Travis, when you're ready, you can take this one from Dave
Dave: I prefer to roll the money into the IRA/Roth IRA. 401k plans usually have a select amount of investments that are available to you. Sometimes these investments are of great quality and sometimes they are not. Rolling this over will allow you to select from a multitude of investment options. Although they are providing the service for little to no charge, there are plenty of quality investments with low expenses outside of your 401k
And Pat, whenever you are ready, here is one from jccleary
jcleary, congratulations on your determination to save towards your retirement. Without knowing your situation fully, first be sure you are contributing enough to your 401k to get a full match from your employer, if that is offered to you. Then, a Roth IRA would be a great vehicle for you to use for additional retirement savings, as would be a good mutual fund in a non retirement oriented account. You may not know that there are many ways to invest Roth IRA funds - through a bank (not the best way, as interest rates are low) - or through a mutual fund company (for example, Vanguard) or with mutual funds available through a custodian (for example, Schwab), where I think you would get a better long term result. That said, mutual funds are a way for investors to pool their money and invest in stocks, bonds, other financial instruments, or a combination of all of the above. Mutual funds are not in themselves risky - it's what they invest in that determines the risk of each particular fund. I suggest going to the Vanguard web site at www.vanguard.com as they have some excellent educational materials to help you understand the risks of investing, at any age. And they have a good selection of funds that you can consider for your savings needs, both for a Roth IRA and for long term savings. Finally, I am sure the Kiplingers Web site also has some great resources for you too.
Delia, here is another question for you from Steve.
Steve: Money you need in the near future for such an important expense should be absolutely safe: an FDIC or CUNA (credit union) insured account is the best. You don't care here if you don't make a return ON your money; you just care that you get a return OF your money.
Delia, here is another question from Todd
Todd: Congratulations on taking advantage of today's historically low interest rates! To decide what to do with this extra money I recommend you look at your entire picture. Ask yourself these questions:
1. Do we have an emergency fund? Planners recommend 3-6 months' of expenses
2. Are we properly insured? Review your auto and homeowners policies, as well as life, disability and/or long term care. Be sure to include employer-provided programs
3. If you have children, be sure to review college planning goals
4. Then review retirement
This is what comprehensive planners can help you do. We can help you review your overall financial picture and think through your options.
Travis, when you're ready, you can take this one from Jeb
Jeb: Selecting the correct advisor can provide a great service for you, not just on the investment front. In regards to your question there are many different aspects we look at when selecting investments for clients. Here are some we look at (not in any particular order): expense ratios, beta, alpha, correlation to portfolio
, manager tenure, and performance among peers to name a few. I hope this helps!
Travis, one more from Jeb
Jeb: I think you have to look over the longer term. The 3 yr right now does not take into consideration the correction in 2008-2009, which would give
you a great picture of the downside protection. Longer term will provide you a better picture of the performance of the fund. You might want to take a look at indexed ETF's as well. They provide lower expense ratios and follow the performance of the indexes quite well.
Jeb: What kind of compensation schedule would you be looking for? I'm pretty sure the ways you suggested are the most common. Some advisors will complete a financial plan with investment advice but I'm sure they are not cheap. The reason why most do not like to do this is the fact that when we suggest an investment for a client it needs to be in their best interest, not just suitable. We cannot "monitor" this if it is a one time interaction.
And Travis, when you're ready, you can take this one from Jeremiah
Jeremiah: It is a difficult time for "money on the sidelines" due to low interest rates and potential bond bubble. Do you already have your emergency fund set up and stashed away? I would possibly look towards a combination of short term /low duration bond mutual funds,large cap index funds, and available cash. This will allow you to use your cash to buy more shares if the market does correct a bit. This does bring some risk along with it but cd's and savings accounts are near 0.00% and will stay there for a little while. I hope this helps!
Travis, here is a follow-up from Jeremiah
Jeremiah: Let me look back quickly and I will add anything else if need be!
Jeremiah: If you have any debt with high interest rate this may be another option. If you are very risk averse right now is difficult. Good diversification as I had mentioned before will provide some downside protection but anytime you are invested in the market there will be risk. Shorter term and lower duration bond funds will be affected less by inflation/interest rate movements, but they will still be affected. Large cap is usually safer than small cap on the equity front. Commodities/hard assets(silver, gold, land
) are inflation hedges and may be another option, but again carry risk. Hope this helps!
Delia, here is a question from dimm0k
Thanks, Pat! Here is your next question from UnderDogFly
UnderDogFly, I can understand your frustration with low rates on savings right now. The truth is there is NO investment vehicle available right now that is liquid, pays a reasonable rate of return, and is low risk. Actually, 0.85% is a lot better than many savings accounts I have seen - the national average is about 0.21% right now. You will have to step out and either tie the money up (give up some liquidity) or take some risk (for example, investing in a low duration bond fund) to boost that return - I wish I could wave my magic wand and make it all better (for my clients too) but that sort of low risk return is just not out there right now. You can also go to gobankingrates.com to shop around for rates, but as with all things in life, if it looks too good to be true, it is!
Delia, you can take this next one from Rob
Rob: Wow, 29 and you've accomplished all that! You're really doing well. I wouldn't be in a hurry to pay off the mortgage; you already are on your way to paying it off, and your after-tax interest rate is probably really low. Instead I'd make sure of the following fundamentals for the use of that extra cash:
* Do you have an emergency fund of 3-6 months of expenses?
* Do you have the insurance you need, including medical, home/rental and auto, and disability?
* Are you single w/no dependents? Or do we need to fund college expenses, life insurance, etc?
* Do you have a will and other key estate planning documents? That includes a durable power of attorney for finance and an advanced health care directive. Some states also use revocable "living" trusts a lot. Also review how you title those accounts to be sure they fit your plans.
That's already a long list. But don't focus just on the house or the investment account.
Pat, you can take this question from 40with2kids when you're ready
40with2kids, I'm glad to hear that you have recognized some important priorities and are in such good financial shape. Without knowing your situation, I would want to be sure that you have taken all the steps, in terms of savings and investing, to be sure that you will be able to secure your future financial independence. If helping your kids with their education is an important goal for you, and you have resources that you can contribute AFTER taking your future needs into consideration, then you can consider contributing towards your children's education. It would certainly be worth your while to consult with a financial planner to be sure all the moving parts will work together. That said, 529 plans are an excellent vehicle; there are a lot of good plans out there and one of my favorites is the T. Rowe Price plan.
Brent, here is a question from Eric
Delia, here is a question for you from BMitch
Hi BMitch: Congratulations on having a baby on the way! I'm curious about what you define as a short-term investment package. Is that a short-term bond fund?
In any case, this is the time to stop and make sure of the following to protect the future of your family and your long-term plan:
* Do you have an emergency fund of 3-6 months' worth of expenses?
* Do you have sufficient life insurance?
* Be sure to have an estate plan in place, especially one that names guardian(s) for your new baby. This could also form a trust at your death to manage the money for the child should you and your wife both pass away (I know that's an awful thought, but you have to consider it). So you also need to decide who would take care of that trust for the benefit of your child.
* Do you have sufficient disability insurance? Your plan depends on your ability to earn an income.
So, the message is we want to protect you first before you continue on your growth path.