What should we do with our money?

September 20, 2009 3:41 PM

What should we do with our money?

We save about $1000 a month, and I have the feeling we are being too passive with these savings. Right now we have them in a joint savings account in our Credit Union, were the interest rate is a meager 0.5%. We would like to continue being members in the credit union (we both have checking accounts, and we use them to pay for bills, etc.) There is a good possibility we will be saving more in the future, since we are VERY cheap, and we both may be promoted soon. Retirement is not a worry, we are already taking care of that.

What can we do with the $$ we are saving? Are mutual funds a good option? Do you have any recommendations as to specific banks and accounts?

Also...My boss proposed us that we pay him 50 dollars and he'll manage our money on etrade.com, but I don't know if that would be good (he does have a talent for finances)

posted by Tarumba to work & money (21 comments total)

The easiest thing is just to open an online savings account somewhere with a good rate of (2% or higher right now). Keep using your local credit union for checking, transfer the money out you want to save via ACH through the web interface of the online bank.
posted by floam at 3:47 PM on September 20 [3 favorites]

When I used to have money, and when the rates used to be better, I really liked doing ladder CDs. You take, let's say, $5000 and put $1000 each in a 1, 2, 3, 4, and 5 year CD. After the first year is up, you reinvest that 1-year CD into a 5-year. Then after two years, you reinvest the 2-year into a 5-year. Do this for 5-years and on, and every year you will have some money coming back to you at an accumulating amount (compounded by the reinvested interest). Also, if things go really pear-shaped for whatever reason, you can either break the ladder and pull out the money for one or all of the CDs (losing your interest earned of course). ING Direct has 6-month CDs as well, which is nice to do separately.

Oh, you can also label each of these CDs...ex. "European Vacation" or "New Couch", etc.
posted by iamkimiam at 3:49 PM on September 20 [1 favorite]

I guess the most important question to ask is how old are you? If you're 20s-30sish, the following options are viable:

First of all, buy a Roth IRA every year. You can contribute up to $3,000 without taxes. When you're 59, you can take money out.

Second of all, find out what the CD interests are at your bank (they're probably pretty low in this economy, but might turn up later) and buy a CD or two, just to earn a bit more interest than a savings account.

Third of all, invest what you're comfortable with in medium-risk mutual funds. All banks have a financial investment advisor who can help you determine what's best for you. You can even invest in socially conscious funds, if you're so inclined. They are especially helpful at credit unions.

Luck to you!
posted by cachondeo45 at 3:54 PM on September 20 [1 favorite]

We are 25 and 27! thank you for your quick responses, we like the ladder idea....
posted by Tarumba at 3:57 PM on September 20

My boss proposed us that we pay him 50 dollars and he'll manage our money on etrade.com

For many, many reasons I think this is a disaster waiting to happen. You won't make much with CDs or a savings account (especially if you factor in inflation). Cachondeo45 has good advise -- Roth IRA first, and look at mutual funds. Specifically, index funds are probably a good idea to get started. I answered a similar question here, and tried explaining mutual funds and index funds, how to get started with IRAs and mutual funds.
posted by Houstonian at 4:11 PM on September 20

My boss proposed us that we pay him 50 dollars and he'll manage our money on etrade.com

um, no. This is just like taking your savings to the track every day.
posted by Palamedes at 4:13 PM on September 20 [4 favorites]

There is not enough information here to tell you what you should be investing in (except that you should not pay your boss to manage your money). What are your goals and timeframe for this money? What is your willingness, ability, and need to take risk with this money. What is your tax bracket if you are not investing this in tax-advantaged accounts? Answers to these questions will dramatically affect what you should be investing in.

I would strongly suggest you read The Bogleheads' Guide to Investing. Learning how to properly manage your money and investments while you are young will pay off immensely.
posted by Durin's Bane at 4:26 PM on September 20 [1 favorite]

First of all, buy a Roth IRA every year.

Note that an IRA is a kind of investment account, not an actual investment. Once you put money into an IRA, you have to tell the bank to do something with it — to put it into mutual funds, say, or to buy stocks with it. Otherwise, the money just sits there.

So yeah, the OP should definitely put money into an IRA, but she still needs to decide what to do with it once it's in there.
posted by nebulawindphone at 4:27 PM on September 20

I would be really hesitant to mix finances with the workplace by having your boss control your savings. This could create all sorts of office conflicts if something went wrong, either with the performance of your savings or with your relationship with your boss.
posted by elder18 at 4:29 PM on September 20 [4 favorites]

Paying your boss to manage your savings... this seems like a bad idea of colossal proportions.
posted by hjo3 at 4:52 PM on September 20

go to fidelity.com and open an account with them. then just buy index funds that track the market. stuff like SPY or QQQQ. mutual funds are plainly STUPID! You are paying some guy to GAMBLE your own money...
posted by Ponzimoon at 4:57 PM on September 20

It's great that you are looking to do more with your money. No matter what you do, make sure that you try to diversify as much as you can. Also, try to use a risk pyramid where you have more money in low risk investments and less in high risk. The actual percentages vary based on your personalities and preferences.

Have a think about what you want out of an investment. Do you want capital growth, cashflow or tax advantages?

