I want this money to grow grOW GROW!
May 10, 2012 4:26 PM Subscribe
What do I do, investment-wise, with an extra $5-10,000 a year?
Not looking for specific stock recommendations or anything, but just wondering if I'm missing anything here. 32 years old, I've been maxing out my Roth IRA since I was about 22. It's with Vanguard and I feel that my porfolio is pretty solid. My current job chips in 11% of my salary to TIAA-CREF. Only certain funds are allowed, none of which thrill me, so I don't contribute anything there (you don't have to do any matching to get the 11%, it's automatic). I doubt I'll be at this job for more than a few more months so I don't think it'll make much difference if I start putting any of my own "real" money into the TIAA-CREF, but if I'm doing something glaringly wrong, please enlighten me.
Anyway, my old method of investing beyond the Roth was to buy CDs or put money into my ING Direct account, but now that any CDs (even the 5-years!) are at or below 1%, it doesn't seem like such a great move. I've been buying I-Bonds lately, and I dabble in stocks through Sharebuilder but not with any regularity. I current have about an extra $10-$15,000 a year of my income to invest -- the Roth eats up 5K of that, but what to do with the rest?
I have no student, car, or mortgage loans, my credit is fantastic, and I make less than 40K a year. I have about 2 years' living expenses in savings now due to cashing out CDs instead of letting them renew, so an emergency fund is taken care of. Any advice is greatly appreciated.
Not looking for specific stock recommendations or anything, but just wondering if I'm missing anything here. 32 years old, I've been maxing out my Roth IRA since I was about 22. It's with Vanguard and I feel that my porfolio is pretty solid. My current job chips in 11% of my salary to TIAA-CREF. Only certain funds are allowed, none of which thrill me, so I don't contribute anything there (you don't have to do any matching to get the 11%, it's automatic). I doubt I'll be at this job for more than a few more months so I don't think it'll make much difference if I start putting any of my own "real" money into the TIAA-CREF, but if I'm doing something glaringly wrong, please enlighten me.
Anyway, my old method of investing beyond the Roth was to buy CDs or put money into my ING Direct account, but now that any CDs (even the 5-years!) are at or below 1%, it doesn't seem like such a great move. I've been buying I-Bonds lately, and I dabble in stocks through Sharebuilder but not with any regularity. I current have about an extra $10-$15,000 a year of my income to invest -- the Roth eats up 5K of that, but what to do with the rest?
I have no student, car, or mortgage loans, my credit is fantastic, and I make less than 40K a year. I have about 2 years' living expenses in savings now due to cashing out CDs instead of letting them renew, so an emergency fund is taken care of. Any advice is greatly appreciated.
You have so many options at this point that it's insane! Congrats, by the way, on being debt-free and having an emergency fund. You're way ahead of the game at this point.
The first step to thinking about what to do with your money is to focus on your goals for the future. Do you want to buy a house/get married (if you're not, you didn't say)/go back to school? Travel? Do you foresee any money outlays in the near term (1-5 years)?
The types of investments you make should be based on the time horizons of your goals. Shorter-term goals (1-5 years) should stay in your high-interest savings account and CDs. Medium-term goals (5-10 years) should probably go in slightly medium interest accounts with medium risks - probably pushing into bonds and similar investments. Longer term goals (past 10 or 15 years, retirement) should be in higher risk investments, probably as high risk as you feel comfortable with without loosing sleep.
Are you asking about alternative types of investments? Vanguard is a great place to start; you can invest more money in your account with them outside of your IRA and just put it straight into a mutual fund or index fund. It just won't be tax-sheltered in that situation.
I've been investing personally in Lending Club for the last several years and have been happy with how it works. It could be considered pretty high risk and not a place to put $100k every year; I'm not sure what happens if the company ever went out of business so I can't consider it a long-term investment vehicle. On the other hand, it's interesting and fun, earns fairly consistently high interest rates, and helps out your fellow man.
If you're at all interested and are planning on staying in the same area for a while, you could look into real estate as an investment vehicle - either buying & selling, or buying and renting, or one of a hundred other options. I don't know a lot about real estate, you'll have to research the options for your area.
You could talk to a fee-based financial adviser about your options. Commission-based advisers are not unbiased as they get money when you invest with them; just plunk down a couple hundred dollars and talk to someone who will tell it too you straight.
Good luck!
posted by guiniveretoo at 4:52 PM on May 10, 2012
The first step to thinking about what to do with your money is to focus on your goals for the future. Do you want to buy a house/get married (if you're not, you didn't say)/go back to school? Travel? Do you foresee any money outlays in the near term (1-5 years)?
