyer loan, so I didn't make a huge down payment.) Home market in Anchorage is a little stagnant, but it mostly dodged the subprime shenanigans and Anchorage is out of land to develop, so it should at least be stable. All said and done, I'm paying what you would to rent here anyway. Goal for the condo is hold it for 3 to 5 years, then look at a nicer house with a basement/garage. It's in good shape, but a little plain-Jane and dated so it could use about $10K in remodeling. Would be a great rental candidate, but I'm not interested in opening that particular can of worms.

Just ending year 2 of a 6-year loan on my 2010 Jeep Wrangler. It was my first major purchase out of college, so my interest rate sucks. This will probably be the first thing I pay off, I'll wait about another 2 years just so I'm not throwing money after depreciation. Actually, Jeeps hold their value like beasts, so I can get good salvage value for it if I ever decide I want something else.

I'm kind of in "and now we wait" mode. What should I throw money at next? Put it into the mortgage? Remodel the condo? Pay off student loans? Up my TSP? Keep it in the bank? More pinball machines? Hookers and blow? Zombie apocalypse bunker?

Sounds like you are on the right track.

First of all, having $26K in the bank as an emergency fund is quite a feat considering your age and the fact that you are in a condo and have other living expenses. You are the only one that knows if that covers 6-8 months of your expenses. Good job.

Second, the condo is a solid investment and you can't go wrong on ownership at that interest rate.
My suggestion is that if you plan to stay long term or use as a rental, make the investment on renovation. Otherwise, don't- you won't re-coup it.

Ownership on a depreciating asset (like a car) is only good as long as it is still servicable. The upside is the residual value as you get close to playing it down, so you can break even if you decide to dump it. If you feel confident in its utility after a few years, it is money in your pocket to own it.

The student loan note is probably the area I would concentrate on if you do not have any other debt. Like the mortgage,the interest paid is a good tax deduction, though. If the interest rate is favorable, though, and it sounds like it is based on your monthly payment, concentrate on the condo more than the fed note.Just beware the federal loan shenanigans where they have the right to change terms at their discretion.

Keep your credit cards paid off each month.

On the savings side, $1000.00 a month is outstanding, depending on your income level. Is that on top of the 5% in the TSP qualified fund? Diversity is always a key- including bond funds to offset any of the aggressive up and downs of the equities you are in. When you say common stock- is that a single stock or stock funds (like mutual funds?)

I'm not a big proponent of single stock investment. It's all or nothing risk in the market. If you can, look for more diversity and try to max your limit (401k is at $17,000 IIRC) instead of punching money into a savings account or MM fund.

There are some great mutual funds for the liquidity factor- tax exempt bond funds are getting anywhere from 3-6% return and offer federal tax exemption. I use them for clients I have for their rainy day funds all the time.

 

[streaker]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

If it was me in your place, I would do some combination of three things with my free cash flow:
1.) Accelerate my payments on the Jeep, regardless of how long you intend to keep it, because the sooner you pay it off the less total interest you pay. If you student loans have an interest rate above 6.5% I would also consider accelerating payments on those.
2.) Open a Roth IRA and set up automatic payments to fully fund it (5k) for the year.
3.) Open a targeted savings account for updates to the condo (this can also be used as part of a future down payment if you end up not updating the condo)

Honestly, stockpiling cash is never a bad thins, but it is easy to squander any excess if you don't have a specific plan or goal for it (in my experience).

The Roth is another great idea, just beware of the cap imposed becuase of income and the 5,000 cap period (unless you are over 50, which you are not.)

 

[Almington]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

The Roth is another great idea, just beware of the cap imposed because of income and the 5,000 cap period (unless you are over 50, which you are not.)

the $107k-$122k phaseout on the Roth is a joke, anyone can contribute to a non-deductible IRA and then convert to a Roth. Provided that you have no portion of your IRA is deductable you have no additional taxes or penalties to pay except on the small gains that were made between contribution and conversion.

 

[FlagDUDE08]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

the $107k-$122k phaseout on the Roth is a joke, anyone can contribute to a non-deductible IRA and then convert to a Roth. Provided that you have no portion of your IRA is deductable you have no additional taxes or penalties to pay except on the small gains that were made between contribution and conversion.

Aren't they changing that at the end of 2012?

 

[Almington]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

Aren't they changing that at the end of 2012?

I don't know, it's up to congress and I'm always amazed that they can agree on anything that isn't self-serving.

