Investing Options - What should I do?

[jIM_Ohio]

Well, I'm trying to do both as you can see I have some mutual funds so I thought that was a good idea to do something with my money until I graduated. I'm researching different mortgage types (15 years, 30 years, paying more or less etc.)

However, the goal of this was to get some information based on my position from anyone with experience. A kind of - look back at what you WOULD have done if you were in my shoes. Thanks for the blogs though, I'll take a look.

I work in technology too, and have read 3 of the 4 posts you made.

Here is what I would add

You are thinking about this correctly and you need to avoid looking for too much advice and "just do it". You will get so much advice it could prevent you from seizing an opportunity.

Realize there are 3 ways to view/measure money, and none of them are wrong. When you can see your own situation in all 3 ways, then you have mastered most of the important concepts.

One way is income. Focusing on income sources, cash flow, and making sure what is going out is less than what is coming in. Many people suggest focusing on a career, however I would suggest having more than one income source gives you options and decisions. It's OK to work in tech, have rental properties and lead a successful career. Many of my most respected references and business owners also own real estate. Multiple income sources is a good thing.

Another way to measure money is assets and liabilities. Many people which preach pay off debt, then invest in index funds are focusing on this part of the equation. This is also known as a balance sheet. I would definitely do this, just know that its not the be-all, end all... if you do focus on income (above), you will see assets and liabilities differently, but that is a different way to look at things.


The last way is the growth and change of assets. For example, if you have real estate, stocks and similar, you will want a way to evaluate new opportunities. Is the money going to grow at 5% year over year, or increase income 5% year over year, and what is the impact of this growth, ROI is much different than % gain, and knowing why you measure opportunities both ways is very important.


Lastly, you mentioned paying off your car, then getting a cheaper car once its paid off. Please verify I interpreted that right, and if so, can you see the anti logic I see in that same statement, or do I need to explain?

One other mistake I made early on was putting too much investment money into Roth and IRA, and not enough into regular accounts. Life throws you curves, having assets you can tap into is priceless. I'm still paying for not realizing that.

[autoxer]

One other mistake I made early on was putting too much investment money into Roth and IRA, and not enough into regular accounts. Life throws you curves, having assets you can tap into is priceless. I'm still paying for not realizing that.

With almost 90% of my net worth in retirement accounts, I'm curious what you went through. I've always figured the tax benefits outweighed the risk of needing the funds in the short term.

[feh]

With almost 90% of my net worth in retirement accounts, I'm curious what you went through. I've always figured the tax benefits outweighed the risk of needing the funds in the short term.

I didn't make the original comment, but I'm very glad about 50% of our retirement funds are in taxable accounts; it's going to allow us to retire early.

[autoxer]

I didn't make the original comment, but I'm very glad about 50% of our retirement funds are in taxable accounts; it's going to allow us to retire early.

I am also planning to retire early, but it still seems more advantageous to max out the tax advantaged accounts. You can avoid the early distribution penalty by setting up substantially equal periodic payments.

[feh]

I am also planning to retire early, but it still seems more advantageous to max out the tax advantaged accounts.

Oh, we did. We didn't put money into taxable until after 401K and IRAs were maxed.

You can avoid the early distribution penalty by setting up substantially equal periodic payments.

Yes, but that's not an option I'd take lightly.

[jIM_Ohio]

With almost 90% of my net worth in retirement accounts, I'm curious what you went through. I've always figured the tax benefits outweighed the risk of needing the funds in the short term.

90% of your assets are subject to IRS rules. Life can come at you hard and fast before the age of 55, and the IRS will punish you if life happens. The punishment is in the form of taxes and penalties.

Flexibility trumps taxes.

[autoxer]

90% of your assets are subject to IRS rules. Life can come at you hard and fast before the age of 55, and the IRS will punish you if life happens. The punishment is in the form of taxes and penalties.

Flexibility trumps taxes.

I would certainly explore all of my other options before deciding to tap my tax deferred account, but I've been thinking about the circumstances and if I lost my job, then I'm going to drop into a lower tax bracket, so I could defer income in the 25% bracket and withdraw it in the 15% bracket, then pay the 10% penalty and practically break even. Also in an emergency, I could pull out Roth principal without additional penalties, but that would also be very low on my list of options. In my opinion, reducing the tax bill is worth the risk and will be the quickest path to financial independence.

