Investing your earnings

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icekitsune

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Hi all,
I wanted get some advice in regards to investing some of my money since currently its just sitting in my checking account. None of family members know anything about 401k, stocks, Cds or anything of that sort except put all the money in a savings account. Unfortunately i'm a current part time but I am looking for a FT position. I hear things about 401k and buying the company's stocks. If someone could let me know or give a good site to read (maybe get a financial adviser) or tell me what you did that would be great

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Do you have any student loan debt? how much and what is the interest rate?
 
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1. I paid off all my loans first. Including any debt from cars, etc
2. maxed out 401k at work and maxed out IRA that I opened up at Vanguard
3. Started buying other taxable funds through Vanguard....like SP 500 etc
4. Built my first 5 year CD ladder with 25K this year
 
You'll probably want to start with your 401(k), find out what your employer matches, and put in at least that amount. In the 401(k) you'll also have to choose the investment option. To people who don't know anything, I usually recommend the 'Target Retirement'-type funds, or if its fees are too high, or if not available at all, then low cost index funds that cover the entire US and international stock markets, and maybe some bond funds.

You can put in up to $17,500/yr (not including employer match) into your 401(k), but after a certain amount your employer will not match any further. At that level, some people use the Roth IRA instead ($5,500/yr), or I just max them both out. For a Roth IRA you choose which company to open your account with and the investments, and I also recommend Vanguard and their Target Retirement funds.

For company stock, I would only recommend if you get a decent benefit like a 10% discount, so you would have to look at the specific terms of the plan.

For a cash emergency fund, I recommend the Ally Money Market Account which pays 0.85% APY. You can make up to 6 withdrawals per month by electronic transfer to your checking account, ATM/debit card or check.

Dave Ramsey provides a decent framework on how to allocate your overall finances, and in what order: http://www.daveramsey.com/new/baby-steps/
 
Ally hands down the best bank out there. I use Ally for 6 years now.
  • 0 Fees for all their accounts, no minimum balance
  • Best customer service, wait time less than 1 min to talk to someone
  • Saving account : 0.87% interest
  • Checking account : 0.1-0.6% interest, and Free checks
  • No ATM fees at ANY ATM nationwide - when I see someone paying $4.95 to take $100 to some random ATM, I cringe. I get the fees reimbursed every month. Fees? What fees?
  • Deposit check online (just take the picture)
  • Popmoney for person to person transfer (send money by email/text message)
I could probably become their rep LOL coz I like it so much...

Downside :
- no way to deposit cash
- cashier check takes 5 days to arrive... (when does the last time I need one? I can't remember)
- no international wires, they closed the service about 1 year ago =( so you still need at least 1 brick and mortar bank if you want to send money internationally
 
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if you are working just part time you may not get 401 k matching so check with your company
 
The Basics: There is no such thing as free money... or is there?

Your 401K is an option to invest your money in a tax deductible investment managed by a third party. If you invest $1000 in your 401K today, you get to deduct that from your income this tax year (2014). That money grows (or shrinks) in your investment portfolio with tax-deferred status - this means you don't pay any tax on the earnings until you actually withdraw any money from the 401K account in retirement.

Many companies match a portion of your 401K investment and they can do so on any ratio they choose. Receiving a 1:1 match means your company will match every dollar you invest in your 401K up to a certain dollar limit the company will specify. Others may have different ratios.

The basic idea behind ensuring you invest minimally up to the portion matched by your employer is that the money the company matches is "free money". You don't pay income tax on that match and it goes into your tax-deferred 401K. It is literally money your company is giving you today for your retirement "tomorrow", but only if you are also willing to set aside some money for tomorrow.

Most 401K plans will be managed by a large investment group like Vanguard, T Rowe Price, etc. They will have a number of basic options for you to choose when allocating your 401. You can invest in total market funds (mutual funds which are selected to mimic the overall movement of the market); target retirement date funds (shifting allocations based on their interpretation of how much risk your investment should take over time, e.g. that as you age, you have less tolerance for risk as you will need that money for retirement and the investment is automatically shifted to manage that risk); industry or regional mutual funds, etc. If you are still learning about how to allocate your money, a target retirement date fund is typically considered appropriate since it will automatically adjust your risk as you get older - it is the "hands off" approach to investing for your retirement.

Scenario 1: You don't invest anything for ten years, and then invest 17.5K every year for ten years. Assuming a 7% annual return, your investment is worth roughly 250K after that 20 year period.

Scenario 2: You invest 17.5K every year for ten years, and then nothing additional for ten years. Assuming 7% annual return, your investment is worth roughly 500K after that 20 year period.

Scenario 3: You invest 17.5K every year for 20 years. Assuming 7% annual return, your investment is worth roughly 750K​

Comparing the scenarios, you can easily see that there is truth to the idea that money invested today is worth more than money invested tomorrow. This is based on the principle of compounding interest. To put it into perspective, by choosing not to initially invest for ten years, you would need to invest TWICE as much (about 35000/year) in years 11-20 in order to make as much as scenario 2.​

Advanced Consideration: What happens when one of your 21 balloons pop?

