I would suggest she get a professional financial advisor.

She’s young.

1) max out her employer matching fund. Put it in a broad market index. If she’s in a relatively low tax bracket, stick it in a Roth post-tax retirement account.

2) build her emergency fund to six months living expenses. She can ladder each month in a six month maturity cd or treasury.

3) go back to maxing her annual retirement allowance. At the same time, save outside for prepaid expenses such as car, vacation, etc.

4) build up her emergency fund to 12 months living expenses so she can ladder each month’s expenses to 12 month maturity for higher interest and inflation hedge.

I have no advice for the 35k but for the 10k emergency fund put that in a high yield savings. I have a Citzens Access account currently paying 4.5% with no red tape. No minimum, easy access to the money and zero commitment. The rate does fluctuate with the market.

I agree! You're not going to get rich off of a high yield savings account but an extra $300+/year compared to what she's getting right now would be nice.

Totally agree about maxing out her retirement.

If she's looking for a relatively safe place to put some of her money in the short-term and is in a state that has income tax, she might want to look into Treasury Bills...interest rate may not match some CDs but they're exempt from state income tax.

quote:

Originally posted by gpbst3:
I have no advice for the 35k but for the 10k emergency fund put that in a high yield savings. I have a Citzens Access account currently paying 4.5% with no red tape. No minimum, easy access to the money and zero commitment. The rate does fluctuate with the market.

quote:

Originally posted by lkdr1989:
You're not going to get rich off of a high yield savings account but an extra $300+/year compared to what she's getting right now would be nice.

If she has $45k sitting in a 1.1% APR account, by switching to a 5.1% high yield savings account like mine, she'd be earning a lot more than an extra $300/year.

She'd be currently getting ~$497/year at 1.1%. She could be getting ~$2350 at 5.1%. Nearly a two grand difference. (And there are a few banks that offer even a few tenths of a percent higher, at 5.2%-5.3%.)

Then if she were to invest the non-emergency-fund portion of it in the market, she'd be getting closer to 8-10% per year over the long run with that part of the money, making the difference in return even larger.

Nowadays, nobody should have their savings sitting in a traditional savings account earning the usual 1% (or more likely a small fraction of 1%). It takes just a few minutes online to find a high yield savings account, sign up, and transfer your money to start earning 5+%.

If you don't, besides just your lost interest money, you're willingly choosing to allow your bank to take advantage of you, making money hand over fist from your laziness with them earning 7-10% on loaning out your money while paying you back as little as 0.01%.

I will go off the reservation a little here. The important thing is not getting the best return on her money (although that doesn't hurt), it is to get in the habit of making regular consistent contributions over a long period of time. Chasing the "best" return is an exercise in futility, requires a lot of learning, and time, and, BTW, you are unlikely to significantly "beat the market" or make much difference over time. Better to just slug it out, and don't lose your mind when the market turns sour (or start thinking "I'm rich!" when things look up).

Definitely, definitely take advantage of the employer match. Consider this part of her salary, not taking it is effectively a pay cut. WRT the specific investment vehicles, I would say, over the time frame that should be considered (decades), pretty much anything should give a decent return, but stay away from low-yield savings accounts, these are only good for the bank, not the investor. There are a ton of on-line resources that provide great information on various investment options. If she is at all inclined to go down that rabbit hole, she should set aside enough time to do so effectively. Reading a few of the investment classics (Graham, etc.) would not hurt either, the Stock|Bond Investing for Dummies books are not a terrible way to start, either. If she is not inclined, she shouldn't bother.

I'm not a financial advisor, but have been investing since I was the OP's daughters age.

Agree with other posters on getting that 4% match from her employer. That's free money, and at age 23 it'll be compounded many times before she retires.

One difference from most advice so far, is that I'd advise ETFs instead of mutual funds. In general, ETFs have a lower expense ratio, lower minimum investment, and many places have identical objective ETFs as the mutual fund. For example, Vanguard has their famous Vanguard 500 Index Fund Admiral Shares (VFIAX) with a 0.04% expense ratio, but also has their Vanguard S&P 500 ETF (VOO) with a 0.03% expense ratio. Additionally, the mutual fund has a minimum investment of $3000, but the ETF has the minimum investment of $1.

