My 401K........how much to invest yearly?

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thomsbrain

Lifer
Dec 4, 2001
18,148
1
0
as has been mentioned, the conventional wisdom is:

1. 401k up to match
2. then, max Roth IRA
3. then, more in 401k

I personally do 15% into my 401K and max my Roth IRA. I also save/invest in normal accounts. Ideally, I can retire early with relatively liquid assets to tide me over until the big "payday" at 60. The argument that you "can't" retire early if you invested in tax-sheltered retirement accounts is utterly false. It merely means that you don't need as much in your bank account to make it happen, and you paid a hell of a lot less to Uncle Sam over the years. Whether or not you intend to retire early, failing to make use of a tax shelter is like flushing money down the toilet in the long run.
 

thomsbrain

Lifer
Dec 4, 2001
18,148
1
0
Originally posted by: jaybert
Originally posted by: vi_edit
General opinion is to max out your match on your 401k, then max out your Roth IRA. If you still have money left over, go back and add more to your 401k.

thats not the general consensus at all...general consensus is to max out the 401k up to matching, then max out ROTH IRA, then finish maxing out 401k

wow. just wow.
 

alrocky

Golden Member
Jan 22, 2001
1,771
0
0
Originally posted by: Azurik
Originally posted by: alrocky
Originally posted by: Azurik
Originally posted by: alrocky
No Emergency Cash
Popular Advice You Shouldn't Take

"According to some financial experts, your top financial priority should be amassing an emergency reserve equal to six months of living expenses...

Let's be honest: This is dull, unrealistic and -- I would argue -- not all that sensible. Even if you regularly sock away 10% of your after-tax income, it might take four years or so to amass six months of living expenses...

Sound bad? It gets worse. While you were building up your emergency reserve, you were likely neglecting important goals like funding your 401(k) plan, which might earn you a matching employer contribution, and saving for a house down payment.

My advice: Forget the emergency reserve. Instead, stick at least enough in your 401(k) to get the full company match. Next, fund a Roth individual retirement account. If you still have extra money to save each year, by all means stash it in conservative investments in a regular taxable account.

If you get hit with a financial emergency, tap the money in your regular taxable account first."

I read that a few days ago... that guy... or rather if that is representative of his intelligence, is the dumbest guy to be giving advice for the future.
"according to some financial experts, your top financial priority should be amassing an emergency reserve equal to six months of living expenses"


That's odd. JONATHAN CLEMENTS is pretty well regarded and it's fairly sound advice. There is the opportunity cost involved in saving for emergencies if that is your top financial priority. Insurance and CCs should cover most emergencies - if they can't, the mad money you started to save probably won't save your arse anyway...

Direct quote from Jonathan Clements:

"Those in their 20s are encouraged to invest heavily in stocks, because they have decades until retirement and thus plenty of time to ride out market declines. This is good advice -- in theory...My suggestion: Start with 60% stocks and 40% bonds."

This is probably the worst advice ever. In your early 20's, there is NO advantage is placing 40% of your retirement funds into bonds. You should be pretty be close to 100% in stocks. 80% for the most conservative 20-something year olds. One doesn't have nearly enough in retirement to think about having a stock/bond mixture.

It seems like a lot of the folks in the forum link you posted feel the same way.
In practice, I would be a little cautious. You don't want to invest heavily in stocks and then panic and sell during the next market plunge. Yet that's a real danger if you are new to the market and you have never lived through a market decline.

My suggestion: Start with 60% stocks and 40% bonds. If you find yourself unperturbed by market swings, move your stock allocation up to 85% or 90% after a year or two.
If you would've bothered to complete his quote, he offers a financially sound and behaviour explaination for the 60:40 allocation. Novice investors tend to overestimate their ability to withstand market downturns and may sell, turning paper loses into real loses. Thus his suggestion to start 60:40 is fair advice. Your hyperbole assumes the young are bulletproof and ignores this important caveat.



 

Jawo

Diamond Member
Jun 15, 2005
4,125
0
0
I do like 10% (employee matches 5%) in a 401k. I also have a RothIRA and my company's stock purchase plan.
 
