John: First, before you begin on an investment program, check this list:
* Isolate 3-6 months of expenses into an emergency fund in an insured account
* Check all insurance coverages, especially since you have a young child. Do you have sufficient life/health/disability coverages?
* Do you have the proper estate planning documents in place? That includes a will (which names guardians for the children), durable power of attorney for finance and an advanced health care directive? Some states also make use of revocable "living" trusts.
* And of course, have you paid off all high interest debt?
Delia, John provided us with a bit more information, but it was we didnt want to post publicly in this forum. He does have a good rainy day fund, adding about $500/month to it
John, do you have followup questions for the advisors? What can they better clarify for you?
John: I need more information. How old are you? How much is the interest on your mortgage? What does it cost you to live?
John: Sorry I'm trying to catch up with your thread. I do think paying college early is a great idea because college costs are inflating at twice the rate of inflation, so the earlier you save the better off you are; you have a built in return on that money.
John, when considering real estate I think the place to start is, Do you want to be a landlord? It is a business and can not be treated like a passive investment. Rental also require higher cash reserves. I do not think you need to pay down the mortgage cause with low interest rates you should have already locked in a nice 3-4% rate for 15 yrs. Furthermore, you can not sell a bedroom when you need to get at some of your money down the road.
John, General rule is you save for your Retirement first then your kids college because you can't get loans for retirement. If you are fully funding retiremtent then a 529 for your kids work well for college savings and you can put in up to 5 years worth of contributions up front if you want. like the others said, you may want to speak with a fee only adviser to help you weigh all the pros and cons. check napfa.org
John: It may be time to build up a nice taxable/non-retirement investment portfolio. Here's where you consider low-cost index or exchange traded funds. I believe a combination of tax-deferred retirement accounts and an after-tax investment portfolio gives you the most freedom and opportunity to do some tax planning. With the taxable portfolio you can balance/harvest gains and losses to minimize taxes in any given year.
John: Are you self-employed?
John: Too bad. In that case I'd go with the after-tax portfolio invested in a tax-efficient way, such as Vanguard. Real estate can be a challenge, but I have some clients who love it. But as Chad said, you need reserves and it's an illiquid investment.
Thanks for your help, Delia and Chad
John, It looks like you are doing well. Since you seem to have all the bases covered I would ask your adviser about the 529 for your kids college. It will give you tax free growth and like I said before you can put in 5 years worth of contributions up front, so you child's college would be taken care of in one swoop. The remaining $1000 per mo could be invested
in a taxable account for whatever you may need down the road.
Chad, here is one from Emily
Emily, before committing to such a transaction you will want to confirm with your tax adviser as well as with an investment adviser. If you go to napfa.org you can find a fee only adviser who will not have a vested interest in what type of investment you choose.
Emily,, I will also say I have seen many "special" investments go bad. The Keep It Simple principle has served me well over the years.
Phil, we have a followup for you from Lisa from awhile back. Her original question was:
"New to this forum so apologies if it has already been asked - if I am ineligible for a Roth IRA, can you recommend a post-tax retirement savings vehicle?"
Lisa, sounds good. Once you have maxed out your employer's retirement plan, adding to your retirement savings is always a great idea if you have discretionary income to do so. Save early, save often. You are on the right track!
Thanks, Phil. When you're ready here is a question from Mark
Mark, precious metals may have a place in your portfolio depending on your objective. Just be aware that precious metals do not necessarily behave as one would expect. Also, precious metals do not throw off dividends. Mining stocks may be a better choice but they are already contained within a total stock index fund. Perhaps no more than 5% of your stock portfolio but remember for the long run reinvesting stock dividends has been the real gainer. In the short run, precious metals would be speculative at best.
Chad, you can take this one from Dan
Dan - The world is your oyster! At your age fund a Roth IRA every year, then build up your money in a taxable investment account so it will be available for a future home purchase. You still will want to keep 3-6 months in cash even though it doesn't pay anything. Think of emergency savings like insurance, it costs you something, but still necessary.
Dan, since you are just beginning I would start by picking several broad based index funds.
Phil, when you're ready, here is a question from Bill E
Bill E. Research your wife’s 403b (which is essentially a 401k for teachers) and see if there is an employer match program. If so, have your wife invest up to the match (free money). If you are comfortable living on your current salary, every time you and your wife get a pay raise, place the total amount of the pay increase into your 401k and her 403b. You won't miss it and you'll be glad you did come retirement time!
Thanks, Phil. Phil, here is another question for you from Arnold
Arnold, Choose each savings account for which it is intended. I am a strong believer that retirement accounts are for retirement, education savings accounts are for education, insurance policies are for insurance needs, emergency funds are for emergencies, and health savings accounts are for health care.
Delia, you can help clarify this question from Tiohenry
Tiohenry: This is a great question. Since you have an idea of your marginal tax bracket, I like to have clients consult with their tax advisor on this question so that they stay in the same bracket if they straddle both plans. So you don't want to put so much into the Roth 401k that it kicks you into another bracket, but I definitely love the fact that you have it available to you. But you haven't mentioned your age. The older you are the less attractive that Roth 401k might be. But then, you may also have a lot of years built up towards the pension plan, so perhaps you won't need to touch that Roth part for some time.
Delia, here is a followup for you from Tiohenry
Tiohenry: This info helps. So if you have 15 more years to work and a good pension, there's a good chance you won't have to touch the Roth 401k for some time. So even if it puts you into a higher tax bracket it probably won't hurt you. Taxes are at a historic low right now, so they're probably not going down.
Tiohenry: As for the conversion to a Roth, that's up to you. I hate to pay more taxes than I have to, and there's no guarantee that the tax-free benefits of the Roth will be sustained.