ETFs are pretty liquid and perhaps only 2-day longer to obtain than money in a money market so I wouldn't have the rainy day overly tied up in a savings account or money market account. At 23, she is 44 years away from social security retirement age. Morningstar's conservative allocation index for somebody that far from retirement is approx. 43% US equities, 25% international equities, 30% bonds, and 2% cash. Could lower risk a little with a 80/20 bond split between intermediate term and short-term. Here are 4 good Fidelity ETFs according to Morningstar:

43% US Equity - Fidelity Stocks for Inflation ETF (FCPI). Morningstar silver and 5 star.

25% International Equity - Fidelity Enhanced International ETF (FENI). Morningstar Gold and 4 star.

24% Intermediate Term Bond - Fidelity Total Bond ETF (FBND). Morningstar Gold and 4 star.

6% Short Term Bond - Fidelity Low Duration Bond Factor ETF (FLDR). Morningstar Gold and 4 star.

---

Ego is the anesthesia that deadens the pain of stupidity

DISCLAIMER: These are the author's own personal views and do not represent the views of the author's employer.

I would like to mention one other thing. That is her safety and security.
As her father I know that has always been your top priority.
But having said that she need to take her own safety and security very seriously as well. A young, professional, successful woman more than ever needs to make that "her" primary priority as well.
There are always those willing to take advantage and or target these women. More so now, than ever before.
A few suggestions.
Don't put yourself out there on social media.
Don't talk about your location, your family, your $, your personal matters, etc.
Don't have to be paranoid. Just cautious.
And always make sure she is aware of her surroundings and circumstances.

She is off to a great start. Bless her.

Mutedblade, your daughter is doing really well! You deserve to be proud of her!!

The important points about retirement saving are 1) Save, and 2) Save. People who make it a regular part of their life to save for retirement will end up ok. Beyond that then it is a matter of how OK she will be.

I would suggest aiming for 10% of her gross pay into retirement savings, and always take the maximum her employer matches into a retirement account.

The advantage of a 401k, 403, regular IRA, and similar is simply the possibility of a lower tax bracket in retirement. That is, mathematically if her total income tax % is lower in retirement than it is now, she is best off putting money in the 401k or IRA type of account. But if she is paying very little income tax today, the 401k/403/IRA type of account may not be better than other kinds of accounts such as ROTH.

BUT be sure to take the maximum employer match no matter what! That is free money which will grow huge over the next 40 years.

In her retirement accounts she should look for something that tracks the market and has the lowest possible fees. Some of the target date funds have really HIGH fees so are not good, but others are ok. In my experience, funds offered by big names like Fidelity, Schwab, and Vanguard have LOW fees and are good. Funds from banks or smaller operations can have really high fees.

Diversification is really important. She could split the investments into several funds, with the idea of not overlapping too much. NASDAQ and S&P500 would give pretty good diversification. Throw in a large cap value fund or a growth fund perhaps. What she shouldn't do imho is something like buy a only single topic fund like Healthcare or Cloud Computing.

ROTH is super powerful and, again jmho, better than 401k/403/IRA. As mentioned above, the difference in income tax rate today vs when retired is the only mathematical variable. However, ROTH money is way superior in retirement to regular 401k/403/IRA money. In retirement she will pull money out of somewhere, either the 403 or ROTH. The 403 money counts as income, which then penalizes her in a number of other areas, such as how much of her social security gets taxed, or how much she pays for health insurance (medicare). ROTH money is essentially invisible, so on paper she looks poor which is much to her advantage.

So, I would recommend she use ROTH as much as possible. Is a ROTH 403 option available where she works? If so that is where I would put money, but be sure to grab the employer's 4% no matter what. She can self fund a ROTH IRA but there are some rules on how much. Any good brokerage can guide her (Schwab, Fidelity, etc).

Emergency fund money needs to be quickly accessible, so the interest rate is a lower priority. There are a number of bank CDs with little to no penalty for early withdrawal.

1. Don’t leave money on the table, always take full advantage of matching retirement funds.

2. If eligible, maximize Health Savings Account (HSA) contribution and invest a portion within the HSA to take advantage of the triple tax benefit. Goes in tax free, grows tax free, and comes out tax free when used for eligible healthcare.

3. Roth IRA. Pay taxes now so that funds grow tax free and you can manage your income in retirement to remain within lower tax brackets.

4. 401(k) and other pre-tax retirement savings.

If funds are available to pay taxes on funds rolled over from 401(k) to Roth, take advantage of this prior to December 31, 2025.

