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Made from a different mold |
Let's say that a young lady has zero debt with $35k to invest with an additional $10K in savings as an emergency fund. Employer matches first 4% for her 403 through Fidelity. Currently the money is sitting in a savings account that's only getting about 1.1% APY. Looking at moving some of it into a CD but would like to see what the Hive Mind thinks her best options are for the long term. ___________________________ No thanks, I've already got a penguin. | ||
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Get on the fifty! |
Since she's already in Fidelity, take a look at some Fidelity funds. Several different ones. I'm up 20-33% on all in the last year "Pickin' stones and pullin' teats is a hard way to make a living. But, sure as God's got sandals, it beats fightin' dudes with treasure trails." "We've been tricked, we've been backstabbed, and we've been quite possibly, bamboozled." | |||
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Green grass and high tides |
So does she have additional $ in her 403b? She should start investing that $35k in a roth ira. She would have to do it a bit at a time as there are rules. But that would be my advice. Good for her. She could be in a great position in 30-40 years if she does it right. "Practice like you want to play in the game" | |||
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Member |
1. Employer will match 4% into a 403 plan. Don't leave that free money on the table, take it! 2. Fidelity, Vanguard, several others are good resources. My preference has always been mutual funds, primarily consisting of growth stocks providing regular dividends, with dividends reinvesting for future growth. Naturally, tax-deferred plans provide for the best returns over the long haul. 3. Certificates of deposit are pretty decent now, and for the past year or so. We're keeping most of our cash in CD accounts at our two credit unions, earning in the 5.25% APY range with relatively short terms (15 months typical). Emergency fund (about a year's budget) stays in a money market account earning about 3.5%. 4. A "young" person (under 40 or so) can build a substantial portfolio with some discipline. Pay yourself first is a good policy, saving a targeted amount from every paycheck, every bonus, every windfall. Control debt, learn to use debt only for essential needs and not for regular expenses, and pay everything off as early as possible. When a debt has been paid off start saving those payments; you won't miss what you didn't have last month. "Easy monthly payments" are budget killers, get rid of them. 5. I recommend a balanced plan including equities (stocks, bonds), real estate (gotta own your home if you want to have any control over your future cost of living), and cash (savings, CD, money market). Six months of regular living expenses readily available is a very good start, a year or two as you can build it up. 6. The Rule of 72 is good to keep in mind. Rate of growth times years of investment equaling 72 determines how long it takes to double your money. 6% earnings over 12 years equals 72 ($1000 invested becomes $2000). 9% earnings over 8 years equals 72. Same applies to interest charged to you for credit cards, auto loans, home mortgages, etc. 7. Albert Einstein has been quoted as saying that compound interest is the most powerful force in the universe. I'm 73, wife is 72. Retired cop and retired medical technologist, plus a side business for many years. Retired 8 years now, debt-free for 17 years. Now faced with Required Minimum Distributions forcing us to take money from our retirement accounts for the first time ever to avoid IRS penalties. Wife drives a 8-year old car, my truck is 6 years old. $1.7 million is providing for us just fine, still growing in fact. My first new house cost $17,700 in 1973, Same house today would cost about $300,000. I could have rented a house for $150 per month back then, but I took on the $182 payments; today the rent would be over $2000. Enough for now. The young lady has some planning to do. Retired holster maker. Retired police chief. Formerly Sergeant, US Army Airborne Infantry, Pathfinders | |||
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Ammoholic |
I'd say 50% Black 50% 00 If she's uncomfortable with that I'd ask what level of risk she's ok with to begin with. Next I'd ask her if she needs it soon, later, retirement, or for heirs. Given her exact risk tolerance, time horizon, goals, challenges, and personal situation. I'd suggest buying some land and spending the rest on a vacation. Jesse Sic Semper Tyrannis | |||
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paradox in a box |
I'm no expert at all. I also know the hive frowns on Edward Jones. But I've been dumping extra cash into a mutual fund they have set up and I've been getting between about 4.5-5.25 % return over the last 2 years. These go to eleven. | |||
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Member |
Age? , 30’s? Long term, ‘retirement savings’? If so, I’d start by maxing out the tax advantaged retirement options, with long term $$. That could be through work options, even let paycheck $$ replace this $$ on hand. After that IRA options. For funds I’d start with lower cost index funds, if needed, branch out. For the emergency fund, if a near 5% money market isn’t there, 6-12 month CDs. | |||
