Investing 102

[toy71camaro]

Originally Posted by captainofiron

Thanks Greg

Im almost halfway done with the thread

When I talked to him, I asked if I should consider a Roth IRA. He said no, and I really didnt have anything to challenge back.

Right now things are shifting in my life.

1) I got the new job, where I am earning way more than I used to and now my wife can stay at home

2) We are expecting, baby will be here in December

3) To take the new job we had to move, and currently our house is on sale in a tepid market

4) We have more debt than I am comfortable with, BUT we have a surplus every month. Right now, we only owe on my car, the wife's car and a couple hundred on a no interest jewelery card I got

What I wanted to do is pay off the cars with a snowball, then use that to hit the mortgage on a new house (once ours sells)

We had been doing great prior to buying the house, we had our emergency fund, and were snow balling my wife's old car, but then it got totaled. My paid off car bit the dust a couple months later

In my mind, I should be getting debt free (minus the house) first then start investing (outside of my 401k contributions of course), do you agree?

Thats always been a tough topic. Whether or not to snowball the debt vs retirement.

Dave Ramsey says to attack the debt in full force (everything BUT the mortgage), and do NOT contribute to retirement. It should be a "short time" before you're debt free then hit retirement with a full 15% of your income.

The challenge to that is, what if I'm capable of making 7-12% on my investments/retirement while only paying 3% on my auto loans. I still come ahead 4%.

But, i think its more a comfort feeling myself. I hate payments. I hate owing every month on a car payment. So my feelings tell me to pay the damn car off ASAP. Even if it means i'm losing that 4% possible gain (or whatever it is. you never know).

Personally, we just bought a new to us vehicle. Most expensive thing ive ever bought aside from the house. I've got a 3% interest rate on it. We've got the money to still fund my Roth AND pay the normal note on the car. I'm torn at taking that ROTH money i set aside each month and tack it onto the car payment. But, that makes me nervous. LOL. So, as it sits right now, I'm paying the normal note on the car, stashing the ROTH money in a separate account (but NOT directly into my Roth), so I have wiggle room. If for some reason the market goes south and offers a huge buying opportunity, i have that money ready. If not, I'll let it pile until I can just dump it onto the car and be done with it. No clue if thats the best way to go. But it makes me sleep comfortably at night having that "second emergency fund" just for the car.

[captainofiron]

Originally Posted by toy71camaro

Thats always been a tough topic. Whether or not to snowball the debt vs retirement.

Dave Ramsey says to attack the debt in full force (everything BUT the mortgage), and do NOT contribute to retirement. It should be a "short time" before you're debt free then hit retirement with a full 15% of your income.

The challenge to that is, what if I'm capable of making 7-12% on my investments/retirement while only paying 3% on my auto loans. I still come ahead 4%.

But, i think its more a comfort feeling myself. I hate payments. I hate owing every month on a car payment. So my feelings tell me to pay the damn car off ASAP. Even if it means i'm losing that 4% possible gain (or whatever it is. you never know).

Personally, we just bought a new to us vehicle. Most expensive thing ive ever bought aside from the house. I've got a 3% interest rate on it. We've got the money to still fund my Roth AND pay the normal note on the car. I'm torn at taking that ROTH money i set aside each month and tack it onto the car payment. But, that makes me nervous. LOL. So, as it sits right now, I'm paying the normal note on the car, stashing the ROTH money in a separate account (but NOT directly into my Roth), so I have wiggle room. If for some reason the market goes south and offers a huge buying opportunity, i have that money ready. If not, I'll let it pile until I can just dump it onto the car and be done with it. No clue if thats the best way to go. But it makes me sleep comfortably at night having that "second emergency fund" just for the car.

I had been using a Dave Ramsey-esque approach. We have our monthly budget, and WERE snowballing, but at the same time I had maxed my 401k

we were doing well, but now with the new job and this old 401k, its pushing me into new areas of finances I have never dealt with before

[toy71camaro]

I hear ya. I'm a "Ramsey-esque" follower too. Some stuff I do his way, some stuff I do my way. lol. Like the whole car payment thing.

[glassman]

Just the fact that you guys are young and thinking about this and doing something about this is very very good for you and your future families. Most people these days just dont pay attention (sorta keep their heads in the sand) and they need to cause ya just cant relie on Uncle Sam 30 years from now.

