No. of Recommendations: 2
The message you're trying to access has been removed from the boards. The most likely reason for this is that the message violated our Fool's Rules about appropriate content. Either that or it was swallowed up by intergalactic space beasts from the planet Xeenu.

Please check out The Motley Fool's Terms and Conditions of Service.




Print the post Back To Top
No. of Recommendations: 0
Hi Remleduff,
Boy, I wish I would have had your foresight at 25! While I don't have any specific "advice" I did want to congratulate you on starting early and looking toward the future.
6% company match is generous these days-great to take advantage of;
I hope your 7K is at least in a Vanguard or similar MM account and not earning a paltry .25% at a bank. Perhaps even an ULTRA short Bond fund would bring some earnings;
Just make sure your Funds don't have too much overlap in both content and style.
And oh, that house. Does that come with spouse and kids later on? Maybe you'll need to do some re-figuring when that happens!
Best of luck and again, congratulations on your open eyes!

110
Print the post Back To Top
No. of Recommendations: 2
Welcome, remleduff. Glad you could join us.

You seem to be off to a good start and doing well.

By getting into disciplined saving and investing (pay yourself first) while you are young, you stand an excellent chance of accumulating enough to retire early or earn your freedom to do whatever you like while you are fairly young. Keep up the good work.

Most people learn to gradually increase their saving rate. The easy way is to put a portion of any raises you received into savings.

Your $7000 savings account is not a bad emergency fund, but what kind of yield does it earn? Are your credit cards debt free? If yes, you can use your credit cards credit limit to cover you in most emergencies and then invest your savings in something that pays higher yield. I like bond funds--espeically NQS, Nuvene Select Muni bond fund, a closed end fund. Buy on dips when its $0.96/yr fed tax free will give you close to 7%, for most of us that is over 9% taxable. But be careful about rising interest rates. Don't hurry, but be ready on dips or when interest rates finally stabilize.

After maxing your 401K and IRA, the next target for most are taxable investment in the Long Term Buy and Hold (LTBH) style. By selecting those with low dividends and capital gains, you pay taxes only at low dividend rates or capital gains rates--usually only when you sell. This is the best you can do to minimize taxes. Plus it gives nice flexibility to use these funds for a downpayment on a house.

Your goal of 25% savings rate is admirable. Personally, I would consider the house an investment. So any money used for downpayment or to pay principal is part of that 25%.

On returns, yes most investors are best off to select a few mutual funds and stick with them through thick and thin rather than try to move your funds with fads in the market. You will probably only do that right about half of the time. And you can run expenses up with no major benefit. Still, as you become more successful at picking good investments--mutual funds or stocks, it becomes tempting to put more funds into those investments. Most should maintain about 50% in an S&P 500 Stock Fund or a Total Market fund. So don't over do it, even when things are doing well. Keep your diversification. But by being selective and staying on top of things, you can improve your returns.

Good luck. And Fool On!!
Print the post Back To Top
No. of Recommendations: 1
…I've also got almost $7000 in just a savings account, which is about 3 months income, …What else do I need to be doing? …

It sounds like you are making about $28,000 a year but is it not clear if that is before or after taxes, or includes your retirement savings(which are great!). One thing that you could look at is to make sure that you are continuing to gain marketable skills so that in the future you can increase your income. This would have a bigger impact on your long-term financial security than increasing your percentage of savings. Don't be afraid to invest in yourself.

Greg
Print the post Back To Top
No. of Recommendations: 0
Heh, sorry, the 7000 is close to 3 times my take-home (actually I'm fudging a couple hundred bucks), should I be using a different number? I guess I would still need to pay for health care, etc, huh?
Print the post Back To Top
No. of Recommendations: 0
If yes, you can use your credit cards credit limit to cover you in most emergencies and then invest your savings in something that pays higher yield. I like bond funds--espeically NQS, Nuvene Select Muni bond fund, a closed end fund. Buy on dips when its $0.96/yr fed tax free will give you close to 7%, for most of us that is over 9% taxable. But be careful about rising interest rates. Don't hurry, but be ready on dips or when interest rates finally stabilize.