Everyone should build an emergency fund. That is often advised by financial planners as step 1 to financial security - even before all other considerations. In today's job market, and indeed in life, there are few guarantees. You could lose your job, be sued, or worse. It is minimally recommended that you save enough to live your current lifestyle for 6 months without additional income (some advise up to 12 months in lieu of the great recession). That means covering not only your living expenses (e.g. rent, food, etc) but also your student loan payment, life insurance premium, etc. The basic idea is that if you were to ever lose your source of income, you would have some cushion to prevent you from defaulting on loans or going hungry. You never want to be in the position to have to withdraw from retirement savings (you can actually take a "loan" from your 401K, but that comes at a stiff tax penalty) or take second mortgages on a house just because you failed to plan for a completely reasonable contingency.

Advanced Consideration: Only two things are certain in life - death and taxes

Understanding your tax liability today and in the future is very important to developing a solid overall strategy. Regardless of how you feel about taxes, financially speaking, your objective should always be to limit how much tax you actually pay. If you feel that you underpay (and some people do), you can always use that money for good causes.

As an example, if your employer may only match up to $6000 (made up number), it may still be worthwhile to invest your full 17.5K tax-deductible amount in a 401K. If your income was 100K and you invested 6K in your 401K, your taxable income is 94K. If you invested the full 17.5K, then your taxable income drops to 82.5K. Lowering your AGI (adjusted gross income) could do several things, not the least of which is drop you into a lower incremental tax bracket (e.g. from the 36% to the 33%). Yes, it means that you would be foregoing money today, but if you are investing post tax dollars in non-retirement securities, then you are paying tax on that money twice: this year and in whatever year you sell your investment and record the income. Even if your tax bracket is the same (lets just say 30% for giggles), the net effect is that you save substantial money by investing your full 401K limit. By investing only 6K, you pay 28,200 in taxes on 94K income meaning you "kept" 71,800 of the original 100K salary. By investing the full 17.5K, you pay 24,750 in taxes on 82.5K income meaning you "kept" 75,250 of the original 100K salary - a difference of 3450 which would have been paid as tax. So yes, you will have less money today, but with the power of compounding interest, you will have a LOT more money tomorrow.

Another big tax consideration is purchasing a home. Not only do some places offer first-time home buyer incentives (federally I believe the program was terminated, but not sure on this), but the interest payments to the bank is considered tax deductible. This is an often forgotten benefit to home ownership which lazy or new realtors often forget to express.

There are many deductions (additional schooling, children, installing solar energy cells on the roof of your home, etc). Take advantage of those which make sense for you. Really read into the tax code to understand it. If you can pass pharmacy school, you ought to be able to do your own 1040 without assistance.

Advanced Consideration: Rules? More like guidelines. Sorry, its Pirate Code.

Check with your 401K plan. Some plans (if not all) allow you to invest up to 51K in any tax calendar year. Only 17500 K is tax deductible in the current tax year, but the growth in the investment can be tax-deferred. If you are investing for retirement in excess of your tax deductible 17.5K, then this is potentially a viable option. It is not an option if you want more flexibility. Perhaps you want to invest additional dollars for retirement now, but want the option of using that as a child's college fund if needed 20 years from now - in which case, don't invest post-tax dollars in the 401K. But later in life, when the kids are out of the house, and your house, cars, student loans and credit cards are paid off, and your financial liabilities are at an all time low, it can be quite beneficial to invest more into the 401K, even with post-tax dollars. Know the rules of your 401K plan.

Advanced Consideration: What did Darwin teach us about tolerance and extinction?

Diversify in every sense. Diversify your investments in all their characteristics. Some investments are more liquid (e.g stocks) while others are hard to move quickly (e.g. house) - this has an effect on your ability to scrounge up cash quickly. Some investments are risky (e.g. individual stocks) while others pool risk (e.g. index funds). Some investments have high yield and high risk (e.g. some bonds) while others have low yields and low risk (e.g. other bonds). It also means that even though it is tempting to invest in five oil companies with fabulous dividend payouts, it still exposes you to a lot of risk because a lot of your eggs are in one basket. It is the same reason why a number of financial planners advise against investing your retirement in company stock - you are putting your source of income and your future income in the hands of one company. This isn't to say that Walgreens is about to collapse and disappear, but there was a time in the not to distant past when Rite Aid stock was less than a quarter per share - the value of the company's inventory was worth more than the company as a whole. It is not an impossibility that RA could have folded, but look at it now.

When All Else Fails... Follow the wisdom of the Oracle of Omaha

When others are greedy, be fearful and when others are fearful, be greedy. Warren Buffet has a number of rules of investing but that is fundamental.



