Investments besides 401k and IRA

[citybudgetmom]

Hello, friends. Be some dolls and clue my ass in on what to do with my money. Thanks to you gurus I realized we are behind with our retirement stuff. My hubs is is on pace to earn around $250k this year, but I have zero income and we have under $100k in 401k and IRAs and only 35k in savings. (I'm 32 and he's 37.)

If 401k caps out at $17k/year and $10k/year filing jointly in IRAs, what else can I do? I am hearing rumblings of e-trade but Im totally clueless. Is the market even a good place to invest considering it's so volatile? Hubs argues we shouldn't be putting our money into 401k anyway because it can go down. Thoughts??

What can I do for you in exchange for this advice? Draw funny cartoons? TIA.

[quickstepstar]

You are investing long-term, so volatility shouldn't matter. Since the market is down now, now is a good time to invest, since it is starting to rebound.

In terms of 401K/IRA, if you are risk-averse, you should consider a target year fund. For example 2040, which should be the year when you would like to retire. They will automatically adjust your contributions to favor investments that are much less riskey, and bring much higher returns. You should absolutely be maxing those out, because you are allowing your money to grow tax free!

Other investments, you should consider ETFs. The follow things like S&P500. On average any mutual fund will not outperform the market, so if you are diversifying, you will be on par with the market. The advantage of an ETF though is that you will pay a much smaller management fee.

Hope this helps!

[Deleted]

Have you ever met with a financial advisor? I would meet with one using family and friends' recommendations. A good one will be able to give both of you an idea of what you are supposed to be doing with your HHI and how to maximize it.

Retirement accounts are long term investments. It doesn't matter what the markets are doing today, what matters is that you contribute over a significant period of time and the account grows. Market performance will matter as you get closer to retirement, but certainly not now.

Before you do any investing on your own, please meet with several FAs to see what they present to you. Then, do some reading on your own. I believe MM loves to recommend Smart Couples Finish Rich by David Bach as well as Investing for Dummies.

[gt7301b]

At your age and income level you need some exposure to the market. Sure the market is volatile, but that is how you make money. If you only invest in money market funds and CDs you won't even be able to keep up with inflation. Municipal bonds might be a good place for y'all to invest, but bond yields tend to have an inverse relationship to interest rates so given where interest rates are I see bond yields going down in the near future.

E-trade is one of many brokers where you can invest your money. Some other alternatives are Vanguard, Fidelity, USAA, and T-Row Price. At your income level it might be good to seek out a financial advisor. A lot of advisors are looking for someone with assets they can manage, but you might be able to find an advisor who is willing to give you some investing advice for an upfront fee or find an advisor who sees the long term potential based on your income.

Like the pp mentioned if you want to get to 15% of your income saved for retirement you will need to invest outside of your retirement accounts. You want to look for mutual funds/ETFs that have a relatively low turnover and low dividends. (It isn't a ETF/fund, but we hold our Berkshire Hathaway outside of a retirement account because it doesn't have a dividend and is essentially tax sheltered)

I would also start doing research on your own so you have a better understanding of what you are doing. www.fool.com is a great place to start.

[SJ]

Good for you for getting on track!

I agree that you should max out the 401K ($17K) and 2 IRA's ($5K each). The next step is a little less clear. How much do you realistically think you will have each month to devote towards savings/investments? Do you feel comfortable with the $35K in cash savings? Are there other short or medium term goals you need to save for? Do you have kids? Are you planning to save for college? I would check with your state's 529 plan, because some of them offer nice tax incentives (in IL you can deduct up to $20K, regardless of income) Do you have debt? If so, what are the interest rates? Do you live in an area where the rental market is strong? Do you have any desire to invest in real estate?

Once you look at your budget and decide how much you can put in savings/investments each month, I would set up an automatic transfer to add it to the $35K in savings. I would then open up a brokerage account somewhere like Vanguard or Fidelity and begin to invest (a set amount each month from the savings) into index ETF's, mutual funds, stocks, etc. This will be a taxable account not necessarily earmarked for retirement.

I agree that sitting down with a professional would be a good idea. It will hopefully help your husband feel more comfortable with the idea of investing and stress to him the importance of saving now during the high income years. There are professionals who will just help you put together a plan and check in from time to time, and then there are professionals who will handle all aspects of the portfolio allocation and trading. With $35K you probably don't need the "full service" manager yet. The best way to find a professional is to ask for a referral from family, friends, your accountant, or an estate lawyer.

[SJ]

May 15, 2012 7:39:46 GMT -5 gt7301b said:

Municipal bonds might be a good place for y'all to invest, but bond yields tend to have an inverse relationship to interest rates so given where interest rates are I see bond yields going down in the near future.

We keep an eye on individual municipal bonds as well, and they can be a nice tax shelter, but another problem is that lately they have been so expensive. You are paying maybe $1.15 for every dollar of face value, reducing the yield to maturity a great deal. I haven't seen much reason to buy bonds lately.