posted
It depending entirely on how soon you'll need the money again. The quicker you'll need it, the more conservative the investment should be. In that case something like a money market account or CD would be appropriate. If you're looking for something more long-term you can look into mutual funds.
Don't invest in individual stocks.
Posts: 3 | Registered: May 2008
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I would only get into index funds if you buy mutual funds. Index funds with low fees have consistently higher long-term return than all other mutual funds, once fees are taken into account.
Rough guidelines: if you might need it any time (note: different parts of the money might fall into different categories), high interest savings. If you might need it on a year's notice, CDs (I wouldn't go with anything more than a year or 18 months; interest rates will increase at some point). If you won't need it for a decade or more, index funds. S&P 500 is safest, but if you're young, more aggressive index funds are probably worthwhile (I like a heavy international mix, and it has done well for me). Make sure to get really low fees (check out different institutions you can invest through; some of them might have deals with investment companies. Fidelity's Spartan 500 S&P index is the lowest fee S&P 500 index, last I checked). Fees are what eat returns.
Oh, if you have any debt paying interest of more than a few percent for which there is no prepayment penalty, pay that off first (unless there's a chance you might need the cash, in which case keep some around).
Useful to keep in mind: if you only need the money to guard against a temporary cashflow problem that would likely be resolved in a few months, go ahead and put the amount to cover such a potential problem in a CD with a local bank. The bank will be more than happy to give you a loan at great rates secured by the CD if you end up needing the cash short term.
Posts: 15770 | Registered: Dec 2001
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The only real debt that I have is the dreaded mortgage.... We have enough in our high interest checking (not really high now a days)to cover a major house catastrophe or two. Being a teacher our medical is currently good, and we have life insurance already (return of premium!).
Just trying to get finances in line before my wife and I try to add to our family. As it stands right now, our combined incomes leave us in the green each month, by just over 4 digits. We would love to have her not work and raise our family, but our expenses will leave us in the red. Those same gains would turn into losses.
One option is for her to not work for several years until the kids are in school, but that is a very scary thought of a shrinking account each month. As for me, I am a teacher in the great state of NJ. Some of you may be familiar of the war being waged with the union and the governor.
That being said, we live a rather frugal lifestyle, with no major or even minor ways to cutback. I would have no minor issue getting a 2nd job, but then I would never see my wife. With that, what would be the point of getting married?
All of this grown up stuff is rather new to me, and my parents don't know how to manage money so I never really inherited that trait from them.... Again, thanks for any input!
Posts: 468 | Registered: Mar 2008
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posted
Put a couple months of emergency fund in savings/money market.
Assuming the rest is for long-term investment, I would put it in a variety of stocks, with a mix of large cap growth, mid cap growth, and dividend stocks, in diversified businesses.
If you're not very familiar with stock investing, I would also recommend find an online brokerage with a brick and mortar location near you if possible, or that will let you talk to a financial adviser if not.
I wouldn't necessarily take their advice on specific stocks (if they're so smart, why aren't they living on a yacht in the Bahamas?) but to get a basic understanding of stock investing, how to diversity a portfolio, and so on.
Posts: 3950 | Registered: Mar 2006
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posted
Given your stated goals and the fact that you have good savings beyond the $25K, it might be worth looking in to putting the money in to your house and refinancing (interest rates are great right now). If you did that, would the lowered monthly payment allow you to live on your salary alone without going in to the red?
Posts: 1947 | Registered: Aug 2002
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We looked a bit into refinancing. Two problems: Since we bought our house in 2007, the value of our house dropped considerably, even past the point of our 20% deposit. Number two: we have a pretty good rate now at 5.25 I believe. We paid a point up front too, which seemed like a good idea at the time but I think hurts us if we want to refinance. We have been keeping our eye on this option. I haven't really considered waiting out until we can find a deal that would keep our finances in the green... but it might be worth it.
Mr. Cow,
I don't really know too much about investing, so that would require much homework on my part to feel comfortable with the process. I always thought it was funny that investment advisers were investment advisers, like you said. Also, having our money turn into money now is better than later for us.... but that is always the gamble.
quote:Oh, if you have any debt paying interest of more than a few percent for which there is no prepayment penalty, pay that off first (unless there's a chance you might need the cash, in which case keep some around).
I agree with fugu. Assuming you don't have a prepayment penalty (which is a really obnoxious concept), throw as much money as you can at the mortgage. You're going to be hard pressed to find a low-anxiety way to beat 5.25% (CDs, interest savings accounts are all going to be in the 2-3% range for another year or three). If you do the math, it should save you a significant amount in interest to pay it off early.
