Investing megathread extravaganza

[DaFace]

A place to talk about investing stuff.

[Cornstock]

Originally Posted by Buehler445

Lew is right.

But my perspective is something is better than nothing. It's really easy to get bogged down in details and research. Sometimes paying someone to set it all up is cheap money if you wouldn't otherwise do it.

My grandpa was a farmer. Grew up in the depression. So he did everything himself. Built his house. All his sheds. Airplanes. Rebuilt his tractors. If he couldn't do it himself it largely didn't happen.

But he had 2 mutual funds. One he put $3,000 sometime in the 60s and $3,000 sometime in the 70s. Both had well over 150,000 in them when he died in 08 (right about the time the market puked all over everything). He didn't pay any attention to loads, fees, commission, whatever. He just made a little extra money and had his ground paid off and just stuck it somewhere. I'm sure it wasn't the most efficient and one vastly out yielded the other but the return over time on either one was huge.

Just do something.

Paying someone to do it for you is not always a bad thing, especially for those who don't have the time or interest to do it themselves. Advisors don't guarantee returns, they manage risk, and I think that is a misunderstood role.

Most people think you are paying someone to go out and get you above average returns. That's what a hedge fund is.

Great example of this is a hypothetical where the market as a whole has a 10-15% dip, an advisor who has you in a good asset allocation minimizes your losses during this period to something like 5- 7%. Because you are in a moderately defensive allocation, during good years you may not return exactly what the market returns.

It's a safe bet for the less risky of us.

When you are nearing retirement and have more complex requirements, paying an advisor to minimize your risk is usually worthwhile.

[Aspengc8]

Financial gurus of the CP, I come to you with a question. I have a 401K with the company I have been with for the last 12+ years. What is the differences between 401K and IRA? They also offer a IRA and I can start contributing to that as well as with the 401k, should I be doing that?

[Buehler445]

Originally Posted by Aspengc8

Financial gurus of the CP, I come to you with a question. I have a 401K with the company I have been with for the last 12+ years. What is the differences between 401K and IRA? They also offer a IRA and I can start contributing to that as well as with the 401k, should I be doing that?

If it is a traditional IRA, there isn't a lot of difference structurally. However, 401k contributions are made Pre-tax. This is a giant deal. Essentially, any money you put in a 401k reduces your taxable income. If you look at your paystub, it essentially, gross pay - 401 contributions = net taxable then they calculate withholdings.

Now, you can essentially do the same thing with a IRA, but it is done after the fact on your tax return and it is limited at $5,000. 401k limits are $14,000.

I'd keep it in the 401k unless you are hitting your limits.

[MahiMike]

Originally Posted by Cornstock

Agreed, I strongly advise against keeping inactive 401ks from former employers and old IRAs separate. When you consolidate into one IRA you can manage things more easily, and don't need to worry about being charged different fees at 3 different places. You have a full buffet of options when you are in control.

You have the choice to roll these into your current 401k, but this is not advisable because you are limited to whatever funds that company offers, and they usually have higher expense ratios than if you have it elsewhere. A best case scenario would be that they do have a terrific choice of funds that match your objectives, but they are still more expensive annually.

Additionally, when you retire and a required to take Required minimum distributions, having to withdraw from 3 separate places complicates the calculation. If you only have 1 merged account, they will tell you exactly what you need to withdraw, so you don't run the risk of having an insufficient RMD penalty.

Best thing that ever happened to me financially was getting laid off. I took my 401k, rolled it into a self directed IRA and bought 2 beach condos that I rent out.

[MahiMike]

I will say I'm like lewdog in being obsessed with the financial investments. I try to teach my kids this stuff all the time. They already have their own stock accounts. My son just graduated from high school and is unsure of college, even with good scholarship offers for golf. Instead of being $100k in debt, we're taking his college savings and placing it in the stock market. Can you imagine the compound interest on $25k starting at age 18?

[Amnorix]

Originally Posted by Buehler445

If it is a traditional IRA, there isn't a lot of difference structurally. However, 401k contributions are made Pre-tax. This is a giant deal. Essentially, any money you put in a 401k reduces your taxable income. If you look at your paystub, it essentially, gross pay - 401 contributions = net taxable then they calculate withholdings.

Now, you can essentially do the same thing with a IRA, but it is done after the fact on your tax return and it is limited at $5,000. 401k limits are $14,000.

