28 and All Money in Checking / Savings - what to do?

[Justin24]

I am 28 and currently have all of my money in a checking and savings account. I know I should be investing, but I'm not sure who to look to or "sign up" with. How do I decide who to take advice from? I feel like all of the financial planners I've meet are just sales guys trying to sell their product.

I'm not sure what info you need, but I'm married with a daughter (who is 9).

The only debt I have is a $300,000 mortgage. (About a $2,200 a month payment .)

I have $400,000 in my savings & checking combined.

The last years I made $410k (2011) and $450k (2012).

So, the question is, where do I invest? I know having money in a checking account is stupid!

[TXAMHayden]

I am only 21 so I am not sure if I am the best to be giving advice but I have been doing some reasearch so I think I can provide a place to start looking.

Look into Roth IRA's and Traditional IRA's. I am not sure if they will be very beneficial to your tax bracket but definitely something to look into retirement wise if you haven't already started a 401k with your company. ESPECIALLY if they match and you're making that kind of money.

[kork13]

I'll be bluntly honest... You probably have too high an income for many of us on these forums to be able to offer much advice that is both knowledgeable and beneficial for you -- most of what we see around here are incomes between $30k-$150k. When you have such a high income, there are alot of very different considerations involved, most of them having to do with the intricacies of the US tax code.

I can tell you that you should try to reduce your tax exposure to the extent that you are reasonably able. One option to do that is by investing in your company's 401k plan (if you're eligible to do so), but at the scale you're looking at, the limit of $17,500 per year is really just a drop in the bucket. I expect that your best (if not only) option will be to start investing in a regular, taxable, investment account.

You seem to not have alot of familiarity with investment options, so a good place to start might be with just a few basic index funds that will get you invested quickly and easily, while giving you good diversification and keeping your investment expenses low. For example, you might start out with a mix of 60% VTSMX (Total Stock Market Index), 20% VBMFX (Total Bond Market Index), and 20% VGTSX (Total International Stock Index). Each of those have expense ratios of .22% or less... You should aim for lower than .5%, but definitely no higher than about 1%. If you stick mostly with index funds, that should be no problem.

Truly, the best advice I can offer you is this: You should seek out a qualified, well-recommended professional. Whether a CFP or a CPA (or both), they are probably going to your best resource for competent, expert advice for your situation. Just keep in mind that you want to work with a fee-based professional. Typically, you'll see it as either a defined fee per hour (or per year), or as a specific percentage of assets under management (typically around 1%). You just don't want someone who will try to sell you an "investment product" simply so they can earn sales commissions.

[97guns]

im partial to income producing real estate, like you i woke up one day with a pile of money in cd's that were not making me money. i moved it all into re, grossing a bit more than 12% on my investment.

[bjl584]

I am 28 and currently have all of my money in a checking and savings account. I know I should be investing, but I'm not sure who to look to or "sign up" with. How do I decide who to take advice from? I feel like all of the financial planners I've meet are just sales guys trying to sell their product.

I'm not sure what info you need, but I'm married with a daughter (who is 9).

The only debt I have is a $300,000 mortgage. (About a $2,200 a month payment .)

I have $400,000 in my savings & checking combined.

The last years I made $410k (2011) and $450k (2012).

So, the question is, where do I invest? I know having money in a checking account is stupid!

That's extremely impressive. What do you do? Do you own a business?

As stated already,
The best thing that you can do is to find a well known and trusted professional to manage your money. The amount of money that you are dealing with is beyond the scope of an internet forum.

[MonkeyMama]

I'll disagree a bit with the others.

#1 - I think it's important for you to figure this stuff out on your own. Financial advisors tend to be biased, sell you things, and abscond with your money if you aren't paying attention. I've said many times on this forum - it's not that I think all financial advisors are bad... But especially when you have larger sums of money, its just the sharks smell blood in the water and come out. Best to not risk getting eaten by a shark, especially not until you get a better understanding on your own.

#2 - There is nothing about your income level or asset level that makes me think we can not help you. So I don't agree with that either. You could maybe benefit from some tax advice, but as a CPA I'd say if you are just a W-2 employee, there is not a lot of advice professionally that you can't just find online. (There isn't much of anything you can do, but max out your retirement options, to limit your tax exposure). If you are self-employed, some professional tax advice could be useful. But again, most advice would be to utilize retirement plan deductions.