Feb 19, 2001
20,155
23
81
Originally posted by: thomsbrain
Originally posted by: jaybert
Originally posted by: vi_edit
General opinion is to max out your match on your 401k, then max out your Roth IRA. If you still have money left over, go back and add more to your 401k.

thats not the general consensus at all...general consensus is to max out the 401k up to matching, then max out ROTH IRA, then finish maxing out 401k

wow. just wow.

What the hell is going on with people nowadays? :D
 

dullard

Elite Member
May 21, 2001
25,476
3,976
126
Originally posted by: alrocky
No Emergency Cash
Popular Advice You Shouldn't Take

"According to some financial experts, your top financial priority should be amassing an emergency reserve equal to six months of living expenses...

Sound bad? It gets worse. While you were building up your emergency reserve, you were likely neglecting important goals like funding your 401(k) plan, which might earn you a matching employer contribution, and saving for a house down payment.

If you get hit with a financial emergency, tap the money in your regular taxable account first."
That is the path I follow myself. The old 3-6 month emergency cash rule was quite valid before the days of easy access to money. But now, times have changed but the advice people are stuck giving the adivice they gave 30+ years ago.

In the worst case scenerio, I can live 3+ years on my credit cards alone without ANY emergency cash. Or, I could use my home equity loan. Or, I could sell some of my many assets. Having a large stockpile of cash making you next to nothing is NOT the path I choose. At the end of every month, I have ~$300 in total (counting my 3 checking accounts and one online savings account). The rest of my money is making a lot more money elsewhere in investments.

Yes, people should have an available source of 6 months of expenses (such as an unused open home equity line of credit). But that source doesn't have to be in cash in a bank earning little to nothing (even online savings at ~5% isn't much).

If times change and money becomes more difficult to get, I'll up my amount of cash.
 

Turin39789

Lifer
Nov 21, 2000
12,218
8
81
I know for a fact that I won't be at this company for the 4 years it takes to get vested. Would it be smarter to just leave the 401k alone and go roth?
 
Feb 10, 2000
30,029
67
91
Originally posted by: DLeRium
Originally posted by: thomsbrain
Originally posted by: jaybert
Originally posted by: vi_edit
General opinion is to max out your match on your 401k, then max out your Roth IRA. If you still have money left over, go back and add more to your 401k.

thats not the general consensus at all...general consensus is to max out the 401k up to matching, then max out ROTH IRA, then finish maxing out 401k

wow. just wow.

What the hell is going on with people nowadays? :D

Cocaine is a hell of a drug.
 

Special K

Diamond Member
Jun 18, 2000
7,098
0
76
Originally posted by: dullard
Originally posted by: alrocky
No Emergency Cash
Popular Advice You Shouldn't Take

"According to some financial experts, your top financial priority should be amassing an emergency reserve equal to six months of living expenses...

Sound bad? It gets worse. While you were building up your emergency reserve, you were likely neglecting important goals like funding your 401(k) plan, which might earn you a matching employer contribution, and saving for a house down payment.

If you get hit with a financial emergency, tap the money in your regular taxable account first."
That is the path I follow myself. The old 3-6 month emergency cash rule was quite valid before the days of easy access to money. But now, times have changed but the advice people are stuck giving the adivice they gave 30+ years ago.

In the worst case scenerio, I can live 3+ years on my credit cards alone without ANY emergency cash. Or, I could use my home equity loan. Or, I could sell some of my many assets. Having a large stockpile of cash making you next to nothing is NOT the path I choose. At the end of every month, I have ~$300 in total (counting my 3 checking accounts and one online savings account). The rest of my money is making a lot more money elsewhere in investments.

Yes, people should have an available source of 6 months of expenses (such as an unused open home equity line of credit). But that source doesn't have to be in cash in a bank earning little to nothing (even online savings at ~5% isn't much).

If times change and money becomes more difficult to get, I'll up my amount of cash.

