Financial wunderkinds, what to do with an extra $800 a month?

[slag]

401k or Roth in a fund that tracks the S&P?

Money's for spending and money's for lending, but money is NOT for saving!

 

[IronWing]

In 36 months the house is going to be sold and you will need to find a place. 36 x $800 = $28,800, depending on your area that is about a down payment on a house, assuming baby #2 doesn't take up a good chunk of it.

This. Building up a big bag of ready cash will serve you well when it is time to move (or buy the house you're in).

 

[Gunslinger08]

Talk to friends and co-workers and see if you can find a financial adviser/investment adviser in your area that is respected and trusted. You hire professionals many times throughout your life because they have the knowledge and expertise that you lack. Doctor, lawyer, mechanic, plumber, the list goes on. Why would you trust your money, your future to an amateur - you?

Here's the real important part. Go with an independent. To cite just one example, if the guy works for Edward Jones, he's not for you. His boss leans on him to sell certain products that may not be right for you. You want a guy that has hung his own shingle out. A guy that is looking out for your best interest. Who will suggest investments that are good for you, the client and not good for him. Here's another important thing to look out for. You want somebody that explains to you their fiduciary responsibility, their fiduciary duty and their commitment to that principle.

To me, FAs seem like a relic of the past for people who don't understand investing or for people who have very complicated financial needs. For the average person, it should be pretty simple to do some basic research. You'll find that most people recommend low cost index funds, as these save you money on expenses and tend to outperform actively managed funds, in the long run. Something like a target date retirement fund from Vanguard or Fidelity is already massively diversified, cheap, and mostly pegged to indexes.

 

[Svnla]

Good question, we only have a few hundred in credit card debt and own our aging volvo so it'll take us maybe two months to pay down everything that's not a student loan (including bringing all bills to zero balances, my wife's unpaid maternity leave left us paying bills late). But yes, paying up debt's the #1 priority.

Six months of living expenses is tricky, would you base that on our combined salaries for 6 months or literally a worst case scenario/cover the minimum expenses? If take homes we're talking about saving 80k+ as a couple, which would take 8 years. Suppose saving for that goal isn't a bad idea, but I feel like something interest baring would be the best.

401K, will check in with HR and see if I'm maxed out, I know my wife is.

Thanks for all the great advice!

6 months expense = what if you and your spouse have no income for 6 months, what would you do for basic stuffs such as housing, food, health insurance, etc.? I am NOT talking about stuffs as eating out, travel for fun, computer games, just basic have to have items. Make sure you have enough to cover at least 6 months before you do anything else.

 

[dank69]

Invest it so you can make a down payment on the house in 3 years.

 

[DesiPower]

save save save

 

[Apple Of Sodom]

Invest it so you can make a down payment on the house in 3 years.

This. Absolutely this. Buy a duplex in 3 years. Save the money now and have nearly $30K when you have to move out. Nice down payment.

Also, one other thing to consider is putting a little away in a 529 college savings account for the kids. Maybe even like $25 a month each.

But keep saving for the down payment.

 

[Exterous]

Vanguard/Roth sounds like a good idea.

If you're going to do this it might be a good time to re-evaluate what you are investing in in your 401Ks. For example Vanguard\Fidelity might have an international stock index fund that is better and cheaper than your international 401k option so you choose that fund for your Roth and slowly decrease your 401k contribution to that international fund

As a side note if you have any student loans given your age they may have a very low interest rate. I had some around 2.7% so I chose to prioritize investing over paying those off faster which has ended up working out quite well.

 

[Exterous]

Invest it so you can make a down payment on the house in 3 years.

FWIW Roth IRAs allow for a one time first-homebuyer's withdrawal of up to $10,000 without penalty* to help with a down payment. The biggest downside is that the account has to be open for 5 years but that isn't that far from the 3 year time frame.

IRAs allows for the credit as well and I don't think they have the 5 year requirement

These might be worth considering so you can sock some money away and then uses it for either your house or retirement depending on your circumstances when you go to buy a house. Just keep in mind that the Roth\IRA account balance can go up and down so its not a guarantee the $10k will be there when its time to buy

*There may still be taxes depending on how long the withdrawn money has been in your Roth

 

[VulgarDisplay]

 

[boomerang]

To me, FAs seem like a relic of the past for people who don't understand investing or for people who have very complicated financial needs. For the average person, it should be pretty simple to do some basic research. You'll find that most people recommend low cost index funds, as these save you money on expenses and tend to outperform actively managed funds, in the long run. Something like a target date retirement fund from Vanguard or Fidelity is already massively diversified, cheap, and mostly pegged to indexes.

It's a decision that people obviously have to make for themselves. I give my advice based on the simple fact that they are here asking for advice. They just don't seem like the type that understands investing.

 

[slackerinabox]

It's a decision that people obviously have to make for themselves. I give my advice based on the simple fact that they are here asking for advice. They just don't seem like the type that understands investing.

That would be a correct assumption My concern with FAs is the expense. It's not like we're talking about a lot of money here, would hate for whatever accrual to get wiped away by fees

 

[boomerang]

That would be a correct assumption My concern with FAs is the expense. It's not like we're talking about a lot of money here, would hate for whatever accrual to get wiped away by fees

That's not a concern. The ones you need to watch out for are the churners. They want to move your money around all the time to bolster their bottom line. It became so prevalent, that they got regulated and they now have to get you to sign off when they do the churn. Niiice. (I'm intentionally oversimplifying this situation, BTW.)