The Trump Tax Cuts & Jobs Act (TCJA) is set to expire at the end of 2025.
Best case scenario is Congress would extend or reauthorize the TCJA.
My bet is taxes will go up in the future and not down.
Therefore, last year, this year, and next year I am rolling over as much 401(k) into Roth as I can while staying under the 32% tax bracket. Please understand that you must have funds to pay taxes on your rollover and need to pay estimated taxes when funds are rolled over to avoid tax penalties.

When looking at your 401(k) you need to consider that the dollar amount you have saved is only about two-thirds yours, the remainder will be paid as taxes to Uncle Sam in retirement.

I like the idea of looking at a Roth IRA with the full amount being yours in retirement.

Withdrawing funds from your 401(k) in retirement is taxed as ordinary income.
With a combination of Pre and Post Tax retirement funds you can manage your income by drawing from both sources strategically to remain in lower tax brackets.

I expect in 2026 the 22% tax bracket will become 25 or 28%, which is why I have elected to pay up through the 24% tax bracket while the TCJA is still in effect.

Remember rolling pre-tax retirement funds into a Roth IRA is not free, taxes will be due.
First determine if you have non-retirement funds to pay taxes now.
Timely payment of taxes is required, and you cannot wait until April 15th to pay without incurring tax penalties.

I stepped beyond the OP’s original question, but perhaps others here may be interested in this video which seems to explain the TCJA and Roth strategy.

So far:

She’s contributing 4% pre tax to her 403B which is the max her employer matches.

She set up a Roth IRA with Fidelity with $6500 for 2023 and $7000 for 2024. Just waiting for the money to clear at which point she’ll pick a fund.

$10,000 has been put into a high yield savings account @ 5.1% APY. She will continue to build on that for her emergency fund.

$20,000 will be put into a brokerage account with Fidelity next weekend. We’re both doing a bit more studying to see how the process works and what to expect.

quote:

Originally posted by tatortodd:
I'm not a financial advisor....

One difference from most advice so far, is that I'd advise ETFs instead of mutual funds.

I was a CPA for 40 years, and this is a VERY IMPORTANT point. There is a huge difference between a MUTUAL FUND and an EXCHANGE TRADED FUND (ETF). The mutual fund was developed first, and if you invest in one, you will receive a Form 1099 for the taxable income earned by the MUTUAL FUND during the year, even if you never withdraw any money from the mutual fund, see 229DAK's post earlier in this thread. Now this doesn't matter if the mutual fund is owned (held) by her IRA, 403(b) or other deferred account, but it does matter for a regular brokerage account.

The ETF is a more recent invention and is much more tax efficient. You do not get a Form 1099 for capital gains until you sell the ETF. You will get a Form 1099 for any interest or dividends that were actually paid.

Not all "funds" are created equal. Mutual Funds are dinosaurs and should soon be extinct. Exchange Traded Funds (ETFs) are a clearly superior product.

Fidelity is a great firm. Start a regular brokerage account there and earn 4.98% in their money market fund immediately. Then decide which ETFs to but for the longer term.

Major Kudos to the young lady in question. She reinforces my faith in future generations.

Hay2bale - I was very interested in your response. My wife and I have both Vanguard and Fidelity accounts.

I started in Fidelity Funds back around 1977-78 with USPA&IRA soon after I was commissioned in the Army. They put me in the Fidelity Destiny Fund, an actively managed loaded fund, which gave me that one year of large L/T capital gains. I learned my lesson about actively managed funds. I pulled away from them some years later, but they were great for a new lieutenant just getting started in life and providing focus into the world of investing for retirement. Otherwise, there was nothing else out there at that time.

One of our current funds is Vanguard's Total Stock Market Index Fund, which has never paid a capital gain (AFAIK); just dividends, so I get a Form 1099 for those. Not too unlike ETFs in that particular regard.

quote:

Mutual Funds are dinosaurs and should soon be extinct.

I believe mutual funds are too engrained in America that if ETFs do overtake and start to replace mutual funds at some point in the future, it will take at least a couple of generations to do it. For some, like me, it would be foolish to sell my shares in VTSAX in order to buy VTI; I would pay a hell of a price in capital gains. However, for those just starting, it's a great way to begin investing.

