Thanks, all. When you're ready, here is our next question from Dan.
Hi Dan - As you have unfortunately experienced, trying to time the market is a nearly impossible task. There are so many factors in the world that we can't imagine what will affect the market and when. I recommend you put together a very broad based portfolio, which includes stocks and bonds, both in and out of the US. Diversification and investing for the long term is the key. Assuming you have years to invest, now is as good a time any.
If you are uncomfortable going all in, put money in over the next few months.
Dan-I feel for you! The most important issue with regard to your asset allocation is to choose one that you can live with through ups and downs. You want an allocation that captures some of the market's up side without giving you all of its down side. Make sure that you and your adviser are on the same page and promise yourself that you won't call and say "get me out" the next time stocks go down. If you think you might do that, then change your allocation now rather than later.
Dan: It's hard -- many would say impossible -- to time the market for stocks and bonds. So choosing an appropriate asset allocation, sticking with it, and rebalancing to it from time to time makes sense. See Helen's and Andy's excellent posts for specific considerations, especially re diversification. What does your (hopefully fee-only) adviser have to say about this?
This is Steve Johnson, CFP(r), Chairman of Johnson Lyman Wealth Advisors in Palo Alto, CA signing off from this chat room and moving over to "Saving and Retirement" -- thanks for the oppportunity to participate in this worthwhile program!
Thanks so much, Steve! We appreciate your help!
Readers, bear with us here as the advisors change shifts
Let's go ahead and welcome our new advisors to the room - Bethany, Chris and Sam
Alright, here's our first question from Cristina
Cristina, how old is your child?
Cristina- Most states offer a state 529 plan which provides tax-deferred growth of contributions and tax-free withdrawals for qualified education expenses. The Texas plan is call the Lonestar 529 Plan and could be a good option for your son.
Generally, 529 plans are a good choice as they provide tax-deferred growth and tax-free withdrawals for college expenses. I believe Texas doesn't have a state income tax so there wouldn't be a tax deduction is you used their plan. We've recommended Utah's plan as well as Kansas and Alaska for 529's.
Christina - each state has their own 529 plan, but you are allowed to 'cross boundaries' with out any concern. A important factor is to look at the fees. For example, the Utah plan, which is considered one of the best in the country, has very low fees admin and invests in Vanguard funds, which also have low fees. Some 529 plans are sold by brokers and advisers
. Be careful of these, as they may have a large sales commission attached.
Hi Bob, thanks for your question. Is you plan to stay in the home past 2017 if the debt wasn't an issue?
Bob, I can see the benfits of enjoying the low interest rate on your home equity line of credit while allowing your investments to grow. If your intention is to stay in the home, it would make sense to cash in some of your investments to pay it off before 2017.
Bob, I would recommend working with your financial advisor to check in on the tax implications of such a sale and to work out the timing. Your situation is complex enough that it would really benefit you to take a deeper look at the big picture. Avoiding that 7+%, however, is a good idea!!
Bob, you may want to pay off your mortgage depending on how your taxable investments are setup for liquidity, cost basis and diversification. I can't see paying 7% on a loan when you could use your taxable account to eliminate that debt. Generally, I recommend clients be debt free in retirement.
Thanks for the great responses to Bob and Cristina
Here's our next round of questions from Creed0207
Creed, you can open a roth if you have earned income. you may want to look at a individual roth 401k too.
the individual 401k roth allows you to contribute more than a normal roth ira
Creed0207 - It is great that you are thinking about saving for retirement! Anyone with earned income (or a spouse with earned income) can contribute to an IRA. There are income limitations for contribution to a Roth, if you (or you and your spouse) together have over a certain amount of income you can contribute to a traditional IRA but not a Roth IRA.
Hi Joseph, before cashing in your 401(k) I would take a hard look at cash flow and see where you might be able to pay down your credit card. I would recommend paying down your credit card before contributing more to your 401(k) (unless there is a match from your employer, in which case, contribute the minimum to get the match).
It is usually not advisable to use retirement money to pay off credit card debt. Especially because your money in the 401(k) is protected from creditors if you were unable to pay the debt.
Joseph, remember, too, that if you are under 59.5 years old you will pay a 10% penalty for cashing in your 401(k), in addition to ordinary income taxes. So, in reality, you would have to take out more than $12k to pay off the credit cards. Effectively paying 10%+your tax rate to save the credit card interest. Not to mention, losing creditor protection assigned to 401(k)s. I hope that helps! Good luck!
Joseph, generally it's not a good idea to use your 401k to pay off credit card debt. I would recommend creating a "spending plan" and earmark money to pay off your debt. If you have multilpe cards, you can start by paying off the lowest balance card first and then moving to the next highest card. That way you feel like you're making progress!
Thanks, all! Some great advice for Joseph and Creed
Here's our next round of questions from enrei
Hi enrei, I would work on paying the debt down before purchasing. Your credit card debt may prevent you from qualifying for a lower mortgage interest rate.
Enrei, I would recommend paying off the credit card debt prior to purchasing a home. With your high interest rate you are paying a substantial sum in interest payments each month. Paying off the debt would free up more money in the future to save towards a down payment or to put towards mortgage payments.
Enrei, congrats saving $20k for your downpayment! The interest rate on your card seems pretty high. I would use some of those monthly dollars you've been setting
aside for saving for you downpayment and use them on your debt. It's amazing how quickly credit card debt can get out of hand. Paying down your card is a great return on your money verses the less then 1/2 a percent your probably earning on your $20k.
Jerry, gold has had an excellent run over the last 10 years and having a small piece of your portfolio invested in it might make sense. What's interesting is gold funds haven't done as well as gold because most buy gold mining companies and not the metal.
Hi Jerry - Gold is a tricky investment because it doesn't have earnings like a stock or interest like a bond. It just is, and investors like it and then don't like it. I stay away from it because I don't really understand it, except as a watch or a ring.
Jerry, I don't have a specific gold fund to recommend to you but I would encourage you to take a look at the underlying investments in other funds you are invested in. You might be surprised to find you already have exposure to gold from other funds.