Someone just starting out probably isn't going to own a home. Having said that, do you think it would make more sense to have a really low APR card to use in emergencies, rather than a 5% online savings account? I'd like to use a rewards card as my primary CC. Can a CC company cancel your card for inactivity? That is, if I had a rewards card as my primary CC and a really low APR card as my "emergency fund" that I never used except in an emergency, could the issuer of the low APR card cancel my card if I never actually had an emergency and had to use the card?

Also, wouldn't the APR of the emergency credit card need to be less than the historical returns of mutual funds to make it worth it? Otherwise you could end up paying a lot of interest if you ever had an emergency.

Also, let's say I lose my job. If I use the credit card to survive until I find a new job, where is the money to pay the monthly payments supposed to come from if I'm keeping a minimal balance in my checking account and don't have a savings account? I suppose you could raid the Roth IRA, but what if it's lost money since when you started it?
 

dullard

Elite Member
May 21, 2001
25,476
3,976
126
Originally posted by: Special K
Someone just starting out probably isn't going to own a home. Having said that, do you think it would make more sense to have a really low APR card to use in emergencies, rather than a 5% online savings account? I'd like to use a rewards card as my primary CC. Can a CC company cancel your card for inactivity? That is, if I had a rewards card as my primary CC and a really low APR card as my "emergency fund" that I never used except in an emergency, could the issuer of the low APR card cancel my card if I never actually had an emergency and had to use the card?

Also, wouldn't the APR of the emergency credit card need to be less than the historical returns of mutual funds to make it worth it? Otherwise you could end up paying a lot of interest if you ever had an emergency.
Yes, if you are going to use a CC for emergencies (which should really be the last resort, not your first line of defense) you should have a spare low APR card that you don't use for anything else. But, if you need cash for the emergency (such as a CC check), you probably won't be getting a good APR on that anyways. I don't think you get inactivity cancellations on CCs, but I could be wrong. If you are worried, use it once a year for something small and pay it off right away.

Lets try some numbers. Lets say you need $2000 a month for your expenses (many can do with far less, but in some areas of the country that barely covers rent). Thus, to have 6 months of expenses socked away, you'd need $12,000. Put that in an online savings account that you keep at $12,000 and 5% interest and you get $50/month. Put it in the stock market at a 10% return and you get $100/month. Thus, you emergency cash is costing you $50/month (and that $50 could have been earning you 10% returns in your investments).

Lets say you do well for 11 years and then have an emergency. In this case, you lost $11,943 by having that $12,000 emergency fund ($50/month compounded monthly at 10% interest). Clearly, if you can make it 11 or more years, you can never lose because your investments would have that $12k you needed as an emergency.

But, what if you only go half that time, say 5 years. By having that emergency fund in a good 5% savings account, you lost $3872 of potential earnings elsewhere. What does $3872 buy you? Well, for starters it buys you 2 months of emergency money. Lets say you use a 20% interest CC for the emergency. After the 1st month, your CC will have $2000 + $33 in interest, $2033 total. After 2 months, $4067 total. After 6 months of using the CC, your balance would be $12,547. Conclusion: If you don't sock money away, you gain an extra $3872 from your investments, but you might have to pay $547 in CC interest if you have an emergency.

As the math turns out, if you use a 20% interest rate CC for your emergencies you need to make it ~10.5 months without an emergency to be ahead. If your emergency is sooner than 10.5 months, you lose more by invensting it instead of having an emergency stockpile. I'll take that risk. If you have a lower APR loan source such as a home equity line of credit, slash that 10.5 months. Or if your investments do better than 10%, slash that 10.5 months.

Worst case scenario: you lose $547 in CC interest. I'll risk $547 to potentially gain $100,000. This $100,000 is how much returns you lost by having $12,000 in a 5% savings account for 29 years.
 

shadow9d9

Diamond Member
Jul 6, 2004
8,132
2
0
Originally posted by: joshsquall
What really bothers me about 401k is not even knowing if I'll live long enough to collect my money. I'm going to be pissed if I die and have boatloads of cash sitting in retirement accounts that I could have used to live a better (short) life.

