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Straight savings vs. 401k or other investment plan

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Originally posted by: archcommus
Also, I just did some reading on FW, my mind went spinning. So many other options were recommeneded for a kid in a similar situation as mine, many even suggested keeping all his money in ING and not even bothering with an IRA because of such low yields currently.
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I don't see the logic in this at all, what do they mean? One has nothing to do with the either. IRAs don't have inherently low yields, they are what you make of them. In fact the Fed purposely keeps rates low so you do invest in stocks. You will see that as rates rise less people will invest in stocks not just because earnings are depressed from higher borrowing costs and interest expenses, but also b/c bonds will have more enticing yields.

As for how much debt you want, thats up to you. We and you don't know your career choices or earnings potential. I have several friends in the $100,000 loan range, but they expect to make that much per year and probably will. One of them just got a job making 65,000... If you want to be a teacher then that might be a lot in loans, if you want to be a doctor that is a miniscule amount.
 
I've been thinking some archcommus, you might want to read some books on this. Check these out of the library:

The Millionaire Next Door (EXTREMELY insightful, but not money advice per se.)
The Road to Wealth: A Comprehensive Guide to Your Money : Everything You Need to Know in Good and Bad Times by Suze Orman
Personal Finance for Dummies, Fourth Edition by Eric Tyson
The Motley Fool Personal Finance Workbook : A Foolproof Guide to Organizing Your Cash and Building Wealth by David Gardner

Also post to a financial message board; you'll see how everyone will think you should open an IRA at your age...

 
I can't thank you enough for your help, astroview. I'll check out those books in my library or B&N and I'll post my general situation over at FW, as well. Hopefully I'll be able to push myself to open an IRA now and get loans that aren't too staggering.
 
I LOVE my 401k. I'm 24 and put in $3600 in last year and the company put in $2700.

I count it as an instant 75% return on investment!
 
Check out the FW thread. Seems they look at it as borrowing money to fund an IRA, since I'm essentially borrowing more for school since I'm putting money into an IRA.

What do you think?
 
Millionaire Next Door (EXTREMELY insightful, but not money advice per se.)
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I second that without hesitation. The mindset of an investor is the most important thing to start with. Once you know you want to do it, the knowledge itself is not so hard to come by. That book was a turning point for me.
 
Originally posted by: aeroguy
I LOVE my 401k. I'm 24 and put in $3600 in last year and the company put in $2700.

I count it as an instant 75% return on investment!
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I love mine too, 100% to 3% and 50% for 3-5%. So basically 80%. Not to mention instant vesting.
 
Sorry I'm piggybacking on this thread. I am 24 (first year working), single, maxed my 401k, and planning to buy a house within 5 years. Should I max out a traditional IRA to deduct taxes for 2004 if I'm planning to use it on a first home down payment since it will be short term? Or is a roth ira still the better choice, thanks.
 
Originally posted by: TwoMix
Sorry I'm piggybacking on this thread. I am 24 (first year working), single, maxed my 401k, and planning to buy a house within 5 years. Should I max out a traditional IRA to deduct taxes for 2004 if I'm planning to use it on a first home down payment since it will be short term? Or is a roth ira still the better choice, thanks.
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Since you have a 401k a traditional IRA is not tax deductible.

Go with the Roth, either a 2+ year CD from someone like ING or maybe VFINX or another S&P 500 index fund though the time frame is a little short for stock-based investing.
 
Originally posted by: DaveSimmons
Originally posted by: TwoMix
Sorry I'm piggybacking on this thread. I am 24 (first year working), single, maxed my 401k, and planning to buy a house within 5 years. Should I max out a traditional IRA to deduct taxes for 2004 if I'm planning to use it on a first home down payment since it will be short term? Or is a roth ira still the better choice, thanks.
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Since you have a 401k a traditional IRA is not tax deductible.

Go with the Roth, either a 2+ year CD from someone like ING or maybe VFINX or another S&P 500 index fund though the time frame is a little short for stock-based investing.
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Personally I like to think of the 401k an Roth as retirement savings, and the savings for my buying a house as seperate. Though there are tax benefits for a house too... This question can't be easily answered unless we know how income you receive. But thats something you probably shouldn't post here! If at all possible, max out the 401k and IRA, and then save for the house. But hey thats just my opinion, I intend on retiring early so thats my strategy 🙂

There are calculators online that tell you whether its cheaper to own or rent, check out dinkytown.net
 
Originally posted by: DaWhim
max out ROTH IRA + 401k contribute to match level

doing straight savings = personal finance idiot
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Ridiculous statement. What about people who're trying to save up money for a house or rainy day?
 
i say you invest your money on a pork kebob stand at the flea market which will return you immediate cash at the end of the day.
 
