Investing for Retirement: How to do...everything - PeachParts Mercedes-Benz Forum

Squabble · #1 07-01-2009, 10:03 AM

the situation: my wife finally finished school and got a great job. we now have two paychecks coming in, no kids, a low interest first time home buyers mortgage rate, and some easy to handle debt (school loans, credit cards). we need to start working on retirement but neither of us have a clue as to how to do it. i do have a 401K at my job but i shut off my contribution percentage to survive on one paycheck. my job does contribute and we do have an adviser come in once a quarter to discuss our portfolio so next time he's in i'm going to tackle what's going on there. but we're interested in saving and investing more and doing it somewhat aggressively.

the problem: we have no clue what we are doing. i mean, not even the basics. i've never had the opportunity to even consider this kind of thing in my life, i can't even wrap my head around the physicality of what exactly stocks and bonds are, let alone where to get them and make them work for me. where does one go to even buy stocks? i literally have no idea where to begin. the only thing i know how to do is dump money into a savings account. the rest is like a vague idea of something i know about that people do and seem to make money off of. it's a foreign language to me, a concept that i can barely grasp as i lack the understanding, experience, and vocabulary to really understand it. i come from a small town and never expected to go to college, let alone be where i am now. owning a house and not buying second hand clothes is still a kind of foreign concept to me.

the goal: number one is retirement. we want to invest enough and early enough to retire comfortably. if it's doable, investing for extra capital would be great. we're relatively young, know that we can live okay on less than what we're bringing in now, and are willing to take some risks on top of a more conservative retirement package plan. also, a hands off set up would be ideal. we bank online with automatic everything, so if there is a way to get set up to invest and then sit back and watch it trickle or roll in, that would be perfect and something we are used to.

so, where do we begin? what percentage of our income should be invested? saved? spent? and how should be allocate our investment money? what do you suggest? are there some books for beginners out there that anyone suggests that might help me figure out what exactly i'm getting into? thanks for the help!

awsrock · #2 07-01-2009, 10:12 AM

I'd look into opening a Roth IRA. I think the yearly limit is $4,000, although they may have raised it for 2009.

These are best to start as soon as possible..even if you put in X amount the first year and nothing for a few following years, you'd still be better off than waiting those few years to start.

I really wish that I had started about 2 years ago, but my parents said I should hold onto what little money I had, just in case. I suppose they were right, but I ended up losing half of it anyway due to the stock market. At 23, I am still pretty young though, so I am still going to start as soon as I have a job that I don't have to live paycheck to paycheck on (soon!). The sooner, the better! That interest likes time to really do its work.

Anywho, the good thing about the Roth is that the contributions are not taxed when you take them out, so you can do so anytime (I believe). You cannot, however, take out any interest made without a fine, but they do allow you a one time credit of up to $10k to put towards a house purchase.

I'd look into it a bit more..that's all I really know about it. Now, if you can manage to put some in one of these, AND put some into your 401k, you should have a good thing going for you!

Nice avatar, btw

Squabble · #3 07-01-2009, 10:47 AM

Roth IRA...i've heard of those, thanks for the idea.

now, where do you go get one of those? the bank? we have a merrill lynch downtown, is that where i do all of this?

awsrock · #4 07-01-2009, 11:59 AM

Yes, I think most banks offer those. I don't know if one is any better than the other, though.

aklim · #5 07-01-2009, 12:28 PM

Why not sit down with SEVERAL financial planners and see if you can come up with a common theme. Stay away from the one guy that promises the stars and the moon. That will give you a good starting point where you can see what roughly needs to be done.

Remember the Rules of Acquisition:

48 The bigger the smile, the sharper the knife.
59 Free advice is seldom cheap.
190 Hear all, trust nothing.

ILUVMILS · #6 07-01-2009, 12:34 PM

The rules of investing are actually simpler than most people think. Here's a few that I've learned from personal experience.

1. Take full advantage of any vehicle that allows you to invest money and lower your tax liability at the same time. Your 401K is the first place you should look. Roth and traditional IRA's would be next. Keep in mind that as your income grows you may be dis-qualified from contributing to IRA's. I don't know how old you are, but I'm guessing you're young-ish. Most young people don't consider tax issues when investing, but they should. It can make a huge difference over time.

2. You say you have no children. If this changes, your investment strategy will have to change as well. Don't hide all of your $$$ in tax sheltered vehicles. See what kind of programs your state has for college savings. I know this sounds crazy, but the sooner you start, the easier it will be.

3. Don't be afraid to invest a good portion of your money aggressively! If you're a young person, time is your ally. Conservative investing may cause you to come up short of your goals.

