Teach me about Investing

This past weekend, I graduated, which both eliminates one of my greatest expenses (school), and theoretically opens up greater earnings potential.

I paid cash for school, so I don't have any student debt. My vehicles are paid off, and I hope to keep my car for at least another few years. No mortgage payment; I rent. I already have a 401k set up through work.

I would like to separate some of the money that I save to go towards higher-risk (and hopefully higher return) investments. Where should I look to set up an investment account aside from my retirement? I would like it to operate more like my 401k, where I could arrange for weekly deductions, rather than having to purchase large chunks at a time. My goal is to use it towards buying a house quite a while from now; perhaps 5-10 years out.

Where do I start? Who do I talk to?

Check your 401k for matching or any other program. Max out your 401k benefit. Start by funding a IRA. Again to the maximum. I think it's $5500. This can drop your taxable income. Take a look here for investing:

http://www.clarkhoward.com/query/?cx=014368166379998286206%3A-7q-kycmcak&cof=FORID%3A11&ie=ISO-8859-1&q=investing&sa=Search&siteurl=www.clarkhoward.com%2F&ref=www.google.com%2Furl%3Fsa%3Dt%26rct%3Dj%26q%3D%26esrc%3Ds%26source%3Dweb%26cd%3D1%26ved%3D0CC8QFjAA%26url%3Dhttp%253A%252F%252Fwww.clarkhoward.com%252F%26ei%3DLHUIUoHPFOn22gXr0YBw%26usg%3DAFQjCNHrWY7k8k-XCY8r6xiJgKJT1PHFdQ%26bvm%3Dbv.50500085%2Cd.b2I&ss=3289j1414981j9

or

http://www.daveramsey.com/search/process.search/?searchXXstrSearch=investing

Buy antiques, land and vintage cars (I don't mean Mustangs, '57 Chevies and crap like that, I mean full classics).

Forget mutual funds and retirement savings, I've had a far better ROI with tangible goods.

It sounds like a lot but there was a Murphy bodied Duesenberg on eBay for a good 9 months at just over $600,000 and they hadn't managed to sell it the last time I saw it.

The thing is a smokin' deal at that price and is more of a sure thing than realestate.

You can get into the full classic market for a lot less. Auburns, Cords and Packard Eights or 120's go for a lot less cash than that.

My mutual funds have been sucking badly but the redneck stock market has been kind to me.

Two years ago I turned two Firebirds and a Fiero into a down payment for my house.

An unrestored, rough, 1980 Indy Pace Car became a really nice garden shed and a new furnace.

Shawn

"The Only Investment Guide You'll Ever Need," by Andrew Tobias. Special attention to the part about brokers and low commissions.

I looked into investing. Apparently, you have to have money first. Doh!

Trans_Maro wrote: It sounds like a lot but there was a Murphy bodied Duesenberg on eBay for a good 9 months at just over $600,000 and they hadn't managed to sell it the last time I saw it. The thing is a smokin' deal at that price and is more of a sure thing than realestate.

This may be true. I wonder if the guy trying to sell it feels like it was a good investment. Classic cars are subject to wild fluctuations in value, much as speculative stocks are. One distinction: stocks are quite liquid--you can convert them to cash quickly. Not so much a $600k automobile.

Not saying it's a terrible idea, just be aware that it's not always easy to "cash out" at a favorable price.

Unless your renting for less than a mortgage payment, I've heard that purchasing a two-unit house, renting one, living in the other. Have the tenants pay your mortgage.

Trans_Maro wrote: Buy antiques, land and vintage cars (I don't mean Mustangs, '57 Chevies and crap like that, I mean full classics). Forget mutual funds and retirement savings, I've had a far better ROI with tangible goods. It sounds like a lot but there was a Murphy bodied Deusenberg on eBay for a good 9 months at just over $600,000 and they hadn't managed to sell it the last time I saw it.

Ummmm, $600,000 tied up in a volatile asset that hasn't sold in at least 9 months of trying to unload it?

That doesn't sound very much like a "good investment" to me. Maybe in the small-scale flipping arena you might be right, but that Duesie sounds like the very definition of "bad investment".

On the original topic, the first thing you do is max out any investment programs that your employer will match. That's just free money.

Do they have a stock purchase option? My previous company had a plan where you could buy stock at the lowest price it had been in the last year, OR at a discount % under the closing price on the day you bought it. So even if you sold it the next day you were guaranteed 5% or 10% or whatever the discount was.

1-Don't ask a bunch of fiscally irresponsible motor-heads about what to do with your money.

2-Be very wary of taking advice on what to do from people who's income depends on you doing what they suggest. This means real estate and stock-brokers.

3-Buy the above book and read it. (People still read right?)

3-Stuff that cost money to maintain and effort to prepare for sale is not an investment, it is a job. If you want a second job, fine, but be aware that they are jobs. This includes rental property. It most certainly includes collector cars and art.