I actually have one short-term liability coming up that I'm going to have to be able to cover before I can move my money to anything complicated, but can you give me a pointer or two about that fund? I'd been looking at using I-bonds rather than a savings account. The savings account works well for me though because I auto-deposit into it and "trick" myself into saving. ;)
Print the post Back To Top
No. of Recommendations: 0
Your employer or some service may allow payroll deductions directly to I-bonds too. Probably with those is if you really mean just buying individual bonds, then there are penalties if you cash our early, so you may really prefer a MMF or a short-term bond fund to protect your principle, or a high yield savings account like Emigrant Direct or ING.

Overall, an average of 6% return over 40 years would be a historically dreadful period, so that would mean it's pretty likely, but you never know. $2.5 million is certainly a safe retirement goal, and $1.5 to $2 million range would probably allow you to retire early.

Keep two things in mind: 1) inflation, in the next 40 years dollars will probably be worth 1/2 to 1/3rd of what they are now, even with only 2 to 3% average inflation, yeah, big effect, scared me too, but 6% real returns (after inflation) is historically more likely. 2) are you taking/does your calculator into account raises? That 6% you put into a 401(k) (yeah, quite generous) will become higher dollar amounts as time goes on, and will draw higher dollar matches too. Of course, if you change jobs, no prediciting what will happen 401(k) wise.
Print the post Back To Top
No. of Recommendations: 0
"can you give me a pointer or two about that fund?"

You can get higher yield on your emergency funds by investing in almost any bond fund. Many have check writing priviledges. That means if something comes up, you can write a check, deposit it in your checking account and have the funds available as soon as the check clears--usually 3 days. So if you have credit card debt limit to cover those 3 days, you can get higher yield on your emergency funds.

But, with interest rates rising, the NAV of bond funds is likely to fall. That makes it risky to do this right now. Better to wait until the Feds have stopped raising interest rates.

Nuveen select, NQS, traded NYSE is a closed end bond fund, that is free of federal income taxes. You will want to check your tax rates. If you are in a low tax bracket, it may not be for you. But for those in the 25% bracket or above, its hard to beat the yield for similar risk.

Best way to buy NQS is to buy it through a discount broker. But a mutual fund with automatic checking account deductions might be more suitable for your purposes.
Print the post Back To Top
No. of Recommendations: 1
I don't see why it is necessary to save 25 percent of your income just for retirement. I would put buying my home as a higher priority and maybe keep your retirement contributions at their current level. Nobody knows what is going to happen in 40 years. You're on track, but the future is not guaranteed to any of us, so I would think more about medium-term goals (such as home and starting a family, if you have that goal) and not just short-term emergency savings (which you have covered) and long-term retirement savings (for which you have a plan in place).

You're doing fine as is, just saying that I put home ownership first in my plan. When I look around me, the people who do OK in retirement are not those with millions of dollars -- it wasn't possible for working people back then to save up that kind of money -- but the people who made a point to pay off their homes. Without rent to pay, then even a smaller retirement fund or a Social Security based retirement can be comfortable. So for me I put a premium on getting a home I could pay off and manage easily. Others get the bigger home, let it appreciate, and then cash out with some big profit before buying a smaller place to retire in. That can work VERY well also.
Print the post Back To Top
No. of Recommendations: 1
Saving for retirement is a very important goal. But so too is saving up for a home purchase; I feel owning a home free and clear of mortgages is a big part of retirement security. I don't think I'd neglect either one. If you could ramp up to 25% of your income into savings and investments of various sorts, I'd probably put 6% of pay into the 401(k) (since you said your employer matches 6%) plus a Roth IRA contribution. Everything above 6% of pay plus some for the Roth, I'd put in savings for a home purchase.

You didn't say what your income level is, so I don't know what percentage of income $4,000 would be for you (the Roth contribution limits). That might influence whether or not I thought you should put all $4,000 into the Roth. If you still have enough to set aside for the home after 6% (pre-tax) plus $4,000 (after tax) to put in a down payment fund, that's definitely what I'd do.

But for sure, if a home purchase is down the road and an important goal for you, I'd divert the non-matched 401(K) contributions into a savings account toward the down payment.

Oh, and by the way, you're off to a great start. You have a lot more saved up than I did at 25, and I did better than most...