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Member |
For short term money, could invest in T bills. Interest does not get hit with state taxes. Ladder the money with 4 week, 8 week, 12 week, etc notes so some money is always available if needed. Keep the money working, but close bye if needed. | |||
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Member |
Start with the emergency fund. $10K is probably not enough. Do the math and calculate min 1 year expenses in immediately available cash ( I prefer 2 years) before deciding what to do with the rest. The normal 3-6 month advice is not enough. The plandemic made that clear. ____________ Pace | |||
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As Extraordinary as Everyone Else |
Age is important as well as her propensity for some risk. Being a long term investor with Fidelity I would suggest strongly look into their S&P Index fund https://fundresearch.fidelity....ds/summary/315911750 Also if the person would like to learn more about investing within the Fidelity family I can also recommend a subscription to Fidelity Monitor and Insights. https://www.fmandi.com/ ------------------ Eddie Our Founding Fathers were men who understood that the right thing is not necessarily the written thing. -kkina | |||
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Member |
At a minimum she should max out her contribution to the 403 plan both to take advantage of the employer match - why leave that money on the table - and because gains and income in the account will be tax deferred until such time as she is required to take minimum distributions - presumably many years from now since you say she is young - and will therefore remain invested to compound growth. This is a no brainer. Remember most plans have a period of some years during which she needs to remain employed by that company for the employer match contribution to vest. It varies from plan to plan. In addition if she can afford to she may consider putting some of the after tax cash into a Roth IRA, "afford" meaning it cannot be withdrawn without tax penalty until she is at retirement age, it also will grow tax deferred and have the same compounding benefit. Since she already has a relationship with Fidelity, they can advise her both as to the tax implications and specific securities she should consider. As to the remainder of her investable assets, there are better options than a bank savings account but that will depend on her anticipated needs for the money and her person risk tolerance. | |||
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Member |
SPAXX is FIdelity's Gov't Money Market. It currently pays about 5 percent annual interest. That's a good place to park the emergency fund. She ought to put some in an S&P 500 ETF too. | |||
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Partial dichotomy |
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Made from a different mold |
Thanks for the responses so far everyone. It's for my daughter. She'll be 23 in April and has been squirreling away money since she started working at 16. She's finished with her BSN now and since February of last year has been working as a RN at a hospital in the Richmond area (and as a CNA during all 4 years in college before that). She is maxed out with her 403 contribution @ 4% which her employer matches. So far, she hasn't invested any more of her funds with the 403B. Her only expenditures are rent, cell phone, food, car/renters insurance, and fuel. She budgets well and I think she's doing a great job adhering to her financial plan up to this point, but it's time to get smarter and make idle money work for her. Her goal is mainly retirement savings but she'd still like access to some of the cash for a home purchase when it becomes prudent. Career wise, she's planning to move to the VA Healthcare system once the new Fredericksburg VA Health Care Center opens later this year. This hinges on her getting a job there of course, but I think she'll have no problem. I've never had enough money to worry with so I'm out of my depths, but I appreciate the time everyone has taken to give guidance. She's here today so we'll sit down and look at all of these responses and make a plan from there. ___________________________ No thanks, I've already got a penguin. | |||
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Partial dichotomy |
I'm very proud of her to have the maturity to be thinking this far ahead; she'll do very well. And starting investing at that age, she'll certainly retire early if she chooses to. You can search tables of how money compounds by investing early and it's quite shocking. Even if one stops adding to their accounts after a certain number of years. All the best to her! | |||
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Staring back from the abyss |
________________________________________________________ "Great danger lies in the notion that we can reason with evil." Doug Patton. | |||
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Member |