My brother told me "it's not timing the market, it's time in the market".

[68ZClone]

We've often discussed the Dave Ramsey approach at work. We're a bunch of engineers that take joy in maximizing everything, including approaching debt (it's a disease). I think most on this site are like minded.

Our conclusion, the Ramsey approach is geared towards people who are inherently not good with money and is a psychological approach to paying off debt. It is not the most effective (in terms of least amount paid) to pay off debt. However, it's a great motivator for people to see the payment go away.

Conclusion (in my mind), you have to make a decision. Are you the kind of person that will benefit from the psychological approach of eliminating individual payments? If so, the Ramsey approach is the one for you.

However, if you understand the principals of debt and that attacking higher interest (after taxes) debts first is more beneficial to your pocketbook, a modified approach is probably a better option. This allows you to take into account that earning 8% in the market on funds that would only offset debt at 3% is an okay thing.

Again, what motivates you as the individual. For me, it's optimizing. Others (like Greg has pointed out), it's the ability to sleep at night being debt free.

Just my $0.02!

[captainofiron]

Originally Posted by glassman

Just the fact that you guys are young and thinking about this and doing something about this is very very good for you and your future families. Most people these days just dont pay attention (sorta keep their heads in the sand) and they need to cause ya just cant relie on Uncle Sam 30 years from now.

My brother told me "it's not timing the market, it's time in the market".

thanks for the encouragement, Im just trying to start off on the right foot.

So I finished up reading the entire thread, man that was the most ive ever read on a forum.

And I think I have a plan

1) I drafted an email to the Baird guy, asking him what the base costs of having the IRA with them will be, and what are the costs of the mutual funds he suggested, I also asked him why he suggested not to do a Roth, why he suggested mutual funds

2) my last 401k isnt very big, because my former employer only matched 50% up to 3%, so I was thinking maybe to use half of it to open a Roth, and half in an IRA, that way I would limit my tax liability, but also have that extra bucket of money (with a higher earning potential). I looked and I think Im eligible for one

3) I started writing down the stuff/brands I like and where I shop and started going and looking at their stock. Also I used google finance to "make" a portfolio, as well as a GregWeld portfolio with the stocks he suggested just to compare. I think it would be better than what the Baird guy has suggested.

Finally, a couple questions.

Alot of the earlier posts in here are from 2011-2012. Has anything majorly changed in the financial world that would change some of the theory?

I was thinking maybe to have 1 mutual fund, and then the rest stocks, is that a balanced approach? Or can I achieve the balance with full stocks?

Thanks guys, great thread

[captainofiron]

So the Baird people called me and were all ready to set up the rollover and IRA and were really pushing the mutual funds

I told them what I learned here that I was thinking that the funds work more for the benefit of the fund managers, and I was thinking more about stocks. They didnt agree.

I also asked about why they suggested mutual funds as a good thing for a younger person

the only thing they could answer was because I didnt have a lot of capital to invest so mutual fund would be better.

Basically my old 401k is 20k, I was looking at GregWelds suggestion (https://lateral-g.net/forums/show...&postcount=380)

I was thinking to do something similiar

suggestions on my thought process?

[JKnight]

Originally Posted by captainofiron

I also asked about why they suggested mutual funds as a good thing for a younger person

the only thing they could answer was because I didnt have a lot of capital to invest so mutual fund would be better.

Basically my old 401k is 20k, I was looking at GregWelds suggestion (https://lateral-g.net/forums/show...&postcount=380)

I'm going to keep my comments limited to a part of your post, but I'm hoping Greg or someone else will comment on the "really pushing" aspect of your experience with Baird.

If your goal/preference is to achieve a high level of diversification with your $20k portfolio, then yes, mutual funds will be good for that.

If your goal/preference is to buy a basket of best-of-breed stocks in various industries to achieve a lower (but still significant) degree of diversification, then stocks will be the better way to go.

This $20k from your prior 401(k) isn't likely to represent the lion's share of your retirement savings. Meaning, it's not the end of the world if you don't get this one right the first time, particularly if you learn something along the way. If you'd like to use it to get your feet wet with trading stocks or other investments, then that's something to consider. You might find out that form of investing isn't for you, but you will have learned something. If you'd rather stick the money in mutual funds and check your balance once per quarter to see how it's doing, that's ok too. Really up to your personal preferences.