#29
Print the post Back To Top
No. of Recommendations: 0
If he's a first time home buyer, I would think after the company match, I would make sure the Roth is fully funded, has an emergency fund of 3-6 months wages at Emigrant or ING, then divert any extra to a TIRA. A first time home buyer can take out everything he put into the Roth to put towards a house, but not the earnings, if I remember correctly. Hal
Print the post Back To Top
No. of Recommendations: 1
Just so you'll know, I'm printing this whole thread out for my sons, 21 and 17. They have noted my interest and emphasis on saving and paying off my mortgage, and I'd like to keep them focused on those early year savings. Many moons ago, I read Vanita VanCaspal's book, the Power of Money Dynamics, and I'm certain she saved my fiscal buttocks. Going with term life and investing the remainder had made my future one I'm happy with. Now, at 49, I'm thinking about what I'll leave rather than whether I'll have enough. What a peace there is in that.

As for individual investements, I'd limit those. The market, like the blackjack table, is risky for mere mortals. Going with the diversified funds is the way to go, but you can't ignore them. Leadership changes can drastically alter their returns.

Real estate, medical, those things that will still be needed when you are retiring are worth looking into, and there are excellent funds just for that.

Keep up the good fight!

Cheers!
Print the post Back To Top
No. of Recommendations: 0
>> A first time home buyer can take out everything he put into the Roth to put towards a house, but not the earnings, if I remember correctly. <<

Yep. And it's not just for a home purchase, it's for any reason (though a home purchase is one of the few circumstances under which I might recommend it). Contributions can always be withdrawn tax-free and penalty-free (you have, after all, already paid tax on that money). A TIRA can have up to a $10,000 withdrawal penalty-free (but not tax-free) at any age toward a first-time home purchase.

#29
Print the post Back To Top
No. of Recommendations: 2
Also, I'd like to buy a house someday so I guess I need to start saving for a down payment. How should I prioritize that against my goal of increasing my retirement savings to 25%?

Congratulations on the foresight and discipline you've shown at this early age!

I agree with Ziggy 29 when he says:

If you could ramp up to 25% of your income into savings and investments of various sorts, I'd probably put 6% of pay into the 401(k) (since you said your employer matches 6%) plus a Roth IRA contribution. Everything above 6% of pay plus some for the Roth, I'd put in savings for a home purchase. – Ziggy 29

Even if you never plan to marry or have a family, owning your own home or condo is one way to diversify your investments, as well as mitigate the risk of finding yourself homeless one day.

But I don't quite agree with Hal when he says this:

A first time home buyer can take out everything he put into the Roth to put towards a house, but not the earnings, if I remember correctly. – Hal

Although one can withdraw contributions made to a Roth without consequence, IMHO it is not a good idea to deplete one's deferred retirement savings for any non-emergency reason. Keep in mind that one can't just 'repay' the money back in, it can only be 'paid back' via the contribution limits each year. In the meantime, there's a chance that you might be drawing it down at a point where the market moves up 30-40% in the following 2 years, and you will have lost the equivalent of many more years (possibly even 10-14) of returns simply via 'bad' timing. This is the major drawback, and I have seen it first-hand when I borrowed against my 401(k).

I'd been looking at using I-bonds rather than a savings account. The savings account works well for me though because I auto-deposit into it and "trick" myself into saving. ;)

Use Ziggy's suggestion of moving the 4% (over the match) 401k contribution to the savings account. In addition, ramp up the auto-deposits to what is comfortable for you. Maintain at least 6-12 mos of living expenses as your e-fund there. Each May and November, when the I-bond rates are announced effective, move the dollars you've contributed to the savings account that are in excess of the amount needed for your e-fund to I-bonds. Then when you're ready to purchase a home/condo, you can cash in the I-bonds for the down-payment.

2old
Print the post Back To Top
No. of Recommendations: 0
Hi remleduff,

I made a similar decision.

My wife & I are 26. We had been contributing to ROTHs for each of us, and my 401k for a couple years. Just last week I reduced my 401k contribution down to the match, to divert more money to savings for our next house.

-Joe
Print the post Back To Top
No. of Recommendations: 2
"it wasn't possible for working people back then to save up that kind of money -- but the people who made a point to pay off their homes."--pekinrobin

PR, I agree generally with your post. Building equity in your home is certainly good as part of a retirement plan. And real estate these days is doing very well. So its a great investment. And not a bad way to diversify.