4-You have time on your side. This means you can choose a low risk plan and let time do the work or you can choose a high risk plan and have time to recover as a back-up plan.

5-Progeny and expensive weddings with low earning potential mates are a pitfall. Whatever you do, don't buy insurance for your kids; they are liabilities and you never insure liabilities.

6-Recognize that growing capital really is a job into itself. There is no such thing as invest, walk-away and return in 40 years to a fortune. The best analogy is gardening, it takes time and thought to keep the plot at its best.

7-Did I mention that you should not look for financial advice on a car bulletin board? Expect to learn and make mistakes. You just spent how much on your education, so don't expect this to come free.

Not a simple question but a simple answer.

MAX OUT YOUR PRE TAX FUNDS. 401k to 15.5K then IRA if you can get one.

Look up a forum and the books based on Jack bongle. Read until you feel comfortable, then read some more. Avoid high cost or managed portfolios where someone else takes a cut.

Then look into low cost funds with the amount of risk you feel comfortable with on vanguard. Buy funds, let time do its thing.

Other then that once you get it setup max out the % of your take home that you are investing/saving.

NOHOME wrote: 1-Don't ask a bunch of fiscally irresponsible motor-heads about what to do with your money. 2-Be very wary of taking advice on what to do from people who's income depends on you doing what they suggest. This means real estate and stock-brokers. 3-Buy the above book and read it. (People still read right?) 5-Progeny and expensive weddings with low earning potential mates are a pitfall. Whatever you do, don't buy insurance for your kids; they are liabilities and you never insure liabilities. 7-Did I mention that you should not look for financial advice on a car bulletin board? Expect to learn and make mistakes. You just spent how much on your education, so don't expect this to come free.

Thanks; cars and physical goods are not really what i am looking for right now. Storing, maintaining, and insuring all cost money.

If anything, I was looking for "where do I get good information?" The book referenced above is a good start. I will pick it up in the coming week.

wearymicrobe wrote: Not a simple question but a simple answer. MAX OUT YOUR PRE TAX FUNDS. 401k to 15.5K then IRA if you can get one. Look up a forum and the books based on Jack bongle. Read until you feel comfortable, then read some more. Avoid high cost or managed portfolios where someone else takes a cut. Then look into low cost funds with the amount of risk you feel comfortable with on vanguard. Buy funds, let time do its thing. Other then that once you get it setup max out the % of your take home that you are investing/saving.

I max out my match (employer half-matches up to 2.5%, so I deduct 8% to get 10.5% of earnings withdrawn), but I could definitely apply more to my 401k.

I am still in a pretty low earning bracket, so 15.5k per year is way above what I could contribute at this stage of my life.

In reply to wearymicrobe:

http://taxes.about.com/od/retirementtaxes/qt/401k-contribution-limits.htm

$17.5k limit for 2013.

Nohome and wearymicrobe had very good advice. These are my rules (in order):

1. 10% minimum into your 401K, or however much you need to get the employer match (whichever is greater)

2. Fund a Roth IRA with post tax dollars (some will disagree and suggest regular IRA with pretax, both are good, I'm hedging my future tax bracket bets) up to the 2013 maximum of $5500

3. Add to the 401k/up the contribution rate to the max $17,500 for 2013 to lower your taxable income

4. Side hobbies, flipping cars/motorcycles, cutting grass, credit card rewards, a small seperate stock investment fund with "play money", whatever to add a bit extra to my take home pay for the year, sometimes this is as much as 10%

Rules for the above: -I choose to invest all the retirement money in index funds with low management costs. I am still in my 20s, with a high risk tolerance, so I have almost 100% in stocks (or rather, stock indices). See what's available through your 401K plan and whoever you set your Roth up with (I am Fidelity for both, since they handle my work's 401K). This has averaged around 8-11% per year, including the big dip in 2008-2009

-Don't speculate with retirement money. Leave it alone, stop worrying about it, and let it build. If you sold during the crash and went into cash, you'd have lost thousands. If you ignored it and did nothing, you'd have got everything back and then some after only 3-4 years.

-If you must speculate, take a couple thousand from your car/motorcycle fund and invest it in a completely seperate account for stock trading. Even better, trade hypothetical money in an excel spreadsheet for a year or two first: read, learn from your mistakes, and lose your money on paper first. It hurts less.

More later tonight if I can find some downtime.

Flynlow wrote: Rules for the above: -I choose to invest all the retirement money in index funds with low management costs. I am still in my 20s, with a high risk tolerance, so I have almost 100% in stocks (or rather, stock indices). See what's available through your 401K plan and whoever you set your Roth up with (I am Fidelity for both, since they handle my work's 401K). This has averaged around 8-11% per year, including the big dip in 2008-2009

Is this in regards to your IRA/ 401K? I currently have a chunk of cash just earning 1.75% interest in a checking account that was supposed to be for a downpayment. That's probably not gonna happen anymore so I need to find something else to do with it.

