Quote:
Originally Posted by UCFKnight85
Retirement is a "Yes". I'm already funding my company 401K at 8% and I have a Roth IRA that I currently have funded at roughly $2,200 on the year.
Yes on the emergency fund. I want a pot of money, put away, that is going to collect interest but isn't locked away to the point that it's not liquid. Given I'm in no financial danger right now, figured a 24 month CD might work?
Investing for a house. The timeframe is a little "ways away" on this, so I'd rather seek a moderately agressive investment vehicle to earn money towards buying a house. I think a historically well performing mutual fund may be appropriate?
I'm not really seeking single stock trading.
I'm also not well versed in the bond world, so some help there would be appreciated.
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Welcome
read these 2 threads and help us figure out your current state of affairs. Post questions here
Questionaire for people starting retirement planning
Investment risk questionaire
Based on the posts thus far, here are my comments
1) I think your retirement savings needs to be higher. Guessing you are contributing about 10% of your gross income to Roth+401k. Try getting that number to 15% within 2 years.
2) Risk is relative to a person and situation. You are asking the right questions, you need to do some reading and take some online questionnaires (web sites like Fidelity, T Rowe Price and Vanguard all have risk assessment questionnaires similar to one I linked to).
Here would be some common risk profiles
Retirement porfolio- 100% stocks, 80% stocks/20% bonds and cash, 60% stocks/40% bonds and cash.
Each of those has an expected return with an expected volatility. Volatility is one way to measure risk of an investment. Because retirement is 20-30 year planning, time mitigates some of the market risks and other risks (the risks go away with time is what history shows). And because retirement is a gray area, if you plan to retire at 62, then have to wait until 65 (3 more years) that is not a terrible consequence to missing a calculation or taking on a too much risk.
For a house, my suggestion is no more than 5% equities for every year out on the purchase, and no more than 10% bonds for every year out on the purchase. Balance in cash based investments like CDs and money markets.
Meaning if you want to buy in 10 years, no more than 50% equities and 100% bonds would be OK. At year 5, you want no more than 25% equities and no more than 50% bonds (meaning start to move money to cash)
at year 1 you want no more than 5% equities and no more than 10% bonds (85% of money you need within 1 year needs to be cash).
I am sure there are more details on shifting assets from equities to bonds and from bonds to cash, my thought is when you have a specific timetable on something... "I want a house in 7 years" or "I want a car in 4 years" or "My kid is going to college in 6 years", you should not RISK the money to chase return with a specific timetable... could you imagine telling a kid, wait 6 years for college because the investments tanked? The timetable on college is finite, so take little risk with the money if the timetable is very specific. And because the time periods are so short, the power of compounding will have less impact on total amount available.
If you set aside 40k for a house over a 5 year period, the difference between a 3% interest rate and 7% return in a mutual fund is minimal.
3% gives you $43,747
7% gives you $49,226
is that $49k going to get you a better house than 43k? Might be one upgrade in kitchen or bathroom. Maybe... so difference over a short time period is little even though return of one investment is much more than the other...
the downside... to get 7% return, you will need to take on much more risk to principal, and its possible the 49k you project is actually 39k or 29k because market can take away over 5 years as much as it gives you (if 2008 and 2009 are any indication, I would not want savings for a house in stocks for a 2011 purchase for example).
If you want moderate risk, there is an asset class of moderate risk mutual funds. I own one called PRPFX. If you were saving for something with a 10 year timeframe, it is a fund worth considering in a taxable account.