But something else to consider is the times. I'm not sure how old you are, but there was a generation who could expect to retire on solid pension plans. I think those days are gone for many. Boomers are the first to have 401Ks and IRAs to retire on. And because pension plans are going away, many are forced to rely on those. But the next generation with defined contribution plans instead of defined benefit plans will likely be in trouble--especially if they fail to fund their 401K plans.

So, I think you comments are excellent for those with solid pension plans. For those without them, savings rate and maxing the 401K becomes very important. If they don't do that, they may not be able to retire. 25% may be a stretch for many, but how about 15% or 20%. They should do as much as they can manage.
Print the post Back To Top
No. of Recommendations: 1
Nuveen

I am always nervous of leveraged investments, and most of Nuveen's stuff is pretty highly leveraged.
Print the post Back To Top
No. of Recommendations: 0
A first time home buyer can take out everything he put into the Roth to put towards a house, but not the earnings, if I remember correctly.

As long as the Roth has been around 5 years, anybody can take the contributions out of a Roth at any time. You can only take the earnings out tax-free if you're past retirement age or if you're a first-time homebuyer.
Print the post Back To Top
No. of Recommendations: 0
As long as the Roth has been around 5 years, anybody can take the contributions out of a Roth at any time. You can only take the earnings out tax-free if you're past retirement age or if you're a first-time homebuyer.

Actually, I think that the 5-year rule only applies to conversions from TIRAs to Roths, not to contributions, according to many posts I've read:

http://boards.fool.com/Message.asp?mid=22730739

2old
Print the post Back To Top
No. of Recommendations: 0
You're right; I should have looked it up. Thanks.
Print the post Back To Top
No. of Recommendations: 0
<Nuveen

I am always nervous of leveraged investments, and most of Nuveen's stuff is pretty highly leveraged.>--jrr7

Very good point, jrr7. Nuvene's funds are not for everyone. And they are best as part of a diversified portfolio--for only a portion of your assets.
Print the post Back To Top
No. of Recommendations: 0
I'm 28 and have been doing this for 5 years now. I have a couple of suggestions I think might help you. First I keep my 401k level just at the company match until I have maxed out my Roth IRA for the year. I invest my 401k in S&P500 index fund (which is my safe longterm investment). Keep in mind when withdrawls are made in retirement from the 401k they will be taxed at your then income level. I use my Roth IRA to invest in small cap funds that are suggested by Hidden Gems here at the FOOL. This is my risky investment and where I hope to get the highest returns. When I draw out of this account in retirement, it will be tax free as I have already paid taxes on the money invested. So the Roth IRA is the best place for my high returns. After the Roth is maxed for the year I then ramp up my 401k savings until that is maxed out. I would also suggest if you haven't done so already to switch to an internet bank that has free checking and moneymarket(savings) accounts. I switched to NETBANK and have been very happy. Checking pays 1.0% on my day to day bill paying account and the money market pays 2.87% compounded monthly on my emergency fund all with no fees which has saved me lots over the past couple years. I also bought a house 3 yrs ago and got a traditional 30yr mortgage. This I think was a mistake for me. The house I bought was just a starter home and I went into it expecting to only be in it 3-5 yrs. With that in mind I would have been much better off if I would have gotten a 5yr adjustable rate mortgage. I would have paid much less and the payments would have been fixed for the time I expected to be in it. If you are like me and plan on trading up to a bigger/nicer home after a few years....I would strongly recommend you check out adjustable rate mortgages. I plan on selling my house within the year and building my dream home with my wife. I estimate I could have saved $7000-$8000 over the last 3yrs (my payment would have been close to $200 less per month). As for your returns... remember we have 40yrs to ride the ups and downs of the stock market so I suggest you invest FOOLISHLY and swing for the fences with your returns, we have lots of time to recover if the market goes bad. Best of luck with your future investments....hopefully we will both be retired at 50!!!!
Print the post Back To Top
No. of Recommendations: 0
One thing I forgot....make sure and get good finacial software to track your accounts and returns...it really helps. And I wanted to tell you with the above strategy I have averaged >16% annually the last five years since I started. Best wishes and good luck.
Print the post Back To Top
No. of Recommendations: 1
Hi NotaDoc!
Thanks for your thoughts. :)

I actually keep thinking about getting Hidden Gems but I just don't think it makes much sense in my case at the moment. Hidden Gems costs $300 annually, which is 2% of $15,000. My Roth is less than half that, meaning that Hidden Gems would end up being equivalent to a mutual fund with a greater than 4% expense ratio for me! Your 16% rate of return would only have been less than 12% taking into account expenses in my case (and that's not considering trade commissions of which I try to pay as few as possible currently).

