Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev Thread | Next Thread
Author: PeregrinTook Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25242  
Subject: New Fool needs advice Date: 1/3/2003 12:55 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Greetings Fools,

I am a 25 year old that graduated from college in 2000. My first couple of jobs were short, right out of school and I moved from place to place. I am in the Technology field, and times were/are volatile. At last I found a nice stable job with the government that pays a decent salary in these uncertain times in the tech sector.

Here is my situation and I hope I can get some foolish insights.

- I am 25 years old
- I make 52k a year
- I am married
- My wife is a nurse
- We just bought a house

I just started my job in September 2002 and am about to enroll in the 401k plan which is being transferred to CitiBank(CitiStreet) as we speak, it was previously run by a smaller agency, but now CitiStreet is taking over.

I have decided I will take part in the plan. Most of my coworkers are older, actually I am the youngest one here, and most of them have their entire 401k in a 84 Month Guaranteed Certificate Fixed investment option that returns a fixed yield...

Should I be more aggressive since I have years on my side or should I play it safe? The other options we have are:

American Funds EuroPacific Growth
Fidelity Diversified Int'l Fund
Brazos MicroCap Growth Fund
Franklin Small-Mid Cap Growth Fund
Strong Opportunity Inv Fund
American Century Ultra Investors
JP Morgan Growth & Income A
Vanguard Instl Index Inst Plus Fund
Oppenheimer Capital Income A Fund
PIMCO Total Return Instl Fund (Pimco actually had a postive return in 2002 compared to negative for all others...9.49% and 9.33% since inception)

Also...after *all* my expenses I have about $400 left over every month....

Also fools, I forgot to mention, since I work for the government, $130.00 pre-tax per paycheck is deducted into a Government Retirement account which I never see so I have never missed that money. (Theoretically If I work here for 28 more years, at my current salary, I will get a check for $2000 odd dollars every month for the rest of my natural life, I hope my salary goes up, however..)

My question is..can I start an individual Roth IRA being that I am married and my wife is still hesitant about the stock market, or do I not qualify because I am married? My wife makes 56k a year, but does not participate in a 401k and does not have an IRA. (I will convince her to become a fool later, and start one of the two, after I get my feet wet and know what I am doing)

Actually..*SHOULD* I start a Roth IRA or should I just get a regular investment account......Sort of confused and dont know if I could have a 401k AND a Roth..individually, even if I am married...

Advice for a Fool please.

Help me Obi Wan Kenobi, you are my only hope...

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: PeregrinTook Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15665 of 25242
Subject: Re: New Fool needs advice Date: 1/3/2003 12:57 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
oops sorry about the spacing. I am a fool.

Print the post Back To Top
Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15666 of 25242
Subject: Re: New Fool needs advice Date: 1/3/2003 1:48 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Welcome, Peregrin. Glad to have you with us.

Psst. Those long lines you see in your message come from pressing the table data button when you submitted your message. That feature works best if you want to post a spreadsheet data table, but then its best to preview the message and insert your own carriage returns in the middle of the long lines. I'm sure you'll get comfortable with it with some experience.

To answer your question, yes, both you and your spouse can have Roth IRA accounts until your combined income exceed the limit--abt $140K. In those years you can keep your account, but you can't make contributions, but you could contribute to a conventional IRA.

The best investment for you depends on where you think you are likely to get the best returns. Fools believe that over time an S&P Index fund like your Vanguard Inst Index Plus fund is likely to return 11% (though some think that may not happen again for a few years yet). On that basis they recommend that as your basic investment for most of your funds.

If your insurance guaranteed fund pays over 10% it gets very tempting these days, because there in little or no risk. But most of them pay far less and are not so good.

The PIMCO fund probably has a significant bond position. Bond funds have been the best performers for the last few years. (Actually precious metal/gold sector funds have done the best this year.) But bonds will continue to perform that well only while interest rates continue to decline. Most think interest rates from here are likely to start rising soon. That means bonds likely will reverse that trend. In stead of paying say 6% plus capital gains caused by interest rate reductions for a total return of 9%, they are likely in the future to pay 6% less a similar capital loss due to interest rate increases for a total return near 3%.

I too have met various people over the years who always put their 401K money only in fixed income investments. They are risk averse, afraid of loosing money in stocks. The tech stock run up in the 90s taught everyone how much better it can be when stocks do well (then often 30% returns on an S&P or more 60 to 100% on some growth or tech sector funds). The collapse has reaffirmed the fears of those in fixed incomes.

You will have to decide for yourself how much risk you can tolerate. Fools believe especially in your age group buying stocks over the long term is about the best you can do.