401K is a joke. At work I click on my 401K fund choices and see a half negative returns and the other half <5%. All there are, are a bunch of crappy investments to choose from. I only put in the max that the company matches otherwise it's money wasted. Tax free is nice, but the government will get their cut eventually.

Stocks are also a freaking joke now, S&P 500 stocks average P/E of in the low 20s which is about 4-5% return. I don't think corporate earnings are going to grow for a while so that leaves stocks as a dead end. People say that stocks historically return 7-10%, but the thing is, P/E of stocks is historically in the low teens, which incidentally, matches the historic returns.

What I really want for now is a simple, "savings" fund option in my 401K at the nice internet bank interest.
 
Originally posted by: OS
401K is a joke. At work I click on my 401K fund choices and see a half negative returns and the other half <5%. All there are, are a bunch of crappy investments to choose from. I only put in the max that the company matches otherwise it's money wasted. Tax free is nice, but the government will get their cut eventually.

Stocks are also a freaking joke now, S&P 500 stocks average P/E of in the low 20s which is about 4-5% return. I don't think corporate earnings are going to grow for a while so that leaves stocks as a dead end. People say that stocks historically return 7-10%, but the thing is, P/E of stocks is historically in the low teens, which incidentally, matches the historic returns.

What I really want for now is a simple, "savings" fund option in my 401K at the nice internet bank interest.
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Lobby your investment plan then. I know several 401ks that invest in annuities and low risk insurance contracts, that have actual guaranteed returns through a deposit insurance system like the FDIC. I don't have the prospectus for them, but one of my friends invests in a fund like that that is guaranteed and yields 4.8% right now! Its pretty safe since it invests in AAA credit rating stuff too, short term paper, etc....

PS You can rollover 401ks when you quit to a bank if its a guaranteed return you want.
 
Once I start earning an actual living, I'll be maxing out my Roth IRA, 401k, and 529 contributions each year, plus probably ensuring a sizable amount goes into both a regular brokerage account and a savings account (until I have roughly $10-15k in savings I'll be worried.).
 
Originally posted by: astroview
Lobby your investment plan then. I know several 401ks that invest in annuities and low risk insurance contracts, that have actual guaranteed returns through a deposit insurance system like the FDIC. I don't have the prospectus for them, but one of my friends invests in a fund like that that is guaranteed and yields 4.8% right now! Its pretty safe since it invests in AAA credit rating stuff too, short term paper, etc....

PS You can rollover 401ks when you quit to a bank if its a guaranteed return you want.
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There's over 100K people in the company i work for, there's no way i can lobby anything, lol. 😛

That setup you mention sounds pretty nice though, I'm jealous.
 
Originally posted by: Argo
Originally posted by: DaWhim
max out ROTH IRA + 401k contribute to match level

doing straight savings = personal finance idiot
Click to expand...

Ridiculous statement. What about people who're trying to save up money for a house or rainy day?
Click to expand...

you would be a fool to pass up free contribution money by the company by not contributing to the 401K upto the employer match. plus you can take out some contribution without penalty if used towards a house.

and with a Roth IRA, it's only about $3000 max a year contribution. you can withdraw the contributions any time prior to retirement without penalty. it's the earnings you can't withdraw without penalty
 
Originally posted by: OS
401K is a joke. At work I click on my 401K fund choices and see a half negative returns and the other half <5%. All there are, are a bunch of crappy investments to choose from. I only put in the max that the company matches otherwise it's money wasted. Tax free is nice, but the government will get their cut eventually.

Stocks are also a freaking joke now, S&P 500 stocks average P/E of in the low 20s which is about 4-5% return. I don't think corporate earnings are going to grow for a while so that leaves stocks as a dead end. People say that stocks historically return 7-10%, but the thing is, P/E of stocks is historically in the low teens, which incidentally, matches the historic returns.
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I disagree on the 401k: I figure I'll change jobs within another 5 years, at which point I can roll over the 401k to Schwab or Vanguard and pick anything I want to grow tax deferred.

Even though my 401k fund choices are weak I get the initial 30% tax savings on the 401k (and matching) plus having the money grow tax-deferred is a big win over my regular brokerage account where I pay for any realized short-term gains and dividends at a high tax rate every year.