The types of investments you make should be based on the time horizons of your goals. Shorter-term goals (1-5 years) should stay in your high-interest savings account and CDs. Medium-term goals (5-10 years) should probably go in slightly medium interest accounts with medium risks - probably pushing into bonds and similar investments. Longer term goals (past 10 or 15 years, retirement) should be in higher risk investments, probably as high risk as you feel comfortable with without loosing sleep.
Are you asking about alternative types of investments? Vanguard is a great place to start; you can invest more money in your account with them outside of your IRA and just put it straight into a mutual fund or index fund. It just won't be tax-sheltered in that situation.
I've been investing personally in Lending Club for the last several years and have been happy with how it works. It could be considered pretty high risk and not a place to put $100k every year; I'm not sure what happens if the company ever went out of business so I can't consider it a long-term investment vehicle. On the other hand, it's interesting and fun, earns fairly consistently high interest rates, and helps out your fellow man.
If you're at all interested and are planning on staying in the same area for a while, you could look into real estate as an investment vehicle - either buying & selling, or buying and renting, or one of a hundred other options. I don't know a lot about real estate, you'll have to research the options for your area.
You could talk to a fee-based financial adviser about your options. Commission-based advisers are not unbiased as they get money when you invest with them; just plunk down a couple hundred dollars and talk to someone who will tell it too you straight.
Good luck!
posted by guiniveretoo at 4:52 PM on May 10, 2012
Response by poster: guiniveretoo -- I actually don't really have any financial goals, that might be part of the problem! I enjoy renting and moving around so I don't see myself buying a house anytime soon. I'm not married but am in a committed relationship, and any wedding expenses would be the courthouse fee :) No kids on the horizon. I travel domestically several times a year but that just comes out of my regular income, it's not something I need to save for.
Lending Club looks interesting, I'd never heard of that before. Do you know what kind of return you get from them? I also was somehow unaware that you could invest with Vanguard outside an IRA so I need to investigate that. I guess I'm looking at 10-year+ investment ideas, mostly.
posted by jabes at 5:14 PM on May 10, 2012
Lending Club looks interesting, I'd never heard of that before. Do you know what kind of return you get from them? I also was somehow unaware that you could invest with Vanguard outside an IRA so I need to investigate that. I guess I'm looking at 10-year+ investment ideas, mostly.
posted by jabes at 5:14 PM on May 10, 2012
Best answer: invest with Vanguard outside an IRA
Totally. The only issue you may face is that most funds have a minimum investment of $3000; so if you're looking to make monthly contributions, you'd need to seed the account with a lump sum to get over that minimum balance.
10 years+? I'd go for (and have gone for) a cheap broad index fund (or a couple of them, to get US and foreign exposure), set up monthly contributions, and let it run.
posted by We had a deal, Kyle at 6:34 PM on May 10, 2012
Totally. The only issue you may face is that most funds have a minimum investment of $3000; so if you're looking to make monthly contributions, you'd need to seed the account with a lump sum to get over that minimum balance.
10 years+? I'd go for (and have gone for) a cheap broad index fund (or a couple of them, to get US and foreign exposure), set up monthly contributions, and let it run.
posted by We had a deal, Kyle at 6:34 PM on May 10, 2012
Best answer: Just use part of your 2yrs emergency fund to seed your investments in broad mutual funds, if there is a minimum. I'm pretty conservative but 2yrs of emergency is a bit much even for me. Once you use the first $3000, if you want to really stick with 2yrs emergency, just replace the $3000 with your paycheck instead of investing in the mutual fund until the emergency is full again.
It is pretty easy to set up automatic transfers from your bank account and automatic investing of that money into different funds if you want to be really lazy about it. I only have experience with Vanguard through my 401(k) but I use Fidelity for my Roth and I would have no problems recommending either - they both have some extremely low-fee funds - which brings me to my final point:
If you ask me expense ratio is one of the most important things to keep your eye on. My opinion is that if you're paying more than 0.5% expense ratio, you're paying too much. I pay 0.1~0.25% on most of the funds I'm in internationals on the high end of that range, domestics near the lower end.
posted by mbatch at 8:26 PM on May 10, 2012 [1 favorite]
It is pretty easy to set up automatic transfers from your bank account and automatic investing of that money into different funds if you want to be really lazy about it. I only have experience with Vanguard through my 401(k) but I use Fidelity for my Roth and I would have no problems recommending either - they both have some extremely low-fee funds - which brings me to my final point:
If you ask me expense ratio is one of the most important things to keep your eye on. My opinion is that if you're paying more than 0.5% expense ratio, you're paying too much. I pay 0.1~0.25% on most of the funds I'm in internationals on the high end of that range, domestics near the lower end.
posted by mbatch at 8:26 PM on May 10, 2012 [1 favorite]
Congratulations on having no financial problems at all. :) If I were you...