Lastly, in nearly every survey of the traits of millionaires with their respect to investing, there are two fundamentals - they don't panic quickly (e.g. they have some tolerance of risk) and yet they know when to fold their hand (e.g. putting good money after bad is never sound). They recognize that they will rarely be able to time the market "perfectly" in order to buy low and sell high, so it means sometimes they will have ended up leaving some money on the the table, but if you pursue a long term strategy, it behooves an investor to accept that fact. And learn be savvy about when the market is genuinely turning for your investment. Think of investments like old cars. Why would you spend 4K putting a transmission into a car worth nothing? The car in running shape might still only be worth 2K, in which case, you lost 2K. And speaking of cars, it is very tempting to buy nice, fancy cars because the income of a pharmacist permits such luxury. But a car is a depreciating asset - it is worth less with every mile you drive.
 
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Hi all
I wanted get some advice in regards to investing some of my money since currently its just sitting in my checking account. None of family members know anything about 401k, stocks, Cds or anything of that sort except put all the money in a savings account. Unfortunately i'm a current part time but I am looking for a FT position. I hear things about 401k and buying the company's stocks. If someone could let me know or give a good site to read (maybe get a financial adviser) or tell me what you did that would be great

1) bogleheads.org. -read
2) index funds ( total us stock market, intrntl stock market fund, bond fund) - ensure they have low expense ratios and decide what your asset allocation should be based on your risk tolerance.
3) stay the course - be happy with the return of the market vs trying to outperform the market
 
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Hold off on buying the Boglehead guide; a second edition is coming out in August. I just put in my pre-order for it. Been reading the forum here and there, but I know I need to learn more. I was hesitant to buy a 7 year old book. I know the fundamental investment types and theories aren't changing much, but the economy has gone through quite a bit since '07. Seeing the new edition immediately made me jump on it, and I'm pretty excited to read it.
 
I just opened an American express savings account that gets 0.8% interest. Not exactly an investment, but much better than my emergency fund that's sitting in my Chase savings account getting 0.1%.
I know the feeling. Hate having an awful interest rate just to keep the money liquid. I remember being a little kid and getting like 5% on my savings account. The good old days passed me by while I had a 3-digit account.

I guess you can always "rate chase" and open accounts for the free bonuses. Chase was running one where you got $400 for bringing in $15k. Eventually it gets to be a hassle moving everything around every 3-6 months though.
 
I know the feeling. Hate having an awful interest rate just to keep the money liquid. I remember being a little kid and getting like 5% on my savings account. The good old days passed me by while I had a 3-digit account.

I guess you can always "rate chase" and open accounts for the free bonuses. Chase was running one where you got $400 for bringing in $15k. Eventually it gets to be a hassle moving everything around every 3-6 months though.

An advanced/nontraditional method was something called app-o-rama. Rember when savings account used to provide bonuses and 4-5% interest before the crash? Also do you remember when you were getting credit cards junk mails left and right offer free balance transfer with 12+ month interest free?

What some investers did was to launch a big round of credit card applications (all credit score pull during a 14 day period counts only once against your credit score). So they would get a total of 10+ credit cards, get the sign up bonus, cash advance $200+k then balance transfer, put the cash in short CD + MM. Each month withdraw just enough to pay the minimum payment and then pay it off at the end of interest free period.

Basically getting: 10+ free sign on bonus, 5% interest on money borrowed at 0%. A $200+k app-o-rama would generate $10k+ profit in a year. People did many rounds of it until the market crash lead to ~0% interest.
 
I do say this jokingly, but there are some roulette tables in the US that will let you bet $50,000 ;) 49/51% in favor of the house, close odds
 
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I do say this jokingly, but there are some roulette tables in the US that will let you bet $50,000 ;) 49/51% in favor of the house, close odds
App-0-rama wasn't 49/51% odds. It was 100/0% odds. It was guaranteed 5% return on investment unless: you can't manage 10+ credit card minimum payment, hence hit with a ton of late fees and big hikes in interest.

People who are savvy enough to set one up properly should be smart enough to set up automated minimum payment from their MM account. Too bad I was too nerdy and cowardly to set one up when it provided a good return.
 
1. I paid off all my loans first. Including any debt from cars, etc
2. maxed out 401k at work and maxed out IRA that I opened up at Vanguard
3. Started buying other taxable funds through Vanguard....like SP 500 etc
4. Built my first 5 year CD ladder with 25K this year

In my opinion... start with 401k + roth IRA (before you make too much to contribute) first... I would max out 401k (35% tax savings + company contributions + potential earnings) before I would advance pay any student debt (6-8%?) or a mortgage (4-5%?). If you're in a position to buy a house.... do it as opposed to renting (nice tax savings + appreciable asset)... Does your company have an Employee Stock Purchase Plan (ESPP)? Do that... many companies offer 15% discount or more .

