Investing - Where to start?

[Shawie]

My husband and I are in a great position where we are debt free, I'm 26 and he's 25, we're young and I know that we should start investing because we are so young we can afford to take more risk and potentially earn more in the long run. But I have no idea where to start. I considered getting with a financial advisor but I've also heard from people that we shouldn't pay someone to handle our money. Where should we start? What should we do? Any help would be greatly appreciated. =)

[rennigade]

Im not sure how much you guys make but if you qualify...start with a Roth IRA. You can visit vanguard (very easy to set up.) It walks you through...basically dummy proof. If you want the set it and forget it...pick a target retirement fund. Some people do not like them but in my experience, I love it. Nice returns so far...and as you get older the risk factor will automatically be adjusted (older = less risk, younger = more risk.)

If you have money left over after that, visit: http://www.bogleheads.org/wiki/Three-fund_portfolio

This is the 3 fund portfolio.

From Vanguard's list of "core funds," the funds that are best for a three-fund portfolio are:

Vanguard Total Stock Market Index Fund (VTSMX)
Vanguard Total International Stock Index Fund (VGTSX)
Vanguard Total Bond Market Fund (VBMFX)

That site also lists other investment firms that you can invest through if you'd rather not use vanguard.

[disneysteve]

Im not sure how much you guys make but if you qualify...start with a Roth IRA.

Roths are great, but I'd say the first thing should be your employer's plan if there is a company match. You can't beat a guaranteed 50% return on your money. So if either or both of you have a 401k with a match, invest at least enough to get the full match. Beyond that (or if that doesn't exist), open Roths for each of you and fund those as fully as you can $5,500/person/year is the max). You can do that with a good low cost mutual fund company like Vanguard, Fidelity, or T. Rowe Price. If you need help, just ask questions here.

All of that is for retirement, of course. You should also be saving outside of retirement. Do you have an emergency fund of 6 months worth of living expenses? If not, start working on that. Keep that in a money market account. Don't worry too much about how much interest it pays. The online banks like Ally pay better than the physical banks though.

Also, think about what your goals are. Do you want to buy a house? You will need to save up a 20% down payment. Do you have kids yet? There's college savings to think about. Any other big expenses in the foreseeable future, like replacing a car? You want to be setting money aside for that.

[Shawie]

I have a 401K plan with my current employer which doesn't match much at all. I believe the match is something like 10% of the 6% you put in every paycheck is what they match or something ridiculous, I only signed up so that I could have a 401K started but when I get a new job I'm hoping they have a better 401K plan which will allow me to switch it over otherwise I may have to look at the Roth IRA route.

I've heard of Vanguard before and will have to look into. What kind of fees do they charge?

[Petunia 100]

Vanguard has ultra low expenses. Unlike every other fund company out there, it is owned by its funds, which are in turn owned by its investors. Rather like a credit union.

[Petunia 100]

Oh, and a guaranteed return of 10% on your money is nothing to sneeze at. I'd contribute my first 6% to my 401k, then beyond that my Vanguard IRA.

[disneysteve]

I have a 401K plan with my current employer which doesn't match much at all. I believe the match is something like 10% of the 6% you put in every paycheck is what they match or something ridiculous

Oh, and a guaranteed return of 10% on your money is nothing to sneeze at. I'd contribute my first 6% to my 401k, then beyond that my Vanguard IRA.

I agree with Petunia. Matching 10% of your contribution, while less than ideal, is still well worth taking advantage of to the full extent. Where else can you get a guaranteed 10% return not counting any actual investment gains? I would take that deal in an instant.

[Shawie]

It's more like...
If I put $100 in my 401K... 6% of that is $6 so they match it $0.60. it's pretty ridiculous I see it just like a side savings but it's hard for me to look at it like a profitable investment. That's why I'm interested in looking at other options. Vanguard seems to be a good route to take.

[ktmarvels]

It's more like...
If I put $100 in my 401K... 6% of that is $6 so they match it $0.60. it's pretty ridiculous I see it just like a side savings but it's hard for me to look at it like a profitable investment. That's why I'm interested in looking at other options. Vanguard seems to be a good route to take.

Are you sure about that? This is different from what you said before. Usually how it is phrased is that companies will match x% (10% in your case) of what you contribute up to 6% of your total income, not what you contribute.

To maximize their "free money" I'd allocate 6% of your income to the 401k, and then the rest to a roth.

[sblatner]

Usually it is 6% of your income and then they match a portion of that.

[krantcents]

I view investing in steps. First step is having savings for investing. Next I would start with a 401k and contribute up to the company match. If you have additional savings to invest, are you eligible to contribute to an IRA? If not, consider a Roth IRA. Now that you have contributed to all of these investment plans, you need to choose an investment. I would pick a broadly diversified, index mutual fund such as the Total Stock Market Index Fund or Standard and Poor's 500 Index Fund. This is just a starting point to get comfortable with investing. You can add additional funds after you learn more about investing.

[disneysteve]

It's more like...
If I put $100 in my 401K... 6% of that is $6 so they match it $0.60.

I highly doubt this is true.

Much more likely is that you put in $100 and they put in 10% of that, or $10, until you have contributed a total of 6% of your annual salary. Then the matching funds stop.

[Shawie]

I was going by hear-say... I looked into it and I only get 100% of the match vested after 6 years of service. It starts at 1% apparently. I pulled up my check stub and it looks like I put in $77.99 and the company matched $6.50 so from my understanding I only get 100% of that after I work 6 years.

[disneysteve]

I was going by hear-say... I looked into it and I only get 100% of the match vested after 6 years of service. It starts at 1% apparently. I pulled up my check stub and it looks like I put in $77.99 and the company matched $6.50 so from my understanding I only get 100% of that after I work 6 years.

Yes, there usually is a vesting schedule over a few years, like 20% in year 1, 40% in year 2, etc. I'm sure it isn't 1%.

I'd suggest asking your HR department for the details rather than depending on hear-say. Chances are the majority of employees don't have a clue unfortunately.

Actually, since you are already enrolled in the plan, you should already have all of the documentation that spells it all out for you.

[feh]

Where should we start? What should we do? Any help would be greatly appreciated. =)

Some folks find investing to be daunting, but it's really not that complicated. You just need to take some time to educate yourself.

This is where to start: http://www.bogleheads.org/wiki/Bogle...g_start-up_kit