Be wary of Financial Advisors, especially the ones that do not charge you directly. They make their money by selling you products and they may be steering you toward products with good commissions rather than meeting your investment profile.
posted by dantodd at 6:32 PM on September 20

I'd index the market with ETFs (like SPY or QQQQ). Exchange Traded Funds are the new index mutual funds. For good reason too -- they have very low overhead, don't drift, and have many flavors. So it's possible to use ETFs to invest in certain sectors, countries, etc. Note: I have a client who's big in the ETF game, so I'm biased. But still, in many comparisons with indexes, you'll be better off.
posted by zpousman at 6:41 PM on September 20

Would be nice if this were anonymous, with your combined yearly income, so that we'd know what your tax burden is. For example, tax-free municipal bonds can be advantageous for high-bracket folks, even though the rate looks low.
posted by palliser at 6:55 PM on September 20

I've been very happy with Edward Jones, but there's no reason you can't talk to multiple financial planners and work towards one you are comfortable with.

I would not at all give your boss money to work your investments on e-trade.
posted by iamabot at 7:38 PM on September 20

1. Do NOT have your boss manage your money. First, you don't want to be trading in individual stocks, you want the diversification of a mutual fund (or ETF). Second, if there is any question about how your boss has handled the account or even if you just change your mind, you can't just fire him as your money manager since he will still be your boss - that could really poison your work relationship.

2. I would begin to put some money in the stock market. The best options are either an index mutual fund or buying ETF (you can read up on the relative advantages - it depends on how often you put money in or out of the account. For index funds, my personal favorite is Vanguard family since they have extremely low expense ratio which means you get to keep a little bit more of the money.

3. If you are very nervous about even trying to buy an index fund, consider a target fund - One options is a Life Strategy Fund where it invests your money in an assortment of funds so that it is diversified and and you can choose the risk/return balance or a Target Retirement Fund where it automatically re-adjust the portfolio to make it more conservative as you get older.
posted by metahawk at 9:36 PM on September 20

Ask around and get some referrals as to who others ( whom you trust) recommend. Taking advice on who and where to invest your money with through this site ISN'T a good thing. Asking friends and family might be a better option. At least you know them better than you know us.

As was previously mentioned, diversify, diversify, diversify! Not only in the area of risk, but also exactly where your money is invested and in which vehicles. Don't put all your eggs in one basket.

Don't be afraid to talk to others about investing money. Figure out what makes sense to you and what doesn't.

Inform your self. Have some kind of knowledge about what is available. Read some (unbiased) books on the different methods of investing.

If something seems too good to be real, it probably is.
posted by Taurid at 11:21 PM on September 20

My vote: if jdroth chimes in, take his advice over anyone else's. You can also check out his blog at Get Rich Slowly, or another great personal finance blog at The Simple Dollar.

There are a lot of savings vehicles available to you, which you can manage yourself with very little effort. Under no circumstances should you have your boss manage your money for you, even if he's an investment banker. You can ask for his advice, but do not give him access to your money.

What's the rest of your financial situation? Are you contributing to a 401(k) at your jobs? Do your companies offer a match? Are you contributing to a Roth IRA?

Assuming your answer to any the second and fourth questions are no, here's what I would do:

1. Contribute to your company 401(k) up to the match (pre tax).
2. Max out a Roth IRA ($5,000 post tax each per year currently).
3. Set some savings goals and establish a vehicle for each goal. For example, if you're saving for a house in ten years, lock the money up in the highest interest long term CD or other investment, depending on your risk aversion. If you're saving for a trip to the Caribbean next year, put the money in a one-year CD or a high-interest online savings account. If you're saving for a car in the next five years, do something in between those options.

These options maximize your tax situation as well as getting you the best interest.
posted by peanut_mcgillicuty at 7:11 AM on September 21

The more researching/learning you do, the better and more interesting investment choices you can make. Assuming you know basically nothing now, cash is best. You can start by putting some of your money in CDs where you will get a better rate. Eventually you should try to have some money in stocks and bonds. Bonds are very safe, but do not have the "typical" high returns of stocks. But (IMO) you should not just put your money in these types of assets just because everyone else does, or because everyone (friends, the Internet, TV and other media) tells you that you should. You need to gain your own understanding of how these investments work, and why they are good, the risks involved, etc.

The best book for this stuff is The Intelligent Investor, by Benjamin Graham. It is somewhat long, and sometimes boring, but if you can get through it and can reasonably comprehend it, you'll be in better shape than the vast, vast majority of investors.
posted by where u at dawg at 7:24 AM on September 21

Do you have an emergency fund of around 3 to 6 months to live on if both of you were to lose your jobs? If not, you should build one up and keep it very liquid- the .5% that your credit union offers is better than nothing and is accessible any time.

Fidelity has been great for me and the ETFs are a fantastic idea as well as the Roth IRA. Are you maxing out your 401k at work? If there are matching funds, then make sure to do this first- hey, free money is always good.
posted by TheBones at 11:26 AM on September 21 [1 favorite]

All the answers so far seem too conservative for where you are financially and chronologically. This money should be your "home run" money. At 25 and 27, you can earn it all back in two years, so aim for the fences. While I wouldn't pay my boss to invest my money, he is correct that you should take half a year's savings ($6000) and open an E-Trade account. Pick a stock of a company that has a chance to change the world. You might triple your investment, you might lose it all. The key is to get comfortable with making this sort of move, so that in the future, when you're in a position of investing in the next Google, you'll be able to pull the trigger.
posted by aninom at 6:57 PM on September 22