I would do all of that before I would spend post-tax money on a taxable fund in just a regular investment account on eTrade or something (again, my opinion based on tax-efficiency)

I read an article that said the ROTH IRA is the new "Emergency Account" of millenials (US) since CD's and money market accounts don't pay anything and your principle is able to be withdrawn without penalty (there are some rules so familiarize yourself). You could use the Roth to invest in the same SP500 funds and then still have access to the principle in a pinch if you needed. In theory.
 
In my opinion... start with 401k + roth IRA (before you make too much to contribute) first... I would max out 401k (35% tax savings + company contributions + potential earnings) before I would advance pay any student debt (6-8%?) or a mortgage (4-5%?). If you're in a position to buy a house.... do it as opposed to renting (nice tax savings + appreciable asset)... Does your company have an Employee Stock Purchase Plan (ESPP)? Do that... many companies offer 15% discount or more .

I paid off all my loans first when I got out. Chose to live poor and was the best decision I made!

I've maxed out my 401k and make too much for a Roth...and opened up my IRA....looking now into doing a backdoor Roth providing my 401k can accept the gains I have made from my Vanguard fund. If so...win win!

Own my house , my car... ZERO debt!

I don't buy a lot of stock from my company. Some of it is within my 401k , just don't want all my apples in 1 company.

Also I have a 8 month Emergency Fund.

As for my Taxable funds...I started on those AFTER I achieved ZERO debt!
 
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o_O I better start googling terms and read on this. Most of the answers just flew over my head. I don't think my company offers 401k but they offered something like stocks? Idk if i should all these things only after i get a ft job....currently I have no debt but I only have a pt job as stated before. Ally sounds like a good start... I was recommended discover or american express..
 
I have my 401k with Fidelity through work. Do I need to open a Vanguard account or can I invest thru fidelity? Someone recommended Sogotrade to me.
 
I have my 401k with Fidelity through work. Do I need to open a Vanguard account or can I invest thru fidelity? Someone recommended Sogotrade to me.

I have Fidelity and they are good. Their Spartan class of index funds have low expense ratio on par with vanguard. $8/stock trade, pretty decent if you ask me.
 
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The Basics: There is no such thing as free money... or is there?

Your 401K is an option to invest your money in a tax deductible investment managed by a third party. If you invest $1000 in your 401K today, you get to deduct that from your income this tax year (2014). That money grows (or shrinks) in your investment portfolio with tax-deferred status - this means you don't pay any tax on the earnings until you actually withdraw any money from the 401K account in retirement.

Many companies match a portion of your 401K investment and they can do so on any ratio they choose. Receiving a 1:1 match means your company will match every dollar you invest in your 401K up to a certain dollar limit the company will specify. Others may have different ratios.

The basic idea behind ensuring you invest minimally up to the portion matched by your employer is that the money the company matches is "free money". You don't pay income tax on that match and it goes into your tax-deferred 401K. It is literally money your company is giving you today for your retirement "tomorrow", but only if you are also willing to set aside some money for tomorrow.

Most 401K plans will be managed by a large investment group like Vanguard, T Rowe Price, etc. They will have a number of basic options for you to choose when allocating your 401. You can invest in total market funds (mutual funds which are selected to mimic the overall movement of the market); target retirement date funds (shifting allocations based on their interpretation of how much risk your investment should take over time, e.g. that as you age, you have less tolerance for risk as you will need that money for retirement and the investment is automatically shifted to manage that risk); industry or regional mutual funds, etc. If you are still learning about how to allocate your money, a target retirement date fund is typically considered appropriate since it will automatically adjust your risk as you get older - it is the "hands off" approach to investing for your retirement.

Scenario 1: You don't invest anything for ten years, and then invest 17.5K every year for ten years. Assuming a 7% annual return, your investment is worth roughly 250K after that 20 year period.

Scenario 2: You invest 17.5K every year for ten years, and then nothing additional for ten years. Assuming 7% annual return, your investment is worth roughly 500K after that 20 year period.

Scenario 3: You invest 17.5K every year for 20 years. Assuming 7% annual return, your investment is worth roughly 750K​

Comparing the scenarios, you can easily see that there is truth to the idea that money invested today is worth more than money invested tomorrow. This is based on the principle of compounding interest. To put it into perspective, by choosing not to initially invest for ten years, you would need to invest TWICE as much (about 35000/year) in years 11-20 in order to make as much as scenario 2.​

Advanced Consideration: What happens when one of your 21 balloons pop?

Everyone should build an emergency fund. That is often advised by financial planners as step 1 to financial security - even before all other considerations. In today's job market, and indeed in life, there are few guarantees. You could lose your job, be sued, or worse. It is minimally recommended that you save enough to live your current lifestyle for 6 months without additional income (some advise up to 12 months in lieu of the great recession). That means covering not only your living expenses (e.g. rent, food, etc) but also your student loan payment, life insurance premium, etc. The basic idea is that if you were to ever lose your source of income, you would have some cushion to prevent you from defaulting on loans or going hungry. You never want to be in the position to have to withdraw from retirement savings (you can actually take a "loan" from your 401K, but that comes at a stiff tax penalty) or take second mortgages on a house just because you failed to plan for a completely reasonable contingency.