You could look into diversificiation if you like. Check out the funds you are offered on Morningstar.com. Look for loads, expense ratios, 12b-1 fees. Look for recent changes in management and especially for performance compared to the respective indexes. Performance figures can be difficult to interpret with all the recent volatility, but Morningstar will at least tell you if yours is better than the average fund in that category.

For diversification, some would recommend international funds. If you have a good performing low cost one, that is OK for up to 30% of your funds (though personally I think international diversification is ineffective and not worth the trouble).

You can also diversify by putting portions of your funds into small cap and midcap funds.

You can boost returns by putting part of your funds, say 30%, in a good performing sector fund or in a growth fund. But be careful to pick the right one. They are often costly in terms of fees and definitely not worth it if they are not leading the pack in returns.

If you are conservative, you can diversify by putting part of your funds into bond funds or other fixed incomes. Fools recommend against it, but it can be OK if risk bothers you.

Ask away if any of this requires more explanation.

Best of luck to you.

Fool on!!

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: PeregrinTook Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15667 of 25242
Subject: Re: New Fool needs advice Date: 1/3/2003 3:05 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Thanks for the response, I have another question about the Roth IRA

I don't know if I am doing something wrong, but I went to the MorningStar.com IRA Calculator just to see if am eligible for a Roth IRA...


I said I was married filing separately, I selected "yes" for the question that asked if I participated in an employee sponsored program at work (401k), I entered my income (52k), and "no" if I would be 50 or older at the end of 2002...

it said I was only eligible for a "Traditional Non-Deductible IRA"....?

I thought I quialified for a Roth?!

Print the post Back To Top
Author: MikePSD Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15668 of 25242
Subject: Re: New Fool needs advice Date: 1/3/2003 3:10 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
The 401K with a broad diversification in stocks is probably best based on your age.
The Roth is available if your combined salaries are $140K or less. Once you make more the Roth can not be added to but you can leave what you put in there growing tax free.

You didn't mention if your 401K has an employer match at all. If it does be sure to send enough money to it to take advantafe of the match.

Also if your wife is eligible for a 401K that has a match then get her to enroll to get that free match.



Print the post Back To Top
Author: MikePSD Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15669 of 25242
Subject: Re: New Fool needs advice Date: 1/3/2003 3:12 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
The 140K is for married filing joint. I am not sure of the figure for filing separately . Check the IRS doc at www.irs.gov


Print the post Back To Top
Author: MikePSD Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15670 of 25242
Subject: Re: New Fool needs advice Date: 1/3/2003 3:16 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
I just looked at IRS Pub 590 and Roth for married filing joint is 160K
, Married filing separate is 10K limit, What a difference.
Good Luck

Print the post Back To Top
Author: FuskieFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15671 of 25242
Subject: Re: New Fool needs advice Date: 1/3/2003 3:57 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
You start off with a refrence to a hobbit and with the Force. You are truly a techie... <grin>

You have already gotten some other opinions so let me give my 2 cents worth. You are young but with a lot of potential life costs (especially if you choose to populate that new house with little techies). After contributing to your 401K, you have $400/month left over. The first thing you do is ignore what all the old fogies at the office are doing and focus on what your needs are.

Let's take a step back and evaluate your goals. First, you want to retire sometime around age 65-70. Second, you have an idea what kind of lifestyle to which you would like to be accustomed, so you need to guestimate, based on your current salary and inflation, what you income will need to be. From that you can establish your retirement target. There are many wonderful on-line calculators that can walk you through this process (check with your new 401K manager).

Once you know where you want to go, you have to determine your risk level in getting there. You are very young should be able to tolerate significant risk over the 40+ years you have to invest before retirement. Again, on-line calculators can help you refine your asset allocation, but most will agree that you should put at least 90% in equities, 10% in bonds (of the equities, maybe 20% in international funds). As you approach middle age you will want to be more balanced and by retirement you would tilt toward the safer bonds and minimize your equity stance.

Next you need to diversify your equities and bonds. On the bond side, remain agressive and explore high-yield funds that pursue lower-rated bonds with high return potential. On the stock side, allocate different ammounts for small, medium and large cap companies, as well as international companies. Fools do like index funds and you can find good index funds that focus on these market capitalizations as well as managed funds.

Another consideration is whether you want to focus on growth or income. Long term investors may have the patience to wait out the economic downturn and let their stocks grow over time. If you would like to build capital appreciation early, consider an income (dividend-paying) fund. Ideally a stock that does both in a tax-deferred account is a great find.

My personal preference right now is small or mid cap undervalued companies which I believe will be best positioned to take advantage of a market recovery. It really is up to you where you feel most comfortable. Only you (and your wife) have to live with your decisions.

Now I mentioned additional life costs at the top. If you plan on purchasing a car or other luxuary item in the near term, you may want to start putting some money away in a cash appreciation instrument, such as a CD or money market fund. Decent rates can still be found with on-line institutions.