Also, even if the S&P 500 only returns 4-5% for the next couple of years that still beats 3% for ING savings.
 
I said to myself, and to the OP in a private message, that I would not post in this thread, but when a discussion about finance and money erupts, I can rarely resist the urge to participate in said discussion, even though I know my views on investing are hardly considered mainstream and in fact I do believe some people believe my views are rather preposterous, but I do make every attempt to back up my statements with facts that are for the most part relatively easy to verify.

While I do have an IRA account, I maintain it primarily for the tax advantages it offers; I have no intentions of actually relying on this income for my retirement, although if I experience decent returns, that's just all the better. I think that 401ks, IRAs, and other types of investment vehicles with inherent risk management, or rather, minimized risk, are excellent investments for the average investor; however, that is exactly who they are designed for - the average investor. A sophisticated investor generally does not view these types of investments as 'good' investments. If it is your goal to be an average investor, then by all means, stick to these investments... they are relatively safe and easy to manage, and there have been many funds that are considered 'solid' performers' already mentioned, so its hardly necessary for me to reiterate what's been said already, however I will leave you with a single thought that was passed along to me by an author, which I then wanted to confirm myself, and through interviewing many of O'ahu's wealthy citizens have found to be fairly accurate, and that is that the rich hold a good portion of their wealth in real estate, rather than stocks, or bonds, or metals, although almost all rich people will have vested interests in these investment vehicles; just not nearly as much as they invest in real estate.
 
Originally posted by: dionx
Originally posted by: Argo
Originally posted by: DaWhim
max out ROTH IRA + 401k contribute to match level

doing straight savings = personal finance idiot
Click to expand...

Ridiculous statement. What about people who're trying to save up money for a house or rainy day?
Click to expand...

you would be a fool to pass up free contribution money by the company by not contributing to the 401K upto the employer match. plus you can take out some contribution without penalty if used towards a house.

and with a Roth IRA, it's only about $3000 max a year contribution. you can withdraw the contributions any time prior to retirement without penalty. it's the earnings you can't withdraw without penalty
Click to expand...

My employer doesn't match much. Also, with 401k, you can only withdraw 50% of your total amount to use towards a house.
 
Originally posted by: Boze
I said to myself, and to the OP in a private message, that I would not post in this thread, but when a discussion about finance and money erupts, I can rarely resist the urge to participate in said discussion, even though I know my views on investing are hardly considered mainstream and in fact I do believe some people believe my views are rather preposterous, but I do make every attempt to back up my statements with facts that are for the most part relatively easy to verify.

While I do have an IRA account, I maintain it primarily for the tax advantages it offers; I have no intentions of actually relying on this income for my retirement, although if I experience decent returns, that's just all the better. I think that 401ks, IRAs, and other types of investment vehicles with inherent risk management, or rather, minimized risk, are excellent investments for the average investor; however, that is exactly who they are designed for - the average investor. A sophisticated investor generally does not view these types of investments as 'good' investments. If it is your goal to be an average investor, then by all means, stick to these investments... they are relatively safe and easy to manage, and there have been many funds that are considered 'solid' performers' already mentioned, so its hardly necessary for me to reiterate what's been said already, however I will leave you with a single thought that was passed along to me by an author, which I then wanted to confirm myself, and through interviewing many of O'ahu's wealthy citizens have found to be fairly accurate, and that is that the rich hold a good portion of their wealth in real estate, rather than stocks, or bonds, or metals, although almost all rich people will have vested interests in these investment vehicles; just not nearly as much as they invest in real estate.
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Yes, real estate is a fabulous way to make lots of money. I've thought about starting by buying a property and renting it out. It seems like a good place to start, but it's a much bigger step than filling in some forms at vanguard.com

 
Originally posted by: TwoMix
Sorry I'm piggybacking on this thread. I am 24 (first year working), single, maxed my 401k, and planning to buy a house within 5 years. Should I max out a traditional IRA to deduct taxes for 2004 if I'm planning to use it on a first home down payment since it will be short term? Or is a roth ira still the better choice, thanks.
Click to expand...


Typically, the only time Traditional is better than Roth is if you are in a higher tax bracket now than you will be during retirement (or if you simply don't qualify for Roth, traditional is all that's available to you...)

Also keep in mind that you're only going to have penalty-free (qualifying) withdrawals of earnings if you keep your IRA open for at least five years. So instead of 'buying a house within 5 years', you will have to 'buy a house after five years'. This may or may not matter to you...
 
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