[jIM_Ohio]

I would certainly explore all of my other options before deciding to tap my tax deferred account, but I've been thinking about the circumstances and if I lost my job, then I'm going to drop into a lower tax bracket, so I could defer income in the 25% bracket and withdraw it in the 15% bracket, then pay the 10% penalty and practically break even. Also in an emergency, I could pull out Roth principal without additional penalties, but that would also be very low on my list of options. In my opinion, reducing the tax bill is worth the risk and will be the quickest path to financial independence.

I don't think too many people which invest LIKE to pay taxes. The thing with planning is not just trying to get all issues to narrow down to one goal (issues like budget, spending, investing, taxes), but to also account for the unexpected (life insurance, disability insurance, divorce, spouse can't work, spouse can't take care of kids...).

If everything works, using the tax advantaged accounts solves the problem very efficiently.
If something goes wrong, having a taxable account may not derail the entire goal, which is the point of planning.

Don't let one issue derail the whole plan, add flexibility in.
I could also argue living off a taxable account (with 0% taxes paid) and doing Roth conversions on other money could lower effective taxes over a lifetime.

YMMV

[jamiesmoneyadvice]

Diversify!

All of your money is invested in stocks and bonds through various different means. This is bad!!! You need to diversify.

[feh]

All of your money is invested in stocks and bonds through various different means. This is bad!!! You need to diversify.

No, it's not bad. Stock and bond index funds are plenty diversified.

[jamiesmoneyadvice]

I Reiterate to Diversify

Diversifying in stocks in not diversification. You're still 100% exposed to only the stock/bond markets.

[element926]

Thanks for the information everyone, I'm starting full time at the beginning of July. I also decided that it makes more sense to purchase an extended warranty on my car vs. purchasing another immediately after paying off this one. It will allow me to actually kind of get out what I put into the car and avoid having unforeseen repair costs. I can take the time its under warranty, without a loan, pay myself and use that money in combination with the cars selling price (likely upper teens by the time I sell it) to purchase a good reliable car without a loan.

I'm also going to max out my 401k and contribute $500 a month to each of my after tax mutual funds. The rest will go into savings and to purchase a house w/ 20%+ down payment.

At the end of 2014 I would like to be at:

Car loan - 28k
401k - 27k
Science and tech fund - 15k
S&P 500 fund - 15k
Savings - 20k (give or take)

[pomala6]

Real estate business is handling very difficult cause this profession is very challenging and modify. You know how do you continue to this?

[sandrark]

Well, I'm trying to do both as you can see I have some mutual funds so I thought that was a good idea to do something with my money until I graduated. I'm researching different mortgage types (15 years, 30 years, paying more or less etc.)

However, the goal of this was to get some information based on my position from anyone with experience. A kind of - look back at what you WOULD have done if you were in my shoes. Thanks for the blogs though, I'll take a look.

1) Pay off the car as fast as you can. Drive it for 10 years or 200k miles. Then having bought new won't matter so much.

2) Contribute to a 401(k) up to the max. This year, that's $17,500.

3) Max out a Roth. That's another $5,500.

4) Start saving for the trip of a lifetime - maybe a month in Europe, seeing as many museums as you can? Once you have a mortgage, there will always be needs and projects and money that should be spent on it. Travel now, if it interests you at all.

5) Once you've paid for the trip, start saving for a 20% (or more!) house downpayment.

6) AUTOMATE IT ALL WITH AUTO-DRAFTS. It makes it easy to save.

7) Get on a written budget, and make sure you're getting good value out of your income. Don't spend it all on buying drinks and dinner for your buddies. It's astonishing how much cash you can spend on eating out if you don't pay attention.

8) Take a cooking class. There is nothing more sexy than a guy who knows his way around a kitchen. Bonus: It will save you a LOT of money through the years.

9) Explore charitable giving. It's a great thing to learn how to be generous, instead of tight-fisted and cheap.

10) Learn how to fix things - Home Depot has classes for free. Learn to paint, learn to tile, learn how to install light fixtures and dimmer switches. You have a lot of time, and a habit of learning. Don't lose it. Those DIY skills will be a HUGE help to you once you decide to buy a house. You'll know a lot more about how to SEE a house with potential, instead of passing on one because it's ugly and needs work.

11) When you pick a life partner, pick one who knows the value of living within your means, one who makes you laugh, and one who is willing to work hard beside you as a partner. You don't need a boat anchor if you plan to FLY.

Best of luck! It sounds like you're well on your way.