Posts: 1261 | Registered: Apr 2004
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Oh wait I have an addendum. You should invest your max of Roth IRA for the year first, then set aside your emergency funds, then plop the rest into the mortgage principle.
Posts: 1261 | Registered: Apr 2004
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Stocks aren't really that frightening, and over the long term, they have historically performed much better than 5%.
In other words, it's well worth your time to learn enough about stocks to make some investments. Even a book like Investing for Dummies will give you some stock information so you know what you're getting into.
Posts: 3950 | Registered: Mar 2006
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quote:Originally posted by dabbler: CDs, interest savings accounts are all going to be in the 2-3% range for another year or three). If you do the math, it should save you a significant amount in interest to pay it off early.
Where do you live? Unless we're talking about locking things up for several years, you'd be very lucky to find a CD at 1 or 1.5%, much less 2-3.
Posts: 3580 | Registered: Aug 2005
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posted
Last month, my 401k was getting a return of 6-8%. This month it's down to 3 or 4, I think. For long term savings like retirement, you just can't beat a well diversified stock portfolio.
But what you want is a way to generate income while your wife is home with a couple of kids. Try asking your credit union or bank if they offer income generating annuities. A lot of them are offered by insurance companies, so I'd try to find some that aren't. (I'm still not sure how many insurance companies will be left in a few years with the new changes phasing in backwards, IMO.) Construction bonds are another great option.
If you want extra money to raise kids on, it's not nearly as much about return as it is income. A great return you can't touch is useless for what you want.
Posts: 2283 | Registered: Dec 2003
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posted
Dan, my local bank CDs are 1.5 or so but my bf got a 2.5 through his credit union (I think it's a credit union).
Posts: 1261 | Registered: Apr 2004
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posted
Do you have an emergency fund? If not, stick it in a savings account and forget about it.
Stocks may traditionally perform better than 5%, but there is no guarantee, and things are volatile right now. I keep hearing experts say there is going to be another crash. If that is the route you want, stick it under your mattress until the next crash and buy the good deals.
If I had that cash, and an emergency fund already in place, it would go into my mortgage. A guaranteed rate of return of 5% - 6% sounds great in today's economy. Paying down your mortgage is just as good as saving for retirement.
Posts: 3134 | Registered: Mar 2005
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If you need an emergency fund, I'd only stick a couple of grand in savings (high interest savings). The rest would probably go in CDs, and earn a better interest rate (and be accessible either directly at a penalty, or indirectly as loan collateral).
Paying down the mortgage some is probably your best bet for the next couple of years, as far as investment goes. I'm assuming you've absolutely maxed out any employer matching on retirement plans, though. That's free money.
Posts: 15770 | Registered: Dec 2001
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It sounds like you are set for the short-term, so I'd look to invest for the long term. Usually stocks/mutual funds will get the best return if you are willing to keep these investments for 20+ years.
If you haven't already, I'd look to put the maximum amount possible towards a Roth IRA for your retirment. You can't withdraw the money for a long time, but you also won't have to pay any taxes on the gains you get until you withdraw the money, meaning a better rate of return. If you don't know a lot about stocks, an index mutual fund might be a good choice - that way you have some diversification without high fees.
Posts: 8120 | Registered: Jul 2000
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posted
Index mutual funds are always a superior idea in the long term. They consistently equal or outperform non-index mutual funds once fees are taken into account. Buying a non-index mutual fund (note: all "index fund" really means is that there's a simple rule, typically based on an index, that determines what stocks are bought and sold by the fund. You can find index funds that target all sorts of things. Because the rule is simple, they have low fees) is throwing away money, unless other constraints are in place (some companies have really bad retirement plan options, for instance).
Posts: 15770 | Registered: Dec 2001
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I'm with the emergency fund crowd. Paying down your mortgage is nice, but what happens if you lose your job and don't have any income for 3-6 months while you look for another job? A lower mortgage payment isn't going to help much if you can't pay it anyways.
After you have 3-6 months worth of an emergency fund I would invest the rest. Since the stock market is still recovering right now would be a great time to invest in a few mutual funds.
Posts: 1937 | Registered: Nov 2006
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We have enough in our high interest checking (not really high now a days)to cover a major house catastrophe or two. Being a teacher our medical is currently good, and we have life insurance already (return of premium!).