Lots of good advise and comments here. I'll throw out a few considerations:

o I would not keep all my $ in the same bank... If a credit union is available; that would be my primary. A large national commercial bank would be my secondary. S_hit happens, CU's are not FDIC insured, they have their own thing, but again; s_hit happens; (i.e "Hazard county local bank"... even if better by every measure; if things went sideways, the Fed would probably leave them out to dry)

o I like the idea of a CD ladder.

o My parents got ripped off; during the "Clean-up" one recommendation was short-term CDs like 3-6 months; harder to get ripped off. The 3 month ones I'm seeing look to be beating inflation

o Again, S_hit happens; having relatively quick (<2 weeks) access is important; very expensive and stressful to borrow a signifiant amount of cash, even short-term

o Another + for a Roth IRA: If the SHTF and your back is against the wall: you can borrow against it without penalty

quote:

Originally posted by mutedblade:
She’s contributing 4% pre tax to her 403B which is the max her employer matches.

Great!

Have her check with her benefits administrator to ensure that she's actually directing the investment of those 403b contributions where she wants.

It's not enough to simply contribute to a 403b. Putting money into it allows her a pool with which to invest, but without specific directions it may be sitting in a default money market fund or other safe default investment, potentially not growing much. She's young and this is her time to take bigger risks for bigger rewards, and give that compounding a jump-start.

Same thing goes with an IRA or a brokerage account... Simply depositing money into it doesn't do much, with it just sitting in the holding fund - generally a basic money market fund - where it waits until she directs that it be invested into specific stocks, bonds, and mutual funds. Those holding funds may be currently earning about the same as a high yield savings account right now, but historically they earn 1% or less. And even at 5% it's a fraction of what she could be earning in the market. Not where a young, growth-minded investor wants their money sitting for a long time!

Unfortunately, some folks have had to learn the hard way that they've wasted all their primary growth years of retirement investing, with their 401k/403b/IRA/etc. money inadvertently just sitting there in a holding fund earning pennies on the dollar, because they misunderstood and never actually directed that it be invested anywhere.

(Luckily, with many 401ks and 403bs plans these days, if the employee doesn't specify a different investment then it often defaults to being invested in either a S&P 500 Index Fund or a Target Date fund closest to their estimated retirement date. Which is actually likely where they would want that money invested anyway. Sort of a built-in safety net for low information contributors, to avoid the aforementioned problems. But she should find out for sure!)

quote:

Originally posted by 229DAK:
Hay2bale - I was very interested in your response. My wife and I have both Vanguard and Fidelity accounts.

I started in Fidelity Funds back around 1977-78 with USPA&IRA soon after I was commissioned in the Army. They put me in the Fidelity Destiny Fund, an actively managed loaded fund, which gave me that one year of large L/T capital gains. I learned my lesson about actively managed funds. I pulled away from them some years later, but they were great for a new lieutenant just getting started in life and providing focus into the world of investing for retirement. Otherwise, there was nothing else out there at that time.

One of our current funds is Vanguard's Total Stock Market Index Fund, which has never paid a capital gain (AFAIK); just dividends, so I get a Form 1099 for those. Not too unlike ETFs in that particular regard.

quote:

Mutual Funds are dinosaurs and should soon be extinct.

I believe mutual funds are too engrained in America that if ETFs do overtake and start to replace mutual funds at some point in the future, it will take at least a couple of generations to do it. For some, like me, it would be foolish to sell my shares in VTSAX in order to buy VTI; I would pay a hell of a price in capital gains. However, for those just starting, it's a great way to begin investing.

I think I may start a new thread about the differences between Mutual Funds and ETFs. We are about the same age and it is people our age that may have issues with Mutual Funds, not a young investor.

However, I must disagree with you on only one point. A young investor should only invest in ETFs. There is an equivalent ETF for every Mutual Fund. The ETF is fiber optic internet and the Mutual Fund is dial up modem.

Mutual Funds issue Form 1099 for capital gains when the individual fund has more investors withdrawing money than depositing money. The Mutual Fund has to sell securities to generate cash for the withdrawals and if it generates a capital gain it issues ALL investors a Form 1099 - not just the investors that withdrew cash. Here is some more information about how Vanguard hit Mutual Fund investors with huge tax liabilities.

https://www.reuters.com/legal/...ax-bills-2022-07-06/

https://www.investopedia.com/a...-fund-difference.asp

I would like to mention one more thing.

Our departed forum member JAllen was a master investment advisor and all around great guy. One individual stock (technically a Real Estate Investment Trust or REIT) that JAllen recommended many times over the years was Realty Income which trades on the NYSE under the symbol O. It currently yields 5.6% paid monthly and has a long record of increasing distributions.