 

[FlagDUDE08]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

I don't know, it's up to congress and I'm always amazed that they can agree on anything that isn't self-serving.

True that. I'd make a bet on them giving themselves a raise as their last piece of business, but that's like betting that a pair of dice will come up with a number less than 13. And we're talking craps dice, you D&D fanatics.

 

[Craig P.]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

I'd make a bet on them giving themselves a raise as their last piece of business...

I think that would run afoul of Amendment XXVII.

 

[FlagDUDE08]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

I think that would run afoul of Amendment XXVII.

No, because it takes effect the next term. It's still within Amendment XXVII limits.

 

[streaker]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

the $107k-$122k phaseout on the Roth is a joke, anyone can contribute to a non-deductible IRA and then convert to a Roth. Provided that you have no portion of your IRA is deductable you have no additional taxes or penalties to pay except on the small gains that were made between contribution and conversion.

It's a nice loophole, but yeah, beware of the conversion tax bite.

 

[Bakunin]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

I'm kind of in "and now we wait" mode. What should I throw money at next? Put it into the mortgage? Remodel the condo? Pay off student loans? Up my TSP? Keep it in the bank? More pinball machines? Hookers and blow? Zombie apocalypse bunker?

Maintain a cash reserve regardless of what else you do. Granted, you don't have to worry about being laid off like those working the private sector, but you still have to be prepared for potential disasters (car accident, health issues, and so on). Even with insurance, there is bound to be a potentially significant out of pocket cost to you should anything major happen (i.e. if you total your Jeep, the insurance company will pay you what it's worth, and that could be less than what you owe - depending on how much you put down / how much equity you have). I'd say 3 months' expenses is sufficient for a federal employee's emergency reserve.

For investment, the TSP system is as good as it gets for 401(k) plans. Nobody else comes close to their low expense ratios - not even Vanguard. The easiest thing for you to do is park all your TSP money in the L fund that corresponds with the year nearest to when you plan on retiring. Those funds are meant to maintain a proper balance between stocks and bonds as you progress through your career, becoming more defensive as your retirement year looms. I would recommend starting a Roth IRA if you haven't done so already and contribute the maximum each year if you can do so; invest that money in a low expense ETF or mutual fund. Depending on the size of your Roth relative to the size of your TSP, you could use it to invest in something like GLD or perhaps an REIT to further diversify your investment portfolio.

As far as your cash reserve goes, there's simply not a lot you can do with it that will yield a decent return and maintain liquidity. Money market accounts pay jack **** right now, and CD's aren't much better. You could try doing a CD ladder, but your yield will still be abysmal. You could try investing in lending club (peer to peer lending), although investing in loans means your money is tied up 3-5 years while waiting for the loans to be repaid (although your money will trickle back to you as the monthly payments are made). Lastly, I'd say check your insurance. Make sure you're not undercutting yourself there as doing that can needlessly put everything you've worked for at serious risk (think liability). Long term care insurance isn't a bad idea either, although most people don't look into that 'til they're pushing 40 (or older). If something happens to you and you become disabled, you can very quickly blow through your savings obtaining the necessary care.

 

[Almington]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

It's a nice loophole, but yeah, beware of the conversion tax bite.

Provided that you are only converting non-deductible contributions (that is contributions that you have (or for current year contributions: intend) to pay income tax on) you have no increased tax burden with the exception of any gains made between the time of contribution and conversion. Provided that the delay between the two actions is sufficiently short (no more than a month) that should be a overall small amount if you are making 6 figures but the savings from Roth should easily cancel that out.

 

[Craig P.]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

No, because it takes effect the next term. It's still within Amendment XXVII limits.

The amendment requires that an <em>election</em> take place between the passage of a raise and its effect. It's my presumption that an "election" means the voting part, not the swearing-in part, so it is not strictly accurate to say that it's OK "because it takes effect the next term."

 

[Tundra]

Re: Financial Advice, 401k's, IRA's, Hiding it under a mattress...

Provided that you are only converting non-deductible contributions (that is contributions that you have (or for current year contributions: intend) to pay income tax on) you have no increased tax burden with the exception of any gains made between the time of contribution and conversion. Provided that the delay between the two actions is sufficiently short (no more than a month) that should be a overall small amount if you are making 6 figures but the savings from Roth should easily cancel that out.

Thats a big loop hole (for the wealthy). was it always there or did congress sneak that in later?