Advanced Consideration: Only two things are certain in life - death and taxes

Understanding your tax liability today and in the future is very important to developing a solid overall strategy. Regardless of how you feel about taxes, financially speaking, your objective should always be to limit how much tax you actually pay. If you feel that you underpay (and some people do), you can always use that money for good causes.

As an example, if your employer may only match up to $6000 (made up number), it may still be worthwhile to invest your full 17.5K tax-deductible amount in a 401K. If your income was 100K and you invested 6K in your 401K, your taxable income is 94K. If you invested the full 17.5K, then your taxable income drops to 82.5K. Lowering your AGI (adjusted gross income) could do several things, not the least of which is drop you into a lower incremental tax bracket (e.g. from the 36% to the 33%). Yes, it means that you would be foregoing money today, but if you are investing post tax dollars in non-retirement securities, then you are paying tax on that money twice: this year and in whatever year you sell your investment and record the income. Even if your tax bracket is the same (lets just say 30% for giggles), the net effect is that you save substantial money by investing your full 401K limit. By investing only 6K, you pay 28,200 in taxes on 94K income meaning you "kept" 71,800 of the original 100K salary. By investing the full 17.5K, you pay 24,750 in taxes on 82.5K income meaning you "kept" 75,250 of the original 100K salary - a difference of 3450 which would have been paid as tax. So yes, you will have less money today, but with the power of compounding interest, you will have a LOT more money tomorrow.

Another big tax consideration is purchasing a home. Not only do some places offer first-time home buyer incentives (federally I believe the program was terminated, but not sure on this), but the interest payments to the bank is considered tax deductible. This is an often forgotten benefit to home ownership which lazy or new realtors often forget to express.

There are many deductions (additional schooling, children, installing solar energy cells on the roof of your home, etc). Take advantage of those which make sense for you. Really read into the tax code to understand it. If you can pass pharmacy school, you ought to be able to do your own 1040 without assistance.

Advanced Consideration: Rules? More like guidelines. Sorry, its Pirate Code.

Check with your 401K plan. Some plans (if not all) allow you to invest up to 51K in any tax calendar year. Only 17500 K is tax deductible in the current tax year, but the growth in the investment can be tax-deferred. If you are investing for retirement in excess of your tax deductible 17.5K, then this is potentially a viable option. It is not an option if you want more flexibility. Perhaps you want to invest additional dollars for retirement now, but want the option of using that as a child's college fund if needed 20 years from now - in which case, don't invest post-tax dollars in the 401K. But later in life, when the kids are out of the house, and your house, cars, student loans and credit cards are paid off, and your financial liabilities are at an all time low, it can be quite beneficial to invest more into the 401K, even with post-tax dollars. Know the rules of your 401K plan.

Advanced Consideration: What did Darwin teach us about tolerance and extinction?

Diversify in every sense. Diversify your investments in all their characteristics. Some investments are more liquid (e.g stocks) while others are hard to move quickly (e.g. house) - this has an effect on your ability to scrounge up cash quickly. Some investments are risky (e.g. individual stocks) while others pool risk (e.g. index funds). Some investments have high yield and high risk (e.g. some bonds) while others have low yields and low risk (e.g. other bonds). It also means that even though it is tempting to invest in five oil companies with fabulous dividend payouts, it still exposes you to a lot of risk because a lot of your eggs are in one basket. It is the same reason why a number of financial planners advise against investing your retirement in company stock - you are putting your source of income and your future income in the hands of one company. This isn't to say that Walgreens is about to collapse and disappear, but there was a time in the not to distant past when Rite Aid stock was less than a quarter per share - the value of the company's inventory was worth more than the company as a whole. It is not an impossibility that RA could have folded, but look at it now.

When All Else Fails... Follow the wisdom of the Oracle of Omaha

When others are greedy, be fearful and when others are fearful, be greedy. Warren Buffet has a number of rules of investing but that is fundamental.



Lastly, in nearly every survey of the traits of millionaires with their respect to investing, there are two fundamentals - they don't panic quickly (e.g. they have some tolerance of risk) and yet they know when to fold their hand (e.g. putting good money after bad is never sound). They recognize that they will rarely be able to time the market "perfectly" in order to buy low and sell high, so it means sometimes they will have ended up leaving some money on the the table, but if you pursue a long term strategy, it behooves an investor to accept that fact. And learn be savvy about when the market is genuinely turning for your investment. Think of investments like old cars. Why would you spend 4K putting a transmission into a car worth nothing? The car in running shape might still only be worth 2K, in which case, you lost 2K. And speaking of cars, it is very tempting to buy nice, fancy cars because the income of a pharmacist permits such luxury. But a car is a depreciating asset - it is worth less with every mile you drive.
Great input, thank you very much.
I have a question about my financial situation and would appreciate your input.
Remaining mortgage - $310,000 @ 3.5%
Saving $50,000/year
Investing minimum comapany match on my wife and my 401k

I have 3 years to go before I can save $200,000 + plan on borrowing 100,000 from family to pay off mortgage.