You'll also be pissed if you can never retire.
 

Special K

Diamond Member
Jun 18, 2000
7,098
0
76
Originally posted by: dullard
Originally posted by: Special K
Someone just starting out probably isn't going to own a home. Having said that, do you think it would make more sense to have a really low APR card to use in emergencies, rather than a 5% online savings account? I'd like to use a rewards card as my primary CC. Can a CC company cancel your card for inactivity? That is, if I had a rewards card as my primary CC and a really low APR card as my "emergency fund" that I never used except in an emergency, could the issuer of the low APR card cancel my card if I never actually had an emergency and had to use the card?

Also, wouldn't the APR of the emergency credit card need to be less than the historical returns of mutual funds to make it worth it? Otherwise you could end up paying a lot of interest if you ever had an emergency.
Yes, if you are going to use a CC for emergencies (which should really be the last resort, not your first line of defense) you should have a spare low APR card that you don't use for anything else. But, if you need cash for the emergency (such as a CC check), you probably won't be getting a good APR on that anyways. I don't think you get inactivity cancellations on CCs, but I could be wrong. If you are worried, use it once a year for something small and pay it off right away.

Lets try some numbers. Lets say you need $2000 a month for your expenses (many can do with far less, but in some areas of the country that barely covers rent). Thus, to have 6 months of expenses socked away, you'd need $12,000. Put that in an online savings account that you keep at $12,000 and 5% interest and you get $50/month. Put it in the stock market at a 10% return and you get $100/month. Thus, you emergency cash is costing you $50/month (and that $50 could have been earning you 10% returns in your investments).

Lets say you do well for 11 years and then have an emergency. In this case, you lost $11,943 by having that $12,000 emergency fund ($50/month compounded monthly at 10% interest). Clearly, if you can make it 11 or more years, you can never lose because your investments would have that $12k you needed as an emergency.

But, what if you only go half that time, say 5 years. By having that emergency fund in a good 5% savings account, you lost $3872 of potential earnings elsewhere. What does $3872 buy you? Well, for starters it buys you 2 months of emergency money. Lets say you use a 20% interest CC for the emergency. After the 1st month, your CC will have $2000 + $33 in interest, $2033 total. After 2 months, $4067 total. After 6 months of using the CC, your balance would be $12,547. Conclusion: If you don't sock money away, you gain an extra $3872 from your investments, but you might have to pay $547 in CC interest if you have an emergency.

As the math turns out, if you use a 20% interest rate CC for your emergencies you need to make it ~10.5 months without an emergency to be ahead. If your emergency is sooner than 10.5 months, you lose more by invensting it instead of having an emergency stockpile. I'll take that risk. If you have a lower APR loan source such as a home equity line of credit, slash that 10.5 months. Or if your investments do better than 10%, slash that 10.5 months.

Worst case scenario: you lose $547 in CC interest. I'll risk $547 to potentially gain $100,000. This $100,000 is how much returns you lost by having $12,000 in a 5% savings account for 29 years.

Let's say I lose my job. If I use the credit card to survive until I find a new job, where is the money to pay the monthly payments supposed to come from if I'm keeping a minimal balance in my checking account and don't have a savings account? I suppose you could raid the Roth IRA, but what if it's lost money since when you started it?
 

dullard

Elite Member
May 21, 2001
25,476
3,976
126
Originally posted by: Special K
Let's say I lose my job. If I use the credit card to survive until I find a new job, where is the money to pay the monthly payments supposed to come from if I'm keeping a minimal balance in my checking account and don't have a savings account? I suppose you could raid the Roth IRA, but what if it's lost money since when you started it?
If you have a CC, use it for the monthly expenses. Even at 20% interest rate for cash advances, you are far ahead.