#3 - A lot of times, blanket financial advice does not account for risk. This idea seems to upset people who are used to selling or being sold "everything in investments." BUT, if you are saving a very large chunk of your income, it is quite okay to be 100% in cash. If you have an extremely low risk tolerance. Most of us have to take more risks to meet our eventual financial goals. Not everyone has to do so. If you can save what you need to retire, in the time frame you want to, cash is perfectly fine. Just be careful of FDIC limits ($250k) - don't keep too much cash in one institution. {Retirement savings can be put into cash - does not have to be gambled in the stock market}.

As far as investing, I would invest with Vanguard, to start. Start small to dip your toes in. I think it's best to start small when learning the ropes. Vanguard is best because it has the lowest fees. The best indicator of strong investment returns is low fees. You will probably need to eventually invest in more than one place. SPIC insurance covers up to $500k per brokerage account. Do not keep more than $500k in one investment institution.

P.S. The next obvious question is if you have wills/trusts, life insurance set up. IT should be one of the first questions a financial advisor asks you, so I think it bears bringing up.

P.S.S. If you go to the boglegead forums (google it), they will give you solid/good investment advice. Their tax advice also tends to be very good. They would give you very specific advice what to invest in. Again, they may be a little bit more biased to investments, but not sure. I would generally not advise you ask an internet forum for more specific investment or tax advice, but bogleheads is an exception.

[Justin24]

Thank for the all of the responses and for the Vanguard suggestion. Does any one else have any recommendations of companies to work with that are fee-based? I realize working off commission is a situation I'd want to stay away from, and like you said, a lot of these guys are sharks looking for blood.

Regarding what I do, I own an advertising agency.

I've always been somewhat worried to put money in IRA's and accountant I can't touch till I'm older, but I know I need to. I just feel like I'm so young that I might not even make it till then! I'm sure everyone thinks that when they are 28

[Justin24]

Also, do you have suggestions on percentages of what should go where? What percent into savings? What into a money market getting a percent or less? What percent into risky but potentially high-yield stocks?

[kork13]

Thank for the all of the responses and for the Vanguard suggestion. Does any one else have any recommendations of companies to work with that are fee-based? I realize working off commission is a situation I'd want to stay away from, and like you said, a lot of these guys are sharks looking for blood.

By far, the best place to go to find a qualified, independent, fee-based advisor is the NAPFA (Nat'l Ass'n of Personal Financial Advisors). Depending on where you start investing, many investment companies (such as Vanguard, and many others) also keep qualified CFP's on staff, which you can also use if you're okay with getting recommendations mostly (though not exclusively) focused around the offerings of that particular investing firm -- there's nothing inherently wrong with that, just understand that most of what they recommend will be (keeping with the Vanguard example) Vanguard mutual funds and ETF's. But bottom line, before you hire any financial planner, just make sure you fully understand exactly how they are compensated and what (if any) bias they might have.

I've always been somewhat worried to put money in IRA's and accountant I can't touch till I'm older, but I know I need to. I just feel like I'm so young that I might not even make it till then! I'm sure everyone thinks that when they are 28

The only trouble is that if you wait too long, you're losing the opportunity cost of investing in those tax-advantaged retirement accounts. IRA's and 401k's and the like have a specific annual limit, so the more years you skip contributions for, the more opportunity you've lost. By starting early, you'll actually do better for yourself. Besides, you easily have the income to max out any retirement accounts while also adding significantly to non-retirement (taxable) investment accounts that you have full access to at any time.

Also, do you have suggestions on percentages of what should go where? What percent into savings? What into a money market getting a percent or less? What percent into risky but potentially high-yield stocks?

There's 2 sides to this question.

As for how much to save, we would normally tell people to save at least 15% of gross income, preferably as much as 30% (or more, if you can afford it -- in your case, you most likely could). Assuming you aimed to save 30% of your gross, you might try to save 15% toward retirement, 10% toward mid-term (5-15 years) investments, and 5% toward short-term needs (immediate to 5 years), which would be in cash/money markets/CDs/etc.

Addressing your investment asset allocation (basically how much goes into what investments) is one of the major issues that your CFP would work with you on. There are some rules of thumb, however. For example, take 110-Age=the percentage of your assets you should hold in stocks (the rest being in bonds & cash/money market instruments). It's not a hard-and-fast rule, but at least something to get you along the right line of thought. Or, you can just divide up your planned investment portfolio into investment categories and plan your investments that way... For example, 40% of total assets in large-cap US stocks, 15% in small-cap US stocks, 15% in large-cap international stocks, 10% in small-cap int'l stocks, 20% in bonds (which could be further broken down into federal, municipal, and corporate bonds).