Is TIAA-CREF providing you with a pretax IRA? All other things being equal, and with nothing in particular to save for, I would pour some money in there. Deferring the taxes on savings has a lot of useful benefits, and you can always get the money back (at a penalty) -- it sounds like you can afford to be tolerant of this risk.
Otherwise, you're not talking about a huge amount of money. I would give the boring Metafilter advice of sinking it into an index fund to enjoy their low maintenance costs. (I buy PEOPX because it's the lowest-load no-transaction-fee S&P index fund through Ameritrade.)
You're going to leave it sitting there long enough to take advantage of the long-term capital gains rate (if it still exists in the future), which is handy for you, and stocks are good for a risk-tolerant investor. As an amateur investor you are unlikely to do better than the index, so unless you enjoy gambling, that's what I'd do. (Of course, if you enjoy gambling, just buy some stock and grit your teeth.)
posted by zvs at 9:23 PM on May 10, 2012
Is TIAA-CREF providing you with a pretax IRA? All other things being equal, and with nothing in particular to save for, I would pour some money in there. Deferring the taxes on savings has a lot of useful benefits, and you can always get the money back (at a penalty) -- it sounds like you can afford to be tolerant of this risk.
Otherwise, you're not talking about a huge amount of money. I would give the boring Metafilter advice of sinking it into an index fund to enjoy their low maintenance costs. (I buy PEOPX because it's the lowest-load no-transaction-fee S&P index fund through Ameritrade.)
You're going to leave it sitting there long enough to take advantage of the long-term capital gains rate (if it still exists in the future), which is handy for you, and stocks are good for a risk-tolerant investor. As an amateur investor you are unlikely to do better than the index, so unless you enjoy gambling, that's what I'd do. (Of course, if you enjoy gambling, just buy some stock and grit your teeth.)
posted by zvs at 9:23 PM on May 10, 2012
Best answer: When you leave your current job you have the option of withdrawing your 401k and rolling it into a self-directed IRA. So even if you don't like your current 401k options, if you pour as much as possible in there now, you will have more money that you can roll into your IRA when you leave.
posted by JackFlash at 11:23 PM on May 10, 2012
posted by JackFlash at 11:23 PM on May 10, 2012
Best answer: Jabes - I get around 8.5% return right now (they report your earnings on your account home page when you sign in). I just added my tax return $$ to the account and invested in some of the higher risk/higher return investments, so I'm simultaneously expecting that number to go up in the next few months, then down a bit when the inevitable debtor defaults.
Lending Club works best when you have a good amount of cash to put into it (I started with just $500, I'd really recommend starting with closer to $5000 or more) and then diversifying that money across multiple loans. I don't know if their website still says this, but for a while they boasted that no one lending more than 800 micro-loans with them (usually $25 each - so $20,000 total) had a negative return - as in, there was always enough interest being payed that person in a month to cover losses when someone defaulted.
Poke around in their Investors area, they throw out lots of juicy statistics about uses for the loans, classifications of borrowers, etc. There are also some good blogs/video tutorials out there about getting the higher rates of returns.
posted by guiniveretoo at 3:45 AM on May 11, 2012
Lending Club works best when you have a good amount of cash to put into it (I started with just $500, I'd really recommend starting with closer to $5000 or more) and then diversifying that money across multiple loans. I don't know if their website still says this, but for a while they boasted that no one lending more than 800 micro-loans with them (usually $25 each - so $20,000 total) had a negative return - as in, there was always enough interest being payed that person in a month to cover losses when someone defaulted.
Poke around in their Investors area, they throw out lots of juicy statistics about uses for the loans, classifications of borrowers, etc. There are also some good blogs/video tutorials out there about getting the higher rates of returns.
posted by guiniveretoo at 3:45 AM on May 11, 2012
Response by poster: Thanks for the answers, everyone, this is really helpful. My plan is to talk to HR about upping my TIAA-CREF contributions while I'm still here. I crunched the numbers using this 401k tax savings calculator and it looks like I'll save about $150 a month in taxes by putting $500 a month of my own pre-tax money into it. Awesome! I had no idea I should've been doing this all along. Better to learn at 32 than 52, I guess :)
I'm also going to move some of that 2 year emergency fund into some non-IRA Vanguard funds, and I'm a gambler at heart so I think Lending Club is going to be getting some of my dough. If anyone is still reading this and has any further suggestions, I'd love to hear them.
posted by jabes at 11:50 AM on May 12, 2012
I'm also going to move some of that 2 year emergency fund into some non-IRA Vanguard funds, and I'm a gambler at heart so I think Lending Club is going to be getting some of my dough. If anyone is still reading this and has any further suggestions, I'd love to hear them.
posted by jabes at 11:50 AM on May 12, 2012
This thread is closed to new comments.
posted by michaelh at 4:45 PM on May 10, 2012 [1 favorite]