Of course, you should have another loan source for this first. A HELOC for example or non-retirement investmest accounts. I'm just giving the worst case scenerio of using a CC.
 

shadow9d9

Diamond Member
Jul 6, 2004
8,132
2
0
Originally posted by: Special K
Originally posted by: dullard
Originally posted by: Special K
Someone just starting out probably isn't going to own a home. Having said that, do you think it would make more sense to have a really low APR card to use in emergencies, rather than a 5% online savings account? I'd like to use a rewards card as my primary CC. Can a CC company cancel your card for inactivity? That is, if I had a rewards card as my primary CC and a really low APR card as my "emergency fund" that I never used except in an emergency, could the issuer of the low APR card cancel my card if I never actually had an emergency and had to use the card?

Also, wouldn't the APR of the emergency credit card need to be less than the historical returns of mutual funds to make it worth it? Otherwise you could end up paying a lot of interest if you ever had an emergency.
Yes, if you are going to use a CC for emergencies (which should really be the last resort, not your first line of defense) you should have a spare low APR card that you don't use for anything else. But, if you need cash for the emergency (such as a CC check), you probably won't be getting a good APR on that anyways. I don't think you get inactivity cancellations on CCs, but I could be wrong. If you are worried, use it once a year for something small and pay it off right away.

Lets try some numbers. Lets say you need $2000 a month for your expenses (many can do with far less, but in some areas of the country that barely covers rent). Thus, to have 6 months of expenses socked away, you'd need $12,000. Put that in an online savings account that you keep at $12,000 and 5% interest and you get $50/month. Put it in the stock market at a 10% return and you get $100/month. Thus, you emergency cash is costing you $50/month (and that $50 could have been earning you 10% returns in your investments).

Lets say you do well for 11 years and then have an emergency. In this case, you lost $11,943 by having that $12,000 emergency fund ($50/month compounded monthly at 10% interest). Clearly, if you can make it 11 or more years, you can never lose because your investments would have that $12k you needed as an emergency.

But, what if you only go half that time, say 5 years. By having that emergency fund in a good 5% savings account, you lost $3872 of potential earnings elsewhere. What does $3872 buy you? Well, for starters it buys you 2 months of emergency money. Lets say you use a 20% interest CC for the emergency. After the 1st month, your CC will have $2000 + $33 in interest, $2033 total. After 2 months, $4067 total. After 6 months of using the CC, your balance would be $12,547. Conclusion: If you don't sock money away, you gain an extra $3872 from your investments, but you might have to pay $547 in CC interest if you have an emergency.

As the math turns out, if you use a 20% interest rate CC for your emergencies you need to make it ~10.5 months without an emergency to be ahead. If your emergency is sooner than 10.5 months, you lose more by invensting it instead of having an emergency stockpile. I'll take that risk. If you have a lower APR loan source such as a home equity line of credit, slash that 10.5 months. Or if your investments do better than 10%, slash that 10.5 months.

Worst case scenario: you lose $547 in CC interest. I'll risk $547 to potentially gain $100,000. This $100,000 is how much returns you lost by having $12,000 in a 5% savings account for 29 years.

Let's say I lose my job. If I use the credit card to survive until I find a new job, where is the money to pay the monthly payments supposed to come from if I'm keeping a minimal balance in my checking account and don't have a savings account? I suppose you could raid the Roth IRA, but what if it's lost money since when you started it?

Can't raid the roth without severe penalties.
 

shadow9d9

Diamond Member
Jul 6, 2004
8,132
2
0
Originally posted by: dullard
Originally posted by: Special K
Someone just starting out probably isn't going to own a home. Having said that, do you think it would make more sense to have a really low APR card to use in emergencies, rather than a 5% online savings account? I'd like to use a rewards card as my primary CC. Can a CC company cancel your card for inactivity? That is, if I had a rewards card as my primary CC and a really low APR card as my "emergency fund" that I never used except in an emergency, could the issuer of the low APR card cancel my card if I never actually had an emergency and had to use the card?

Also, wouldn't the APR of the emergency credit card need to be less than the historical returns of mutual funds to make it worth it? Otherwise you could end up paying a lot of interest if you ever had an emergency.
Yes, if you are going to use a CC for emergencies (which should really be the last resort, not your first line of defense) you should have a spare low APR card that you don't use for anything else. But, if you need cash for the emergency (such as a CC check), you probably won't be getting a good APR on that anyways. I don't think you get inactivity cancellations on CCs, but I could be wrong. If you are worried, use it once a year for something small and pay it off right away.

