Fuelrush

Just looking for some comments and aditional advice. I'm young. Have had a serious job for 2 years now. Last year when I was eligible I signed up for the company's 401k plan (Hartford Life). I'm putting in 3% and company's matching that much (3% max). I put 100% into one high risk "mid cap" (whatever that means). I know this is a big no no but at the time I signed up I had no clue what I was doing and was going off what they told us in the meeting (except I didn't follow the diversify stuff). I just knew I wanted to fill out the papers and get it started and sort it out later. Well, it's later. I sort of got lucky in my pick of what to invest in. In my last qtrly statement it had the highest return of all the choices. In the all the statements I've recieved its always finished equal or better than all the other options. Its just too bad there wasn't a large sum in there already to be able to see some real gain.

Good and Bad:

I realize I need to quit renting! I hope in the next couple years to be in a house.

I have managed to not take the credit card pitfall so many I know have. I've never had a credit card and still have no intrest in getting one.

I have a paid for DD and I'm paying off the S quickly. I've had the loan since February and I'm already over year ahead on it (no early payoff penalty and the credit union has dividends, probably going though them for the home loan). In September I turn 25 and suspect my insurance to go down and I'm going to put that extra money back into the car also. I plan on paying it almost all the way down and continue small payments to keep my credit going till I can get a house. I bought the car with getting a better credit score in mind since I had no score at all. Which was killing me in the home loan area.

I have a handfull of small bonds almost mature (presents from when I was a kid).

Anyway what should I have my eye on. What else do I need to do. Should I get the 401k straightened out? I'm not wanting to get rich quick, just to make sure I'm not going to make stupid money mistakes and go "oh that's what I should have done" 30 years later. Thanks.

Please no one grill me if I've already done something stupid.

magician

Mid cap; essentially, the fund invests in mid-size companies.

Look for a PM.

Malloric

Real estate markets are regional, but at least here there isn't much financial incentive to buying a house instead of renting. The markets pretty grim and it's anyones guess when it will turn around and buy v rent discrepancy is still ridiculous even after the 15-20% drop in real estate prices.

Just as a very general rule of thumb it only makes sense to buy if you are going to spend 5+ years with out needing to change housing arrangements. With the housing market being weak, larger than normal rent vs buy discrepancy, etc, etc it may be even longer before it makes financial sense. Especially in todays real estate market I'd consider buying a house much more of a life style choice than a financial one.

philbert

In general you sound like you are doing fine. Always contribute at least enough to your 401k to get the full company match, since that's essentially free money to you.

To the extent that you have extra cash, or want to reinvest the proceeds of the bonds, it might make sense to open a Roth IRA (you put after-tax money in now, and growth/withdrawls are tax free. This helps "diversify" your tax exposure vs the 401k, into which you are contributing pre-tax money now, but will have to pay tax on withdrawls at retirement.

As for what to invest in, that's a hard question to answer (for the 401k) without knowing what funds are offered in your plan. If you want to post, or send a PM, with your investment options, I/we might be able to make some suggestions.

So long as you can manage not to get into trouble with it, opening a credit card account to build additional credit history isn't a terrible idea either. Just use the card to pay some bills, gas, etc and pay it off in full each month.

TraviS2000

x2 Get a credit card even if you only use it for gas and pay it off each month. It doesn't sound like you'll have a problem paying it off every month. I had one during college for just that reason and already had great credit when I graduated because of that.

Early in your career, having a balanced 401k isn't necessary. All my 401k is in index funds, about 70% in US funds and 30% in foreign index funds. Taking risk early is a good thing. Doing what your company matches is what you want to do. Anything extra you want to add do it with a Roth. The best way I have found to do it is when you get your yearly couple percent raise to adjust for inflation (most companies seem to do this?) put at least 1% more into retirement so you never even see it to begin with so you wont 'miss' the money in a smaller paycheck...

Don't rush to buy a house. Don't buy new construction as houses are going up everywhere and are hard to sell. Look into existing homes. Watch the market for a while, it's not going to go up in the next year. If you only plan on staying in a place for ~5 years, no need to pay higher interest rate to lock in a 30 year loan...

asu_lee

Some of this I agree with and some I do not.....

Get a credit card asap. Spend on it and pay it off monthly. It builds credit. Do not carry balances.

Maximixe your 401k (all $15.5k if you can). I'm not a big fan of the Roth until you max your 401k out. Pretax money ALWAYS earns more than post tax money AND you get a tax break!

That is time value of money. One dollar invested today is worth more than $0.70 invested today. It is simple math really. So compound the dollar and compound the .70 for 30 years and tell me how much money you have at the end. EVEN AFTER TAXES you still have more money....ALOT MORE MONEY!

-Lee

TraviS2000

??


Invest in 401k what your employee will match...it's free money.

Anything over that invest in a Roth. The Roth will be compounding every year too, we aren't saying don't invest it, just don't invest more than the match in the 401k. The Roth is after tax investing, but you don't pay taxes when you pull it out. Would you rather pay tax on $100 and then invest it and get the returns tax free or invest $100 tax free then pay tax on the $10,000 it turns into after investing?

asu_lee

First of all, you are VERY bad at math to give this kind of advice.

Again...Time value of money. 1 dollar compounded for 30 years is more money than $0.70 compounded for 30 years. Take the taxes out of the first example and you still have more money.

So...if my math is correct.

$1 @ 30years @ 7% = 2.07
$.7 @ 30years @ 7%= 1.44


A Roth is fine if you expect to be taxed at a rate equal to the top tax bracket. If not, it is kind of dumb, and you lose the tax break from your current income(barring the top bracket(they don't get a Roth)).

(Some easy math)
Lets say I make $50,000 today and I am taxed at 20%.....minus the 15k to the 401k
now the govt thinks I make 35K(15K to the 401k) and I am now taxed at the 18% bracket(I bring more money home).

So I really get 2% tax savings and 15k to hit the 401k with. (not sure about the true brackets but I am making a point. They are probably larger.) Don't get the tax bump with the Roth and I invest a smaller value.

I pay less taxes now and less later as my income will be zero when I retire. (NO JOB!) People seem to forget this part.

-Lee

Fuelrush

At this point, I'm putting in the most they will match. It's so much easier for me to have them take it out. I just got my qtrly statement I'll post up my options soon as I can. I made 5.56% is qtr. and 10.48% year to date. Thanks for keeping this going. Its a bit confusing but I'm trying.

TraviS2000

Is your math correct? Where are you taking taxes out for the $1 invested? You have to pay tax when that comes out...