NOTE: All of the percentages I'm giving here are meant totally as examples of what I would normally tell any random individual... Once you sit down with an advisor, you'll go over your personal goals, preferences, acceptable risk levels, financials, and so on. With all of that, they'll work with you to come up with an investment plan that is best suited for your rather exceptional circumstances.


ETA: I just noticed the post from MonkeyMama, and she makes a very valid point. Taking the advice of a financial planner is all well and good, but at the same time, you should be educating yourself so that you know he/she is giving you sound advice. And if you would be comfortable developing a plan for yourself (which is totally doable with some research and study), by all means do so. One bit of general advice on that note.... With investing, in many cases the simplest answer is often the best answer -- thus the reason I'm such a fan of index mutual funds. I'd definitely recommend starting there. Also, as MM brought up, you definitely want to put some careful thought into prudent estate planning... Will, trusts, insurance, and so on are important for everyone, and even more so when you own a company and have high income/high assets.

[lindsay06]

Why not pay off your mortgage and save yourself $2200/month. There may be extra fees in doing this but its worth it in my opinion. Then worry about investing what is left!

[cenderle64]

wondering?

Sorry,if you do not mind me asking,but what is your job profession? At 28 you seem to be doing quite well!

[Gailete]

Yes, You are doing great for someone your age! I would suggest that you put as much into retirement plans as possible. As an owner of a business, you should be qualified to stash more away than the normal working stiff as well. I too echo the need for you to do the reasearch yourself and not depend on a professional, at least until you have some idea what they are talking about. Even when we went to get a new (used) car this past summe, I had to keep stopping the salesman to explain with he was saying as he was throwing terms around as if everyone understood. My husband did but I didn't and since I handle the money in the family, I felt it was important to understand myself, especially when hubby had said that the car would be around $6000 and the numbers and talk the salesman was saying was a thousand more, I for sure wanted to know what was going on. Why do men always estimate a cost of something as less than the real amount???. And that is just one small example. Going in to see a financial advisor, without reading and understanding their 'dictionary' of financial terms can land you in hot water, especially those guys that say 'trust me'!

Currently you are losing a great deal of money by not having your excess funds invested wisely. Interest on savings account is abysmal at this point. At your age you should be able to handle the ups and downs of the stock market as you technically won't be ready for retirement for another 35 years. The power of compounding dividends for stocks can lead you to a very happy, well funded retirement. You also, I would suppose, want to put away some for your daughter's college in about 9 years.

You have come to a good place to get some ideas of what to do and where to go. One thing to be aware of is what amount of your savings is covered in case of a bank collapse. I think it has changed in the last few years and since I've never in my life been in danger of losing my deposits, I don't keep track of the number. You need to find out about it and be sure your savings is kept in enough different banks to keep it covered by the bank insurance for deposits.

[MonkeyMama]

To OP - your questions are a lot to answer in one post.

I also had the thought of just paying off the mortgage. This would give you $2200/month to invest, going forward. Which might make sense with having a bit of an investment learning curve. I think it is hard for people to do well when investing a large lump sum without prior experience. There is a reason most of us start small.

Secondarily, you definitely need good tax advice. What you should be doing is setting up a retirement plan. What you do, depends on if you have employees, what kind, etc. Do you have an accountant? Have they steered you in this direction? Generally, you can structure compensation to yourself as tax-free (if it gets diverted to retirement plans). Employees had some element of complexity, so may or may not work for your specific situation. Your taxes must be insane, and this would help to limit your tax exposure. (It may only literally cost you $25k to divert $50k into retirement, with the tax savings).

If you leave the $400k in cash to access in the shorter term, and begin funding a retirement plan this year, you'd still be doing extremely well. You still have money to tap earlier on. Overall, it sounds like your savings rate is far beyond what you could put into retirement anyway, with contribution limits, so I do not think you are in danger of tying up too much in retirement for the long-term.

As to how much to put where? How much are you saving annually, and how much do you need to retire? What are your annual expenses? You really need to work backwards from there.

[feh]

You or may not want to employ a financial advisor. Before you do that though, I suggest you educate yourself on the basics.

Go read the forums at bogleheads.org. Post your financial situation and you'll get good advice.

[disneysteve]

I'll disagree a bit with the others.

#1 - I think it's important for you to figure this stuff out on your own.

#2 - There is nothing about your income level or asset level that makes me think we can not help you.

I agree with both points. Sure, there are things to take into account with taxes and such when high income is concerned, but the basics are universal. Lots of high income individuals (movie stars, pro athletes) have blown through millions and ended up bankrupt because they didn't follow the basics that we preach here every day.