4. If time is your ally, debt is your enemy!!! Try to live below your means!!! If you can accomplish this, you'll have more $$$ to invest.

5. Consider getting some professional advice, but be careful. There are more incompetent financial planners than there are auto mechanics. Get a referral from a friend or co-worker if you can.

cjlipps · #7 07-01-2009, 12:38 PM

Some good advice here.

pj67coll · #8 07-01-2009, 12:48 PM

Interesting topic. I feel pretty much in the same boat as the OP, although not being that young and with significantly more debt I'd say I'm in a worse position. Anyway. I'm pretty much at sea with all the financial terminology as well. Would be nice to have some succinct way to clear it all up.

- Peter.

amosfella · #9 07-01-2009, 12:53 PM

check a self managed forex investment. www.babypips.com Go through their school of pipsology. it's worth your time.....

#10 07-01-2009, 01:13 PM

You really ought to consult with a certified financial planner.

Hatterasguy · #11 07-01-2009, 01:13 PM

Purchase and read this book. Its very old so you can probably pick it up for a couple bucks at a used book store. I paid $2.50 for my copy on Amazon.

It has some very good advise on how to divide up your income so you can live comfortable, and retire well.

After that go with the advice above.

Mutual funds are also pretty good, they have a bunch of them, YMMV.

Personaly I own no paper assets, I love real estate. Eventualy I'll probably do what my uncle does and buy bonds.

dynalow · #12 07-01-2009, 01:20 PM

Agree with what ILUVMILS says.

Couple of other points. If you are a risk taker by nature, keep that action out of your tax advantaged accounts. Money lost there cannot be replaced. Outside, you can at least get capital loss treatment.

If you are not a homeowner, become one as fast as you can. Ordinary income tax deductions and tax free gain on sale is a winning combo.

Lots of info on Roth IRA's here
http://www.rothira.com/

When the kids roll around.. everything you need to know about 529 savings plans in one place.
http://www.savingforcollege.com/

The truth about kids: Raising them is expensive. College for kids is expensive. If you wait until they are born, saving during those years when your family costs are higher becomes more challenging. And of course, the longer you wait to have children, the more expensive everything becomes. And the longer they are around as you start to age.

Kids: The gift that never stops taking!

Good luck. And if it seems too goo to be true.......

Medmech · #13 07-01-2009, 01:39 PM

Quote:

Originally Posted by ILUVMILS

The rules of investing are actually simpler than most people think. Here's a few that I've learned from personal experience.

1. Take full advantage of any vehicle that allows you to invest money and lower your tax liability at the same time. Your 401K is the first place you should look. Roth and traditional IRA's would be next. Keep in mind that as your income grows you may be dis-qualified from contributing to IRA's. I don't know how old you are, but I'm guessing you're young-ish. Most young people don't consider tax issues when investing, but they should. It can make a huge difference over time.

2. You say you have no children. If this changes, your investment strategy will have to change as well. Don't hide all of your $$$ in tax sheltered vehicles. See what kind of programs your state has for college savings. I know this sounds crazy, but the sooner you start, the easier it will be.

3. Don't be afraid to invest a good portion of your money aggressively! If you're a young person, time is your ally. Conservative investing may cause you to come up short of your goals.

4. If time is your ally, debt is your enemy!!! Try to live below your means!!! If you can accomplish this, you'll have more $$$ to invest.

5. Consider getting some professional advice, but be careful. There are more incompetent financial planners than there are auto mechanics. Get a referral from a friend or co-worker if you can.

As much as I hate X2's

X2

SwampYankee · #14 07-01-2009, 01:47 PM

I can't really add much more here since I'm only marginally ahead of you on the "How to" part. Getting out of debt was the first step and having my wife go back to work will be the 2nd. We sat down with a financial adviser since we were both clueless and they laid a plan out that we could afford now and expand as my salary increases or my wife goes back to work. Ours is somewhat complicated by my son w/Down syndrome and planning for his yet-to-be-know future needs.

Right now I just have my 401k with my contribution maxed to the level the company will match (6% in my case), I figured why leave company money on the table. When there is extra it will go into a Roth IRA.