For a little money short term, you don't need one. Extra money you intend to tap in three years, fuggedaboutit. For long term planning, and you should be doing that, you do. I'm right back to my hiring the experts argument.

I watched my co-workers do things on their own, some of them even day trading the stock of the company we worked for. Buying stock in companies owned by the company we worked for and day trading those stocks. I watched them lose their asses trying to time the market, subscribing to news letters and moving their money around constantly within our 401K plan chasing this and that. I saw their big losses when offshoot companies they invested in went under. They had no clue what they were doing and neither did I. I, however hired someone that did. I write him no checks for his service (But just so you know there are people out there that operate exactly in that manner. You pay them a fee for their advice and you make the investments.)

The point I'm leading up to is that most of those guys are still working for a living and I've been retired for five years. My wife and I just bought a second home in Florida. I could go on and I'd just sound like an ass. (More of one than I'm already thought of...)

Everyone must make their own decisions on what is best for them. But everyone must realize that the burden of their future rests entirely on their own shoulders. Plan for it now and be glad you did later in life. If you don't look out for yourself, who will?

I'm done. No more lectures. My hope is that somebody will at least give some thought to who is most in control of their destiny.

Edit: An anecdote from my meeting last week with my guy. He usually schedules an hour knowing that some yakking will take place. He says he's most exasperated by recent graduates from College. He says they have been living on practically zero for four years, have graduated and landed an entry level job earning, using his example, $40K a year. When he talks to them about investing for their future, they are adamant that they have no money for that as they go on about all the things they "need". Not want, need. Huge TV's, never ending electronics purchases, new cars, etc. There's another thread I posted in where I talked in no detail about a non-profit he just started. The goal is to better administer the expenditures he has associated with his educational endeavors. He wants to put on even more seminars to teach people about budgeting, investing and the need for both. He then hopes to employ those that take a real interest in the process to teach others. He finished my sentence for me when I said that none of this was being taught anywhere. There is a huge need. He has people that come into his office that have been working for 35, 40, 50 years and more that want to know if they can retire on the $24K they've saved for retirement over that time. Not good.

 

[Exterous]

That would be a correct assumption My concern with FAs is the expense. It's not like we're talking about a lot of money here, would hate for whatever accrual to get wiped away by fees

Since it sounds like you are recently starting out it might be a good time to start the education process. The good news is that an 'Ok' portfolio that outperforms 80% of mutual funds is pretty easy with so called Lazy Portfolios. For these the trickiest issue is figuring out which fund you have in your 401k that best matches what is recommended. Getting more in depth than that can get complicated but there are a lot of resources out there that can help.

It can take some work to get familiar but remember - no one cares about your money and your retirement nearly as much as you. Even if you odn't go the index fund route and use a FA you should educate yourself. There are a lot of salespeople out there more than willing to push you in a certain direction to make a commission and educating yourself will help you recognize these shysters.

To get started:
http://www.bogleheads.org/wiki/Main_Page

 

[Exterous]

Talk to friends and co-workers and see if you can find a financial adviser/investment adviser in your area that is respected and trusted.

I'm not against this per se but I would advise caution about using recommendations. It still amazes and shocks me about how little people pay attention to their retirement finances - even well to do and successful people. Just because they think their FA is doing a good job that doesn't mean they actually are. This isn't to say you shouldn't use one but freedomsbeat should educate himself so that he is able to make an informed decision. Sure it take effort and time but this could easily be a $1M+ investment when all is said and done and that warrants some time spent to try and do it right

That's not a concern.

I would disagree in terms of accruals wiped away by fees. Even with the regulations there are plenty of fee loaded mutual funds they could get you into with high ERs when there are much cheaper and better performing alternatives. They may not be churing but you're still paying an incredible amount in fees. Just one example: A fund with a front end load (a fee for selling you the fund) of 5.75% with 12-1b fees of .3% added inot the management fees for an ER of 1.2% not to mention the deferred sales charge of 1% vs an index fund with an ER of 0.18% and no fees


Edit: Just for fun the SEC has helped put together a Fund Fee Analyzer where you can choose up to 3 funds to compare and it will pull in all the fees and ERs automatically to show you how much the fund will 'cost' you to own verses others.

Taking the two funds I used as an example of above (FGIBX and VTSMX both Large Cap Blends) shows that on $10,000 over 10 years if both return 6% you lose ~$2,500 in gains to fees if you choose FGIBX over VTSMX. Granted this uses the assumption that both perform the same so maybe FGIBX's returns outweigh the fees. So lets take a look: FGIBX has returned 7.74% over 10 years compared to VTSMX's 8.78%. So not only does it cost more but it hasn't done as well (Past performance is no guarantee of future performance)

Fund Analyzer Link:
http://apps.finra.org/fundanalyzer/1/fa.aspx

 

[boomerang]

I would disagree. Even with the regulations there are plenty of fee loaded mutual funds they could get you into with high ERs when there are much cheaper and better performing alternatives. They may not be churing but you're still paying 8-10x as much in fund fees

And if you find the right guy, who takes his fiduciary responsibilities seriously, he will not put you into those investments. I didn't elaborate in detail but it took me three tries before I found the right one. I had a guy who thought having his mentally ill wife run the front desk was the hot setup. I wasn't with him long enough to get his game plan figured out. Number two was a guy that wrote a weekly column in the county newspaper. He wanted to put me in the wrong stuff and churn as much as was legally possible. I figured him out pretty quick. Live and learn. We learn from mistakes.

I'm not arguing, I hear exactly what you're saying.

 

[BurnItDwn]

Barrel Aged Stouts. $800 a month should be enough to get you started.