I'd keep it in the 401k unless you are hitting your limits.

You're a few years out of date I'm afraid. 2017 limit is 18,000.

[Buehler445]

Originally Posted by Amnorix

You're a few years out of date I'm afraid. 2017 limit is 18,000.

Well shit.

[scho63]

Originally Posted by MahiMike

I will say I'm like lewdog in being obsessed with the financial investments. I try to teach my kids this stuff all the time. They already have their own stock accounts. My son just graduated from high school and is unsure of college, even with good scholarship offers for golf. Instead of being $100k in debt, we're taking his college savings and placing it in the stock market. Can you imagine the compound interest on $25k starting at age 18?

Wonderful he has 25K already to invest when you consider how many Americans couldn't come up with $500 in an emergency.

[Cornstock]

Originally Posted by Buehler445

If it is a traditional IRA, there isn't a lot of difference structurally. However, 401k contributions are made Pre-tax. This is a giant deal. Essentially, any money you put in a 401k reduces your taxable income. If you look at your paystub, it essentially, gross pay - 401 contributions = net taxable then they calculate withholdings.

Now, you can essentially do the same thing with a IRA, but it is done after the fact on your tax return and it is limited at $5,000. 401k limits are $14,000.

I'd keep it in the 401k unless you are hitting your limits.

The 401k is designed for you to contribute a set portion of your pay, often with the employer matching a certain percentage. The IRA is for you to contribute above and beyond that, which you could alternatively do through your 401k, just not being matched for the above and beyond contributions.

major differences between the IRA and the 401k will probably be fee structure and fund offerings. Occasionally, an employer will also match a portion of IRA contributions, like a 1 to 2 ratio up to a certain amount.

As a rule of thumb, you should take advantage of however much your employer is willing to match.

Another thing you may want to look into is a Roth 401k. While the portion of the 401k that your employer matches is required to be pretax by law, the portion that you contribute is eligible to be after tax. By paying taxes on your contribution now, rather than on the compounded sum at retirement, you may be able to save 10s of thousands in retirement.

Talk to your tax advisor to see if this is a good strategy for you.

[lewdog]

Part of article from money magazine about investing and compounding interest benefits.

To demonstrate the importance of time and saving early and often, I figured we'd look at how much you'd need to save on an annual basis to become a millionaire by the time you hit 65 years old, the upper-end of the traditional retirement age range.
For our example I've made a few assumptions to keep the calculations as simple as possible.

Using Bankrate's investment calculator I've assumed $0 initial investment, a 7% rate of return, a contribution frequency of once a year, and a compound frequency of once-yearly. We're also assuming that all taxes will be deferred, so keep in mind that tax implications aren't reflected in the eventual $1 million.

With these criteria in mind, here's how much you'd have to save annually to reach $1 million by age 65.
Age 20: $3,500 annually
Age 25: $5,010 annually
Age 30: $7,234 annually
Age 35: $10,587 annually
Age 40: $15,811 annually
Age 45: $24,394 annually
Age 50: $39,795 annually
Age 55: $72,378 annually
Age 60: $173,891 annually

As you can see from the above, your investing leverage disappears quickly if you begin saving and investing for retirement five, or even 10, years after you initially planned. Unfortunately, the "I'll save later" attitude is commonplace in the United States.

http://time.com/money/4417002/save-a..._medium=social

[Cornstock]

Originally Posted by lewdog

Part of article from money magazine about investing and compounding interest benefits.

To demonstrate the importance of time and saving early and often, I figured we'd look at how much you'd need to save on an annual basis to become a millionaire by the time you hit 65 years old, the upper-end of the traditional retirement age range.
For our example I've made a few assumptions to keep the calculations as simple as possible.

Using Bankrate's investment calculator I've assumed $0 initial investment, a 7% rate of return, a contribution frequency of once a year, and a compound frequency of once-yearly. We're also assuming that all taxes will be deferred, so keep in mind that tax implications aren't reflected in the eventual $1 million.