Skid Row Joe · #15 07-02-2009, 04:33 AM

Quote:

Originally Posted by Squabble

the situation: my wife finally finished school and got a great job. we now have two paychecks coming in, no kids, a low interest first time home buyers mortgage rate, and some easy to handle debt (school loans, credit cards). we need to start working on retirement but neither of us have a clue as to how to do it. i do have a 401K at my job but i shut off my contribution percentage to survive on one paycheck. my job does contribute and we do have an adviser come in once a quarter to discuss our portfolio so next time he's in i'm going to tackle what's going on there. but we're interested in saving and investing more and doing it somewhat aggressively.

the problem: we have no clue what we are doing. i mean, not even the basics. i've never had the opportunity to even consider this kind of thing in my life, i can't even wrap my head around the physicality of what exactly stocks and bonds are, let alone where to get them and make them work for me. where does one go to even buy stocks? i literally have no idea where to begin. the only thing i know how to do is dump money into a savings account. the rest is like a vague idea of something i know about that people do and seem to make money off of. it's a foreign language to me, a concept that i can barely grasp as i lack the understanding, experience, and vocabulary to really understand it. i come from a small town and never expected to go to college, let alone be where i am now. owning a house and not buying second hand clothes is still a kind of foreign concept to me.

the goal: number one is retirement. we want to invest enough and early enough to retire comfortably. if it's doable, investing for extra capital would be great. we're relatively young, know that we can live okay on less than what we're bringing in now, and are willing to take some risks on top of a more conservative retirement package plan. also, a hands off set up would be ideal. we bank online with automatic everything, so if there is a way to get set up to invest and then sit back and watch it trickle or roll in, that would be perfect and something we are used to.

so, where do we begin? what percentage of our income should be invested? saved? spent? and how should be allocate our investment money? what do you suggest? are there some books for beginners out there that anyone suggests that might help me figure out what exactly i'm getting into? thanks for the help!

The first piece of advice I will impart to you is this: Don't take advice from anyone that hasn't succeeded or completed most of what you are trying to accomplish in your post. If they haven't done it themselves, or succeeded at it themselves, how do you know their advice will work? Most of the advice you get in life is from well-meaning people, that may or may not know what they are talking about. When it comes to money, I would want to know exactly how it's worked out for them? Avoid all financial advisors, with the exception of the guy your company has you interface with occasionally. Rank and file hired financial advisors make money off your money, that costs you money - you don't need them to help you choose how you invest your money. Choosing what to buy is far too simple in these days of information technology. You are asking all the right questions, a lot of them, all good. All I can tell you is what worked for me, and is still working for me since I haven't chosen to quit working - not yet anyway, I still get a bang out of practicing my trade as a self-employed manufacturers sales agent. -Always have too - that alone is priceless in one's profession. Any extra money I made starting from age 22, that I did not spend on living necessities, and business expenses, I saved. I am now 57. I still practice this personal policy to this day. Most all the money I saved went to purchasing common stocks of simple companies that I understood what type of business they were involved in. Every time I have broken the rule of investing in the stocks of companies that I did not understand how their business worked - it has not yielded the performance of companies stocks that I did understand. Some of the savings have annually been directed into stocks purchased in self-directed IRAs, SEP-IRAs, and Roth IRAs, that I have accummulated over the years. The rest have gone into regular accounts with brokerage houses too. I started out buying stock from a firm in Omaha named Omaha Discount Brokerage. Later on, Ameritrade in Omaha. Charles Schwab and Olde Discount I used too. Nowadays, I deal exclusively with Vanguard in Valley Forge, PA. They have everything I want in a brokerage house. Budget: I never had one, remember, I started a habit of saving 100% of the money I did not spend on what I needed to live on, however I may have done fractionally better over time with a budget. For the past several years, I buy what I want to, go where I want to go when I want to, with few limits. My time to spend on electives has arrived. Debt: The less debt you have, the more you will be able to save and invest. The more you save and invest sooner, the longer it has to multiply. This is extremely important to know how compounding works to your advantage, when it's your money that is compounding in whatever you have chosen to invest in. All debt is good for is milking you each and every month. You sit down to eat at the breakfast table, debt sits right with you. You think about how much money you will make this month, then you mentally calculate deducting your monthly debt payments, to know how much you really made that month. If you always stay in debt, you'll never get out of it. Habits have a way of staying around you like a pet. Debt is not a good habit to keep around like a pet. If you are earning far away and above what your payments are each month, now is the time to make extra payments to get rid of it. The day will come, when you cannot save money, and you may even be spending more each month to live than you have coming in - many, many Americans are in that boat right now - they are burning through more than they earn, because of their debt - you will thank yourself for paying everything off that you owe on, if you ever find yourself in that state in the future. That's all the real advice I can give you.....what has worked for me, and what is still working for me today......any more than that would just be pipedream theory, like a lot of what you read or hear about in life - here and elsewhere.