Should I defer my investment until for 5 years so that I would be loan free?
I hate paying 1000 interest to the bank every month!
I know I cant get 12000 in return of investments and am better off paying off my mortgage then take the investment route.
Agree or disagree?

Ps. I know very little about investing.
 
Great input, thank you very much.
I have a question about my financial situation and would appreciate your input.
Remaining mortgage - $310,000 @ 3.5%
Saving $50,000/year
Investing minimum comapany match on my wife and my 401k

I have 3 years to go before I can save $200,000 + plan on borrowing 100,000 from family to pay off mortgage.

Should I defer my investment until for 5 years so that I would be loan free?
I hate paying 1000 interest to the bank every month!
I know I cant get 12000 in return of investments and am better off paying off my mortgage then take the investment route.
Agree or disagree?

Ps. I know very little about investing.

My mortgage is 3.5% as well. I highly recommend NOT diverting resources to pay it off early.

Mortgage interest is tax deductible, so you are really only paying 2.52% interest (assuming 28% tax bracket). The average historical inflation rate is about 3% a year. Since inflation rate is higher than the interest rate, the loan actually loses value each year. If you try to pay it off early, you actually lose the beauty of letting inflation eat away at your loan. I just did some back of envelope calculation, borrowing $310K today at 2.5% and pay it off over 30 years, you only pay back about $290K in today's dollar. Hell of a good deal.

So just pay it over 30 years. Put the money left over into higher yielding investments, eg. stocks/index funds in your 401(k). In fact I recommend you max out your 401(k) and also put $5500 a year into Roth IRA via the backdoor method. Remember 401(k) and Roth IRA have annual contribution limits. If you don't contribute in a year (because you were putting extra towards mortgage), you lose that contribution allowance, and you can't go back to contribute more later.
 
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Great input, thank you very much.
I have a question about my financial situation and would appreciate your input.
Remaining mortgage - $310,000 @ 3.5%
Saving $50,000/year
Investing minimum comapany match on my wife and my 401k

I have 3 years to go before I can save $200,000 + plan on borrowing 100,000 from family to pay off mortgage.

Should I defer my investment until for 5 years so that I would be loan free?
I hate paying 1000 interest to the bank every month!
I know I cant get 12000 in return of investments and am better off paying off my mortgage then take the investment route.
Agree or disagree?

Ps. I know very little about investing.

The emotional choice
Pay off mortgage, minimum contribution to retirement account and lose a whole lot of money in the process in 30 years, all for the sake of "oh I don't have any debt - I have a peace of mind". You will always have bills, no matter what.

The rational choice
Max 401k and roth.
Don't pay off mortgage coz it's a dumb idea. Invest the remaining to either stocks or another real estate with a good appreciation rate and cap rate. Always keep the sub 4% mortgage loan as long as possible. Never try to pay it off any sooner.
 
Great input, thank you very much.
I have a question about my financial situation and would appreciate your input.
Remaining mortgage - $310,000 @ 3.5%
Saving $50,000/year
Investing minimum comapany match on my wife and my 401k

I have 3 years to go before I can save $200,000 + plan on borrowing 100,000 from family to pay off mortgage.

Should I defer my investment until for 5 years so that I would be loan free?
I hate paying 1000 interest to the bank every month!
I know I cant get 12000 in return of investments and am better off paying off my mortgage then take the investment route.
Agree or disagree?

Ps. I know very little about investing.

As a disclaimer, while I consider myself somewhat financially savvy, I am not a financial advisor. I always recommend seeking assistance from a professional because they have better understanding of some of the nitty gritty details on life insurance, tax liability, college funds, etc.

First, make sure you have an adequate rainy day fund. Look at your bills for the past 12 months, average them, then multiply by 6 to 12. Keep that in a savings account. It doesn't earn much in the way of interest, but its your rainy day fund - not a growth asset. It isn't money aimed at making you rich, its money aimed at preventing you from going poor.

Once your rainy day fund is established, I would bring your mortgage down to about 150K balance, then open a home equity line of credit up to 150K. The brilliance of this move is that your current income is sufficient to pay a 300K mortgage, therefore a net mortgage plus equity loan of 300K is also in your financial means. The plus side to this is that your home equity line of credit can serve as a pseudo-rainy day fund. If your initial rainy day fund was 12 months, you can bring it down to 6 months with the balance being the line of credit. The six months of the rainy day fund that you now can shed you can invest in other ventures.