I never followed JAllen's advice until about 4 months ago, since I thought O was previously overpriced. With the turmoil in the commercial real estate markets and increases in Treasury yields, the price of Realty Income plummeted from $67 a year ago. I started buying O under $50 and I believe it is still very attractively priced at $55.

New investors need to remember the first rule of investing - buy low and sell high.

Max out 401k and other deferred retirement. Roth is my preference. My employer allows Roth 401k so I pay tax now. Note the employer match won’t be Roth

After the 6 month emergency fund set up and sitting in a money market fund ( Schwab money fund paying 5.22 today) I would not put any house money in the market. If it’s intended for inside 3 years. Some folks advocate putting most of your house money in a S&P 500. Yeah. That could be spectacularly disastrous if the market starts a downturn just as you get into a purchase contract. Please don’t try to tune the market.

As for funds Vs ETF yes ETF are more tax efficient. But since they trade like a stock you need the full purchase price to buy a share. Unless your brokerage lets you buy fractional shares of ETF if like to know who and I will switch. If your a set it and forget it investor who’s buying $100 of a few good funds every month and dollar cost averaging for the next 10-20 years that’s not gonna work as easily if you have to find the 487$ or whatever SPY is trading for today.

quote:

Originally posted by Hay2bale:
New investors need to remember the first rule of investing - buy low and sell high.

I disagree. Rather than trying to time things and buy low/sell high on individual stock picks to try to beat the market, for long term retirement investing it's typically going to be better to have a widely-diversified market indexed portfolio into which you steadily invest a set amount on a regular schedule, rain or shine.

Few people - even professional investors - are going to be able to beat the overall market return over the long run just by picking stocks and buying low/selling high.

Invest steadily and broadly. Don't pay attention to short term bumps or dips. Then keep going for decades. The old adage is that "Time in the market beats timing the market".

quote:

Originally posted by ElToro:
As for funds Vs ETF yes ETF are more tax efficient. But since they trade like a stock you need the full purchase price to buy a share. Unless your brokerage lets you buy fractional shares of ETF if like to know who and I will switch.

Several brokerages allow fractional shares on many of their ETFs, including Vanguard and Fidelity. But it is a relatively recent thing (within the last several years).

https://investor.vanguard.com/...ing-in-vanguard-etfs

https://www.fidelity.com/learn...ng/fractional-shares

quote:

Originally posted by RogueJSK:

quote:

Originally posted by Hay2bale:
New investors need to remember the first rule of investing - buy low and sell high.

I disagree. Rather than trying to time things and buy low/sell high on individual stock picks to try to beat the market, for long term retirement investing it's typically going to be better to have a widely-diversified market indexed portfolio into which you steadily invest a set amount on a regular schedule, rain or shine.

Few people - even professional investors - are going to be able to beat the overall market return over the long run just by picking stocks and buying low/selling high.

Invest steadily and broadly. Don't pay attention to short term bumps or dips. Then keep going for decades. The old adage is that "Time in the market beats timing the market".

quote:

Originally posted by ElToro:
As for funds Vs ETF yes ETF are more tax efficient. But since they trade like a stock you need the full purchase price to buy a share. Unless your brokerage lets you buy fractional shares of ETF if like to know who and I will switch.

Several brokerages allow fractional shares on many of their ETFs, including Vanguard and Fidelity. But it is a relatively recent thing (within the last several years).

https://investor.vanguard.com/...ing-in-vanguard-etfs

https://www.fidelity.com/learn...ng/fractional-shares

Exactly. It’s “ Time in the market” not “timing the market”. If you want to day trade set aside x amount and go speculate in a designated account. Otherwise open an account that is for long term. And by long term I mean mostly forever. My mom owns shares of some stocks that she inherited from her mom ( who passed at 100 in 2015, and ran the finances for their house) and my grandparents inherited THOSE shares from I think my grandfathers parents. It’s several utilities and mega oil companies. For reasons they always took dividends in cash. The original cost basis of at least 75 years ago has to be bonkers. when the owner of the shares pass away, the cost basis to my moms is now my grandmothers date of death and my mom and aunt just moved the shares to their personal brokerage accounts. If you buy well, literally multiple generations can benefit. Honestly unless they hit hard times there’s not reason for my mom to sell those shares as they are decent companies although hardly suggesting 5 stocks is diversified but I assume one day me and my bro will each get half of her shares that our great grandparents purchased.