With these criteria in mind, here's how much you'd have to save annually to reach $1 million by age 65.
Age 20: $3,500 annually
Age 25: $5,010 annually
Age 30: $7,234 annually
Age 35: $10,587 annually
Age 40: $15,811 annually
Age 45: $24,394 annually
Age 50: $39,795 annually
Age 55: $72,378 annually
Age 60: $173,891 annually

As you can see from the above, your investing leverage disappears quickly if you begin saving and investing for retirement five, or even 10, years after you initially planned. Unfortunately, the "I'll save later" attitude is commonplace in the United States.

http://time.com/money/4417002/save-a..._medium=social

Unfortunately, far too many in their 20s and 30s don't recognize the need to start saving early. They put themselves in a position that makes it difficult to save by blowing their "disposable" (read "indispensable ") income on going out, tv's, cars they can't afford etc. Even those in their 40s and 50s are saving inadequately. It just seems so far away for them. But at least those who are older will have the luxury of relying on social security to burden the cost of retirement.

News flash for you 20 and 30 somethings. Social security won't be around when you retire. At least not in it's current form.

Millenials are so concerned with the concept of sustainability when it comes to the environment. I wish they would apply the same logic to government spending in the form of entitlement programs. The math just doesn't work. There will be nothing left.

Saving is conscious choice. It is a choice between having toys in the present vs living in poverty in retirement. And in the famous words of Geddy Lee of Rush, "If you choose not to decide, you still have made a choice."

[Demonpenz]

There is something to be said to have nice stuff when you are young and healthy. What good is that car going to do you when you are old and can't see shit and your cock doesn't work. Like everything it is a balance between enjoying where you are at but also saving some for later just in case you love long.

[lewdog]

Originally Posted by Demonpenz

There is something to be said to have nice stuff when you are young and healthy. What good is that car going to do you when you are old and can't see shit and your cock doesn't work. Like everything it is a balance between enjoying where you are at but also saving some for later just in case you love long.

Oh absolutely. But the motto to pay yourself first should always ring true. I shouldn't put my retirement savings on hold so I can purchase a new car, like many people do. I should cut expenses somewhere else or find ways to generate extra income to pay for that car. I find my wife and I do a fairly good job balancing investing, saving and being frugal while still doing and having nice things. It took us about 4 years to get to this point, where we both feel we have a good balance of both.

[Coach]

Originally Posted by Cornstock

Unfortunately, far too many in their 20s and 30s don't recognize the need to start saving early. They put themselves in a position that makes it difficult to save by blowing their "disposable" (read "indispensable ") income on going out, tv's, cars they can't afford etc. Even those in their 40s and 50s are saving inadequately. It just seems so far away for them. But at least those who are older will have the luxury of relying on social security to burden the cost of retirement.

News flash for you 20 and 30 somethings. Social security won't be around when you retire. At least not in it's current form.

Millenials are so concerned with the concept of sustainability when it comes to the environment. I wish they would apply the same logic to government spending in the form of entitlement programs. The math just doesn't work. There will be nothing left.

Saving is conscious choice. It is a choice between having toys in the present vs living in poverty in retirement. And in the famous words of Geddy Lee of Rush, "If you choose not to decide, you still have made a choice."

I didn't really have much of a retirement when I was in my 20's, but I was fortunate to start doing it on my early 30's. I am putting in 17% of my pay into my retirement as one way to make up for some of those lost years in my 20's. Plus the company matches up to 5%, and there is also an option when I turn 50, I will be allowed to participate in a "catch-up contribution", which I plan on doing, assuming if everything checks out okay financially-wise.

Also whenever I get raises, I calculate how much more I can put into it, while still staying on the same take-home pay after taxes. At the moment, I am a little aggressive on my retirement stocks than I should be at my age group, but my reasoning is to kind of make up for the years that I didn't have an retirement. Once I am comfortable enough that I am where I should be, then I'll back off to the normal structure of aggressiveness, but I may slightly be aggressive than I should be.

Basically put, I am trying to operate on making sure that me and my wife can live off in a very good shape with no help from Social Security, because I cannot assume that Social Security will be around whenever I retire.

[O.city]

I always try and save/invest extra mi they. If I have a good month at the office, I put it in my portfolio. I go back and forth on whether I should try and double my student loan payments each month and get out from under it quicker but it's tough to write that check.

Max the IRas every year for the wife and I and keep some cash in hand etc.

Ultimately I really don't want to or plan to retire at 65, as of right now. My goal by then is to own 4 or 5 dental practices, employ other dentist and work a day or two a week. We'll see how it goes but that's my pie in the sky