Lets try some numbers. Lets say you need $2000 a month for your expenses (many can do with far less, but in some areas of the country that barely covers rent). Thus, to have 6 months of expenses socked away, you'd need $12,000. Put that in an online savings account that you keep at $12,000 and 5% interest and you get $50/month. Put it in the stock market at a 10% return and you get $100/month. Thus, you emergency cash is costing you $50/month (and that $50 could have been earning you 10% returns in your investments).

Lets say you do well for 11 years and then have an emergency. In this case, you lost $11,943 by having that $12,000 emergency fund ($50/month compounded monthly at 10% interest). Clearly, if you can make it 11 or more years, you can never lose because your investments would have that $12k you needed as an emergency.

But, what if you only go half that time, say 5 years. By having that emergency fund in a good 5% savings account, you lost $3872 of potential earnings elsewhere. What does $3872 buy you? Well, for starters it buys you 2 months of emergency money. Lets say you use a 20% interest CC for the emergency. After the 1st month, your CC will have $2000 + $33 in interest, $2033 total. After 2 months, $4067 total. After 6 months of using the CC, your balance would be $12,547. Conclusion: If you don't sock money away, you gain an extra $3872 from your investments, but you might have to pay $547 in CC interest if you have an emergency.

As the math turns out, if you use a 20% interest rate CC for your emergencies you need to make it ~10.5 months without an emergency to be ahead. If your emergency is sooner than 10.5 months, you lose more by invensting it instead of having an emergency stockpile. I'll take that risk. If you have a lower APR loan source such as a home equity line of credit, slash that 10.5 months. Or if your investments do better than 10%, slash that 10.5 months.

Worst case scenario: you lose $547 in CC interest. I'll risk $547 to potentially gain $100,000. This $100,000 is how much returns you lost by having $12,000 in a 5% savings account for 29 years.

Why can't you invest your emergency fund just like your iras? Taxes aren't bad for long term gains.
 

dullard

Elite Member
May 21, 2001
25,476
3,976
126
Originally posted by: shadow9d9
Why can't you invest your emergency fund just like your iras? Taxes aren't bad for long term gains.
You can, and that is exactly what I'm arguing to do. Have your emergency fund available, but NOT in cash form. Have $12k in a taxable stock investment account. Have $12k in your house with a HELOC. Etc. Anything that pays more than cash investments.
 

rufruf44

Platinum Member
May 8, 2001
2,002
0
0
Originally posted by: shadow9d9
Originally posted by: Special K
Originally posted by: dullard
Originally posted by: Special K
Someone just starting out probably isn't going to own a home. Having said that, do you think it would make more sense to have a really low APR card to use in emergencies, rather than a 5% online savings account? I'd like to use a rewards card as my primary CC. Can a CC company cancel your card for inactivity? That is, if I had a rewards card as my primary CC and a really low APR card as my "emergency fund" that I never used except in an emergency, could the issuer of the low APR card cancel my card if I never actually had an emergency and had to use the card?

Also, wouldn't the APR of the emergency credit card need to be less than the historical returns of mutual funds to make it worth it? Otherwise you could end up paying a lot of interest if you ever had an emergency.
Yes, if you are going to use a CC for emergencies (which should really be the last resort, not your first line of defense) you should have a spare low APR card that you don't use for anything else. But, if you need cash for the emergency (such as a CC check), you probably won't be getting a good APR on that anyways. I don't think you get inactivity cancellations on CCs, but I could be wrong. If you are worried, use it once a year for something small and pay it off right away.

Lets try some numbers. Lets say you need $2000 a month for your expenses (many can do with far less, but in some areas of the country that barely covers rent). Thus, to have 6 months of expenses socked away, you'd need $12,000. Put that in an online savings account that you keep at $12,000 and 5% interest and you get $50/month. Put it in the stock market at a 10% return and you get $100/month. Thus, you emergency cash is costing you $50/month (and that $50 could have been earning you 10% returns in your investments).