Simultaneously, pay off all credit cards (they are high interest), and any other loans including those for cars. Why? Because cars are a depreciating asset - why pay interest on a product which is worth less tomorrow than it is today? You can even use the home equity line of credit to pay off the car or buy a new car when you need it and to do so in "cash" because the rate on the LOC is typically much less than an auto loan. And as with everything in the credit world, your credit score improves by simultaneously using and repaying (without missed payment) a reasonable fraction of your overall credit option.

Once your spending and loans are in a good balance, then I would look at non-retirement investment. That can be in the form of a second rental property, stocks, whatever. But whatever you decide, I would make sure you diversify. Since you say you know nothing about investing, you have a few years to learn while you do the above. Before reading books on investing, I recommend everyone take three online courses on coursera or other MOOC (massive open online courses): first, accounting. second, entrepreneurship. third, finance (specifically heavy on valuation). Those are the three pillars of knowledge you need in order to be able to proficiently read financial reports put out by companies and filter out the garbage and absorb the real messages. Then read about investment specific topics like understanding terms like beta, bollinger bands, etc. It will make a lot more sense to be able to put those terms in a context of real world business.

I have been interested in the stock market since I was seven and my parents bought me stocks from my saved up birthday money when I was ten. My fundamentals of stock picking are as follows:

1) Dividend paying blue chip stocks tend to do better over the long run because though they may not have fabulous growth rates, they tend to be diversified and resistant to massive swings in bear markets. So when selecting dividend stocks, three basic things to look for:
a) a track record of increased dividends year after year which means that the company's management values the proposition of offering its investors a continuous value
b) low payout ratio which is the portion of earnings distributed as dividend. if most of the earnings are distributed as dividend, then the growth of the dividend is in question if the market turns. if the payout ratio is low, then the company can weather the bear market, continue to invest in the business and still put out dividend growth.
c) a business model which is poised for long term growth. from an entrepreneurial perspective, investing in coal is a losing proposition because its days are numbered.​
2) Manage risk. I do not invest in any company which doesnt turn a profit. In pharmacy school, professors often say dont advocate for new drugs until there is a proven track record of safety. Let another pharmacist take the risk of championing an unknown product. In the same way, let venture capitalists and investment houses take the risk on fledgeling companies struggling to make a profit. It means I may miss a large opportunity for fabulous returns, but it also means I am improving my risks.
3) Look for opportunities by identifying industries which aren't going anywhere. It doesnt matter whether you buy American or import, from a brick and mortar retailer or amazon.com - commercial transportation (e.g. freight shipping) isn't going to disappear until when civilization succumbs to zombies or matrix-like artificial intelligence takeover. Then find businesses within the industry which have a good model.
4) Pick no more than ten to fifteen stocks. You cant possibly follow twenty or thirty stocks or more without it being your full time job. Pick five dividend stocks, five speculative stocks, and five inbetweens.​

As an aside, a great source of information is actually seeking alpha. The articles are written by pros and amateurs, but you learn a lot by reading the various interpretations of data. You learn how others view information and then you can come up with your own way of reading the tea leaves.
 
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@xiphoid2010 ... You seem to know a lot about investment... Will this be good move if someone purchased a home in 2010 and want to sell it now to walk out with almost 100k profit?
 
The emotional choice
Pay off mortgage, minimum contribution to retirement account and lose a whole lot of money in the process in 30 years, all for the sake of "oh I don't have any debt - I have a peace of mind". You will always have bills, no matter what.

The rational choice
Max 401k and roth.
Don't pay off mortgage coz it's a dumb idea. Invest the remaining to either stocks or another real estate with a good appreciation rate and cap rate. Always keep the sub 4% mortgage loan as long as possible. Never try to pay it off any sooner.
I don't know, but I think having that piece of mind of being mortgage free is priceless. However, I know most financial advisors always say it is a bad idea...
 
I don't know, but I think having that piece of mind of being mortgage free is priceless. However, I know most financial advisors always say it is a bad idea...

If having less money appealing for you, pay off that mortgage. You can buy that fake peace of mind but you are still on the hook for forever property tax, and utilities bills (just another way of saying you always have a mortgage). A house will appreciate weather you pay it off now or later. Money in the house is DEAD money. A lot of people are emotional creature so it's ok if this is your final take on mortgage debt while it is not be the best choice in the long run.

For me, I am a very logical person, I will always choose the path that gives me better outcome in the long term. That means investing my free cash vs. paying off mortgage will result 90% of the time higher return in the future.
 
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If having less money appealing for you, pay off that mortgage. You can buy that fake peace of mind but you are still on the hook for forever property tax, and utilities bills (just another way of saying you always have a mortgage). A house will appreciate weather you pay it off now or later. Money in the house is DEAD money. A lot of people are emotional creature so it's ok if this is your final take on mortgage debt while it is not be the best choice in the long run.