Now, the S&P did considerably less than that in the same time period, but Hidden Gems doesn't have much of a track record against the S&P when the S&P does well. Are the Hidden Gems picks so contrarian that they will do less well in an environment more favorable to the S&P?

Currently, if nothing significant changes in my life (big if, I know) I can continue my current savings and retire very comfortably at 60 assuming that I only get a 6% average rate of return. If I increase my saving to 30% of my annual salary and get an average 8% rate of return, I could retire at 40! I'm not counting on that though, and saving 30% is still a work in progress, especially if I save for a home. :)
Print the post Back To Top
No. of Recommendations: 0
Correction, Hidden Gems is $200/year (I was thinking of Rule Breakers which is $300). The math still ends up being pretty close to the same though, $200 is 2% of $10,000 which is still a good deal more than is currently in my Roth.
Print the post Back To Top
No. of Recommendations: 0
You're right. $200 dollars is quite a bite. I like the subscription and get a lot out of it. I'm hoping in time that I will be able to use my own stock screens and pick my own Hidden Gems:) But I have only been picking stocks just over a year now...so it is my safety net and mentor.Hidden Gems has only been out alittle over two years now, but their anualized rate of return has been >30%. That is phenominaly better than I could get with any muatual fund. So those are the reasons I have to justify the $200. As for the small cap stocks balancing out when the S&P is down....probably not. Small caps are mutch more volatile and don't really follow logic at times. Seem to go up and down on whims quickly. Planners wouldn't agree with my strategy....100% stocks, but I have atleast 20 yrs to retirement and that would be really early at that (48yrs old). So my plan is to keep going like this for ~10yrs more, then I will get more conservative and start adding bonds and cd's to my portfolio. The best thing that could happen for me is if the stock market completely tanked and crashed right now. It would give a chance to buy more stocks cheaply. As you read and learn on this sight, you and I have the most vaulable commodity when it comes to investing...not cash, but...time. We literally have decades to ride the ups and downs of the market. Which is very good for us.

Not A Doc
Print the post Back To Top
No. of Recommendations: 2
But I have only been picking stocks just over a year now...so it is my safety net and mentor.Hidden Gems has only been out alittle over two years now, but their anualized rate of return has been >30%.

Be careful with statistics. It's been hard to lose money in the market over the past few years.

Hedge
Print the post Back To Top
No. of Recommendations: 0
I should also clarify... I started investing ~5yrs ago, but like most people there is always a learning curve...So unfortunately the first couple years I just put the amount my company would match in my 401k away. Ironically that really helped my returns. It wasn't until ~2002 that I got turned onto the FOOL and started reading and getting interested and realized I had to step it up. So it wasn't until then that I started putting 20% of my salary away into the 401k to max it out. So I really benifited from buying lots more when the S&P was in the 800's and 900's (lucky timing). And now with more reading, research, and discussions, the last year and a half I got into to Roth IRA. So my Roth is only a little north of 9,000 at the moment. I don't expect to keep getting 16% returns...I've been lucky so far. But my plan is to get ~11% (historical return for S&P) in my 401k. And to try and crush a grand slam with the Roth (if I can get 20-25% for the next ten years- I'll be dancing the jig on my retirement day!)

Not A Doc
Print the post Back To Top
No. of Recommendations: 0
But I have only been picking stocks just over a year now...so it is my safety net and mentor.Hidden Gems has only been out alittle over two years now, but their anualized rate of return has been >30%.

Be careful with statistics. It's been hard to lose money in the market over the past few years.

Hedge

Like I said...best thing that could happen is if the Whole market crashed right now. I cetainly dont expect 30% returns to continue. I'm realisticly hoping for 15-20% and if i can get 20-25% I'll be laughing like a FOOL. It feels good knowing I have 40yrs before I'm supposed to retire!