Investing is not a one-size-fits-all game, so when I hear a company pushing you toward an option and saying, "that's the best way to go", I have to wonder if they are really listening to you, your ideas and your interests. Keep in mind that you can roll those dollars over to any custodian, it doesn't have to be the one your company uses. These are your dollars/employees!!....Jeff steps down from soapbox...

[Flash68]

Originally Posted by 68ZClone

We've often discussed the Dave Ramsey approach at work. We're a bunch of engineers that take joy in maximizing everything, including approaching debt (it's a disease). I think most on this site are like minded.

Our conclusion, the Ramsey approach is geared towards people who are inherently not good with money and is a psychological approach to paying off debt. It is not the most effective (in terms of least amount paid) to pay off debt. However, it's a great motivator for people to see the payment go away.

Conclusion (in my mind), you have to make a decision. Are you the kind of person that will benefit from the psychological approach of eliminating individual payments? If so, the Ramsey approach is the one for you.

However, if you understand the principals of debt and that attacking higher interest (after taxes) debts first is more beneficial to your pocketbook, a modified approach is probably a better option. This allows you to take into account that earning 8% in the market on funds that would only offset debt at 3% is an okay thing.

Again, what motivates you as the individual. For me, it's optimizing. Others (like Greg has pointed out), it's the ability to sleep at night being debt free.

Just my $0.02!

Great post.

[toy71camaro]

Originally Posted by JKnight

I'm going to keep my comments limited to a part of your post, but I'm hoping Greg or someone else will comment on the "really pushing" aspect of your experience with Baird.

If your goal/preference is to achieve a high level of diversification with your $20k portfolio, then yes, mutual funds will be good for that.

If your goal/preference is to buy a basket of best-of-breed stocks in various industries to achieve a lower degree of diversification, then stocks will be the better way to go.

This $20k from your prior 401(k) isn't likely to represent the lion's share of your retirement savings. Meaning, it's not the end of the world if you don't get this one right the first time, particularly if you learn something along the way. If you'd like to use it to get your feet wet with trading stocks or other investments, then that's something to consider. You might find out that form of investing isn't for you, but you will have learned something. If you'd rather stick the money in mutual funds and check your balance once per quarter to see how it's doing, that's ok too. Really up to your personal preferences.

Investing is not a one-size-fits-all game, so when I hear a company pushing you toward an option and saying, "that's the best way to go", I have to wonder if they are really listening to you, your ideas and your interests. Keep in mind that you can roll those dollars over to any custodian, it doesn't have to be the one your company uses. These are your dollars/employees!!....Jeff steps down from soapbox...

Great points.

I'd be leary of any fast talking pushy people in this scenario. How do these guys get paid? My guess is they take a % off the top.

That's kind of what started my Journey and ended me up in here. I talked to a local rep (that I do some side business/IT consulting for) and he gave me his suggestion. The fee's were like 4% off the top. And the average returns were 7-8%. That got me thinking... I'm only making 8% return, and I'm giving them HALF? Thus i'm only earning 4%? I think I can manage 4% on my own, and anything on top of that is icing on the cake. Talking about this with an old member here (SolarGuy/Mike, hope he's doing OK) and he led me to this thread. At exactly the right time.

I didnt have a huge amount to start with. I couldnt do individual stocks in my 401k, so i basically had to start fresh with a Roth IRA to invest. (I did re-do my 401k after learning here, but I only had certain options to pick from. I just had a better understanding of how/why to pick what i did and not just throwing darts at it).

Am I doing better than the 4%? You betcha. Do i sleep better at night? You betcha. I'm much more comfortable with myself managing my money than relying on someone else who doesnt have my best interest at hand, but just getting their cut of the pie.

Now that doesnt answer about going Stocks Vs Mutual Funds. But, as Greg discussed way back when in the thread you can build your own mutual funds, and NOT have to pay them the fee's. Just make sure you have no more than 5% of your entire nest egg in any one stock. Personally, I bought in $1k increments and am up to about a dozen or so stocks in my own "mini mutual fund". Am I as diversified as a standard mutual fund? No, they're in 50-250 stocks at any given time. But, my best of breed's mini-fund will likely out perform them, as i dont have a bunch of lagging employees pulling my total return down.