Lets say you do well for 11 years and then have an emergency. In this case, you lost $11,943 by having that $12,000 emergency fund ($50/month compounded monthly at 10% interest). Clearly, if you can make it 11 or more years, you can never lose because your investments would have that $12k you needed as an emergency.

But, what if you only go half that time, say 5 years. By having that emergency fund in a good 5% savings account, you lost $3872 of potential earnings elsewhere. What does $3872 buy you? Well, for starters it buys you 2 months of emergency money. Lets say you use a 20% interest CC for the emergency. After the 1st month, your CC will have $2000 + $33 in interest, $2033 total. After 2 months, $4067 total. After 6 months of using the CC, your balance would be $12,547. Conclusion: If you don't sock money away, you gain an extra $3872 from your investments, but you might have to pay $547 in CC interest if you have an emergency.

As the math turns out, if you use a 20% interest rate CC for your emergencies you need to make it ~10.5 months without an emergency to be ahead. If your emergency is sooner than 10.5 months, you lose more by invensting it instead of having an emergency stockpile. I'll take that risk. If you have a lower APR loan source such as a home equity line of credit, slash that 10.5 months. Or if your investments do better than 10%, slash that 10.5 months.

Worst case scenario: you lose $547 in CC interest. I'll risk $547 to potentially gain $100,000. This $100,000 is how much returns you lost by having $12,000 in a 5% savings account for 29 years.

Let's say I lose my job. If I use the credit card to survive until I find a new job, where is the money to pay the monthly payments supposed to come from if I'm keeping a minimal balance in my checking account and don't have a savings account? I suppose you could raid the Roth IRA, but what if it's lost money since when you started it?

Can't raid the roth without severe penalties.

You can withdraw your ROTH contribution tax free anytime.
 

vi edit

Elite Member
Super Moderator
Oct 28, 1999
62,483
8,344
126
Originally posted by: shadow9d9

Can't raid the roth without severe penalties.

Yes you can. Principal contributions are all after tax income. You can pull out every penny of original contribution if you want without penalty. You just can't touch appreciated income on the account.

It's not advised. But you can do it.
 

Special K

Diamond Member
Jun 18, 2000
7,098
0
76
Originally posted by: dullard
Originally posted by: shadow9d9
Why can't you invest your emergency fund just like your iras? Taxes aren't bad for long term gains.
You can, and that is exactly what I'm arguing to do. Have your emergency fund available, but NOT in cash form. Have $12k in a taxable stock investment account. Have $12k in your house with a HELOC. Etc. Anything that pays more than cash investments.

If you don't have a home and you lose your job, how are you supposed to make the payments on the CC, especially if you keep a minimal balance in your checking accounts?

Also what if your Roth IRA has lost a lot of money recently? What if it can't cover the emergency?
 

rufruf44

Platinum Member
May 8, 2001
2,002
0
0
Originally posted by: Special K
Originally posted by: dullard
Originally posted by: shadow9d9
Why can't you invest your emergency fund just like your iras? Taxes aren't bad for long term gains.
You can, and that is exactly what I'm arguing to do. Have your emergency fund available, but NOT in cash form. Have $12k in a taxable stock investment account. Have $12k in your house with a HELOC. Etc. Anything that pays more than cash investments.

If you don't have a home and you lose your job, how are you supposed to make the payments on the CC, especially if you keep a minimal balance in your checking accounts?

Also what if your Roth IRA has lost a lot of money recently? What if it can't cover the emergency?

That's where you borrow more from other 0% CC and start praying :evil:

Seriously though, that's a lot of IF scenario. Even with drop in the IRA, you should still be able to cover significant portion of the emergency cash.
 

Special K

Diamond Member
Jun 18, 2000
7,098
0
76
Originally posted by: rufruf44
Originally posted by: Special K
Originally posted by: dullard
Originally posted by: shadow9d9
Why can't you invest your emergency fund just like your iras? Taxes aren't bad for long term gains.
You can, and that is exactly what I'm arguing to do. Have your emergency fund available, but NOT in cash form. Have $12k in a taxable stock investment account. Have $12k in your house with a HELOC. Etc. Anything that pays more than cash investments.