Another possibility for buying the house: borrow against your 401. You pay interest on the loan but the beauty part: you are paying interest to yourself. There are taxes involved, but only on the interest you pay back.

Quick tutorial: http://www.401kcalculator.org/everything-you-need-to-know-about-borrowing-against-your-401k/

Mitchell wrote: I paid cash for school, so I don't have any student debt. My vehicles are paid off, and I hope to keep my car for at least another few years. No mortgage payment; I rent. I already have a 401k set up through work.

I just want to take a minute to recognize this! Man, you make me want to stand on the desk and applaud!

I think a tear just came to my eye!!

I think it is really exciting when young people put the rubber to the road early with results like this- CONGRATULATIONS!

You are already doing great. Asking for advice makes it even better. Carry on!

pres589 wrote: In reply to wearymicrobe: http://taxes.about.com/od/retirementtaxes/qt/401k-contribution-limits.htm $17.5k limit for 2013.

That it is. honestly I have my 401K set to something like 15% of my take home and I pre-seed it at the beginning of the year and then a few months in my check goes way up when I reach the max.

In reply to 1988RedT2:

It's painted two-tone green with a green interior.

Green cars don't sell.

Put 10k worth of a paint job into it and flip it.

The classic market is going through a bit of a swing at the moment. Full Classics are getting a huge upswing right now while muscle cars are crashing and 50's cars are flat.

The Mercedes 300SL and 190 are beginning to get absolutely stupid money for what they're worth.

Duke, how is it bad, they're not making any more, they're desireable and they're too much trouble to fake.

I think stocks and mutual funds have proven to be bloody volatile lately. I wonder how secure all the pensions funds in Detroit are right now?

SVreX wrote:

Mitchell wrote: I paid cash for school, so I don't have any student debt. My vehicles are paid off, and I hope to keep my car for at least another few years. No mortgage payment; I rent. I already have a 401k set up through work.

I just want to take a minute to recognize this! Man, you make me want to stand on the desk and applaud! I think a tear just came to my eye!! I think it is really exciting when young people put the rubber to the road early with results like this- CONGRATULATIONS! You are already doing great. Asking for advice makes it even better. Carry on!

Thank you for the kudos, but I can't take nearly all of the credit. Family has instilled some good values that have served as a good template for a way of life.

Keep in mind that you already won the life lottery by being born in the USA.

Enyar wrote: Is this in regards to your IRA/ 401K? I currently have a chunk of cash just earning 1.75% interest in a checking account that was supposed to be for a downpayment. That's probably not gonna happen anymore so I need to find something else to do with it.

Yes. I have a small stock account that I use for trading stocks, but anything to do with retirement I leave alone. Here's a couple of examples pulled from Fidelity's website, keep in mind I do this as a hobby, and what I have is a lay-man's view. First up is a bond view:

You can see the graph is just a slow, steady rise. The dip in 2009 is minimal. It yielded 4.14%/year averaged over 10 years. That's not bad, but not great. Expense ratio is .37%, which is deducted from your yield (4.14-0.37=3.77% net). So next is a "good" stock fund:

You can see the yield over 10 years is nearly doubled, at 7.57%, but is more subject to big rises and dips (like 2009!!!), minus the expense ratios (0.10%) still yields 7.47%, and the past YTD/1yr/3yr yields have been pretty awesome. So, for buy, hold, and LEAVE ALONE, it's pretty good! You can see the blue line (Spartan 500 index) tracks the market almost exactly. Flip side, let's look at a not so good fund:

Now looking at the yield over 10 years, it's well below the other, at 5.47%, and the expense ratios are high at 1.66% (this is the money paid to the managers and to run the fund), leaving you a net of 3.81%, or darn close to the bond fund. So a lot more of your money is lost to the frictional cost of running the fund, AND the yields are less. This is why there's a large number of funds, some do well, some do poorly. By sticking with an index fund that tracks the market, you'll always do average , and after expenses, usually much better than average. That also helps take some of the guesswork out of picking. You need to be careful, check yields and past performances vs. the market, and also expense ratios. Most work programs have 20+ funds you can pick from. Some will be pure money market and yield 1-2%, some will be indices, bond funds, target retirement funds, etc.

Hopefully that helps you guys when picking what to do within your 401K. There are TONS of books written on the subject that can help you learn more if you're interested.

Trans_Maro wrote: In reply to 1988RedT2: It's painted two-tone green with a green interior. Green cars don't sell. Put 10k worth of a paint job into it and flip it.

I suspect that putting a $10k paint job on a Duesenberg would lower its value.

In reply to stuart in mn:

The last Packard Twelve we did was $18K, the Lincoln KA was about the same and I expect to spend a little more when we paint the Duesy.

I thought paint jobs would be cheaper in the USA since you guys have Mexicans and we don't.

Shawn