For me, I am a very logical person, I will always choose the path that gives me better outcome in the long term. That means investing my free cash vs. paying off mortgage will result 90% of the time higher return in the future.

It's not dead money if you can tap the equity. Investing in the stock market the last 20 years hasn't been all that. The corrections in 2000 and 2009 took away most gains. We are likely in the late stages of a bull market with another correction on the horizon. The federal reserve with their ZIRP have likely set us up for another crash. Wall Street is one big casino. Play it at your own risk. You may seem smart for a little while but the giant hedge funds are smarter and know when to get out before you.
 
It's not dead money if you can tap the equity. Investing in the stock market the last 20 years hasn't been all that. The corrections in 2000 and 2009 took away most gains. We are likely in the late stages of a bull market with another correction on the horizon. The federal reserve with their ZIRP have likely set us up for another crash. Wall Street is one big casino. Play it at your own risk. You may seem smart for a little while but the giant hedge funds are smarter and know when to get out before you.

HAHA pre-pay mortgage = guarantee yourself a 3.5% return. After you pay it off in 10 years, the money in the house is dead, it does not give you dividend, it does not sell you anything, the house appreciate if you pay nothing or if you pay something, does not fu3king matter. Then you wanna take another loan after you pay off the house, and you have to pay it back to guarantee another 3.5% return? What kind of next level idiot does that?
http://investorjunkie.com/13979/fool-prepay-mortgage/
http://www.globalrph.com/prepay.htm <- a smart pharmacist, unlike you made this.

HAHAHA Hedgefund http://www.ritholtz.com/blog/2014/05/hedge-fund-vs-sp500-performance/

Man, you are something else. Not only you are a ***** pharmacist who does not believe in vaccines, now this too?
 
@xiphoid2010 ... You seem to know a lot about investment... Will this be good move if someone purchased a home in 2010 and want to sell it now to walk out with almost 100k profit?

That's a very personal decision. Selling for a quick profit vs potential long term gain. If you bought in 2010, you probably got the house for a steal (especially if you got the first time home buyer credit) and a mortgage rate around 4-5%. You could take the profit and invest in something else that you think might get you a better return, but keep in mind that you pay 6% of the house value on realtor commission. The housing market has largely recovered, so it won't be as easy to just buy another house dirt cheap, but at least the mortgage rates are still very low.

If I was in that situation, I would be weighing the short term profit taking vs. use the first house as a investment property. I would look into if buy a second property (check your loan-to-debt ratio) is feasible; look into if refinancing the 2010 mortgage makes financial sense; then do some calculations to see if renting out the first home is profitable. A good realtor will help you answer many of the important questions: what's the going rate on the rent, demand/vacancies for renting houses like yours, the good management company, handymen, lawyer, etc.

If you want to toy with the rental idea, you can run some basic numbers with this calculator.

http://www.goodmortgage.com/Calculators/Investment_Property.html

For monthly expense/maintenance, use roughly 10% of rent + 0.15% of the property value per month. I would also play it safe by factoring 2 months per year for vacancy. It's better to play safe. :)
 
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The emotional choice
Pay off mortgage, minimum contribution to retirement account and lose a whole lot of money in the process in 30 years, all for the sake of "oh I don't have any debt - I have a peace of mind". You will always have bills, no matter what.

The rational choice
Max 401k and roth.
Don't pay off mortgage coz it's a dumb idea. Invest the remaining to either stocks or another real estate with a good appreciation rate and cap rate. Always keep the sub 4% mortgage loan as long as possible. Never try to pay it off any sooner.
Mortgage is different due to tax incentives and the lower rates, but how about pre-paying student loans? Making extra payments to get rid of them quicker seems to be the conventional wisdom, but you seem to be arguing against it. Make the minimum payments and invest the rest? Will need over 7% return to beat out the loan payoff.

I ran my loans through the global rph calculator you posted, using "no" for tax deductible and "yes" for tax deferred investment and 7% investment return, and personally I come out about $1k ahead going for the payoff vs investing.
 
Mortgage is different due to tax incentives and the lower rates, but how about pre-paying student loans? Making extra payments to get rid of them quicker seems to be the conventional wisdom, but you seem to be arguing against it. Make the minimum payments and invest the rest? Will need over 7% return to beat out the loan payoff.

I ran my loans through the global rph calculator you posted, using "no" for tax deductible and "yes" for tax deferred investment and 7% investment return, and personally I come out about $1k ahead going for the payoff vs investing.

Pay off anything over 6% interest on student loan (with rph income, this sh1t is not deductible). No way you can get a guaranteed 6% return anywhere.
 
That's a lot of money issue. I never have that much money to account myself. Matter of sorrow that I am not gonna get money what we can call 'Amount' in my life. Really sad isn't it?

Uhm...okay?
 
Uhm...okay?

All his posts are like that... I am guessing he uses Google translate converting his native language sentences to English. It fails miserably.
 
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