If you don't have a home and you lose your job, how are you supposed to make the payments on the CC, especially if you keep a minimal balance in your checking accounts?

Also what if your Roth IRA has lost a lot of money recently? What if it can't cover the emergency?

That's where you borrow more from other 0% CC and start praying :evil:

Seriously though, that's a lot of IF scenario. Even with drop in the IRA, you should still be able to cover significant portion of the emergency cash.

But the whole point of the discussion we were having was whether or not it was worth it to have a savings account. If I don't own a home, put all my money into higher risk investments instead of a savings account, and keep a minimal balance in my checking account, where is this cash supposed to come from if I lose my job?
 

middlehead

Diamond Member
Jul 11, 2004
4,573
2
81
I'm currently doing the maximum match, but I'll probably be upping my own contribution in a few months. Or opening a Roth.
 

rufruf44

Platinum Member
May 8, 2001
2,002
0
0
Originally posted by: Special K
Originally posted by: rufruf44
Originally posted by: Special K
Originally posted by: dullard
Originally posted by: shadow9d9
Why can't you invest your emergency fund just like your iras? Taxes aren't bad for long term gains.
You can, and that is exactly what I'm arguing to do. Have your emergency fund available, but NOT in cash form. Have $12k in a taxable stock investment account. Have $12k in your house with a HELOC. Etc. Anything that pays more than cash investments.

If you don't have a home and you lose your job, how are you supposed to make the payments on the CC, especially if you keep a minimal balance in your checking accounts?

Also what if your Roth IRA has lost a lot of money recently? What if it can't cover the emergency?

That's where you borrow more from other 0% CC and start praying :evil:

Seriously though, that's a lot of IF scenario. Even with drop in the IRA, you should still be able to cover significant portion of the emergency cash.

But the whole point of the discussion we were having was whether or not it was worth it to have a savings account. If I don't own a home, put all my money into higher risk investments instead of a savings account, and keep a minimal balance in my checking account, where is this cash supposed to come from if I lose my job?

Considering historic return of the stock market exceed savings significantly, someone who have been keeping their emergency funds in term of investments for awhile, should have at least comparable amount. So I guess this would only affect those who has just recently starting out?
 

vi edit

Elite Member
Super Moderator
Oct 28, 1999
62,483
8,344
126
Originally posted by: Special K
Originally posted by: rufruf44
Originally posted by: Special K
Originally posted by: dullard
Originally posted by: shadow9d9
Why can't you invest your emergency fund just like your iras? Taxes aren't bad for long term gains.
You can, and that is exactly what I'm arguing to do. Have your emergency fund available, but NOT in cash form. Have $12k in a taxable stock investment account. Have $12k in your house with a HELOC. Etc. Anything that pays more than cash investments.

If you don't have a home and you lose your job, how are you supposed to make the payments on the CC, especially if you keep a minimal balance in your checking accounts?

Also what if your Roth IRA has lost a lot of money recently? What if it can't cover the emergency?

That's where you borrow more from other 0% CC and start praying :evil:

Seriously though, that's a lot of IF scenario. Even with drop in the IRA, you should still be able to cover significant portion of the emergency cash.

But the whole point of the discussion we were having was whether or not it was worth it to have a savings account. If I don't own a home, put all my money into higher risk investments instead of a savings account, and keep a minimal balance in my checking account, where is this cash supposed to come from if I lose my job?

I think we need to define "high risk". In the context of this conversation, investing in the stock market (S&P 500 fund for example) is considered high risk. In a given year your account could be +/- 15% (or more). If you have $20,000 in your stock market account on a given day you might be up or down $500 bucks on a big swing. Over the course of a year you could be down $5000. But you still have $15,000 available.

You don't just lose that money instantly in a matter of days. You could if you invested in a single stock that went bankrupt or was flirting with it. But that's not high risk investing, that's stupid risk investing for most individual investors.