Being a nurse she probably won't ever need more than a 6 month emergency fund. Is the $10k she has now adequate for 6 months of her living expenses? I really like Dave Ramsey when it comes to this stuff. He suggests once you are debt free (which it sounds like she is) to put 15% of your income into retirement. She could keep that $35k in something fairly liquid to be ready for a down payment on a house. There may be some great buying opportunities coming within the next couple years. Look into picking up a copy of Dave Ramsey's Total Money Makeover book for her, would be a great gift to he in my opinion. | |||
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Member |
...perfect! ____________ Pace | |||
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Member |
ORC is absolutely correct. Get this started. Start a stock index fund, like a S&P 500 fund. Stay away from actively managed funds. When I was a lot younger, I was put in one and one year it had immense L/T capital gains at the end of the year. I had to scramble to find money to pay the taxes. _________________________________________________________________________ “A man’s treatment of a dog is no indication of the man’s nature, but his treatment of a cat is. It is the crucial test. None but the humane treat a cat well.” -- Mark Twain, 1902 | |||
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Fighting the good fight |
As mentioned, the 403b matching is a no-brainer. Free money. I'm not a fan of CDs currently. With a little shopping around, you can find a high yield savings account that pays nearly as much as a CD, without locking down your money for a year or three. I'm currently earning 5.1% in a savings account with Bask Bank, and it takes just a few minutes online to set up an account. I'll gladly take the few tenths of a percent hit compared to a CD to be able to have it fully liquid and available at any time. (The days of money earning peanuts in a savings account at 1% - or more typically a fraction of a percent - are long over. At least until the Fed drops the rate down a bunch again.)
This. I recently bailed out of a burnt out career with what I thought was a substantial parachute of ~10+ months of living expenses set aside. Competition in the non-entry-level job market is much tougher than we've been led to believe. Took me 6 months to find another job, despite decades of experience/certifications/education/accolades/etc., and that was only by going with Plan C or D. If I had stuck with the conventional wisdom of 3-6 months in savings in case of job loss, I'd have been screwed, and had to resort to selling guns and withdrawing from retirement just to keep the lights on and the dog fed. So if I were in her shoes, I'd do this: A) Get that 4% 403b matching set up right off the top of the paycheck. Investment options within a 401k/403b are generally fairly limited, but try to put it in something like a S&P 500 index fund, or a Target Date fund for whichever year she'll be turning 65ish. (2065?) B) Using the $10k + $35K, put at least 12 months of living expenses in a high yield savings account earning 5+%. C) Open a Roth IRA at Fidelity, and take any of the rest of the $35k and put it in as Roth IRA contributions. The first $6500 can go in as her 2023 IRA contribution (you can still make 2023 contributions until April 15th, 2024). Put anything else in towards her $7000 maximum 2024 contribution. Use those IRA contributions to invest in a Target Date fund for the year she'll be turning 65ish. Then set up automatic contributions to continue to add more money each month/paycheck into the Roth IRA, and auto-invest it in the same fund. If Fidelity is anything like Vanguard, they'll have a tool that will auto-calculate how much to contribute per week/biweek/month for the rest of the year in order to max out your annual IRA contribution limit. The 403b + Roth IRA are her retirement savings/investments. The even cooler thing about a Roth IRA is that in addition to being a great retirement savings/investment vehicle, it acts as an uber-emergency backup to the emergency fund. Because they're made after tax, you can withdraw Roth IRA contributions without penalty. Still not ideal, because you can't then re-make those old contributions from years past, so you're still hurting yourself a bit in the long run of retirement savings growth. But a much better emergency option than the penalties for trying to pull from a traditional IRA or her 403b (or the alternative of bankruptcy/eviction/etc.). Gives added peace of mind in case things well and truly hit the financial fan for her and that 12+ months of savings aren't enough. And while they could potentially be used for a down payment in the future, that might hamstring her future retirement unnecessarily. D) Set automatic transfers of a portion of each paycheck into her high yield savings account (or even a separate one). This will be her future down payment fund. Or, if she's willing to take on the added risk and complexity, she can do the same with another non-IRA brokerage account at Fidelity, investing in a S&P500 index fund. That investing will grow her down payment faster than high yield savings over the long run, in exchange for some volatility and losses at times based on the economy, plus some added tax complications.This message has been edited. Last edited by: RogueJSK, | |||
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