Not A Doc
Print the post Back To Top
No. of Recommendations: 2
I'm realisticly hoping for 15-20%

You used "realisticly" and "15-20%" in the same sentence.
Print the post Back To Top
No. of Recommendations: 0
You used "realisticly" and "15-20%" in the same sentence.

At least expectations have come down from the annual 30%+ that was common estimate before the stock bubble bursting.

IF
Print the post Back To Top
No. of Recommendations: 2
I'm realisticly hoping for 15-20% and if i can get 20-25%

The long-term real rate of return of the stock market is 5% (after inflation).

And in most countries of the world except the US, the stock market has not been a long-term guaranteed positive, even over 20-year periods.
Print the post Back To Top
No. of Recommendations: 8
Hidden Gems has only been out alittle over two years now, but their anualized rate of return has been >30%. That is phenominaly better than I could get with any muatual fund.

Just a quick warning.

The Fool has a habit of having newsletters that they cancel when their returns turn south. I wouldn't be surprised at all to hear they hit a soft patch for a few months, and then the Hidden Gems were cancelled (or handed to someone else), and their record would be deleted from the website.
Print the post Back To Top
No. of Recommendations: 3
>> The Fool has a habit of having newsletters that they cancel when their returns turn south. <<

Yep. Two other words come to mind here:

Foolish Four.

#29
Print the post Back To Top
No. of Recommendations: 0
The Fool has a habit of having newsletters that they cancel when their returns turn south. I wouldn't be surprised at all to hear they hit a soft patch for a few months, and then the Hidden Gems were cancelled (or handed to someone else), and their record would be deleted from the website.

I'm shocked!!

IF
Print the post Back To Top
No. of Recommendations: 0
The Fool has a habit of having newsletters that they cancel when their returns turn south. I wouldn't be surprised at all to hear they hit a soft patch for a few months, and then the Hidden Gems were cancelled (or handed to someone else), and their record would be deleted from the website.


That I was not aware of with my short history and I appreciate the heads up. I still think I like my chances with 40yrs to ride out the market.
Print the post Back To Top
No. of Recommendations: 0
The long-term real rate of return of the stock market is 5% (after inflation).

And in most countries of the world except the US, the stock market has not been a long-term guaranteed positive, even over 20-year periods.


I'm curious at the 5% real return number. I am anticipating 3% inflation/yr and an S&P historical return of ~11%. Doesn't that come to ~8% real returns? As for the rest of the worlds returns on their stock markets, are we talking about industrialized nations? How about over 40yrs, which is what I have til retirement? I'm still very green at this and appreciate any advice also.

Not A Doc
Print the post Back To Top
No. of Recommendations: 0
"I'm curious at the 5% real return number. I am anticipating 3% inflation/yr and an S&P historical return of ~11%. Doesn't that come to ~8% real returns? As for the rest of the worlds returns on their stock markets, are we talking about industrialized nations? How about over 40yrs, which is what I have til retirement? I'm still very green at this and appreciate any advice also."

Hi Not A Doc,

Its great that you are getting an early start, I was over 40 before I started. Now going into retirement I personally don't care much for investing in something like the S&P500 index... Its flat for the last 6 years or so (too lazy to get the exact timing ;-))..

Anyway heres a link to a site where you can look at returns since 1900... http://www.crestmontresearch.com/content/market.htm then click in the link to the left of the text.. several way you can select for the returns...

" Stock Market Matrix

Returns depend upon the starting and ending point. This series of charts presents the compounded annual returns for an investor that began investing during any start year since 1900 and ending with any subsequent year. The versions presented reflect those for taxpayers and for tax exempt or deferred investors, as well as returns on a nominal and real (after inflation) basis. The charts are scaled for printing on a single sheet of 11x17 paper or on two 8 ½ x 11 pages for subsequent alignment. See the assumptions and legends for important details."


Regards, Ken
Print the post Back To Top
No. of Recommendations: 1
...and an S&P historical return of ~11%

Just a warning, many on the boards believe the 11% growth is both a thing of the past (as in our country is getting mature and may not grow as fast as in the past), and also that we're a bit over priced currently. In my planning I attempt to be cautious, and generally assume higher inflation, lower returns (around 5% real), and hope that I'll be pleasantly surprised.
Print the post Back To Top
Advertisement