If you plan to start a family, consider starting a 529 educational account. The costs of college are enourmous and if you can start saving early, you can spare yourself headaches when your child becomes a 3rd year Junior.

As far as a Roth goes, they are great if you believe your tax rate now will be less than it will be in retirement, or you have maxxed out other retirement instruments. First meet your employer-match amounts in the 401K - never turn down free money, especially when we tax payers are footing the bill. :-) If you like the fund choices, go ahead and max out your contributions. Your wife should do the same.

Next take care of yourself. Keep an emergency cash fund handy for 6 months of minimal living. Put money aside for vacations and luxury purchases (always try to pre-pay yourself for these items rather than use debt management). If you open a Roth, you can put in $3000 a year for the next few years (then the limit increases by $1000), and either invest in funds or play the market directly (depending on the brokerage).

Whatever you decide, at 25 you are in great shape to be already looking out for your future. You may be 3 years out of school but do not stop learning. Devour the Foolish resources available here and explore other avenues available to you. Make sure you understand the pros and cons of your choices before making your decisions. Welcome to your future!

FuskieFool

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: anuvaka Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15677 of 25242
Subject: Re: New Fool needs advice Date: 1/5/2003 3:45 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
PerigrinTook

may i offer my congratulations! you are doing well. graduated, married, both making good salaries And a new house!
please excuse me if i offer life advice as well as investment advice. you should take it as 1MO.

first you should be concerned with an Emergency fund =to 3 to 6 months expenses. being in a volitile career field, this is a must.

yes you can and should open a Roth IRA for yourself and your wife. you May be above income limits, (usually 100k)so check that first. you might have to do creative accounting to fall below the income limits. the contribution limits to a Roth or IRA are 3k/yr.

$130.00 pre-tax per paycheck is deducted into a Government Retirement account which I never see so I never missed the money.
you will love that, not now but later. defined benefit pensions are a real plus in retirement. just pay in, never collect it till you are 55 or 62. i let mine go and i regret it.

Actually..*SHOULD* I start a Roth IRA or should I just get a regular investment account...
actually both. E-fund first, regular contributions until you see some progres, regular contributions to a taxible investment account and seperate Roths for you and your wife. why sperate? your tax situation, and unfortunatly divorce happens.(not wishing you bad luck) which is why you should contribute equal amounts.

...Sort of confused and dont know if I could have a 401k AND a Roth.
yes you can. probably the best bet is to make your 401k all pre tax, your Roth must be post tax by law.


American Funds EuroPacific Growth*-international fund

Fidelity Diversified Int'l Fund* international fund-well run, good returns for an foreign investment(#)

Brazos MicroCap Growth Fund *very small cap fund dont now it

Franklin Small-Mid Cap Growth Fund*-fairly good small- mid cap fund(#)

Strong Opportunity Inv Fund*i believe this is a small to mid cap growth fund- unsure about this

American Century Ultra Investors*- dont know it

JP Morgan Growth & Income A *-dividend paying growth fund dont know it

Vanguard Instl Index Inst Plus Fund*-S&P 500 index fund. expense ratio 0.09% (#)

Oppenheimer Capital Income A Fund*- dont know it

PIMCO Total Return Instl Fund (Pimco actually had a postive return in 2002 compared to negative for all others...*- this is a bond fund. bonds have done well in 02, (#)

(#)= i own this fund

you have a nice selection here, better than most. you have to think about diversification and where you want your money to be. a start of Large Cap, Mid Cap, Small Cap and in a year or so add bonds and International. this is a long discusion and everyone has their own opinion. your E-fund could be MoneyMarkets, CD's or Short term bonds. your taxible account should be tax efficient or an index fund

most of them have their entire 401k in a 84 Month Guaranteed Certificate Fixed investment option that returns a fixed yield...
you are to young for that. Invest!

My wife .... does not participate in a 401k and does not have an IRA. (I will convince her to become a fool later, and start one of the two, after I get my feet wet and know what I am doing)
well convince her. i know too many women who are in their 40's with almost nothing saved for retirement. getting the company match for 401k's is FREE MONEY! even a poor plan is better than no plan.
are you going to put off having kids for a few years? could be a good idea. kids are expensive. if you have extra cash you could pre pay extra principle on your mortgage.

Welcome to the Fool, it's a learning experience that goes on and on.
jC




Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: PeregrinTook Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15684 of 25242
Subject: Re: New Fool needs advice Date: 1/6/2003 8:39 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Thank you ALL so much! I am well on my way to foolish enlightenment...

I am starting off by getting my emergency fund ready...which sounds like the right way to go, because I do not have an emergency stash except a small savings account..

Thanks again!

Fool of a Took
(Peregrin)



Print the post Back To Top
UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev Thread | Next Thread
Advertisement